A new year brings change. And those wanting to know what change to expect in real estate travel to Orange County for the 32nd Annual Economic and Business Review economic conference hosted by Champman University. Some of the brightest in business and finance congregate to hear the analysis of Chapman University's storied experts. In a time of great upheaval, their predictions over the last three years have been painfully accurate. In December's meeting, the focus was on housing and how its recovery is vital to a national recovery.
Chapman outlined the great need in the near future for housing. Population in the United States is projected to increase by 31 million people by 2020 engendering the need for roughly 1.2 million new homes, on average, per year.
And since 300,000 homes are lost to disaster and obsolescence every year, 1.5 million new housing units are needed each year. With the economic downturn, construction on new housing units has fallen to 600,000 starts a year — a number that has not changed since 2009. The low number of construction starts should lead to a housing shortage, higher prices and less affordable housing. But the real estate downturn has left several years worth of homes — roughly 620,000 vacant homes and 970,000 vacant rental units for a total of almost 1.6 million units above the normal supply, that will be available to meet short-term demand. These excess units will slow the recovery in the construction sector.
Vernon L. Smith, Professor of Economics and Law at Chapman University and Nobel Prize Laureate, outlined how after every post-war recession the recovery of residential construction is first before any other sector. But with the excess units currently needing to be sold, residential construction will need several years to fully recover. Chapman forecasts only small construction growth from 600,000 to 640,000 in 2011.
The slower recovery should be welcome news to near-future home buyers. With the lower housing prices and mortgage rates, housing affordability is should remain historically high in 2011. The one sub-market that Chapman predicts will have continued downward pressure on pricing is the luxury home market. Similar to areas of Orange County, San Diego's luxury home market is plagued with an over-abundance of inventory. Carlsbad is averaging less than 2 sales per month in 2010 of homes over $1.5M.
For homes in Carlsbad under $1M, renewed buying activity is expected in the first three months of 2011. Single family home sales in Carlsbad dropped 31 percent in the winter of 2010. And with fewer sales, buyers were able to negotiate more off the average asking price. An additional 2 percent off asking price was achieved by home buyers in the winter months — an average of $14,000.
Homes prices are expected to stay relatively flat through the first quarter of 2011. Carlsbad should see sales pick back up by March, and average market-time falling to roughly 60 days from the current 90 day average.
Homeowners wanting to sell their homes in the current market should prepare themselves, as they face a tough real estate market. The average buyer in today's market has been “shopping” for many more months than in previous years. They have seen many more homes and will react negatively to a home that does not show well. Homeowners can benefit greatly from inexpensive staging: decluttering personal effects, painting and minor repairs. The perception of uniqueness and value is very important. Sellers can succeed in this market by understanding what makes their home unique from current competition. If there is no discernible difference between your home and several others on the market, then it is all about the price. And that is a slippery slope.
Vernon Smith's expanded paper on the current recession and housing, which appeared in the Friday, September 10, 2010 edition of The Wall Street Journal, can be read at http://ideas.repec.org/p/chu/wpaper/10-03.html.
Tyson Lund can be reached at (760) 438-0800.
Chapman outlined the great need in the near future for housing. Population in the United States is projected to increase by 31 million people by 2020 engendering the need for roughly 1.2 million new homes, on average, per year.
And since 300,000 homes are lost to disaster and obsolescence every year, 1.5 million new housing units are needed each year. With the economic downturn, construction on new housing units has fallen to 600,000 starts a year — a number that has not changed since 2009. The low number of construction starts should lead to a housing shortage, higher prices and less affordable housing. But the real estate downturn has left several years worth of homes — roughly 620,000 vacant homes and 970,000 vacant rental units for a total of almost 1.6 million units above the normal supply, that will be available to meet short-term demand. These excess units will slow the recovery in the construction sector.
Vernon L. Smith, Professor of Economics and Law at Chapman University and Nobel Prize Laureate, outlined how after every post-war recession the recovery of residential construction is first before any other sector. But with the excess units currently needing to be sold, residential construction will need several years to fully recover. Chapman forecasts only small construction growth from 600,000 to 640,000 in 2011.
The slower recovery should be welcome news to near-future home buyers. With the lower housing prices and mortgage rates, housing affordability is should remain historically high in 2011. The one sub-market that Chapman predicts will have continued downward pressure on pricing is the luxury home market. Similar to areas of Orange County, San Diego's luxury home market is plagued with an over-abundance of inventory. Carlsbad is averaging less than 2 sales per month in 2010 of homes over $1.5M.
For homes in Carlsbad under $1M, renewed buying activity is expected in the first three months of 2011. Single family home sales in Carlsbad dropped 31 percent in the winter of 2010. And with fewer sales, buyers were able to negotiate more off the average asking price. An additional 2 percent off asking price was achieved by home buyers in the winter months — an average of $14,000.
Homes prices are expected to stay relatively flat through the first quarter of 2011. Carlsbad should see sales pick back up by March, and average market-time falling to roughly 60 days from the current 90 day average.
Homeowners wanting to sell their homes in the current market should prepare themselves, as they face a tough real estate market. The average buyer in today's market has been “shopping” for many more months than in previous years. They have seen many more homes and will react negatively to a home that does not show well. Homeowners can benefit greatly from inexpensive staging: decluttering personal effects, painting and minor repairs. The perception of uniqueness and value is very important. Sellers can succeed in this market by understanding what makes their home unique from current competition. If there is no discernible difference between your home and several others on the market, then it is all about the price. And that is a slippery slope.
Vernon Smith's expanded paper on the current recession and housing, which appeared in the Friday, September 10, 2010 edition of The Wall Street Journal, can be read at http://ideas.repec.org/p/chu/wpaper/10-03.html.
Tyson Lund can be reached at (760) 438-0800.