Real Estate 2011: No Rebound, No V
What's in store for real estate in 2011? The year 2010 was a terrible one for the U.S. housing market. We started the year with high hopes that since 2009 had been so shockingly bad, 2010 could only get better. Next came the euphoria of the first-time home buyer's credit. Then came the slide: We ended the year with sinking home values in almost every U.S. market, except four: Los Angeles, San Diego, San Francisco and Washington, D.C.
Even worse: Six U.S. markets hit their lowest pricing levels since 2006: Miami, Charlotte, Atlanta, Portland Oregon, Seattle and Tampa.
So how do we look for the new year?
Now that our hangovers are in check, here's the bad news: Hardly any expert out there thinks the market is going to get better in 2011. Many think it will get worse. Enter Dr. Gloom, Gary Shilling, not to be confused with Standard and Poor's Case-Shiller report, which is also not very positive. Shilling says home prices could crater in 2011 by as much as 20 percent. Zillow has more optimism and put money on a 5 to 7 percent decrease. But the overwhelming majority opinion is, well, not that great. The Wall Street Journal surveyed 96 analysts:
Some 96 analysts surveyed made their forecasts public. Of those, 30 expect prices to fall next year, and another 30 are calling for annual home price appreciation of no more than 1 percent. The most bearish forecaster, A. Gary Shilling, president of A. Gary Shilling & Co., calls for prices to fall by 11 percent in 2011.
And when you hear that John Paulson practices what he preaches and bought two homes this year, don't get any wild
Sliding home prices will drag on the economy like a lead weight. Think of the consequences: lower property values, lower municipal taxes in fiscally hurting cities, more underwater homeowners who owe more than their homes are worth, more foreclosures, more shadow inventory sitting around further diluting prices.
Let's play optimistic here, and assume that, because of market-glutting home foreclosures, home prices will decline another 5 to 7 percent in 2011. What could make buyers want to buy at 2003 home prices? Steady paychecks. But with an unemployment rate of now over 9 percent, even people with jobs are afraid to rock the boat and move up, or anywhere. That's why many experts are expecting the market to bottom in 2007, and say homeowners should not expect a V-shaped recovery.
Is this trend good for anyone? Maybe the home buyers who can now slip into homes they could not begin to afford just a few years ago. We've got low interest rates, but banks have the strictest credit standards ever. Rick Sharga, a senior vice president at a company that follows national foreclosure trends, RealtyTrac, says the market won't recover until consumer confidence returns, which won't happen until consumers see real job creation.
Then there's Patrick O'Keefe, an economist, who wonders why housing supply and demand are not more in balance by now -- new home construction has all but stopped, but existing home prices are sinking.There is, he says, "an almost unbridgeable gap between potential buyers and sellers."
It's more like a giant clog in the system. Sellers can't sell because so many would have to take money to the closing table, and buyers either cannot afford the home or cannot get a mortgage.
So if you're looking for happy spring real estate news, you may have to wait three more years, when analysts think the market will kick back to normal.
As for new home construction, analysts are predicting more than 700,000 housing starts in 2011, which would be an improvement from 2010, but only half of what is actually needed to keep up with population growth. In New Jersey, for example, 13,500 housing units were started in 2010, which is better than 2009, when only 12,235 were begun. Keep in mind those are the lowest housing start numbers on record since World War II.
About the only silver lining is that this lack of construction could ultimately lead to a housing shortage down the road, which would then pump up housing prices. Gen X and Y, once they move out of their parents' home, may have to rent, or buy, which could lead to a housing shortage.
Maybe it's time to kick 'em out!
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