Real Estate in review 2011

Since the housing downturn, optimistic predictions the real estate market have been forecasted annually. However, what we have seen in retrospect is that home buyer incentives along with other housing stimulus measures have only acted to maintain an ailing housing sector from deteriorating further. Some still await the market bottom. And although 2011 revealed additional weaknesses in global economic systems as well as the unintentional consequences of policy and regulation, 2011 felt as if it was the most optimistic year in real estate since the downturn.

2011 will be remembered as the year that the National Association of Realtors (NAR) revised existing home sales down 14.3% for estimates between 2007 and 2010 (data released on December 21, 2011 and available on realtor.org). Regardless of the re-benchmarking of data, the NAR has announced that existing home sales in 2011 continue to strengthen as November’s data indicates increased sales from the previous year (really?).

2011 was not the year for home price gains, however. Home prices continued to decline nationwide. However, the Washington DC and Detroit metro areas were the only two regions that posted positive home price gains from the previous year according to the S&P/Case-Shiller Home Price Index.

2011 was the year that housing finance reform continued to crawl forward, while Wall Street reform seemed to move quickly with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Although Dodd-Frank seemed to be focused squarely on Wall Street, it appeared to be far reaching with the requirements such as the 20% down payment Qualified Residential Mortgage (QRM).

2011 will be remembered as the year that the Eurozone almost collapsed. The financial déjà-vu that played out over the summer (and is still yet totally resolved, mind you), threatened markets worldwide- including the U.S. housing market. The sharp economic decline, that some braced for, was averted.

2011 was the year that we saw a bifurcated market become increasingly significant. The upper-bracket/luxury home market appeared to stabilize ahead of other housing, as upper-bracket/luxury housing activity remained strong. In fact two of the most expensive homes in Washington, DC sold this year! Reports that Evermay, the DC mansion that was originally listed for $49 Million, sold for $22 Million in July; while Halcyon House was reported to sell a couple of months later for $12.5 Million.

Regardless of the continued efforts of government preparedness campaigns (remember the Center for Disease Control “Zombie Apocalypse” preparedness campaign on blogs.cdc.gov?); 2011 will be remembered as the year that nature made a point about preparedness. If you weren’t concerned about preparing for the Mayan 2012 prophecy; then enduring hurricanes, floods and an earthquake probably had you at least checking your homeowners’ insurance.

As foreclosures declined in 2011, it seemed as if reports of mortgage lender abuses increased. Lenders appeared to be under fire from class action lawsuits as well as attorneys general for lending practices and foreclosure procedures; Bank of America recently reportedly settled a lawsuit for $335 Million.

Alas, the year is almost over; having us searching for fond memories of 2011 and wondering what will 2012 bring. Some look for home prices to make some gains in the coming year (homepricefutures.com), however more importantly you can probably expect the housing market to be glamorized in the pomp and circumstance of the election cycle of 2012.

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

by Dan Krell
© 2011

Post-crisis real estate: What’s in store for the housing market?

by Dan Krell
© 2011
DanKrell.com

It is often said that history repeats itself. If we want a glimpse of our future, we should look to the past; if we want to see how a post-crisis housing market looks like, we should look to see how a previous housing crisis ended.

According to the Census Bureau (census.gov), the last time homeownership rates declined was 1980-1990. Recent seasonally adjusted homeownership rates have been declining slowly from the all time high of 69.2% reached in the first quarter of 2005. The current seasonally adjusted homeownership rate (for the third quarter of 2011) is 66.1%, which is similar to the homeownership rate of 66.2% reported by the 2000 Census.

Although the country is dealing with some of the same economic issues that was problematic during the early 1980’s; the current real estate market is more akin to like the post S&L crisis of the late 1980’s and early 1990’s, when the market was flooded with foreclosures and a coinciding recession impeded an already difficult housing market. Some may remember that during that time home prices decreased and, not unlike recent events, many home owners walked away from their homes (some lenders were sent the keys of recently purchased homes).

Then like today, resulting legislation changed the lending landscape in an effort to ensure such systemic abuse and failure would not happen again. The Census reported that the homeownership rate in 1990 was 64.2%, just shy of the 64.4% homeownership rate reported in 1980.

Additionally, mortgage interest rates were “normalized” post the S&L crisis, making homeownership more affordable than the previous decade. Then, like today, low mortgage rates are touted to make owning a home more attractive than renting.

Also, like that time, the real estate business was changing. Besides changing business models (buyer agency was becoming recognized across the country), large real estate brokers downsized and/or absorbed brokers wanting to get out of the business. Today’s real estate business models have changed to accommodate technology and a vast array of information; additionally, national and regional brokers may begin to see their market share change with the marketplace.

Demographics are always changing. Current demographics indicate a shrinking pool of willing home buyers and sellers. As home prices have dropped over the last several years, many baby boomers who planned to downsize cannot afford to sell their home; additionally, “move-up” home buyers have also decided to make do with their current home longer than they planned as they find that their home’s equity has diminished. Many renters are choosing to continue renting as homeownership is viewed as an anchor; they prefer to be more mobile and not tied down by homeownership until they become more established in their careers.

Before home prices can stabilize, many expect average home prices to drop another 20%. Home prices have (more or less) historically returned to an established “norm” after a housing boom. Home prices are about 26% higher than the “norm” adjusted price, which was established in 1890 as reported by Robert Shiller (Irrational Exuberance; Broadway Books 2nd edition, 2005).

As we move forward, economic and industry related barriers continue to prevent a recovery in the real estate sector. It may be several years before these issues may be managed; however once addressed, confidence in homeownership may begin to increase once again instilling pride and sense of community.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 12, 2011. Using this article without permission is a violation of copyright laws. Copyright © 2011 Dan Krell.