As we begin 2011, there is a great deal of BUZZ in real estate circles about what the New Year will bring. Industry leaders disagree about whether or not the market has hit the proverbial bottom.
Some argue that prices have further to fall; others are convinced that we have turned the corner, and that the economy is on the upswing with the real estate market bringing up the rear.
The effects of the tax credit have worked their way through the market, and are finally being felt in the upper end. We have enjoyed fairly brisk activity in November and December in our upper end market, which has been a welcome respite for this embattled segment of the market.
The market is definitely favoring sellers who are positioned properly – those who are aggressively priced and in move in condition are now selling in less than 4 months on average. There is 19 months of inventory available in Williamsburg and 17+ on the Peninsula (and it’s not going to reduce drastically any time soon!), which underscores the importance of proper pricing, and investing the sweat equity in making necessary cosmetic improvements prior to putting your home on the market.
Here is what I see in the coming 12 months:
Interest Rates are likely to increase, perhaps as much as 1.5 – 2%. We’ve already seen some movement upward recently, and the basic principles of economic theory apply…so, as the economy begins to gain momentum, interest rates are bound to lead the way. Although this is good news for our stock portfolios, it will have an adverse affect on home sales. Although consumer confidence will increase with the recovering economy, fewer buyers will be able to afford what they want, with the combination of rising interest rates and tighter lending guidelines. My message here remains the same as last year: If a home purchase is on your New Year resolution list, buy early in the year, as interest rates have a much greater impact than most realize. For instance, waiting for prices to drop 5% to save $12,500 on a $250,000 purchase may cost you an extra $300 per month in payments; if rates increase from 4.5% to 6.5%, then your payment increases from $1266 to $1580. For most buyers, the affordability index of monthly payments is a more critical consideration.
Consumer Confidence will grow as the economy slowly shows signs of recovery. As we have learned from market cycle history, the first buyers back in the market are investors, and we are seeing that now. The next wave of buyers will come as consumers realize that interest rates are going up, and moves need to be made ASAP to take advantage of what has been a 4 year streak of historically low rates. As a result, we will see sales increase slightly over 2009-2010 levels. The National Association of REALTORS is predicting a 7% gain in sales this year, which I believe to be a little bit aggressive; my prediction is that we will see a more modest increase somewhere in the 4-5% range. Given that Peninsula sales were down 20% in 2010, and the Williamsburg market relatively flat, this will be a most welcome course correction.
Foreclosures and REO inventory will increase in 2011, as the banks sort through the regulatory mess that they have created in the past 18 months. The good news is that we are much wiser and more prepared, and agents are able to guide clients through the process much more efficiently than we did when the foreclosure crisis began. As a result, inventory levels will remain high; however, aggressively priced homes in move in condition will continue to sell in reasonable time (3-5 months).
Prices will remain stable. Prices are neighborhood specific, and some areas are definitely improving faster than others; however, I believe that we won’t see any dramatic changes (up or down) in our local median sales price this year (or next, for that matter).
If you’ve been thinking of moving up, investing, re-financing, or buying for the first time…now is the time!
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