Monday, January 2, 2012

5 Top Real Estate Stories in 2011

Courtesy of Keeping Current Matters/The KCM Blog
Posted 1/2/12
In 2011, we experienced one of the most volatile housing markets in American real estate history. Things we never anticipated happened. Events we were sure would take place didn’t. Today, we want to review the five headlines we think had the biggest impact in 2011.

1.) Interest Rates remained at historic lows

In order to help stabilize the economy in 2010, the Fed took certain actions which kept mortgage rates at or near historic lows (approximately 4%). Most felt this would be a short term tactic and once abandoned would result in rates returning to long term averages (6-7%).

However, the government has continued to support lower rates with the hope of fostering a recovery in the housing sector. The 30 year fixed rate mortgage (as measured by Freddie Mac) stood at 4.77% to begin 2011. A month later, it was over 5% and many, including us, believed this was the beginning of rates returning to normal levels. Instead, rates continued to fall ending 2011 at 3.91%.

The lower rates along with great prices have had a favorable impact on home affordability leading more buyers to enter the market.

2.) Sales up over 2010

At the beginning of 2011, we all realized that a year-over-year (Y-O-Y) comparison of home sales would not be a true “apples to apples” comparison as home sales at the beginning of 2010 were bolstered by the Home Buyers Tax Credit. Likewise, comparing home sales over the summer would not be a fair comparison as many sales in 2010 were dragged forward so that buyers could take advantage of the credit. However, many thought Y-O-Y comparisons would again be useful later in 2011 as the impact of the 2010 tax credit waned. Yet, the National Association of Realtors (NAR) Existing Homes Sales Report shows that over the last three months sales have increased quite nicely. The October and November reports each showed a Y-O-Y gain of in double digits and the December report gain was 12.2%. These numbers showed closed sales were increasing even though more contracts were falling through.

3.) Contract cancellation rate surges

Probably the most troubling trend to emerge in 2011 is that the number of sales contracts that are cancelled before closing has skyrocketed in the last year. The cancellation rate has jumped from 9% in August 2010 to 33% each of the last two months.

Some of the increase can be attributed to the higher level of difficulty in distressed property transactions. However, NAR also says cancellations are caused largely by “declined mortgage applications or failures in loan underwriting from appraised values coming in below the negotiated price.”

4.) Foreclosures were delayed

The robo-signing debacle of late 2010 caused a delay in many foreclosures entering the market. It DID NOT prevent the banks from continuing to put homes into the foreclosure process. The delays jut prevented banks from repossessing the homes and putting then up for sale as REOs (foreclosures owned by the banks).

For most of 2011 the banks and the state governments worked on a set of standards that would be enforced before a bank could repossess the house. They are currently working on a settlement to be paid for those homes that where foreclosed on without the proper paperwork.

As these procedures and settlements are completed, more and more of the backlog of distressed properties will come to market. Distressed properties sell at a discount. They will have a substantial impact on the prices of all houses in the region.

5.) Prices move up then down

Many experts expected prices to continue to slide downward as we entered 2011. However, a large inventory of distressed properties was held back (see #4). That turned out to be good news for prices as supply decreased throughout the year and demand increased in the second half of the year. That actually caused prices to ‘bottom out’ and ten nudge upward in the late summer and early fall.
As the foreclosed properties again began to enter the market in the last quarter, prices again began to slip. Most believe this downward trend will continue through the first half of 2012.

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