2010: here's your hat, what's your hurry?
I don't know about you, but I'll miss 2010—like I'll miss the roofing nail that just made me replace two perfectly good front tires with $800 in brand new front tires. Thanks, I needed that!
I don't know if you noticed, but 2010 was like that. Not that 2010 was all bad. No sir. Working with great buyers and sellers in a great area can never be all bad. But 2010 was a weird and wacky year, a year that, not coincidentally, had more than its share of weird and wacky transactions. Transactions you'll be reading about here in the near future.
Which makes it all the more amazing that I felt so much energy in the local market this year. Buyers were out in force at open houses, at least in my area, although not many were buying. Agents were out in force for broker's tours, at least in my area, and they were generally upbeat, although maybe I should credit weird and wacky 2010 for persuading most of the pessimists and malcontents to stay home. Yes, it was good to rub shoulders with fellow survivors and look them full in the eye. My CPA confirms my impression that no agent had a great 2010, so the agents you see holding open houses in 2011 likely have deep pockets and a deep commitment to their profession.
2010 started fairly well, with the homebuyer tax credit getting much praise for this. I'm not convinced. Unless you were buying at the very bottom end of the market, I doubt that the credit, which phased out just as you reached the income level necessary to buy a home in this area, was enough to make you pull the trigger. My own clients seemed barely aware of it. There's no doubt that the real estate market did slow after the credit's expiration at the end of April, but so did the stock market, and around here these two markets are joined at the hip.
For whatever reason, the summer months were slow, as they usually are, although the entry-level market was unusually slow. In fact, it almost disappeared. No tax credit? Or no confidence? Hard to say, but I've found that first-time buyers need a strong wind at their back before they'll buy, and it was mostly headwinds in 2010.
Further up the price range, around $1M or so, sales weren't nearly as volatile, buyers not nearly as skittish. Yes, first-timers do inhabit this price range as well, but they're typically people who could have bought in 2005 and didn't. Five years later, local home prices look like Blue Light Specials, and rock-bottom interest rates made home buying even more compelling.
But most buyers in the $1M range are first-time move-up buyers. They're young but seasoned. They've owned a "starter home"—condo, townhouse, maybe a small SFR in an affordable neighborhood—and lived to tell about it! No, they won't get what they paid for their home five years ago, but these seller-buyers are often starting or expanding a family or otherwise progressing rapidly along life's highways and byways, and time waits for no man or woman, especially when rates are in the 4s. I've also found that first-time move-up buyers are more than willing to take a calculated risk, which, when you think about it, is probably why they're buying million-dollar homes in their thirties.
Folks, risk ain't all bad. But never taking any risk is.
September, typically a time of resurgence in the local real estate market, was this year just another month of summer doldrums, and things looked a bit bleak. Maybe more than a bit. Definitely more than a bit, as readers of my newsletter may remember. But I've been pleasantly surprised by the mild rally our market staged late this year, just as the stock market also rallied from its mid-year slump. The local real estate numbers weren't boom-quality by any means, but they weren't jump-out-the-window-quality either, and while the midrange felt the surge more than the affordable end, the midrange is the strength and, I believe, the bellwether, of our market. Let others claim that the top-end buyer is the "smart money", that when the top end rallies the rest of the market follows. This may be true of other areas, but I don't think our market lives or dies by the $3M buyer—there just aren't enough of them, at least not since the dot-coms stopped passing out Confederate money. And while we sincerely miss the first-timers boycotting our market, we're in deep trouble when thirty-ish Moms and Dads start hiding under the bed as well.
So how did prices fare in 2010? Remarkably well, given the challenges local real estate faced. This chart, from my latest newsletter, shows the top end and midrange holding their own month over month, with peaks as well as valleys in between, while the low end, which had the vast majority of distressed sellers, lost modestly.
Why didn't the low end collapse catastrophically? Because most of those "distressed sellers" acted like anything but. Banks are by far the toughest sellers to deal with, partly because they have deep pockets, partly because they get to make their own rules, but partly because they act like they don't care—and I'm pretty sure that the asset managers that oversee bank-owned homes and the committees that approve their sale really don't care. And why should they? Unlike regular sellers, they don't have skin in the game. Then what about short sellers? When you read about homeowners who quit paying their mortgage a year ago and still live in their house, you have to wonder how motivated they are or should be. Depressed? Yes. Distressed? Maybe not. Besides, with banks still not approving most short sales, they don't close and can't affect prices.
So am I optimistic about 2011? Tune in next week to find out. Maybe by then I'll have decided ;-)