After enduring three years of a declining real estate market, 2009 brought a much needed break for the hard hit real estate sector. Driven largely in part by the economic stimulus that helped the housing market emerge from the recession, it leaves many of us wondering what is next for real estate. Will housing prices rebound? Will the new extended and expanded tax credit be just what the doctor ordered? Will the luxury market recover similarly to the entry level? Our Reality Check writer recently sat down with Coldwell Banker Residential Brokerage President Rick Turley to answer these questions and more as they discussed the 2009 housing market and what we may expect in 2010.
How would you say the housing market faired in 2009? Did it live up to your expectations or falter?
“Although it was a challenging year, I believe it was a year of transition in many of our markets. We bounced along a rough bottom but at the same time, we are really prepared for a modest and consistent improvement. The second half of 2009 was when we finally saw a jumpstart. I think that really stems from consumer confidence. Does a buyer feel confident in his/her employment and finances? If so, then buying a home is typically a good option. Another way that the government is reinforcing the viability of buying a home is by offering the tax credit.”
Do you feel the tax credit was an important factor in the market turnaround?
“Undoubtedly, the tax credit was an important factor in our market’s turnaround. We didn’t really know this for sure until we started looking at the number of closed escrows in September, October and November. The number of properties that went under contract increased as we grew closer to the November 30th, the original expiration date for that tax credit. It was a very clear indication that once potential buyers realized they might miss out on the $8,000, tax credit if they did not move quickly, many buyers got off the fence and began to act. The number of property showings was up. The number of properties that were sold was up. Then, we saw the extension of the tax credit and we saw yet another market adjustment. I wouldn’t say that the market has been slowing, but there has been a softening of the frenzy. I think as buyers near the new expiration date of April 30, 2010 that they will once again begin to act.”
Do you think the extended and expanded tax credit will solidify our market recovery?
“Certainly the increased activity that we’ve had in the lower end market has been good; but in and of itself it probably will not create a market-wide recovery. To have a market- wide recovery, we have to be able to engage the move-up buyer. We have to remind the move-up buyer that now may be the best time in our history to step up to the higher priced homes. The fact is, you probably have never gotten as much value, thanks to interest rates current affordability. Six months to a year from now, we probably won’t be able to say the same. We are certainly recognizing that the tax credit is compelling if a potential buyer is confident in his/her finances or future employment.”
Why is it such a great time to move-up?
“It’s all about the power of leverage. The fact is that in most markets, inventory is very low in the entry priced home range. So buyers in that market are often competing against other buyers for the same home making it more of a seller’s market. However, it is a buyer’s market in the mid-level and upper end markets so you truly get the best of both worlds when you choose to move-up.”
“Certainly people need to be aware that inflation is very likely. The government has devoted a great deal of money to stimulate our economy and in order to strengthen our dollar over time, more than likely we will see higher interest rates which will mean less buying power for a home buyer. But it all goes back to maximizing your opportunities now, in today’s market. For those who have been successful in their lifetime, they were always looking at the opportunity, today. In real estate, in order to do so, you must sell where the market segment is strong and buy where the market segment is weak. Today that opportunity resides with the move-up buyer.
“Another important fact to note is how advantageous interest rates are right now. Some buyers are able to qualify for 30-year fixed mortgages at under 5%.”
Do you think we’ve hit bottom?
“I think in many communities we probably have hit bottom. We are seeing statistical evidence of it in the average sale price and in the number of homes sold. Interestingly (and I think this may be contrary to what most people believe), the communities that may have hit bottom are not necessarily those that were hardest hit by foreclosures. The communities that are strongest today are those that are clearly most desirable. When the market gets soft, the people who in previous markets couldn’t afford their first choice market had to settle for their second or third choices. But thanks to the opportunities in today’s market, they are better able to buy into their first choice communities and neighborhoods. It goes back to supply and demand. Those communities that have good schools, good local economies, diverse activities and, overall, are just considered more desirable places to live, are once again driving demand.”
What do you recommend to today’s home buyer?
“Buyers need to understand right now that the market is a little schizophrenic. You know it is probably the time to buy and you also know that the market has been challenged. But you may see that in certain markets, we’ve had lower prices and decreasing numbers of available homes for sale. In that type of area, you might expect to get a lower price than a year ago. But you also need to realize that the market is picking up and that in many markets, we’ve probably hit bottom. For example, if you want to be where the best schools, best hiking trails and best parks are, that will probably be where the best recoveries are likely to occur. To properly ride the wave, you should find the houses where people want to be. The problem is that if you wait a year, you’re probably going to run up against a lot of challenges: increased interest rates, increased buyer demand, and lower available housing inventory. The combination of those factors is what is creating more urgency in the more desirable markets today.”
“What we’re going to see in 2010 is probably the more desirable neighborhoods seeing a modest increase in sales price and a decrease in the number of homes on the market. I predict that we are going to see an overall stabilization in the marketplace. We are probably going to see on the whole a slight increase of the average sales price of homes. We’re probably going to see a stabilization of the market. We probably won’t ever return to the sales levels of 2005 and 2006 because so many of those sales were artificially created. Fortunately, I believe that we are now on the right path toward modest, sustainable growth.”
When will the luxury market begin its turnaround?
“We should see a slight turnaround of the luxury housing market in 2010. We believe that it will be the last market to turnaround. It was the last market to experience a turn down and it will probably be the last market to experience an upturn. As business and the economy strengthen, we’ll once again see a more robust luxury market.
“The bottom line is there is a lot to be confident about in relation to the housing market: the tax credit; attractive interest rates; buyer demand in the entry level market; opportunities in the move-up buyer market; and sustainable growth. It all adds up to what we anticipate to be a very productive 2010.”
If you would like more information about the opportunities that are available in today’s housing market, contact one of our offices today.