2011 was a pretty eventful year in the San Carlos real estate market. Actually, every year seems to have its share of interesting things happening in the City of Good Living — it’s why people have such a keen interest in what’s going on in the real estate market here. But 2011 saw some significant changes in the real estate landscape, most of which will likely carry over into 2012 and impact the market in the new year. So I thought it would be interesting to list the top 5 events that transpired in 2011, and discuss a little bit about how they will impact the market moving forward.
So without further delay, here are the top 5 things that happened in San Carlos real estate in 2011:
#1: Housing Market Rebounds.
Although San Carlos housing market was spared the majority of the crippling effects of the economic recession that started in 2008, it did not escape completely unscathed. As I’ve documented numerous times on this site, San Carlos endured 3 straight years of declining sales figures and home prices since the latest bubble burst in 2007. But 2011 had a completely different feel when the year kicked off — interest rates were low, unemployment leveled off, and homes sold at a much more brisk pace in the earlier months of this year than we had seen in the past three. It certainly seemed like 2011 was going to be a much different year.
As you’ll see in next week’s post on the 2011 Year in Review, 2011 was the year when the market finally bucked that 3-year slide. When the final numbers are published next week, you’ll see that the number of homes that sold in San Carlos in 2011 increased by almost 13% over 2010. The average and median home prices eked out modest gains to, posting increases of 0.2% and 3.6%, respectively.
#2: Fed Cuts Conforming Loan Limits.
One of the most significant steps the federal government took to prop up the free-falling housing market was to pump billions of dollars into Fannie Mae and Freddie Mac, and to dramatically increase the upper lending limit on loans that “conformed” to the standards set forth by Fannie and Freddie via the Housing and Economic Recovery Act of 2008. For San Carlos and most of the Bay Area, that meant the amount of money one could borrow with a conforming loan increased from $417,000 to $729,750. This kept kept a steady flow of affordable funds available for buyers at a time when the credit market was imploding on itself. Whether one approves of this drastic government intervention or not, this single act did more to stabilize the San Carlos real estate market than any other action.
From the outset of this act, the government stated that their intervention in the housing market would be temporary. They were not going to keep pumping billions of dollars (that they didn’t have) into the housing market, and they wouldn’t allow the conforming loan limit to stay high indefinitely. The act was written to be in effect for one year, with the option for Congress to extend the loan limits in one-year increments. For the past several years as the economy struggled to recover, Congress readily extended the terms of the act and kept the upper limit at $729,750.
Fast forward to 2011 — with signs that the economy was finally gaining traction and unemployment figures were stabilizing, the Fed announced that it was slowly going to extract itself from the lending business and opted to not renew the terms of the 2008 act. But rather than take the drastic step of dropping the upper limit on conforming loans all the way back to $417,000, they reduced that limit to $625,500. As I documented on this site, that move effectively chopped over $100K out of the buying power for many first time buyers, especially those with less than a 20% down payment.
Those of us involved in the housing market held their collective breath when change took effect in the spring. But while it did certainly put a number of first-time buyers back on the sideline, it didn’t cut the market off at it’s knees as we feared. Buyers either brought more cash to the table, or opted for the newly-affordable jumbo loan options.
#3: Cheap Money.
In early 2011, the Federal Reserve took the unprecedented step of announcing that they would commit to keeping the prime lending rate at rock bottom levels until 2013. This step not only served to stabilize the rates of the aforementioned uber-popular conforming loan, but by the end of the year rates had dropped to historic lows — one could snag a 30-year fixed conforming loan for under 4%…
Jumbo loans, which draw their funds from an entirely different pool of money, came back into strong favor in 2011. When the credit market imploded in 2008, the gap in rates between a jumbo loan and conforming loan was over 2 full points. And that’s if you could even get a jumbo loan. In 2011, that gap dropped to a 1/4 point differential. There were some amazing jumbo loan packages being offered this year — to put it in perspective, you could borrow $2M for a lower rate in 2011 than you could borrow $417,000 in 2008.
#4: Tight Inventory.
It seems counter-intuitive in a year when sales figures grew by 13%, but the available number of homes for sale at any given time in 2011 was less overall than it was in 2010. But if you were actively looking for a home in 2011, you probably knew that already. Multiple offers were back in vogue again, with as many as 10 or more offers on certain homes — this hasn’t been seen since the superheated days of 2007. Obviously, this is one of the key factors behind the rebound in sales prices too.
#5: Employment on the Rise.
Although you’d never know it from the national unemployment figures, I firmly believe that the employment situation in Silicon Valley improved dramatically in 2011, particular in the latter half of the year. You only need to listed to what the venture capital community said about their activity this past year, and look at the calender for scheduled IPO’s in 2012 to know that the valley hit the comeback trail in 2011. This played a big part in the resurgence of the San Carlos real estate market, since many of the current and future residents are either directly or indirectly involved in the high-tech industry. Employed people buy homes, and when people started to feel more confident in their job status in 2011, it converted many fence-sitters into home buyers.
Great question! Stay tuned to the White Oaks Blog, because on New Year’s Day, I’ll post the Top 5 Predictions for the San Carlos real estate market as we head into 2012.
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