5 Signs of Recovery for Real Estate in 2012
With the new year rapidly approaching, we all want the final word: will 2012 be a better one for real estate than 2011? To answer this question in true ZipCode fashion, we need to look at the issue from many perspectives. Here, we want to analyze the national experts’ perspectives as well as the local experts’, as in Realtors who live, work, and know their area’s performance and are perhaps better poised to make micro-predictions, as opposed to the macro-predictions we get from national analysis.
Today we’ll start with national analysis, and bring you 5 signs real estate will begin recovering in 2012. Next week, tune in again for the local analysis: honest and credible local market insight from ZipRealty’s own agents.
5 Signs of Recovery for Real Estate in 2012
1. Markets Are Starting to Stabilize
As noted by David Stevens, currently president and CEO of the Mortgage Bankers Association, formerly a Long & Foster executive who stepped down as head the Federal Housing Administration (FHA) in March of 2011, delinquent loans came down from 10% in 2010’s 2nd quarter to 8.5% in the same quarter of 2011.
ZipCode already noted this phenomenon when we reported that the number of homeowners 30 days late (or less) in their payments improved to 3.19%, which is, according to CNN Money, “the lowest level since the second quarter of 2007.” Considering that we must always expect a small percentage of mortgages to be in default, even in the best possible economy, these numbers are starting to look more stable, and if the number of foreclosure filings is down, eventually the number of foreclosures enacted by banks must fall as well.
2. Real home-price growth
To return to David Stevens, a major point he makes in assessing real estate’s health is the fact that “the problems with negative equity and declining prices are actually concentrated in a few key states,” so people who quote national declines in average home prices without accounting for the fact that every market is different are using "dangerous data.”
Indeed, looking for a national average in home prices could be pretty futile if your aim is to use that average to tell you anything definitive about real estate in your own local market. Cities like Las Vegas, NV, Cape Canaveral, FL, Modesto, CA and Phoenix, AZ have been hammered by foreclosures; so, their home prices reflect heavy presence of distressed properties. Meanwhile, many homes for sale in San Francisco, CA, in New York City, NY, and in Washington, D.C. have experienced home value gains and modest foreclosure activity.
If price declines are not a nation-wide problem (only a localized one), we have to realize that once distressed properties are removed from the equation, market price homes have a decent chance of seeing some growth in 2012-- if consumer confidence can rise to the challenge.
3. Unemployment claims are down
If unemployment continues to trend down, consumer confidence will rise accordingly. We’ve had one report already of falling national unemployment, and though this report is hardly enough to send people running out the door to buy homes, confidence could be creeping back, slowly and steadily, in 2012.
Of course, we will need strong job growth for this to happen-- and at this point, we can’t know if such growth is forthcoming. We can only hope so.
4. Great Time to Buy if Buyers Can Qualify for Loans
The low interest rate offered now on home mortgages will save people from thousands to millions of dollars on a 30-year fixed loan. That, together with cooled-off markets, means the buyer has more power than ever to negotiate the price she or he wants to pay. And for those people interested in trying their luck with an investment in a foreclosed property, the sheer volume of offerings is right now very advantageous.
But people who see the declining number of defaulting mortgages as sign that the great pool of foreclosed properties may become shallower could feel more pressure to buy-- sooner rather than later. That pressure creates more demand, and by default, less supply—and that drives up prices. Thus, this activity too can help push national real estate into “recovery mode.”
4. Gen Y, Baby Boomers, and Returning Military All Need Homes
ZipCode completed an exhaustive series on the impact of Gen Y (approximately 80 million people and 25% of the country’s population); their parents and grandparents, the infamously gigantic Baby Boomer generation; and the return of several million military personale to the country. In short, all of these folks will need a home in the near future; yet, nationwide, construction of new homes has slowed dramatically.
Michael Burke, real estate writer for Coconut Point Press, puts the numbers as follows:
“To illustrate the severity of this problem, the 2010 census put the U.S. population at approximately 309 million. By 2050, the prediction is that the U.S. population will be 439 million. That’s an increase of 130 million people in just 40 years. Regardless of whether they own or rent, they will still need housing."
And again, a shortage of homes subverts the current buyer’s market to a seller’s one when supply cannot meet demand.
5. Loan Standard Revisions
While the crackdown on mortgages has left many a potential homebuyer out in the cold, these issues have received much press. Banks and similar lending institutions are now under pressure to streamline the loan process. If this can happen soon enough, and in a way that is still safe and smart (we don’t need a return to the easy no-money-down/bad-credit-no-problem free for all that got us in this mess in the first place), we stand a chance at real recovery that lasts.