Well, it’s been a whole year since I posted here but I figured I should at least post my annual real estate market predictions for 2011.
First, here’s what I said last year:
“So what will happen to Puget Sound area home prices in 2010? I think average home prices will continue to drop a little, but the pace of home price depreciation will continue to slow. Overall, average home prices may fall about 5 percent, but as always the rate of depreciation will vary from neighborhood to neighborhood. In general, highly desirable neighborhoods, especially those close to major job centers, will do better than outlying areas.”
That prediction proved to be correct. Average home prices have fallen somewhat this year, ranging from zero to about 5 percent or more, depending on the neighborhood. I was hoping that I might be able to report that we had finally reached the elusive “bottom” of the housing market by now, but we are not there yet. I think we are in for another year of slowly falling prices next year. I do not expect a dramatic crash in home prices, but I think there’s a good chance that home prices will continue to drift downward by an average about 5 percent. But again, home price appreciation/depreciation will vary widely from neighborhood to neighborhood with some doing much better and some doing much worse than the overall average.
Why do I think home prices will continue to decline slightly? Supply and demand. The inventory of homes for sale is currently higher than it was at this time last year, while the number of sales is lower than it was at this time last year. That’s a bad combination if you are trying a sell a home, but it’s good news for home buyers.
The only problem is that despite historically low mortgage rates, not many people seem to be interested in buying homes right now. So an increasing supply of homes for sale combined with weak buyer demand indicates that home prices are likely to continue dropping until they get low enough to attract more buyers.
Again, I don’t want homeowners to panic. I don’t think we will have a 15 to 20 percent “crash” in home prices in 2011, I just think that the housing market will be “flat” with a slightly downward trend.
The Great Recession has really taken a toll on many working families and they just don’t have the money in the bank and/or the income to qualify for a mortgage these days regardless of how low the mortgage rates go. That makes it very difficult to kick start the housing market.
Another factor holding down the housing market is the huge “shadow inventory” of foreclosed homes that the banks have not yet put on the market. The backlog of bank-owned homes combined with the normal inventory of homeowners wanting to sell means that the supply-demand curve is likely to remain in the buyer’s favor for several years to come, holding down any chance for significant home price appreciation.
If you are thinking about buying a home, this is a good to buy because mortgage rates are ridiculously low right now and home prices are affordable. But do not buy a home unless you plan to live it for at least 7-10 years. If you have to sell sooner than that, you will almost certainly lose money. You should buy a home because it’s a nice place to live and it fits your lifestyle. Do not buy a home as an “investment.” The easy money days are long gone.
If you are a home seller, price your home realistically (i.e. less than the competition) and it will sell. Start at the lowest price you’re willing to accept. Don’t build in “negotiating room” or you will just end up chasing the market down.
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