Predicting trends during the most volatile housing market in American real estate history is no easy task. We strongly believe these are the five real estate items we should keep an eye on in 2012:

1. Buyers Will Return

In 2011, a lack of consumer confidence in the overall economy dramatically impacted the housing market. Buyers were afraid to make a purchasing decision on any big ticket item. By the end of 2011, consumer confidence began to return and sales increased. Economic conditions will continue to improve throughout 2012 and consumer sentiment will solidify. Once that happens, home buyers will realize that now is the time to buy.

Yes, buyers are returning in droves, but only for property that has a real perception of value.

2. Foreclosures Will Increase

The ‘shadow inventory’ of foreclosures which has been growing since the robo-signing challenges of late 2010 will finally be introduced to the market. Distressed properties sell at discounted prices. They will impact the housing values of the non-distressed homes in the area.

There were more foreclosures in Newton during 2011, however there are not enough of them to have a significant impact here in Newton

3. Prices Will Soften

As more and more foreclosures come to market, there will be greater downward pressure on the values of houses in the region. Foreclosures impact values of non-distressed properties in two ways:

• They will eat up some of the buyer demand in the market.
• They will impact the appraisal on ALL transactions in the area.

An increase in foreclosures will have a negative impact on values. This will cause more homes to be underwater.

Again, Newton has been spared the foreclosure debacle for the most part. Appraisals continue to be stressful, greater responsibility is required from the Agents to come armed with comps. Many appraisers have never stepped foot in Newton before.

4. Short Sales Will Increase

As mentioned above, we strongly believe that home prices will soften through at least the first half of 2012. Falling prices will force more homeowners into a position of negative equity. Negative equity is one of the triggers that cause people to strategically default on their mortgage obligations. If this happens, there could be an increase in the number of foreclosures. However, we predict that banks will take preventative measures which will help many of these homes avoid foreclosure by easing the requirements in the short sale process for both homeowners and real estate professionals.

Yes, there has been a noticeable increase in short sales. I believe this could impact the number of sales because these buyers for the most part are not moving up to larger homes. On the other hand, this is a supply and demand business, so less inventory usually means higher prices.

5. Great Agents Will Be VERY Successful

Real Estate professionals who have invested the money, time and energy to truly understand what is happening and why it is happening will separate themselves from their competition and do very well this year.

Those who take that next step of learning how to simply and effectively communicate the market to their clients will be seen as industry leaders. These experts will dominate their markets.

The most recent Mortgage Monitor issued byLPS reports that the largest increase in both delinquencies and foreclosures, as compared to 2008 levels, are in ‘jumbo’ mortgages. A jumbo mortgage, according to Wikipedia, is:

“a mortgage loan in an amount above conventional conforming loan limits…the limit is $417,000 for most of the US.”

In some parts of the country, that limit can be over $625,000. This type of loan finances the higher priced properties in a marketplace.

According to LPS, the percentage increase in jumbo mortgages is as follows:

• Delinquencies: increased 281%
• Foreclosures: increased 589%

Again, these numbers are greater than any other type of loan including Option ARMs and Sub-prime loans.

Strategic Defaults

That doesn’t necessarily mean that the more affluent don’t have the money to meet their mortgage obligations. In some cases, they see their home as a depreciating asset and determine that continuing to put money into it makes little sense. The Washington Post recently reported on this. In the article, they explained:

“The ratings agency Moody’s said that based on its analysis of mortgage-backed bond portfolios, homeowners with jumbos now constitute “greater strategic default risk” than any other type of borrowers, including subprime. That’s because an exceptionally high number of jumbo owners — many in high-cost markets hit by real estate deflation over the past several years — are stuck with persistent negative equity.”

Bottom Line

We often explain that the number of distressed properties in a neighborhood adversely impacts values of other homes in that area. It now appears that even the most affluent areas will be dealing with a supply of discounted properties entering the market as foreclosures.  This would have an extreme impact on the Newton and all west suburban Boston markets.  I have not seen any evidence of this so far, but I will let you know if I do!

The Crew at KCM

This post refers to the national real estate market, I believe the market here in Newton, Weston, Wellesley, MA. will remain relatively unchanged thru the spring.  If anything I see a slight dip in the 1st Q of 2012

Many sellers want to wait until the spring before putting their home on the market. This might be for any of several reasons:

1. They don’t want to be inconvenienced during the holiday season.
2. They believe that they will see more potential buyers and as a result will get a higher price.
3. In the northern part of the country, they might not want people walking through the snow and then into their house.
4. All of the above

In a normal real estate market, this may make sense. However, this market has been anything but normal. This spring will also see some abnormalities. The biggest difference will be the direction prices will take.

In years past, the spring market would favor the seller because increased demand would outpace any increase in supply: the number of houses coming onto the market would not be as great as the number of buyers newly entering the market. In most situations, when demand is greater than supply, prices increase.

The reason this spring will be different is that the supply of homes coming to the market will be dramatically impacted by foreclosure properties being released by the banks. Many believe this increase in inventory will far outweigh buyer demand. In situations where supply is greater than demand, prices decrease.

Will This Actually Happen?

RealtyTrac, in their latest foreclosure report, explained:

“U.S. foreclosure activity has been mired down  since October of last year, when the robo-signing controversy sparked a flurry  of investigations into lender foreclosure procedures and paperwork. While foreclosure activity in  September and the third quarter continued to register well below levels from a  year ago, there is evidence that this temporary downward trend is about to  change direction, with foreclosure activity slowly beginning to ramp back up.

This will impact prices.

What Do Experts Believe the Impact Will Be?

Here are the pricing projections by several major entities:

• Zillow believes we will not see a bottom in prices until the first quarter of 2012.
• Standard & Poors thinks prices will drop %5 in the next few months.
• JP Morgan Chase believes prices will depreciate 6 to 7% over the next six months.
•  Barclays says prices will fall 7% by the end of the first quarter of 2012.

Bottom Line

You may pay a hefty price for the convenience of not having your property on the market right now.

Ken H. Johnson, Ph.D. — Florida International University (FIU) and Editor of the Journal of Housing Research. To view other research from FIU, visit http://realestate.fiu.edu/. D

On October 31, CNN Money reported: “Home prices headed for triple dip”.  Reporting on information provided by Fiserv (a financial analytics company), a 3.6% fall in prices on a national basis is expected by next summer.  This will result in the Case-Shiller Home Price Index falling to 35% below its peak in 2006 and marking a triple dip in U.S. housing markets.[1]

Say it ain’t so!  Is housing set for a third dip in five years?  This depends on factors being in place to lessen the impact from market anxiety brought on by worries over a pending wave of foreclosures and the U.S. debt crisis, which we will start to hear more about shortly.

So, what are these factors and what do they tell us?  These factors are really fundamental drivers that encourage individuals to buy versus rent their personal residences.  They are sometimes referred to as housing affordability measures.  The price to income, mortgage payment to income, and a buy versus rent analysis for various markets provide strong evidence that factors are in place to encourage home ownership or favor renting depending on the resulting measurements.  In ongoing research being performed by Beracha and Johnson, these measures are at record levels in favor of buying.[2]  In fact, the price to income ratios in 23 of the 50 states are at 30-year record lows.  The payment to income ratios are at 30-year record low in all 50 states.  A buy versus rent analysis performed in 23 of the nation’s largest metropolitan areas also indicates that hurdle rates (the rates at which potential buyers are indifferent between buying and renting) in all 23 cities are below 25-year average appreciation rates.  All of these results strongly favor purchasing.

What about per capita income and present day prices (relative to past prices)?  Presently, U.S. per capita income is on the rise again and has regained to the level of 2007 (roughly $40,000 per person), while prices of homes on the other hand rest at 2002 levels according to the Case-Shiller Home Price Index.  What about mortgages rates?  Presently, 30-year fixed rates are at near record low levels.

So, let’s put this all together.  Housing is presently more affordable than at any time in the last 30 years.  While income is only at 2007 levels, home prices are even lower coming in at 2002 levels.  All of these factors set the stage for many individuals to favor purchasing over renting.  Thus, while there are grave concerns over the overall health of the economy, fundamental drivers now appear in place to staunch any further significant plunges in home prices.

The ship appears to be turning.[3]

From the profane, underhanded real estate agents of “Glengarry Glen Ross” (intensely depicted by an ensemble cast including Jack Lemmon, Al Pacino, Kevin Spacey, Alan Arkin and Alec Baldwin), to the affirmation-chanting agent portrayed by Annette Bening in “American Beauty” and Rodney Dangerfield‘s embezzling mortgage broker in the Richard Pryor film “Moving” — fiction has long seemed engrossed with extreme exaggerations of real estate pro stereotypes.

What these writers don’t seem to recognize is that there are “types” of real estate consumers, too; and nothing brings the most extreme consumer types out of the woodwork than a good old-fashioned open house. Here are a few you might see, if you decide to venture out this weekend:

1. The Voyeur. The Voyeur is the neighbor, from next door or around the corner, who has come by for strictly lookie-loo purposes. Once upon a time, Voyeurs primarily stopped at open houses to check out the neighbor’s decor or landscaping — or to snoop in their drawers. Given the turn the market has taken, though, many Voyeurs hope to keep track of how property values in the area are trending, in part, through their open-house visits — it’s the best way to track what kind of property sells for what kind of price.

2. The Poser. The Poser is the seller who lets the agent in, bids the agent adieu, and then comes back an hour later with a backpack and baseball cap on, posing as a visitor — almost always to the agent’s total and complete horror and surprise. Posers thinks that no one can show their house like they can show their house, so they walk around chatting other, real prospective buyers up, casually commenting on the amazing drapery (“wow — that looks custom!”) or the wide variety of fruit trees in the backyard (“plums, peaches and lemons — it’d be like having your own private orchard — and what a great price”).

3. The Lure. I once went to a public open house (i.e., not a broker’s open house) in a decidedly non-luxe home, where the postage stamp-sized urban backyard had been turned into a scene from the South of France, complete with an entire crew of individuals who qualified as Lures — including waitstaff members busily passing heavy hors d’oeuvres and espresso-pulling baristas. Word on the street is that Thai-massage practitioners and Botox doctors are among the next-gen open house Lures now being used to attract agents who represent prospective buyers into open houses.

4. The Crack Negotiator. The crack negotiator is usually a relatively serious buyer who thinks, bizarrely, that they’re going to go the process 100 percent DIY (do-it-yourself) and that they have the skills to cut a crazy good deal by making an insanely lowball offer — during the actual open house. Not deterred in the least by the facts that the seller is not there, that the listing agent’s junior assistant is actually holding the place open or that they should actually be making this offer via a proposed contract, Crack Negotiators think if they make enough 40 percent-off offers by scrawling a number on a napkin at the kitchen table, someone is bound to take it in this market.

5. The Amateur Inspector. By contrast with the Crack Negotiators, most of whom lose their screwball tactics after a couple of dozen rejections and then move on to successfully purchase a home, the Amateur Inspector is typically a lookie-loo type or real estate hobbyist posing as a serious buyer. Amateur Inspectors think they’ll impress someone with the extent of their knowledge (acquired almost entirely by watching Bob Vila on vintage “This Old House” episodes), and aim to win admirers by mildly stalking true prospective buyers and agent attendees around, pointing out every wall crack, faucet drip and floor slope in the place.

6. The Besotted Buyer. Besotted Buyers saw the listing come online, have driven by 12 or 13 times in advance of the open house, and have bitten their fingernails the whole four days between the time the listing was published and the first open house. They come, they see and they just know — this house is “The One.” But sometimes, in their possessiveness about the property, they begin to act out, coming back to the open house over and over, even trying to nonchalantly discourage other attendees about the property, suggesting it is overpriced and making a big to-do of the few flaws they can find.

The economy has created some extremes in the housing market, and open houses seem to bring out those with extreme personalities who love to look at and shop for real estate. The upside? These folks transform open-house hunting into a spectator sport — not just for home viewing, but for people-watching as well. Have fun!