I’m quietly stirring my healthful cup of green tea this morning as I carefully read the tea leaves and try to carefully craft my predictions for 2012 Lamorinda real estate. Let’s begin with the broader economy and work our way to greater specificity:
1. Volatility will persist in the US financial markets: Volatility is driven by uncertainty, therefore we will continue to see broad swings in the market as we work our way through financial recovery and the winds of change in world markets. The volatility will impact consumer confidence, potentially in both a negative and positive manner as 2012 unfolds.
2. The Bay Area economy will significantly outpace overall US economic recovery: We are most fortunate to be living in such a dynamic area of the US — rich with cultural and business diversity. The foundation of net job growth in the Bay Area has its origin in entrepreneurship and the creation of new businesses. According to the Ewing Marion Kauffman Foundation research on this subject, about 3M jobs are created annually across the US from new businesses. Within the Bay Area, there are approximately 470 entrepreneurs per 100K in population, with a resulting significant positive impact on job growth all around the bay, including within our world of Lamorinda real estate. A strong job market bolsters consumer confidence, and in turn, strengthens our housing market.
3. There are clear signs of improvement ahead in Lamorinda real estate: For those poised to pounce on my words, don’t misinterpret them to mean that prices are going to start heading up, or that 2012 won’t have its real estate challenges. I am going out on a moderately strong limb and suggesting that the Lamorinda real estate environment will be better in 2012 than it has been in the last several years. Let’s take a look at some empirical data that seems to support my conclusion:
The chart shows:
A. A significant drop in inventory from 2010 to 2011.
B. A historically healthy relationship of 2-4 mos of inventory against pending sales throughout most of 2011
C. Improved strength in the market during Nov 2011 when the market is normally sluggish.
4. The strongest market segments will be homes priced under $1.5M: Once one crosses the threshold into Lamorinda real estate’s “upper” price ranges of about $1.5M+, the market changes dramatically, as vividly shown by the following chart:
The following facts apply to this segment:
A. The upper market segments were the last to be impacted by the housing downturn, and will be the last to recover.
B. They are the least affordable homes in the present market, therefore simple supply and demand relationships suggest that it will be softer than more affordable segments.
C. “Shadow inventory” held by banks may still impact this segment. We really don’t know how many homes the banks are holding in various states of foreclosure. Until this inventory is cleared, the market cannot fully recover. Fortunately, Lamorinda real estate has been only lightly affected by foreclosure properties.
5. Investors and home buyers will seek investment in real estate as an asset class. Real estate is a very attractive asset class given the volatility of the stock market, it’s seemingly unpredictable behavior, and our extraordinarily low interest rates. As we saw happen in late 2001 and 2002, investment money flowed into real estate following the extreme volatility of the financial markets. While I don’t expect a repeat of that volume of activity, I do foresee that confidence in real estate will increase in 2012, which will result in more people investing in the asset class for both cash flow, capital appreciation, and for home ownership.
6. The imbalance of “power” will still reside with the buyer. Just to be clear, sellers who have been “waiting out the market” hoping to get “their price” will be disappointed. This is no time to be “testing the market” or looking for “that one right buyer” who will pay an over-market price. We’ll be in a recovery mode in 2012, but that does not mean that prices will move up. For buyers, interest rates will likely stay close to the present ultra-low levels throughout 2012, so your timing may never be better to jump into the market.
Let me know what YOU think!