While the housing market has had its challenges in recent
years, there could be reason for optimism in 2012. Top housing economists
believe that the worst of the downturn may be over, and are predicting to see
gradual improvement in home sales and prices this year. Yet, a strong housing
recovery will require higher consumer confidence, improvement in the job
market, and an overall increase in the health of the national and global
economy. If these factors see
improvement, it is quite possible to see a gradual rebound.
Leslie Appleton-Young, Senior Vice President and Chief
Economist for the California Association of Realtors, spoke recently here in
Santa Barbara. She stated there are wild cards that could impact housing in
2012, including federal monetary and housing policies, a contentious political
climate in an election year, the happenings in Europe, and the unknown strength
of the U.S. economic recovery. She does, however, believe the California
housing market in particular will improve this year.
Appleton-Young sees a dichotomy between the number of people
who are in distressed situations with their homes, verses the number of people
out shopping, traveling, and buying cars. She thinks this disparity can be
explained by the number of individuals who are living in homes without paying
their mortgages, thereby allowing them to spend money on other things. She
referred to this additional wild card as the “squatter economy.”
On a
national level, the economy is slowly gaining post-stimulus momentum. In 2011
the GDP was at 1.8%, and it is expected to be at 2.6% in 2012, which is still
historically low, but it’s a definite improvement over where we have been,
assuming the forecast is correct. These numbers are much better than our GDP
from 2009, when we hit a low of -3.3%, the largest annual drop since 1938.
As always, it is important to remember that real estate is impacted
by global and national events, yet it is inherently LOCAL. The data varies
widely from one part of California to the next (i.e. Santa Barbara and Malibu),
and we have to go even deeper than that. In Santa Barbara, we are divided by
North and South County. Then we must consider individual neighborhoods and
break that data apart by condos, homes/estates, land, and investment
properties. And, these days we have to consider the type of sale.
We have three very unique types of sales in the market
today. These include: Equity Sales (normal sales), Short Sales, and REO Sales
(bank-owned), which can be looked upon as their own sub-markets. Typically,
both Short Sales and REO Sales indicate that a property is distressed, and has
been or is currently “underwater,” meaning the loans on the property are higher
than the value of the property.
In California, 46.8% of sales are either REO or Short Sales,
and this number appears to be dropping (pre-foreclosure and auction properties
are down roughly 20% from one year ago). In Santa Barbara, 30.6% of our sales were distressed in 2011.
We have a much more traditional housing market when compared to many other
parts of California, where distressed sales are a much higher percentage of
overall sales.
Housing sales were up 1.1% in 2011, compared to 2010.
Housing permits were up 5%. Statewide, the median sales price was down 6.2%. Between
the peak of California’s median home price in 2007 at $594,530 to the trough in
2009 at $245,230, we saw a 59% drop, which was unprecedented percentage to fall.
The median has risen slightly since then, but it has been hovering nearby. Currently
California as a whole has 4.2 months of unsold housing inventory. A 6-month
supply is considered to be a balanced market. In Appleton-Young’s opinion, “The
most likely scenario is for the modest recovery to continue, and this should
push sales up slightly next year and maintain levels that are significantly
higher than those recorded during the depths of the housing downturn.”
On the local front, the Santa Barbara South County median sales
price was down 11.6% to $655,000, comparing 2011 to 2010, yet the number of
sales went up 39.7%. December of 2011 reflected the highest number of sales in
any month since May of 2007. This is suggested to be the result of low interest
rates and the increase in affordability. The median price of detached homes (not
including condos) was $790,000 in 2011, down 7.1% compared to 2010.
On a final note, I appreciated a commentary made recently by
Adam Davidson of Planet Money. He gave a number of reasons for why there is
room for growth, stating that when everyone is gloom and doom, there is room to
boom. He mentioned numerous factors: There are 92 out of 100 people working. We
have been through a suppressed housing market where a number of people are in
smaller homes or living situations than what they feel comfortable with, and as
soon as they feel wiggle room, we will experience those people requiring
housing, and this will be based on real need. Corporations are sitting on large
amounts of cash. Business investment is high. The United States is at the forefront
of some of the best technologies the world has seen, including the Cloud, smart
phones, “apps,” biotech, oil and gas, and IPO’s like Facebook. He said the
lesson in these times is not to scour the world for which economist’s view is the
“right” view, but to remember that thinking any particular view is “right” can
be blinding and is what contributed to our current mess. We thought we were in
a good place, when a downturn was right around the corner. Conversely, even
though now many analysts lean toward predictions of gloom, we should remember
that an upturn might very well be a possibility.
Is the worst
over? It looks like it. Are there wild cards? Yes. But sales are up, interest
rates are low, inventory is level, and Santa Barbara is an exceptional
community. We all need housing, and we are nearing spring, one of the more
robust times for our real estate market. Per Appleton-Young, it’s going to take
time to come out of this downturn, but we are improving one transaction at a
time. While no one knows for sure what will happen to the housing market in the
coming year, many analysts agree that things are getting better. If you have
been holding off buying a home, this may be the year to jump back into the
market while prices, interest rates, and overall affordability are highly in
your favor.
By Emily K. McBride
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