The most unsettling aspects of living through a declining real estate market is the uncertainty as to when the bottom will be reached. If we all knew that property values would bottom out on a certain date, more folks would have held on to their homes and fewer would have walked away from their mortgages. Many homeowners just lost faith in the market’s recovery and they tired of making mortgage payments on an underwater property. Most of the foreclosures and short sales during 2012 were not so much from the loss of a job, but from loss of confidence in the future. Folks just gave up and surrendered their keys.
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A year ago, as we approached the New Year, that was pretty much the attitude of many homeowners … and for good reason. Property values had been declining since 2006 with no sign of bottoming out. The median price for a county home in January 2011 was $241,000 and by February 2012 it dropped even lower to $236,000. It was pretty depressing with foreclosures and short sales in every neighborhood. By this last spring, however, things began to change. Housing sales and the median prices began to open up and by May the median price had blossomed to $287,000. Since June sales have averaged 30 percent higher than a year earlier with half the available inventory of homes.
The market’s recovery is happening everywhere. The California Association of Realtors reported the statewide median price for an existing single-family detached home this last November at $349,300 was up 24.8 percent from November 2011. It was the ninth consecutive month of annual price increases and the fifth consecutive month of double-digit annual gains.
OK, we all know that Realtors are a pretty optimistic group about housing. What are other housing experts saying?
Real estate analyst Bruce Norris of the Norris Group in Riverside says the median price in California will rise by 20 percent in 2013.
“My best guess is that California will have significant price inflation. Prices could escalate so strongly that we will think we are in 2004 instead of 2013.”
And from DataQuick analyst Andrew LePage, “Real estate has turned the corner and is on a steady upward trajectory.”
Finally, we can put behind us the great real estate recession. It may be a few years before property values make everyone whole again but we are certainly headed in that direction. Here are a few local examples.
A year ago, the average selling price for a home in El Dorado Hills was $441,500; today it is $475,000. Of the current 80 homes for sale, only three are REOs and five are short sales.
The average selling price in Cameron Park in the last year has climbed from $222,000 to $325,000. There is only one short sale listed and three bank REOs.
Placerville’s average selling price has gone from $212,000 a year ago to $224,000 today. Pollock Pines/Sly Park bumped up from $142,000 to $195,000 and Cool/Pilot Hill from $231,000 to $295,000.
The average selling price throughout the county at the end of 2011 was $299,000. On the last day of 2012 it stands at $350,000. That’s a whopping 17 percent increase! So where to from here?
While I expect gradual price increases to continue, we likely have already experienced our highest yearly percentage increase. Don’t expect another 17 percent increase in county home prices this year. We will be fortunate to record a 6 percent gain in 2013, providing interest rates remain lower than 4 percent which they should.
The housing boat is back afloat. With increasing property values, less homeowners are underwater. According to the Zillow Negative Equity Report, 36.7 percent of El Dorado County homeowners were underwater in the first quarter of this year. Today that percentage has dropped to less than one in five homeowners with negative equity.
Housing sales will decline. Last year’s sales averaged 20 percent ahead of 2011 and many months were running 30 percent ahead of the same months in 2011. Don’t expect that pace to continue. With half the available inventory as last year and higher prices, sales will suffer. Short sale listings that used to number in the hundreds now account for only 41 current listings. REOs across the county number 45. Many equity homeowners who have held on this long will wait on further price gains before letting go and listing their home. Without inventory, sales will slide.
Homebuyers will likely have more new homes to choose from; providing they can afford them. More building permits have been pulled for new homes in our county in the last two months than all year. The $515,000 median price of the 11 new home sales during November was 52 percent higher than a year earlier. Standing inventory, however, will be scarce. Builders will not get in front of the demand with excess inventory.
Do you think Congress should eliminate tax loopholes for a privileged class of taxpayers? That’s likely to happen next year as Congress considers eliminating the mortgage interest deduction for higher income homeowners and vacation properties.
Expect 2013 to be a good solid year for real estate with low interest rates, fewer foreclosures, more new construction and fewer sales than last year. In case I am wrong, I take solace from Mark Twain who said. “Predictions of the future are seldom accurate and seldom remembered.”
Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his website at kencalhoon.com.