Real Estate: 2011 in Review, Predictions for 2012

There are a lot of things that affect real estate: the overall economy, how people feel about their personal situations, interest rates, the willingness of banks to lend money, and housing prices to name a few.

The good news is right now is the most affordable houses have been in the last decade.  Consider these facts:

• Housing prices in Montgomery County:  In January 2011, 356 homes sold for an average price of $291,870.  In November 2011 (final numbers are not out for December), 516 homes sold for an average price of $290,130.  Sales are up without a significant drop in values.

• Interest rates: January 2011, interest rates were 4.75 percent to 5.25 percent.  In December 2011, interest rates are 4.0 percent to 4.25 percent. (Even back in the boom years, 4 percent was the rate for a 5-year ARM, never a 30-year fixed).

• The historical impact of price vs interest rates: The average price of a home in November of 2001 was about $206,000, but interest rates were right around 7 percent.  When our market peaked in August of 2007, the average price was just about $368,000 and interest rates were still up around 6.5 percent.  Now at the end of 2011, the average price is down around $290,000 and the interest rates are about 4 percent.  So, a monthly principal/interest payment assuming FHA minimum of 3.5 percent down would be:
  
  
  • November 2001 - $1,323
  • August 2007 - $2,245
  • November 2011 - $1,385

• Rentals in the North Penn School District: In Q1 2011, 35 units were rented for an average rent of $1,368 per month.  In Q4 2011, 62 units were rented for an average rent of $1,513.

What does this tell us? 

Home prices and interest rates are the lowest they have been in years.  This combination has resulted in the most affordable housing prices in the last decade.  We are essentially down to a monthly payment roughly equivalent to that which was seen back in 2001.  As a result, people ARE seeing value in the housing market and purchasing homes.

Take as another example, a buyer who purchased in January at $291,000 at a 5 percent 30-year fixed rate and put 20 percent down has a monthly mortgage payment of $1,254.  Whereas, a buyer now of that $291,000 home at 4.125 percent 30-year fixed and put 20 percent down has a monthly mortgage payment of $1,132.  That is $122 per month difference.

Investors are also out in force right now buying some great deals out there and seeing better returns on their investments as the costs to purchase are lower and the rents are higher.

What can we expect in 2012?

The Fed announced recently that it intends to keep policies in place to keep the Fed Fund Rate low and stable through mid-2013.  The only caveat is the uncertainty in the foreign markets (namely the European debt crisis) and global reactions may cause interest rates to rise.  So for the time being, consumers can expect low rates but there is a “wild card” element as to when and how fast rates may change.

Housing prices are expected to bottom out in early to mid-2012 (of course in any market, the “bottom” is always seen in the “rear view mirror” and not declared until prices have definitively rebounded). 

There are still a significant number of houses that are short sales and foreclosures.  Some area employers are rumored to make layoffs in 2012.  These factors will continue to chip away at the already low housing prices.  But the recent influx of buyers (especially investors seeing solid ROI’s) to the market will help to stabilize those prices. 

There is talk of “frugal fatigue” in the overall economy and consumers who have cut costs and deferred purchases are starting to shop.  The same is likely to be seen in the housing market. 

Many sellers have deferred their moves in the last couple of years because of the market.  However, those sellers are realizing that even though they may take a loss (or not realize the “paper profit” they once had) on the home they are selling, they can make a move in the current market and get the house they really want at a better price and interest rate. The “pain” they may experience on the selling side will be made up for on the buying side.

Plus, life factors such as growing families, marriages, divorces, retirement, and job changes always dictate that a certain level of moving will occur in any market.  Some moves can only be deferred for so long; there is a pent up level of consumers who do want to make a move.

What about housing prices in the future? Predicting future prices is like reading tea leaves.  Our expectation is that prices will bottom out in 2012 and growth in prices will be slow to moderate and more in keeping with inflation.  Americans are still hungover from the housing bubble of 2007 and we wouldn’t expect them to go on another wild ride, just yet.

Every Wednesday at noon, the Scott Loper Team of Re/Max Realty Group in Harleysville offers some sage advice to potential and current homeowners in our area.  The Scott Loper Team includes Scott Loper, Lisa Loper and Gina Wherry, Re/Max Realty Group, 439 Main Street, Harleysville, PA 19438, (215) 256-1200.