Happy New Year!
I hope everyone had a safe and enjoyable New Year’s Eve! 2011 is now in the books, and as I discussed briefly in the Top 5 Real Estate Events in San Carlos in 2011, it was a pretty good year for real estate in San Carlos — look for the 2011 Year in Review post later this week for a complete analysis on the final numbers.
But now it’s time to look ahead to 2012. What’s going to happen this year to the housing market in San Carlos? Below are my Top 5 predictions for the coming 12 months:
#1: More Homes Will Sell Than in 2011.
Just about a year ago, I made the prediction that more homes would sell in San Carlos in 2011 than sold in 2010, thus ending a 3-year decline in home sales. The market conditions leading into 2011 were just too ripe for that not to happen. That prediction turned out to be correct, as we finished 2011 with approximately 277 homes changing hands. This was just 4 shy of the 281 that sold back in 2007, which was considered to be part of the last boom period.
What will drive this continued sales surge? Pent-up demand. 2011 finished uncharacteristically strong in terms of how many homes sold and the prices they fetched, and this strength will carry over and even grow in 2012. There are simply lots of buyers who are anxiously looking to buy in San Carlos, but just haven’t found the right home yet. I expect this to be the busiest January in the past 5 years, and barring a complete dearth in new listings coming on the market, look for Q1 numbers to be stellar. Buyers are ready to go now. There are lots of factors driving this pent-up demand; some of which will be discussed below.
#2: Home Prices Will Rise.
2011 was a peculiar year because despite the surge in the number of homes sold, the average and median prices still lagged behind 2010 for most of the year. That means that there were still a few relative “bargains” being snatched up by smart buyers, particularly in the first half of 2011. But the second half of 2011 changed all of that — prices climbed steadily from August-December, with several 3BR/2BA homes shattering the $1M barrier during that period. In the end, 2011 registered modest gains in both average and median price over 2010.
Sorry buyers, but I believe this trend will continue into 2012. The aforementioned pent-up demand means that you’ll have lots of competition right out of the gates this year (unlike last year at this time), and competition means multiple offers, and multiple offers means higher prices. In the end, the price increase will be very modest, but I think it spells the end of any bargains in the City of Good Living.
#3: Buying Power on Steroids.
2012 has the elements of becoming the perfect storm for a certain group of home buyers. The combination of low interest rates (see #4 below), an improving job market in the high-tech sector, and the prospect of nearly two dozen IPO’s in 2012 will put a LOT of cash in the pockets of these buyers that wasn’t there since the dot-com days of 1999. With Facebook and Yelp looking to go public in 2012, and the lock-up periods expiring for companies like LinkedIn and Zynga, there’s going to be an infusion of cash into the real estate market unlike anything we’ve seen since Google went public.
That means we’re likely to see more all-cash offers or offers with huge down payments. For those buyers with the standard 20% down payment, this will be a very tough hurdle to overcome.
#4: The Last Year of Cheap Money?
As part of their herculean effort to keep the United States out of a full-blown depression, the Federal Reserve took the unprecedented step in 2011 of committing to keep the prime interest rate at or near zero all the way through 2012. This is the basic rate at which the financial institutions borrow money and then lend it to average citizens like you and I. A rock-bottom prime rate usually equates to very attractive loan rates for both fixed and adjustable mortgages, just like those we’ve enjoyed over the past 18 months.
But all good things must come to an end, and if the economy starts to grow at an appreciable rate, the Fed will micro-manage the the prime rate upward to control that growth and hedge off any possibility of inflation. In reality, that type of growth in the economy is probably not going to happen in 2012 – at least not in the first half. But the combination of a strengthening economy and the Fed’s “promise” to keep rates low means that 2012 may be the last year to lock in rock bottom rates for a home purchase or refinance.
#5: Short Sales, Foreclosures Continue.
Not all will be rosy in 2012 for some home owners. Despite an improving job market and increased home values, there are some people for whom the recovery will come too little and too late. For those who bought during the peak years of 2005-2007, it may be many years before their house values recover to a point where they’re even break-even on their investment. Because of these factors, short sales and foreclosures will still be on the radar in the new year.
And don’t expect short sales to get any easier or quicker than in previous years. The banks have had several years to figure it out, and there’s no indication that this frustratingly slow process will improve at all in 2012.
Ready, Set, Go!
So those are my 5 predictions for the real estate market in San Carlos for the new year. It’s going to be a very exciting and eventful 12 months ahead in San Carlos, so if you’re looking to become a new resident of San Carlos or you’re ready to move on, don’t wait too long to jump in. Unlike previous years, the market is primed and ready right now.
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