Southern California real estate forecast for 2011 seems to be on everyone's mind right now. It's that time of year when I get questions and emails about where the real estate market is heading next year.
Now... I am not a huge believer in predictions, however there are some indicators we can look at or assumptions that we can make based on historical real estate performance. So... let's take a look at some key indicators.
California Real Estate Indicators:
Interest rates hit another record low this year but have started moving back up as the overall economy improves. Bonds and home loan rates took a hit again last week, and some Pasadena home buyers are trying to figure out if home loan rates will ultimately continue moving down.
However, when we look at the big picture, there are only a few things that will bring back the lows that we saw in early November:
- If the tax cut package doesn't get passed. This would be bad news for the economy and the stock market, but it would help interest rates.
- If the Feds recent round of Quantitative Easing falls on its face and doesn't meet its mission of creating inflation, boosting Stock prices, lowering unemployment and creating consumer demand. This is a long shot, but if it happened, Bond prices could make some gains as the threat of deflation reemerges.
- If the financial problems in Europe worsen significantly. This would drive investors into the safe haven of the US Bond market and, therefore, it could help Bond prices, but probably only modestly.Realistically, the chances of those events happening are unlikely.
In the end, rates may see some fleeting improvements, but will likely continue to creep up into 2011!
RECOMMENDATION: loan rates are still near historic lows FOR NOW. That means, now is the time to act. A 1% increase in the mortgage rate means a 10% in home affordability.
National home sales dropped slightly in October, compared with the previous month, despite a temporary moratorium on foreclosures, which have recently represented more than one third of sales activity. Sales were up 15% from July when the tax credit expiration caused a drop-off in sales. The most significant indicator of a market rebound, however, appears to be the October pending sales report. A 10.4% increase in pending sales, which measures homes under contract, signals stronger home sales activity in the coming months as the homes under contract close.
Here's a look at Southern California home sales from 2009 to 2010:
Home prices have shown considerable stability when compared with the previous several years. October's national median home price declined slightly, down less than 1% from the previous month and year. A recent study shows an increased interest in smaller homes. Smaller homes often mean smaller price tags, depending on location. While the market currently provides many opportunities for buyers, sellers look forward to the general trending upward of home price as the markets stability without government support grows deeper roots.
Southern California Median Price of Detached Homes:
This is an interesting graph looking at California vs. US Median Home Price. As you can see California is beginning to trend upward.
There are fewer homes on the market. Total inventory fell to 3.86 million in October from 4 million in September. The months supply* of homes on the market fell to 10.5 months. While still at a relatively high level, months of inventory has shrunken substantially since Julys 12.5 months.
* Months supply of inventory measures how many months it will take to sell all the homes that are for sale, if no new homes come on the market and buyers continue to buy at the same pace or rate.
The luxury home market is taking longer to sell partly due to the tightening of lender requirements on jumbo loans.
Unsold Inventory by Price Point:
Homes have never been more affordable.
Let's take a look at the national numbers first:
Affordability, measured by the median mortgage payment on the current median-priced home ($171,000) as a percentage of the median household income ($62,141), is lower than its been in a generation. The chart below shows affordability at a record level, having significantly improved since the height of the recent housing boom in 2006.
Southern California home prices are significantly higher than the national numbers, however, opportunities for first time home buyers are at an all time high as seen by the graph below.
California Foreclosure Inventory
Foreclosure Inventories--Preforeclosure inventory is an estimate of the number of properties that have had a Notice of Default filed against the property, but have not yet been Scheduled for Sale. The Scheduled for Sale inventory indicates those properties that have had a Notice of Trustee Sale filed, but have not yet been sold or had the sale canceled. The Bank Owned (REO) inventory indicates the number of properties that have been sold Back to the Bank at the trustee sale, and which the bank has not yet resold to another party.
California Luxury Real Estate Market
California million dollar sales volume has declined drastically.
Here's an overview of the California Housing Market forecast as provided by the California Association of Realtors:
2011 Southern California Real Estate Forecast:
- Interest rates for home loans will steadily rise.
- We anticipate prices to hold steady and California Association of Realtors forecasts a 2% increase over 2010.
- Buyers will face a more competitive market. Multiple Offers will continue. To date, in 2010, 51% of all homes purchased had multiple offers, per California Association of Realtors.
- We will see more discretionary home sales - non-distressed home sales. However, foreclosures and short sales will still be driving a lot of Southern California neighborhoods.
- Luxury home sales will lag and million $ listings will take longer to market and sell.
- We will continue to see all cash investors. In 2010, 23% of all California home sales were purchased 100% cash.
The housing market continues its uneven and gradual recovery without the aid of the tax credit. As lending standards continue to loosen and return to historical norms, more people will be able to buy their first home, move up, or invest and take advantage of the abundant opportunities in the current market including historically low interest rates, highly affordable prices, and an ample but shrinking selection of homes. Southern California real estate market is slowly but surely moving towards recovery!
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