At the recent fall meeting of the California Association of Realtors (C.A.R.) in San Jose, I heard C.A.R. Chief Economist Leslie Appleton-Young give members a glimpse of what to expect in the 2012 real estate market. Appleton-Young said that “the economy has started to stall and weaken” and "consumers are shaken up."
Just as 2011 is projected to end up much like 2010, 2012 is predicted to continue the pattern. The basic message: Don’t expect much improvement in the near future.
The recession cost our state 1.3 million jobs, and, since 2010, only 188,100 jobs have been created. This, and other factors, has led to a significant drop in confidence by both consumers and small businesses, resulting in less consumer spending and fewer business hirings.
Existing, detached California homes had their highest median price ($594,530) in May 2007. The nadir was February 2009, when the median price dropped 59 percent to $245,230. The August 2011 figure is $297,060, a 7.4 percent decrease from the previous year.
In the Bay Area, as of August 2011, the median price of existing, detached homes was $498,190, down 9.2 percent from 2010. Commensurate median prices for the same month were $468,900 in Alameda County, down 9.1 percent, and $607,310 for central Contra Costa County, down 9.4 percent.
In a normal or average market, there is about a six-month supply of homes on the market. Higher than that indicates a buyer’s market. Statewide, as of August 2011, there was an unsold inventory of 4.6 months in the $300,000 and below price range, but it was 9.1 months in the million-dollar-plus category.
According to a 2011 C.A.R. survey of members, two of five homes sold were distressed properties (20 percent short sales, 20 percent REOs -- properties owned by banks).
Almost 22 percent of sales reported in the C.A.R. survey resulted in a net cash loss to the seller. This percentage averaged 11.2 percent from 2000 through 2011. Another eye-opener is that, at its peak in 2005, median net cash to seller was over $200,000; this year it is $75,000.
A point of concern relating to an improved housing market is that only 37 percent of the sellers whose Realtors were questioned planned to buy another house. This is in contrast to 72 percent of sellers in 2004, when prices were going through the roof. Note that almost 20 percent of 2011 sellers were lenders/banks.
As a buyer, whether it is houses or stocks, you get the best value when doing the opposite of the crowd. The time to buy is when others do not.
Some individuals who are in a position to purchase have been negatively influenced by the media. Do not let fear overwhelm your common sense. Why pay tens of thousand of dollars more for the same property just because local TV news programs say the market is heading up? That is not the case now, but it will be true at some point.
Many folks, including some of my clients with good jobs, are worried that prices may go down even more and they will have made a mistake by buying too soon. My response is that this could happen, but timing the market is impossible.
If you plan to own the property for at least five years, especially when considering current, record-low interest rates, the risk is minimal. Needless to say, it is critically important to research and fully understand what you are buying. See my article, "How to Buy Value," on my web site.
Over the years, my advice to sellers remains the same: Do not sell in a down market if you can help it. If you need to sell, however, accept the reality of the current market and price sharply. Overpricing is deadly because time works against you and your net is usually less.
Maybe you would like to sell, but are holding off until the market greatly improves. Some folks are assuming that, if they wait awhile, prices will approach our all-time highs again. I am not betting on that any time soon, if at all.
Eight out of ten Americans still agree that buying a home is the best investment one can make; the same percentage of renters would like to buy in the future.
Real estate is not dead and our country will rebound from present economic problems. When it comes to your personal situation, do your homework and listen only to those who have the specific experience and knowledge to help you make the right decision.
