A Look Back at the 2011 Real Estate Market

A housing economist recently noted that all our real estate market really needs to right itself is six straight months with no surprises. All the ingredients for a turnaround are there – record low interest rates, outstanding affordability, and very attractive home prices. But economic and political headwinds at home and abroad kept the market from really gaining much momentum this year.

To be sure, 2011 was anything but predictable. On top of the tepid economic recovery here in the U.S., there was one crisis after another around the world – the Japanese Earthquake and Tsunami, the “Arab Spring” uprising, a spike in oil prices, political standoffs on Capital Hill, the debt limit ceiling and downgrade of U.S. debt, and most recently the sovereign debt crisis in the eurozone and the subsequent stock market volatility here at home.

But there was reason for encouragement for our local housing market. Utah’s real estate market did show some positive signs of rebounding this year despite skittish consumer confidence and the sluggish economy.

Existing home sales along the Wasatch Front in October – the most recent figures available – surged 34 percent in October compared the same month a year ago, according to the Salt Lake Board of Realtors. Through the first 10 months of this year sales were up a solid 8 percent compared to the same period in 2010.

“Utah has been somewhat isolated from … the market downturn,” DeAnna Dipo, president of the Salt Lake Board of Realtors, told the Salt Lake Tribune recently. “And now our unemployment rate is going down, which is probably the biggest factor behind the sales increases that we’ve been seeing lately.”

While sales did move higher this year, prices still remained soft. The median single-family home price in Salt Lake County fell to $196,000 in the third quarter, down 15 percent from the same period last year and off 23 percent from the peak of the market in 2007, according to the SLBOR. Other Wasatch Front counties also saw the median decline.

Distressed home sales
One of the reasons for the increased number of sales and declining median price is the mix of home sales continues to tilt toward the low end of the price range. Entry level homes and distressed properties continue to be the lion’s share of transactions in many areas as bargain hunters rush to take advantage of attractive prices and, of course, low interest rates.

One trend we’ve noticed of late is a drop in the number of bank-owned properties that are listed for sale and an increase in short sales. The reason may be that government regulations and controversies over “robo-signing” have kept more foreclosures from coming on the market. As banks put the robo-signing debacle behind them, we may see more REO properties released in 2012.

While the release of additional distressed properties could keep prices of all homes down in 2012, we suspect that strong demand by investors for these homes will probably keep prices from falling much further. We’ve seen multiple offers for many bank-owned properties, sometimes all cash offers, as investors snap up what they believe to be great bargains.

Non-distressed mid-market
Homes that are somewhere between distressed and luxury properties – the bulk of the market here in Utah – probably were the most challenged in 2011. One big reason for the softness is that we didn’t see very many move-up buyers trading their entry-level homes for larger, more expensive properties as they have traditionally done in the past.

Equity homeowners stayed on the sidelines, perhaps due to a lack of confidence in the housing market and the economy in general. They may have been frightened away by doom and gloom news headlines about the housing market, or maybe fear over whether they might lose their job should the economy stumble again.
This uncertainty and lack of confidence, I suspect, will continue to some degree into 2012 until there is more positive improvement in the economy.
But as we approach the new year there are glimmers of hope that the housing recovery could finally gain some traction.

Gradually we’re seeing fewer distressed sales and more “normal” transactions. The high-end market had a solid year in 2011, which is a good sign for the entire market. In the past, luxury homebuyers – the so-called “smart money” – are often the first to declare a market bottom and jump back in because they have the means to do so once they are convinced the time is right. The other segments eventually follow.

Buyers are far more active right now and that, coupled with tight inventories, is helping to firm up pricing while getting serious buyers to be a little more realistic when making offers–especially in the entry-level arena. Properties priced correctly and that show well are getting a tremendous amount of traffic as well as multiple offers in some cases.
Additionally, we are finally seeing many banks starting to process short sales in a more streamlined fashion, allowing us quicker short sale approvals.

Finally, the news media are starting to join the chorus suggesting a turnaround is near and that now is the time to get back into the housing market. A recent Fortune magazine article declared, “Forget stocks. Don't bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.” And The Wall Street Journal followed with a headline declaring, “It’s Time to buy that House.”

So will 2012 usher in a steady, predictable economic recovery at long last or another wild rollercoaster ride of economic and political surprises? Only time will tell how it all plays out. Fasten your seat belts!

Source: Reality Check, entitled Economic and Political Headwinds Impact Housing Market in 2011