Editor's Note: This is a two-part story forecasting real estate experts' top predictions for the market in 2012.
Perhaps sometime between now and Dec. 21, 2012, will be beginning of the end. In fact, some think the end is already here, and they welcome any prophecies for an end to it all now or any time in 2012 — but we're talking about the prolonged real estate market downturn here.
The new year brings with it lots of questions. Is the real estate market ready for the onslaught of short sales and foreclosures we've been hearing about, and if so will these "deals" drive down prices?
Will home prices start a steady rise in 2012? If they do rise, could we see a radical upswing in the nation's median home price by, say, 25%? Or will they rise only slightly, or not at all?
Will the lending market remain tight until finally someone will do something about it? Will anyone do anything about it?
More importantly, will we all be able to look back and say 2011 was the bottom of the market?
As for Orange County, will pricey neighborhoods like Laguna Beach and Newport Beach lead with way in homes sales? Or will Santa Ana be a hotbed of selling activity?
Three real estate experts offered their top predictions for 2012.
Lisa Dunn, Realty One Group, Mission Viejo
1) Buyer confidence levels will remain low due to election-year mud-slinging. Bad news is sexier than good news, so the candidates will all be hammering on the bad economy. It all may not be true or accurate, but it's all about perception.
2) I think many people will look back at 2011-12 and kick themselves for not buying investment properties or move-up homes then, due to the combination of record low interest rates and low prices. Too late to "sell high-buy low," but if you can take advantage of low rates and low prices today, do it.
3) Toward the end of the year I think we will see the beginning of former homeowners who are now renters looking at becoming homeowners again and for the right reason. After having to answer to a landlord and not gaining anything from their rent payments, I think they will be inclined to purchase a home for the freedom that only home ownership can bring.
4) We may see some home retention programs that might actually work. This will be a combination of government and private enterprise finally coming up with something viable. This could greatly reduce the number of short sale listings and return some normalcy to the market. This is more wish than prediction, though.
5) Flip investors are busy but fighting over the good properties to purchase at auction. The banks have wised up and the days of any type of "steal" on either a foreclosure or short sale are long gone. If the home retention programs proposed are implemented and actually work, the investor flip market of today won't exist by late 2012. I wouldn't bet on that, though.
Dennis Smith, broker/co-owner of Stratis Financial Corp. in Huntington Beach
1) Rates will remain very low through the year. Our 30-year conforming fixed-rate hit a high of 4.875% in February and again in March, our low was (last) week at 3.625%. In 2012, I don't think we will get as high as we did in 2011, but it could drop to 3.5% early in the year. We should see conforming rates between 3.5% and 4.5% as the economy continues to struggle.
2) The HARP II plan rolled out by the Obama administration and Fannie Mae and Freddie Mac will have little impact as the "no appraisal" segment will prove to be a bust as lenders will be reluctant to get on board and be liable for these loans sent to Fannie and Freddie.
3) Foreclosures will be a big part of the market as the backlog of defaults whose foreclosures were delayed are processed by the lenders. Politicians will make election-year noises about stopping foreclosures, but in the end the banks are not getting paid and have billions of dollars in assets sitting with no return, which is bad for their balance sheets and federal bank auditors.
4) Home prices will continue to struggle due to more foreclosures hitting the markets. As we have seen in 2011, different regions and neighborhoods will ebb and flow in price depending on the number of bank owned properties going on the market.
5) We will continue to see tight credit reviews for borrowers. With Fannie and Freddie into the U.S. Treasury for approximately $170 billion they will continue to push buy-backs onto lenders, which will make their underwriting remain very tight.
Matt Clements, Prudential California Realty in Laguna Niguel
1) There will be more short sales. But prices can't get much lower. The foreign buyers would eat us up. That's exactly why foreclosures are federally regulated. If they all came out at once, then we would continue to decline in prices. We did that already in 2007 and 2008. Prices will remain stable, but low until all the distressed inventory is sold.
2) Prices rising 25%? That's not going to happen next year. However, I agree that this is the bottom, of the bottom, of the bottom. We're five and a half years into prices falling — June 2006 was our peak of the last mountain. Home prices have been relatively stable for the last 18 months, even creeping up with the low inventory over the last five months.
3) Laguna Beach will not lead the way in home sales. In home prices? Yes. But in volume, nope. People who live there now most likely will live there 40 years from now. People typically don't like to leave heaven after they've arrived. The bread and butter prices are in two distinct groups: The three-bed, 2.5-bath, two-story, two-car garage for $250,000. Think affluent rental areas like Rancho Santa Margarita, Mission Viejo, Lake Forest, and Ladera Ranch — investors eat those up. The other group is the owner-occupant, with a price between $600,000 and $750,000. Just think, areas in that price range were $900,000 up to $1.5 million. The hyper-specific areas are Laguna Niguel, San Clemente, Huntington Beach, the coastal areas, where everybody really wants to live.
4) The lending market will remain tight — tight like squeezing an orange through a ping-pong net.
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