Our 2011 Predictions

Elizabeth Park Looking Over the Pond House Gardens Towards the Lawn Bowling ClubIt’s the second half of January, and we haven’t even published any predictions for the year. Shame on us! The point of predictions is to get them out there early so that everyone has already forgotten about them by the time the real action starts. That way you don’t get egg on your face when the exact opposite happens. But if you get it right, then you can smugly point back to your calls and say, “See, should have listened to me.”

The overall real estate environment can be charitably described as unfavorable over the past few years. It’s been characterized by falling prices, decreasing sales volume, and tightening credit as the overall economy works through a financial downturn. Buyers have been far more reluctant to make a big real estate purchase despite the Federal stimulus and the very low mortgage rates. Part of it is undoubtedly less confidence in their personal financial security, the concern that they could be laid off tomorrow. At the same time people no longer believe that real estate prices will always increase, so they’re less interested in sweating out the first few years of big mortgage payments in hopes of being rewarded with quick appreciation and home equity.

Our research shows that the number of single-family home sales in Hartford County peaked in 2005 at just over 9,000 properties. Sales quickly fell to the lower 6,000s by 2008, and remained about there in 2009 before falling to the upper 5,000s for 2010. Single-family home prices didn’t peak until 2007, fell 14% in two years, and then rebounded a bit in 2010. It’s still not clear to us why the average home price increased this year, though it’s encouraging that they didn’t fall further. Our current theory is that the mix of sales changed to included more larger (higher priced) homes.

Looking Forward
We don’t see any major changes in the big picture story, so we expect 2011 will bring more of the same. Local employers seem relatively stable in that there have not been major layoff announcements recently, but lots of people are still looking for work. And thrift continues to be a virtue, so the rank and file are less likely to reach for a larger home. We think the number of deals will remain in the vicinity of 6,000 for the year, and that prices will be flat-to-down for the region overall. We expect mortgage rates to continue to slowly rise, though not jump so much that buyers feel their purchasing power has been taken away. Basically, we expect that it will be another year in which homes have to be priced and marketed well in order to sell.

That said, we have some disagreement about the specifics. Rather than settle it internally, we thought it would be more fun to have a public airing of differences, so that bragging rights can be established at the end of the year.

Number of Transactions
One of the largest differences in the market between then and now is the number of transactions. Neither of us believe that they will return to previous levels, but we do have a bit of disagreement over the direction they’re heading.

  • Amy: Sales volume is going to stay flat or go down versus 2010 for Hartford County … it’s going to get worse.
  • Kyle: Sales volume is going to stay flat or go up slightly versus 2010 for Hartford County … we’re stabilized and rebounding.

Mortgage Rates
The Federal Reserve’s current Quantitative Easing program is clearly not holding mortgage rates down. So how high will they go in the coming year?

  • Amy: Interest rates will fluctuate between 5% and 6.5% during the year. The slow increase will cause some buyers to pull the trigger sooner than they had otherwise planned.
  • Kyle: Interest rates will increase, though it’s not clear to me how high they’ll go. As long as inflation fears don’t take off, they should remain low enough for people to actually get mortgages.

Bonus Predictions

  • Amy: Short sales are going to be a lot more common. I am not a fan of short sales because my buyers wait and wait for months to hear back from the bank, never do, and eventually move on out of frustration.
  • Kyle: The requirement that all condo associations update their FHA approval will cause delays for buyers. Condo associations are run by volunteers. Ideally their management companies, professional property managers, will make sure the associations understand the benefit of being FHA approved, but I’m sure there will be some complexes out there that just forget to go through the process.
  • Kyle: This year there is no obvious real estate storyline, like there has been for the past few with the Federal Home Buyer Tax Credit. But as an industry, selling is easier when there is either a big carrot or a big stick out there, so I have no doubt one will be manufactured. I’m thinking that after a couple years of credit carrot, we’re going to be transitioning to the stick this year. Two leading candidates are “Buy now before prices start to rise” and/or “Buy now before mortgage rates rise.”

We’ll see what happens … it’ll be an interesting year in Greater Hartford real estate!

Readers, do you have any predictions? Related to real estate or in general?

One thought on “Our 2011 Predictions

  1. I think as far as price and volume – its likely to be flat, flat, and more flat. The recent news on commerical market vacanies in Hartford and Northland’s issues – while not directly related – don’t suggest anything but “soft” in the immediate surrounding economy. UCONN’s loss of 100M funding for a new medical center didn’t help either. I agree that its very unlikely we’ll see any federal programs given the deficit pressure and changed political dynamics after the last election. The marketing gingles will be, as you note, buy now before prices go up – but I don’t suspect that will ring true until 2012 or 2013 for most people who don’t have to buy or have to sell. Overall, if price and volume is flat, that could be seen as positive in some respects – if not particularly exciting.

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