Forecasting the Start of the Turnaround in 2011. Yeah!
By Bill Primavera
The Home Guru
Will Rogers used to say that all he knew was what he read in the newspapers. But, how do the newspapers know? As the journalist for this column, I know by listening to other people who are good at rounding up information and making sense of it when analyzing the condition of the housing market.
When realtors sound so smart to their clients about the state of the market today and what’s coming down the pike, they usually have the backup of a good managing broker, part of whose job it is to make us look good by examining all the information from industry sources and packaging it in such a way that we can digest it and pass it on to our buyers and sellers.
In my office the one we rely on for this service is Joe Monaco who heads up Coldwell Banker in Yorktown. Just prior to the release of the end-of-2010 report from the region’s Multiple Listing Service, he presented his agents with a projection of what to expect in 2011.
Appearing on the same day as this article is published, the MLS report will tell us in no small amount of statistical detail how 2010 ended up. Monaco’s short assessment of the year past was simply: “I’m glad to see it go! As glad as I was to see 2009 go!”
That said, Monaco continued on a more upbeat note, which is his usual bent, saying, “but we did all right, considering the economic environment, and if the prices of homes were on target and the buyers were motivated.”
Then, from his analysis of forecasts for 2011 from real estate pundits, Monaco listed those points of which we should be aware in the coming year.
First, it is the general consensus among observers nationwide that the market will be softer in the first six months of the year compared with the same period last year, which was boosted by tax credits. Also, prices should continue to decline, but at a much slower pace. While the slide in house prices in our area was as much as 20 percent in just the last two years, that decline should slow to another five to eight percent by mid-year, then level off.
Distressed sales will continue to grow, with pockets of real alarm, such as in Florida where the number is as high as 70 percent currently. In our region, however, the picture is vastly different in that only 12 percent are short sales or foreclosures. But still, 12 percent is 12 percent.
Mortgage rates will remain low but will gradually rise from the current high four percent rates to the low five percent rates.
A key element in 2011 will be affordability. Because house prices have dropped so significantly, real estate taxes in our area seem out of whack to home values. But, that concern among buyers is abated when they realize that higher taxes tend to deflate home prices and that purchases remain affordable from the standpoint of the monthly payment of mortgage, tax and insurance.
New mortgage options will start to appear. While FHA loans requiring only 3 percent down were stigmatized in the past, that’s not the case anymore. In fact, besides these government backed loans, there is now a new conventional mortgage where only three percent down is required. While the mortgage insurance is a bit higher for these loans, they offer another option for affordability.
An element of major concern will be government regulatory requirements which can create risk aversion among investors. Corporations have lots of cash building up but are standing on the sidelines instead of investing it because they don’t yet have confidence in the regulations coming out of Washington. How the government responds this year to the housing crisis will dictate whether investors will let go of their purse strings.
New home sales will continue to be affected by having to compete with a higher inventory of re-sales. Many developers, even in this area, got stuck with buying land at the height of the market at a price that set the bar for the cost of housing to be built on it. Because the cost for bricks and mortar is somewhat fixed, developers have very little room right now to build and make a profit. In our area, some announced developments have been sitting dormant because a builder doesn’t want to build and not make money.
The wrap-up of predictions for 2011 ended on a positive note, as reported by Monaco. By the second half of the year, the real estate industry will see the beginning of a turnaround based on the assumption that the job market will improve, and this has already begun.
The bottom line is that more people will buy again when they feel more secure about their job prospects. So, bring on the jobs!
Bill Primavera is a licensed Realtor® (PrimaveraHomes.com), affiliated with Coldwell Banker, and a marketing practitioner (PrimaveraPR.com). Anyone considering selling or buying a home can reach him directly at 914-522-2076.