Back in January, I published my Sound Real Estate Advice for 2012. Let’s re-examine what I wrote then, compare it with what actually happened, and offer come conclusions about the rest of the year.
As far as market and home price predictions, I wrote:
Overall, I expect 2012 will be very similar to 2011. Not much inventory, stagnant-to-slightly-lower home prices, and I expect we will end 2012 with mortgage rates very similar to where they are today. Even though there are massive risks out there, such as the enormous shadow inventory of distressed homes, Europe falling apart, and a global economic slowdown, the last four years have proven that all of this can take a long long long time to play out. Our policymakers are hell-bent on kicking the can down the road. Especially in an election year, I wouldn’t bet on too many fireworks.
Prices are determined by the balance of supply and demand. Currently, our demand isn’t great, but supply is even more pathetic. Unless there is a lot of new supply, I wouldn’t expect prices to tank in 2012.
2011 saw fairly low inventory compared with 2009 and 2010. I expected the trend to continue, but I had no idea that inventory would plunge by more than half here in the Bay Area. Nobody did.
Where I expected prices to remain “stagnant-to-slightly-lower,” this crazy-low inventory has squeezed prices up by as much as 10% so far this year.
The other comments I made still hold true.
First Time Home Buyers
Against the backdrop of little if any price movement, I offered the following advice:
2012 could be a great year to buy your first home, as long as it (and you) meet some specific criteria. And know this: please do not feel like you have to buy now because prices could go up. Even when prices to eventually begin to rise (organically and for real), they will rise slowly. You aren’t going to be missing anything by waiting in terms of price appreciation.
I was certainly wrong about not missing anything. Prices have popped quite a bit and buyers who bought in the Spring are probably feeling pretty smug.
However, the bump wasn’t organic or real, but caused by extreme lack of supply. Remember, prices move with Supply and Demand. Just because supply has shrunk doesn’t mean that this recovery is legitimate.
Homeowners With More Than Twenty Percent Equity
If you’ve got lots of equity and are considering selling, 2012 could be a great time to move up, down, sideways, or cash-out and rent for a while. You are in the extremely fortunate position of being able sell and have the cash to buy the house for the next phase in your life.
This is even more true now. Today, you have even more cash and with interest rates so incredibly low, this is an excellent time to downsize.
Homeowners With More Than Ten Percent Equity
You homeowners are also lucky enough to be able to sell and still walk away with some cash in your pockets. Maybe it’s enough to put down on another place with an FHA loan. Or, maybe it’s enough for first and last-month’s rent. Either way, there are tens of thousands of homeowners around here who would love to have the opportunities you have today.
Even though you probably think your situation sucks.
The bottom-line is this: today you can move, but by this time next year it could get iffy.
Right now there are a lot more of you in this situation, riding the high of rising prices. But rather than keeping it rolling, consider the last six months a huge gift. Now might be the best time in the last five years, and in the next five years, to cash out and move on.
If you want to and can afford to stay in your house for another 5-10 years, then do. However, if you don’t have that long of a time horizon, then do not act as if the trend of the last six months will continue. You’ve got a bunch of the house’s money… consider patting yourself on the back and stepping away.
Homeowners With Less Than Ten Percent Equity
Circumstances have certainly improved for people in this group. Back in January, I suggested:
Your situation is obviously more dire. If you are where you want to be (and you can afford to be there) for the next 5-10 years, then stay. But if you are going to be moving at some point in the next few years, you have better do it now, while you still can.
Even if you have to bring a few thousand bucks to the closing table, it’s a lot better than having bringing tens of thousands of bucks, or doing a short sale.
Logistically, you are most likely going to get your best price this Spring, with prices fading by the Summer and Fall. The time to act is now.
Rent. Save up cash. Or if you have extra cash and want to get an FHA loan to buy again, go for it.
You’d better act now while you still have some good options left.
Everything I wrote then is still true. You’ve gotten lucky over the last six months. Act accordingly.
Homeowners Already Underwater
First, you have to decide if the home you are in is the place you want to be for the rest of this decade. If it is, then keep it, love it, enjoy it, and slowly pay it down without paying too much attention to home prices because they don’t matter to you.
But if it’s not, then you have to decide to take your pain now, or likely later. And by pain, I mean a short sale. Generally speaking, you are going to be renting for 2-3 years after you complete your short sale. And, given that home prices are still slowly falling, this probably isn’t going to be too bad of a thing.
Consider this: people who did short sales back in 2009 or earlier can probably qualify for a mortgage today. Many of them will be buying homes over the next couple of years.
The real issue for you is: Do you want to be buying a home again in 2015? Or even later than that?
It’s said that the best time to plant a tree was ten years ago. The same logic applies to short sales. If you are going to do it anyway, you are better off doing it now and starting the healing process.
There are THOUSANDS of Bay Area homeowners in this group who have been waiting to sell, watching the market go higher and higher. Many may be back to having positive equity again if they sold right now.
If you can take advantage of this bump and sell without being a short sale, then I recommend doing it immediately, before the typical Fall-Winter market-fade. Call me or another agent in your area to go over specific numbers and plan a strategy.
If you are still underwater and want to hold off a little while longer to see if the rally continues, maybe it’s worth holding off. But at the first sign of renewed weakness, it might be time to sell.
Homeowners in Foreclosure
To this group, I wrote:
If you are one of the many thousands of Bay Area homeowners who are behind on your payments, you have three options. And, it helps to be proactive.
- Get a loan modification. For most, it’s worth a shot. If you haven’t applied, it’s probably worth a shot IF you want to keep your home for the next decade.
- Do a short sale. Again, read How Short Sales Work. If you are in the East Bay, I can help you.
- Walk away. Live free for a while. Save some money. Maybe ask your lender for a Deed in Lieu. If you just want it over and you don’t want to do a short sale, I would absolutely recommend contacting Jon Maddux and the folks at You Walk Away for further advice.
Trust me, if you are in this situation, you are not alone. Probably not even alone on your street. And, it’s not a death sentence. Life will go on and probably get much better from here. In the grand scheme of things, a house is just a house. And, yes, you will own another one someday.
Everything here still applies.
This group is freaking out. Rents are up substantially across the Bay Area over the last year. Many are starting to rethink their decision to rent in the first place.
Back in January, I wrote:
Especially if you are comfortable where you are, there is no reason to feel urgent about buying a home in 2012.
I know there is A LOT of urgency out there. My advice now would simply be to relax, wait, and watch what unfolds. Do NOT feel pressured to buy because you think housing prices are about to boom again. It isn’t going to happen.
Vodka. Xanax. Meditate. Whatever you need… just try and chill out and not worry too much.
Back then I wrote:
2012 is simply too early for most investors to buy-and-hold. There. I said it.
Because we aren’t at the bottom yet. Not even at the low end. Not even in Antioch, Richmond, or Concord.
So if you want to buy-and-hold in 2012, think of it as averaging-in to the stock market. If your plan is to buy ten homes over the next four years and you want to buy one or two in 2012, then great – that’s a solid, reasonable plan. Go for it. And if you’re in the East Bay, I can help.
But if your goal is to buy one or two rentals to help put your kids through college, then wait. There is no reason to buy now. Keep your powder dry.
Today, I would offer the same advice even louder. Prices have popped at the low end for what are in my opinion, unsustainable reasons. The time to buy was a year or two ago.
And if you have benefited from this pop in prices, I would absolutely recommend selling some of your properties into this market strength. Cash out. There is nothing wrong with being lucky and nothing wrong with taking a profit.
Things have changed pretty dramatically over the last six months. With no inventory, market dynamics are thrown completely out of whack.
Back in January, I wrote:
The housing decline that began in 2005 is entering it’s eighth year. It’s hard to believe that we still have so much deleveraging in front of us. Back in the beginning, I figured prices would crash after three or four years, hit bottom, and then the healing would begin – like ripping a bandage off quickly.
Obviously, that’s not happening. The bandage is getting pulled back slowly, prolonging the economic pain for all of us. I don’t know what the next few years will bring other than that there is still quite a bit of the bandage left.
Given the persistent employment problems here in the U.S., problems in Europe, Asia, Australia, and the still-enormous shadow inventory of homes yet to be sold, the future is anything but certain.
This Spring and Summer were filled with sunshine, but there are still dark clouds on the horizon. Be diligent, conservative, and skeptical. We’re not outta the woods yet.