It’s the beginning of a new year… We start it with more hope than usual for a more positive, less uncertain year. Let’s start with a review of 2011 in order to look into the coming year with some insight.
2011 was regularly full of surprises. There were both political and climate crises around the world, including the Japanese earthquake and tsunami, uprisings in the Arab world, and European countries teetering under the weight of their debts. At home, there were political standoffs on Capitol Hill, debt ceiling disagreements, and the downgrade of U.S. credit rating.
No wonder we haven’t seen the economic turnaround we are all hoping for. It’s difficult to walk forward with certainty when things keep dramatically changing. Yet, the ingredients for a turnaround in the housing market are there: record low interest rates, great affordability, and attractive home prices. What we need is a period of stability with fewer national and international surprises!
The California real estate market did show some encouraging signs of improvement in certain price segments and communities, but restless consumer confidence, the slow economy, high unemployment and volatile financial markets all combined to keep home prices and sales flat in most areas.
Our San Francisco peninsula area fared better than most, buoyed primarily by the energy in the tech sector, and it is poised for an even better year in 2012. The California Association of Realtors in its annual forecast predicts that home sales in California will rise just 1 percent in the coming year, but our region has advantages over other parts of the Golden State that could come into play, so it might do better than the rest of the state.
If real estate is all about location, nowhere is that truer than here in the Bay Area. We really have four distinct micro-markets: Silicon Valley and other west bay regions, the distant suburbs in the east, north and south bay, the dense urban market of San Francisco, and everyone else. In 2011 the local markets in San Francisco, Silicon Valley, the Peninsula and Marin in general held up reasonably well, but many of the more-distant regions continued to be challenged by distressed properties, softer pricing and slower sales.
Distressed Markets
2011 saw a decrease in the number of foreclosure sales, but an increase in short 
sales. It appears that government regulations and controversies over “robo-signing” kept more foreclosures from coming on the market, but, as banks put the robo-signing debacle behind them, we may see more REO properties released in 2012.
While the release of additional distressed properties could keep prices of all homes down in 2012, I suspect that strong demand by investors for these homes will probably keep prices from falling much further. We’ve seen multiple offers for many bank-owned properties, sometimes all cash offers, as investors snap up what they believe to be great bargains.
Luxury Market
The luxury segment in the local housing market has performed steadily, to say the least. High-end homes from Silicon Valley up through the Peninsula and into San Francisco and Marin continued to sell well, often with multiple offers above the asking price. Buyers in the luxury segment of the market ranged from high-tech, biotech and financial executives to well-healed overseas investors from Asia and Europe who are drawn to the attractive pricing of luxurious properties compared to the higher prices back in their home countries.
Sales of homes valued at $5 million and above soared 80% in the Bay Area this year. The most impressive sale that made headlines was that of a lavish mansion in Los Altos Hills purchased by a Russian billionaire/tech investor for $100 million.
Non-distressed, “regular” mid-market
Homes that are somewhere between distressed and luxury properties – the bulk of the market here in the Bay Area – probably were the most challenged in 2011. Equity homeowners stayed on the sidelines, perhaps due to a lack of confidence in the housing market and the economy in general. They may have been frightened away by doom and gloom news headlines about the housing market, or maybe fear over whether they might lose their job should the economy stumble again. This uncertainty and lack of confidence, I suspect, will continue to some degree into 2012 until there is more positive improvement in the economy.
But as we begin 2012 there are glimmers of hope that the housing recovery could finally gain some traction.
Gradually we’re seeing fewer distressed sales and more “normal” transactions. Despite the recent downturn, the high-end market had a solid year in 2011, which is a good sign for the entire market.
In the past, luxury homebuyers — the so-called “smart money” — are often the first to declare a market bottom and jump back in because they have the means to do so once they are convinced the time is right. The other segments eventually follow.
Buyers are far more active right now and that, coupled with tight inventories, is helping to firm up pricing while getting serious buyers to be a little more realistic when making offers–especially in the entry-level arena. Properties priced correctly and that show well are getting a tremendous amount of traffic as well as multiple offers in some cases.
Finally, the news media are starting to join the chorus suggesting a turnaround is near and that now is the time to get back into the housing market. A recent Fortune magazine article declared, “Forget stocks. Don’t bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.” And The Wall Street Journal followed with a headline declaring, “It’s Time to buy that House.”
So will 2012 usher in a steady, predictable economic recovery at long last or another wild rollercoaster ride of economic and political surprises? Only time will tell how it all plays out. Fasten your seat belts!
Should I buy? Should I sell? Have we hit the bottom of the real estate market? These are the persistent questions that many people keep asking themselves.
