Friday, March 8, 2013
Real Estate Market Watch 2013
In December I wrote this article for a local Chamber of Commerce newsletter. It is a year end summary of 2012 and a forecast for 2013. Today, in the early part of March 2013, I see some of these trends taking shape. I expect them to continue.
These have been tumultuous times for the housing industry. The bursting of the housing bubble and the prolonged Great Recession have both created an extraordinary challenge for anyone with an interest in real estate.
We started to see positive shifts in the housing market in 2012. It was the second full year without a first-time homebuyer tax credit, so the organic growth in unit sales numbers is very encouraging. We still experienced a lot of distressed sales which have kept prices flat. The good news, however, is that prices, for the most part, didn’t decline [exclusive of areas of Milwaukee that were hit the hardest with foreclosures]. In Waukesha County we started the year at about the 2003 pricing level and that is about where we are at today. In some areas we’ve seen buyer competition for well-maintained homes which has created a little bit of a shortage of listings and somewhat of a demand-pull inflation on prices.
There are signs of encouragement for the housing market in 2013. Both the words and the actions of the Fed indicate that interest rates will remain low through most of the year. Pent up demand to buy homes has begun to release and greater numbers of people will act on their desire to own a home or to upgrade. There has also been a pent up desire by many people to sell their homes to relocate to their retirement destination. Many will stop holding out for the return of their equity and place their homes on the market this year.
With the tough economy of the past several years there has been a decline in the number of people pursuing a career in selling real estate, but there will be a turnaround in that trend this year. With sales numbers increasing and prices stable many people who are frustrated with the job market will likely be attracted to the entrepreneurial endeavor of selling homes.
A larger trend that may be significant is the coming of age of the echo boomers. Also known as generation Y, this group is a larger cohort than the baby boomer generation, therefore, demand for housing will swell like never before. Echo boomers, so far, have demonstrated dramatically different tastes as it relates to housing, preferring smaller homes, shorter commutes, and more intimate neighborhoods. However, echo boomers, largely because of the economy, are taking longer to establish their careers and form households. Much remains to be seen about how they will manifest their housing desires, but in the coming years we may see a growth in gentrification, an in-migration pattern from the suburbs to the cities. The challenge for cities will be to make their school districts attractive enough to the young parents.
On the business side for us in real estate, our biggest challenge is also our biggest opportunity. The Great Recession has reduced the intake of new Realtors into the industry to new lows, and retention has been challenging. However, with much competition weeded out and increasing demand for housing, real estate sales will become a very attractive career choice. Enterprising young people who have been dissatisfied with limited opportunities in the job market stand to make substantial profits by helping their friends find quality housing for their new families. Also, you can expect the home remodeling industry to see tremendous growth in the next ten years, as this generation modifies their dwellings to fit their tastes.
Trading of housing, however, isn’t something that people really time with the market. It is a basic human need timed more appropriately with life circumstances. When people get married and have children they tend to want to own a home of their own in a good school district and pleasant neighborhood. When children grow up and move out of the house mom and dad no longer need as much space. Death, divorce, job transfers, job promotions, the birth of grandchildren and the desire to be near them; these are circumstances that give reason to buy or sell homes. These life events happen in good economies and bad, when interest rates are low or high. Housing is a quality of life issue as much as it is a financial issue.
Our homes are, in part, how we define ourselves and that has a lot to do with the people in our lives, the people we want to be close to. Buying a home will once again be about planting roots rather than harvesting profits. When approached from the right perspective there has never been a better investment than owning a home.