REAL Exclusive Magazine

What Will The New Year Bring?

By Patricia Tan

In the last few weeks of 2011, I attended an international convention in California, and attended a series of presentations here in Florida. At these events, I heard several well respected economists give their predictions as to what might happen in our real estate market in 2012. I thought it might be useful to share some of their opinions combined with my own observations as a practitioner in today’s global real estate market.

Predicting the future is never easy. My approach is to combine a look through the rear view mirror with a long hard gaze into the crystal ball and balance what I see there with a common sense approach and real life experiences. 

So what might we see in our real estate market in 2012? I’ve listed here some key considerations and factors which may work for, or against, a healthy real estate market. As always, the nature of real estate is local, so while I have certainly considered national and statewide statistics, my focus is on South West Florida and the Sarasota area in particular.

Supply and demand  We all know that new construction has slowed to a crawl, even though we have seen it increase locally during the second half of 2011, new home starts nationally are at their lowest level since the Second World War. Homes today are selling at the same rate as they were in 1997, but over the same period our population has increased by 40 million people. History tells us that for every 3 million increase in our population, the number of households increases by 1 million. This has not been happening over recent years as harsh economic realities have forced the creation of more extended families – adult children moving back with their parents, parents losing a home and moving in with their children, households taking in roommates to make ends meet. These factors all point to pent up demand for homes. While we may not see a major impact from this latent demand in 2012, it does bode well for property appreciation in the years following. During 2011, in our local market, available inventory has decreased to pre-downturn “normal” levels in many price categories. We hear a lot of talk about “shadow inventory” and its potential impact on the market. Lenders are aware that dumping a huge number of foreclosures on the market at the same time will certainly impact the price they achieve for each property, and so far they have not been flooding the market. 

The accompanying chart shows inventory levels across the State of Florida.  4 to 6 months supply is deemed to be a “normal” market. The downward trend in available inventory continues to tighten the market and strengthen prices.

Price stabilization  The Case Shiller Home Price Index shows that prices have been stable in 20 main metro markets since 2009. Here locally, we certainly see evidence of price stabilization more recently. Some neighborhoods and price ranges have started to see modest price increases as inventory reduces. In December, MSNBC’s Barbara Corcoran named Sarasota as the number one place to buy in the nation. Why? Our prices had dropped the most over the previous year (down by a third), but shown an increase of 13% in the last quarter. As a practicing realtor I see illustrations of this every day as I present homes to prospective purchasers and we examine values and trends in the area they wish to buy.

Affordability  The affordability index looks at property prices as they relate to salaries. The index is at the highest level for 40 years, as a result of falling prices. So consumers can afford to buy homes, but they are being held by back not only by lack of mortgage financing, but also by their own newly conservative approach to spending and debt.

Will the banks lend?  Your guess is as good as mine! Financial industry corporate profits are high, having recovered well from the lows of 2008 but uncertainty about future losses and the impact of new regulations are keeping financial institution share prices low. The banks do have money to lend but appear reluctant to do so. A few years ago, a credit score of 720 was considered good enough for most lenders. Today 760 has become the new normal as lenders take very conservative approaches to appraisals and underwriting loans. This is certainly holding back recovery as the market is not seeing the full impact of mortgage rates at historically low levels. 

Role of the overseas buyer  Last year was a bumper year for foreign investment in our real estate market. Despite economic challenges around the globe, there is a growing awareness that now is the time to buy U.S. property, and there is a lot of cash available to do so. We continue to see strong demand from both private and institutional investors. In 2012 I believe we may see declining demand from some hard hit western European countries such as U.K. Germany and France, but we will see more than compensating demand from other countries including Canada, Brazil, India and China.

As I look forward to the new year, I feel quietly optimistic about the future of our real estate market, but only time will tell how I will feel looking back on 2012 through that rear view mirror.
 
Patricia Tan was born in England, and her career in international sales and marketing led her to live and work in many countries around the world before moving to Sarasota in 1997. Patricia is a Certified International Property Specialist (CIPS), Graduate Realtor Institute (GRI), and Transnational Referral Certified (TRC). She is involved in global activities of the Sarasota, Florida and National Association of Realtors, and currently serves as NAR President’s Liaison to U.K. Her real estate business operates from Coldwell Banker on St Armands Key, where her focus is to bring international buyers to the local market. She regularly makes marketing trips to Canada, Asia and Europe, to promote Florida’s Gulf Coast and the Sarasota area in particular. Patricia may be reached at 941-504-9232 or Pat@PatriciaTan.com.

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