Realty Bites
After a hopeful 2009, followed by 2010′s disappointing slow sales, real estate experts don’t have a lot of good news for the upcoming year. More foreclosures and even lower housing values are in the future, and everybody agrees: the market will continue to be flat or down until the economy dramatically improves. The bright side is that buyers have their pick of properties and with mortgage rates expected to increase in the coming months, there is a possibility that the low mortgage rates currently available may actually make homes today a better deal than if they were cheaper, but with higher rates.
We crawled the web for real estate experts’ opinions about what 2011 will bring for the real estate market. Here’s what they had to say:
Barbara Corcoran, real estate contributor to NBC’s TODAY Show and property entrepreneur.
Corcoran is our sole optimist on the list. She literally says “Buy, buy, buy!” She calls the current mortgage rates of 4.5% “money on sale,” and believes that houses are about 30% less than their actual value, and there are plenty of them. In her 30 year career, Corcoran says, she’s never seen a market where the interest rates and the housing prices were low at the same time.
Barbara says that since there are so many houses on the market, it is a perfect time to get the perfect house without having to haggle or bid against another buyer. “Trade-ups,” or people looking to move into a bigger home, are also in a good position. Although they may have to take a price cut on their current home, they’ll find the low interest rates and low house prices balance out their loss. In case “buy, buy, buy!” isn’t clear enough, Corcoran is explicit: don’t wait, rustle up some courage and take the plunge.
Nicolas Retsinas is a lecturer of Real Estate at Harvard Business School and Director Emeritus of the Joint Center for Housing Studies. He was named one of the 50 most powerful people in real estate by Bloomberg Business Week.
In his interview with Bloomberg’s “Inside Track”, Retsinas states that the housing market still hasn’t reached the bottom. The cheap prices of foreclosures are still driving the prices of single family housing down, but Nicolas sees some sun in the clouds: mortgage payment delinquencies are down and there should be a reduction in the number of foreclosures on the market towards the end of the year. Nicolas also notes that rental vacancy rates have dropped and prices are up, which are requirements for a housing recovery.
Calculated Risk, written by Bill McBride, is a well respected finance and economics blog with a focus on real estate.
McBride has mixed feelings about upcoming year of property values. The number of new construction starts has dropped, which McBride finds encouraging. Following the law of supply and demand, if there are fewer new houses created, then the demand for other homes will increase. This will boost the prices and help the market to stabilize. However, McBride is worried about statistics that show there will likely be another peak in foreclosures in 2011, which will continue to reduce the value of homes in the market.
According to his analysis at Calculated Risk, McBride believes the housing market nominal value (prices which haven’t adjusted for inflation) will reach its bottom in 2011. The expected decline will be 5-10%. However, the real house prices and price-to-income ratio of homeowners, will continue to decline for two or three more years.
Karl Case and Robert Shiller are the creators of the Case-Shiller index which uses information from the GDP and the National Association of Realtors to assess housing prices trends.
The index has become a staple for the economists and real estate moguls. Although not as gloomy as some, both Case and Shiller are reluctant to make optimistic predictions about the upcoming year. They believe the mini boom of early 2009 was due almost entirely to the tax credit and did not indicate a trend of growth overall. Cautiously hopeful, Case says, “On the positive side, it’s doesn’t take a tremendous number of people to get the market moving.” As the economy gets a little better, and people gain confidence, the market will improve.
Shiller has concerns for the future of the housing market and the economy at large. Considering the past few months, Shiller believes that the economy has “serious reasons to worry” if the decline continues at the same rate. It could turn into a double digit drop in prices. Shiller says that this kind of decline not only affects buyers and sellers—but the entire economy—in a significant way. He believes that a similar government stimulus policy to the homebuyer tax credit would help the market in upcoming year, but thinks that is an unfair gift to taxpayers who are renters or not looking to buy. It’s a desperate move for a desperate situation. The only positive news Shiller has to offer home buyers is a long ways off: he expects prices are expected to go up 7%—by 2014.
Paul Jackson, publisher of Housing Wire Magazine in Dallas.
Jackson expects foreclosures to continue to flood the market, with at least 1 million coming in for the year 2011, similar to the numbers of 2010. He believe home values will drop another 8-10% in the next year.
Even so, Jackson thinks interest rates are only going up. “They aren’t going much lower. If anything, they could get much higher starting in the middle of next year.” Even if buyers might save a little money on the cost of housing next year, they may see the overall purchasing cost going up.
Dr Housing Bubble is the foremost blog for real estate in southern California.
This group of dedicated bloggers documented the value of SoCal homes dropping 40-50% since the height of the housing bubble, and think they are going to keep going down. This group of experts believes that housing values and sales aren’t going to be negative until the job market improves. Inflation causes the cost of living to go up, but that isn’t translating into more dollars for sellers. A recent post puts it succinctly: “Home prices eventually can only reflect the incomes of families in an area.”
They note that it isn’t enough to create more jobs—the current unemployment rate doesn’t take into consideration all the workers who have found work, but for a drastic cut in pay. Even if unemployment goes down, buyers will still be unable to purchase bubble prices with post bubble paychecks. Until the unemployment rate goes down and salaries go up, the value of housing will continue to drop throughout 2011 and beyond.
Paul Bishop, NAR
Paul Bishop, an economist for the National Association of Realtors, says 2011 will be much like 2010.
“There’s about 4 million homes on the market—that’s 10 months worth of inventory. We’re hoping to be at 8-9 months by the middle of 2011,” he said in an interview. Having that much excess inventory puts a downward pressure on prices, so the market will only see marginal recovery at best.
Bishop has found some rays of sunshine in the midst of the storm: some markets haven’t suffered as much in the housing bubble. The middle of the country, from Texas northward, did not see the same kind of crisis since they did not buy as many subprime mortgages and their markets have stabilized. Bishop claims that the NAR expects mortgages to rise slightly, up to 4.8% on average this year.
In summary:
• “Buy now” -Barabara Corcoran
• “The market is only going down” -Nicolas Retsinas
• “prices are going down 5-10%” -Bill McBride
• “Double digit drop in prices” -Karl Case and Robert Shiller
• “8-10% price drop in the next year” -Paul Jackson
• “Housing market will continue to go down” -Dr. Housing Bubble
• and, from the National Association of Realtors “the midwest has stabilized.” -Paul Bishop