Posted January 18 2012, 3:28 AM PST by Matthew Gardner, Chief Economist, Windermere Real Estate

An Optimistic Outlook: 2012 Market Insights

Posted in Buying, Selling, and Market News by Matthew Gardner, Chief Economist, Windermere Real Estate

This is the time of year when the most frequent question that I am asked is about home prices and which direction I expect them to move during the upcoming year.

Over the past three years, I have not made many friends, as my opinion on home prices has been quite negative. But this year, I am pleased to say that I am finding myself to be rather optimistic (well, optimistic relative to the past few years, at least).

The real estate data that I have reviewed suggests some markets are likely to exhibit positive price growth in 2012. Markets that are seeing sustained employment growth and price stability in the second half of last year are the ones most likely to see some very modest price growth this year.

In fact, I am somewhat surprised that we have not seen some price increases already. From an economic standpoint, there is a very reasonable argument that suggests that real estate prices are actually below where they should be, as they remain below the long-term trend line.

Below you will see a chart that demonstrates this theory. The blue line represents the Case-Shiller 20-City average since its inception and the red line shows where we would likely be had we not seen the real estate bubble. As the chart shows, prices are now below the long-term trend, therefore suggesting that houses may well be cheaper today than they might have been if we had never experienced the market of the past few years.


GardnerBlog_011812


 

 

If this is actually the case, then why aren’t prices higher? Well, there are still a number of anchors that are holding us back. The first of which is the shadow inventory in the shape of distressed homes. Many foreclosures have been trading at below market value and, in some cases, below replacement cost. This naturally holds down values.

Secondly, and equally as important, are the continued issues with obtaining financing for the purchase of a new home. It remains remarkably difficult to get a mortgage, which has led to an unusually high percentage of proposed purchases falling through.

As I gaze into the crystal ball for 2012, I am hopeful that we will start to work through the excess of supply that is currently in the market at a faster pace. I am also hopeful that lenders will become less pessimistic and allow more purchases to close at the agreed-to prices.

When combined with improving economic conditions, I would not be surprised to see several markets exhibit modest price growth in 2012. That said and, as we all know, real estate is all about location; therefore I do not expect that price recovery will be equal across all markets.

In all, I remain hopeful as we enter 2012 and believe that will see several real estate markets improve in the coming year.


3 Comments

Comment

  • I think optimism is the way to go! Seems like from the numbers that it can't get much worse! Thanks for sharing!

    Posted April 10 2012, 1:49 AM by FirsTrust Wichita

    Reply
    Email-icon
  • I think we are in a false recovery. This is an election year and they will try to keep things pumped up throw false data and barrowed money at it , Unemployment is not down,rather people are falling off the counts. With that said if I was wanting a house or home to live in I would not hesitate to buy now, for long term.We might or might not be seeing the bottom,but at these prices and interest rates , it will be hard to see these kinds of payments again. If we recover and prices and rates go up you will be sitting great with a low payment. Over the long run it is hard to see how prices will not continue up. Our dollar continues to loose value , A home is an aset that gives you a feeling of security and foundation Pete Battersby

    Posted March 11 2012, 1:52 AM by Pete Battersby

    Reply
    Email-icon
  • [...] Gardner is a respected economist and has focused much of his 25 year career in real estate.  Click here to read more.  In addition, John Talbott, has recently said “it is the time to buy a [...]

    Posted January 30 2012, 8:38 AM by Optimism in 2012 | dan gunderson

    Reply
    Email-icon