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2011: The Year a House Again Becomes a Home

For almost a decade now, every time we talked about real estate we immediately discussed money. We didn’t talk about the value of a home but instead about the price of the house. We didn’t worry about a roof over our heads but instead the ceiling on our interest rate. We didn’t care as much about where we raised our family as we cared about how much we increased our family’s net worth.

That will change in 2011. The KCM Crew believes very strongly that real estate will return to what it has been for the 200+ year history of this country: a place for us and our families to live comfortably. It will also prove to be a great long term investment as it always has been.

Our parents and our grandparents didn’t buy their homes as a short term financial investment. They bought it so they had a place of their own to come home to at the end of the day; a place to raise their family; a place they could feel safe.

Sure they dreamed of a ‘mortgage-burning’ party. They realized it was a form of forced savings. They were taught that, if they paid their mortgage every month, they would wind up with a little retirement account decades later.

And, they realized that wouldn’t happen if they rented.

However, in the last decade, we somehow forgot that the financial aspect was the serendipity not the major reason to buy. We believe that 2011 will be the year that people return to the historic reasons families purchased a home. This is the year when we again remember that homeownership is a major part of the American Dream.

What about the challenges to a housing recovery? Let’s look at them.

The Economy

Most reports are showing that the economy is doing better than expected. This shopping season provided additional proof of this point. As the economy recovers, so will consumer confidence. This will be great news for housing.

Unemployment

There is much talk about a ‘jobless recovery’. We agree that unemployment will continue to be a challenge. However, when you talk about housing, it is not the unemployment rate that is all telling. Instead, it is the change in the rate. As unemployment skyrocketed, people started to worry about their own job. Any change creates concern. Unabated concern turns to fear. Fear causes paralysis. The spike in unemployment has plateaued. People no longer have the feeling that ‘they are next’. The fear will diminish and people will start moving on with their lives. This too will be great news for housing.

Interest Rates

It seems the bottomless pit in which rates have been falling does have a floor after all. And it seems we have found it. Those purchasers who had been waiting for the best interest rate may have already missed it.

Prices

Economists are projecting that prices will not see any appreciation in 2011. Sellers who had been waiting for 2006 to return will come to the realization that waiting any longer makes little sense. They will instead decide to get on with their lives and sell this year.

Prices probably will soften further. However, the possible savings to potential buyers will be minimized by a rise in interest rates.

Bottom Line

This is the year that normalcy returns to real estate. People will buy and sell based on the desire for a better life for themselves and their families. They will realize that is the true value of homeownership and they will be willing to pay for that value.


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24 replies
  1. Jim Wire
    Jim Wire says:

    Most of my clients that I am talking with are telling me that they are ready to buy this year. They feel that we are close enough to the bottom and the stars are aligned. Homes are the most affordable in Tahoe since the late 90’s. Units sold had doubled this past year and I’m expecting to see sales to further increase in volume. If this happens, we will be closer to a more balanced market in terms of supply and demand.

    Reply
  2. Jonathan Kauffmann
    Jonathan Kauffmann says:

    I’d say there are 2 more challenges that you missed: 1) inventory levels and 2) distressed property sales

    Obviously, there are a lot of factors in every market and it’d be great if we could snap our fingers to right the ship. However, if inventory levels stay high and the distressed sales (both foreclosures and short sales) stay as relevant as they are in most markets, the housing market will have a tough time recovering in 2011.

    You could make the argument that lower unemployment and a better economy will take care of both of those issues…which very well could be true.

    Reply
  3. Steve Harney
    Steve Harney says:

    @ Jonathan Kaufman – Great point. Prices will definitely continue to fall. We addressed this issue just last week in a post:

    http://kcmblog.com/2010/12/20/the-trick-is-to-not-flood-the-valley/

    In that post, we said:

    “Both the Bank of America and Fannie Mae have projected that house prices will fall dramatically at the end of the first quarter of 2011 and then slowly move upward through the rest of the year.”

    However, today’s post talks to the point that the ‘financial’ considerations of buying or selling will be overtaken by the ‘life’ reasons in 2011. We very strongly believe that!!

    Reply
  4. Steve Harney
    Steve Harney says:

    @ Dr. Rosen,

    Because we totally understand your skepticism, we will be totally transparent. There are eight individuals that comprise the KCM Crew. Seven do not have a real estate license nor ever have. I do and have had it for almost 30 years. I have not listed or sold property for over 15 years. The musings on this blog come from a team of researchers with no vested interest in listing or selling real estate. We just report on the housing market.

    To that point we know prices will definitely continue to fall. We addressed this issue just last week in a post. Perhaps you missed it:

    http://kcmblog.com/2010/12/20/the-trick-is-to-not-flood-the-valley/

    In that post, we said:

    “Both the Bank of America and Fannie Mae have projected that house prices will fall dramatically at the end of the first quarter of 2011 and then slowly move upward through the rest of the year.”

    However, today’s post talks to the point that the ‘financial’ considerations of buying or selling will be overtaken by the ‘life’ reasons in 2011. We very strongly believe that!!

    Reply
  5. Julie Porowski
    Julie Porowski says:

    You’re right on, KCM Crew! What’s old is new! I have been a Realtor for 25 years and as I have discussed with many of my “old-timer” collegues lately, things are going back to the way they used to be…you bought or sold a house because your family is expanding/shrinking, a job transfer, a divorce, a better school district, etc. And guess what…you may actually have to have verifiable assets, a downpayment and the ability to pay back a mortgage! What a concept! The market is getting back to normal (not the fake “normal” of 2003-2006) …I think I’m going to have a very successful year!

    Reply
  6. Kimberly Byrd
    Kimberly Byrd says:

    This is spot on! I have been preaching this for about 2 years now. We can’t expect real estate to be a way to make a quick buck, but as an INVESTMENT…and not a short-term one. One in our future, our family’s future, for retirement, for security…

    The “quick buck” theory is partially what led to part of all of this problem and inflated people’s lifesatyles to a level that they had to be brought down from.

    Reply
  7. Dr. Rosen
    Dr. Rosen says:

    The fundamental thinking that real estate is an “investment” is what got people into trouble. It’s a place to live; a roof over your head. It is completely wrong to see real estate as an investment for our family’s future. This is not the first time real estate has gone down in value. Of course we live in a screwed up culture where people define themselves by their material possessions which is sad and pathetic. There is no way prices will drop dramatically and then start to rise all of a sudden. That’s just stupid/ignorant wishful thinking. Once they figure out what to do with all that shadow inventory and unemployment improves AND the market hits bottom which we are not at yet, prices will remain flat for quite some time. This is how the cycle will work because historically, that’s how it’s been. There is nothing to suggest a bottom. In S. Fla, 4 houses were taken back for every one sold in 2010. Because the government and the banks refuse to let the market self correct, this process will continue well into the future. Prices must come down to affordable levels and employment must improve.

    Reply
  8. Ruthmarie Hicks
    Ruthmarie Hicks says:

    I wish I could be as optimistic. What sellers need is a better market – not happening. Buyers seem to want to scalp mindlessly without any regard to what the listing price is. I am telling buyers to pull the trigger because with interest rates being what they are – it just isn’t going to get more affordable. But they just say they want “more” and don’t understand that in this market there probably really isn’t much “more” to be had. Sellers – if they can hold on for 5 years – without hurting themselves financially – they should. If they need to sell before that – they should do it now. Waiting a year or so won’t help.

    Agents and brokers need something different all together. They need an uptick in volume – desperately. (Ironically – I don’t think that low volume will impact prices much further – so there is a total disconnect what we need to stay in business and what the market will be for buyers and sellers.) However, I’ve heard so many times before that the market will pick up that I am no longer listening. I’m out of money and patience to continue in real estate full time and am setting up a separate business as we speak. Too many analysts have told me that things were about to “turn around.” Our market has been slowed down since 2006…I’ve heard the same prognostications in 2007, 2008, 2009 & 2010. If we have the same problem in 2011 – I’m not going to be around to here the nonsense in 2012.

    It’s too bad because I see a lot of the more dishonest agents hustling and doing well. Those of us who don’t tell people what they want to hear are being pushed out. The industry itself is mess.

    Reply
  9. Ruthmarie Hicks
    Ruthmarie Hicks says:

    To Dr. Rosen,
    You seem to have more of an axe to grind than anything substantive to offer. However I do not see this post as one that is implying that real estate prices are going to rise dramatically any time soon. Perhaps you should read it again.

    Also – general comments about certain states are not helpful. Real estate is a very, very local business. You are painting with too broad a brush and using one of the worst hit markets in the country as your prime example rather than taking an area that reflects the median.

    I disagree with the author that things are going to turn around – at least in my market as far as volume is concerned. He is speaking to agents specifically on the topic of sales volume in general and not prices.

    Also – as I pointed out – a good market for agents is one that MOVES…Prices can be high or low. My area has little “incentive” to move. Which is why I’m starting to do other things. Mr. Harney has made it plain that there will be little appreciation short-term. Since real estate is a cyclic market – it is fair to assume that over time there will be a significant uptick again – but that is a few years out.

    Reply
  10. David Sobottke
    David Sobottke says:

    Dr. Rosen, dont quit your day job!! In a time of hyper-inflation, low prices, cheap money, there is now better time to buy. As inflation grows, and the payment stays the same….WOW! What would you suggest? Bonds, cd’s, burying cash filled cans in your backyard? No wait, you don’t even have a backyard if you don’t have a house. Time travel is possible for the first time home buyer!

    Reply
  11. Wendy
    Wendy says:

    Steve, Thank you for your words. I have been reminding people all year that a house is a home-to raise your family, create memories, and provide shelter. Somewhere along the way we got lost-whether you want to call it greed or opportunity it was not the correct way of thinking. Owning a home is the Great American Dream and, now, more than ever a home is affordable. Let’s embrace these thought and help more people achieve their real estate goals in 2011! Not only will people be able to buy a home for themselves, there are still many who, because of foreclosures or short sales will not be able to purchase a home for several years to come. Let’s provide homes for them by working with investors to purchase homes and give these people a place to raise their families, create memories and provide shelter. The investors of today are not the investors of years gone by. In most cases they are not leveraging to purchase, but paying cash. These cash buyers will help the real estate market get back on its feet and recover. I look forward to being a part of this recovery however long it takes!

    Reply
  12. Terri Derr
    Terri Derr says:

    Thank heaven for cash buyers! There is an entire segment of the buying public unable to get mortgages in spite of great credit scores. The buyers I have been fortunate to work with in 2010 are definitely the finding their ideas of “home” have been dramatcally altered in recent years. They will identify with the subject of seeing their home as a place of comfort and safety rather than as an investment in the strict sense of the word. I am seeing buyers who have lived a very luxurious lifestyle choosing more of a neighborhood environment with more diversity than in the past.
    Look for that as a trend.

    Reply
  13. Doug Osgood
    Doug Osgood says:

    Dr. Rosen,
    I am always interested in the evidence and facts. Please let me know where you got these “facts”.

    1. The fundamental thinking that real estate is an “investment” is what got people into trouble.
    2. It is completely wrong to see real estate as an investment for our family’s future.
    3. This is not the first time real estate has gone down in value. Since 1930’s?
    4. Of course we live in a screwed up culture where people define themselves by their material possessions which is sad and pathetic.
    5. Because the government and the banks refuse to let the market self correct, this process will continue well into the future. Prices must come down to affordable levels and employment must improve.
    Thanks for your help.

    Reply
  14. Eileen Rega
    Eileen Rega says:

    Well….good or bad market, people have to have a place to live whether it’s a purchase or a rental, they still need to live under shelter. Although it is nice to sell homes that are much higher in value, I’ve been taught never to forget your “bread and butter” homes which are much lower in value. So whether it’s a high price, low price or a rental, there is always an opportunity to make money, even in this market. Just like every day a star is born, someone wakes up and says, honey…let’s purchase a home. I want to be there to help them, but only if I stay focused on the positive and walk briskly away from the negative. Thanks Steve for teaching me this.

    Reply
  15. Jane Foster
    Jane Foster says:

    Yes, this recession is painful but healthy. Buying a home first as a home then as an investment is the best way to look at it. We are being forced to go back to owning a home or investment property as a long term hold. When we look at other countries we are still blessed here in the U.S. My clients from Israel tell me there you have to pay cash for a home. My clients from Hong Kong tell me that real estate and living costs there are much higher than here.

    Reply

Trackbacks & Pingbacks

  1. […] by THE KCM CREW on DECEMBER 29, 2010 · 5 COMMENTS […]

  2. […] an excellent blog regarding what a lot of this discussion is about: 2011: The Year a House Again Becomes a Home What is right for one is not necessarily right for everyone. I don't think we should judge which […]

  3. […] The Year a House Again Becomes a Home 12:20 pm | From http://www.KCMblog.com by The KCM Crew on December 29, […]

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