What Will 2012 Bring?

What will 2012 bring for our economy and for real estate?  Unfortunately, few of us have functional crystal balls that accurately predict the future.  Given that, all we can do is look at the indicators, guess at the variables and try to piece together a picture of the new year.

We do know that the condition of the economy will continue to drive the real estate market.  So far, it appears that Congress and the White House have refused to address the growing number of significant issues that continue to impact the economy.  The largest issue continues to be the uncontrolled government spending and runaway deficit.  It always amazes us when elected officials believe that economic law doesn't apply to them or that they can legislate economic law.  It would be refreshing to see government officials with egos that allow them to understand that they can't fix all problems and, in some cases, can only make them worst.  As long as Congress and the White House continue to meddle beyond their capability to positively impact our economy, the negative aspects will continue to run their course.

The real estate market continues to lag behind past performance.  Late in 2010, the National Association of Realtors announced that they had overstated the number of previously owned homes that sold during the past several years.  The overstatement was as much as 17%.  The bottom line is that the real estate market for existing home sales was worst than stated for the past few years.  This tends to match the experience of agents in Southern California where inventory and sales have been low.

The interesting aspect of today's market is that inventory is relatively low.  For example, in Pasadena as of 1/1/12, there are fewer than 400 homes and condominiums listed for sale.  This is double the inventory during the height of the housing boom but significantly below what we expect during a buyer's market such as today.  At the same time, we continue to see declining prices although at a slower rate than in the past few years.  Having a low inventory and declining prices seems contrary to what you would expect.  Normally, a low supply would tend to cause an increase in prices.  Basic supply/demand economic theory.

The difference seems to be the impact of government on the market.  Lenders have significantly increased their lending guidelines and documentation requirements.  This has reduced the number of buyers that qualify for a home loan.  This has the effect of reducing housing demand.  There is also the foreclosure "crisis".  The government programs have helped a few home owners retain their homes but it hasn't had the anticipated impact overall.  The result is a longer foreclosure process which has spread out the foreclosure inventory over a longer period of time.  As a result, there are some experts that expect a higher volume of foreclosed homes being released to the market than in the past 2 years.  This increased volume and typically lower asking price will likely continue to have a negative effect on prices.

While none of this sounds great, there are signs for optimism.  Consumer confidence has shown some improvement.  Housing prices in our area are declining but at a much slower rate than in the past.  Sellers are being more realistic about their asking price.  For a good property with a realistic asking price, there have been some multiple offer situations.  All this bodes well going forward.

For those that need to purchase of home or are thinking about purchasing their first home, this may be a good time to begin the process.  Prices have stabilized, compared to the past few years, and interest rates continue to hold around historic lows.  If you have excellent credit and a down payment greater than 20% of your purchase price, this could be your time.

For those that need or want to sell their home, you must remember that this is still a buyer's market.  To receive the highest price for your home, you must make it as attractive to buyers as possible -- declutter, appealing colors, excellent condition, great curb appeal are musts to attract attention.  While doing all of this, you must price you property to provide "value" in the mind of the buyer.  In today's market, if a buyer doesn't perceive value, they will ignore your home.

While there continue to be a number of questions for our economy and the housing market, if you are correctly positioned, you can effectively buy or sell in this market.  If you would like to discuss our current market and the best way to approach it, feel free to contact us.


                           Sharon and Rick Stever