Contrary to popular belief I actually do possess a crystal ball and I consult with it on a regular basis when making real estate guesses, I mean prognostications. Sometimes the ball is a little murky and even misleading, so please don’t shoot the messenger. I'm serious, please don’t shoot me if I’m wrong.
Multiple offers are back!
That’s right, if you are a seller in the Marin market in 2012 and you price your house well you can reasonably expect to see more than one offer, especially in the first quarter of 2012 when inventories are expected to remain low and demand high.
Bottoming out of entry level sectors throughout Marin
In the current real estate climate it’s hard to imagine prices getting much lower. Already for entry level homes it makes more sense to purchase than rent, so buyers should not expect prices to fall further on entry level homes. That would be like looking the gift horse in the mouth. Turn your back on those sales, and the horse may kick you in the rear. Anticipate intense competition for these homes.
Demand for ultra-high priced homes to pick up, slightly
As of Dec. 30, 2011 there have been 154 single-family home sales over $2 million in Marin. In 2010 there were 161. Both years were better than the 127 sales in 2009, which was understandable after the mortgage meltdown of August 2008. To put this into perspective, in 2008 there were 220 sales, and 2007 saw a whopping 283 sales. I’m predicting between 170 and 190 single family home sales over $2 million in Marin.
More that 1800 listings won’t sell in 2012
This year 1,990 listings were cancelled, expired or temporarily taken off the market. There is some overlap, as some homes were listed and didn’t sell more than once. If you think 2011 was bad, 2,299 didn’t sell in 2010, and 2,183 didn’t sell in 2009. In 2008 that number was only 962, and 2007 562. These are a barometer of the health of our market, and 2012 should continue to see improvement.
Persistence of foreclosures and distressed sales
Sorry folks, but distressed properties have not gone away, and I expect them to continue to be an active segment of the market in the coming year. The good news is that these sales will no longer necessarily weigh the market down as they have in the past because prices have already taken such a big hit. It’s common to now see multiple offers on well-priced distressed properties.
This year, we’ve seen 759 distressed sales in Marin, which includes short sales, bank owned properties, VA repos, notices of default and properties in foreclosure. In 2010 that number was 606 and 2009 it was 616. 2008 we had just 411. In 2007, when this cycle began we had 31. With 401 distressed properties currently on BARIES MLS we could easily see 700 or even 800 distressed sales in 2012.
Just for reference, here's the calculator link in case anyone wants to model their situation and assumptions: http://www.nytimes.com/interactive/business/buy-rent-calculator.html Your latter claim doesn't necessarily follow from the proof of the former either; just because it might be cheaper to buy within a reasonable time frame than to rent doesn't mean that there is a pool of qualified buyers who will suck up the 'low cost' housing that appears on the market. The flipside to low rates in this economy is much more stringent lending standards. I see very few ways for your predictions to come true and many ways for them not to. But, being in that business I guess you have to be hopeful that the worst is over for the sake of your clients.
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Curious is anyone puts any stock in the theory that values could again plummet across the board? How will the demise of Europe affect our economy and housing? Furthermore should the Fed fail to continue to artificially keep rates at ridiculous historic lows (1.9% 10yr) and they rise 3x to a still low 7% (which they were close to in 2000) what does that do to purchasing power and the prices of our real estate? I pose these questions as it seems a large percentage of our population are earning far less than they did a mere 5 years ago. It seems there are very serious threats on the horizon that could easily bring the housing market to its knees once again. No?
Citizen brings up an excellent point, which begs for the following tangent. Housing is a basic human need in Maslowe's heirarchy. A house should add to your quality of life: good school, desirable neighborhood, convenient location, security of owning vs. renting, etc. If you can afford to buy, and put your money toward a mortgage rather than rent, why would you wait? What is the opportunity cost of waiting? The priniciple you would be paying towards your mortgage and the benefits of ownership. I still think of homes as investment vehicles, not for refinancing, but for paying off one day and eventually selling in retirement.
As a recent first time home buyer and a long time renter I think you are looking at this from a short sided time line. In the past 12 months rents in the Metro Bay Area have increased at an alarming rate, in some cases upwards of 14%. “San Francisco's typical effective rents shot up 14.6 percent during calendar 2011, with that big jump including a 0.6 percent increase seen specifically during 4th quarter. The annual rent growth pace registered in double-digit territory everywhere except Marin County, which has only a tiny base of apartments.” Source - MPF Research To think about the benefit of renting vs owning you need to consider where you expect rents to be in the next 5 years and even the next 10 years. I know that for me I am saving money in year one with home ownership vs renting, our rent was in the $2500 range per month for a 1x1. I can tell you that our current mortgage payment (on a 3x2) is significant less than this, when you factor in property tax and insurance I am at the same cost as renting but these are tax deductions so I am coming out ahead. We did as Andy talked about and purchased an entry level home, it’s not our dream house but it’s a good starter home. If we held out of our dream home we might be renting for the next 10 plus year saving up a down payment.
Rent increases certainly play into the equation. I haven't seen a significant rent increase outside COLA since I've lived in Marin, so it's pretty speculative that the rental market will suddenly heat up and rents would increase around where I live. If I could buy a house and pay a fully loaded cost (mortgage, tax, insurance and upkeep) that was under say 115% of my rental costs I would buy but it's not even within 140% by my calculations. The great thing about this is that I can always track the rent ratios in my area and if they drop below 16 I'll be looking to buy. Currently they're at 20, so we're not close. At my current rent payment, a comparable 3/2 home would have to be priced below $450k to meet my criteria. When you find a decent 3/2 house on flat land in the Ross Valley for under that, please let me know.
As far as economic indicators, make sure you pay attention to what's going on in Iran right now. If the Iranians decide to lock up the straits of Hormuz for any length of time, oil prices will spike and we'll see an economic downturn regardless of what happens with European debt. There are so many potential triggers to a recession it's almost impossible to predict not having at least a 6 month downturn in the next 3 years.
http://money.cnn.com/2012/01/13/pf/ows_goodman_best_money_moves.moneymag/index.htm?iid=HP_LN