Looking Back: 2011 Analyzed, and My 2012 Real Estate Market Prediction

By December 21, 2011Housing Market

Last year I attempted to make some predictions for the coming year. I thought it would be a worthwhile exercise to take a look back at 2011 and see how I did, and then share my thoughts on what should happen in the new year.

At this time last year, I predicted the following:

My prediction: The Fed appears committed to keep interest rates low.

What happened: Rates dropped in 2011. After a rise in the first quarter, the index rate dropped by 0.47 points by the end of the third quarter. Interest rates on a 30-year fixed mortgage dropped by almost one percent over the course of the year, from 4.79 in January to 3.96 in December.

 

My prediction: Lending standards will not loosen any time soon, and may tighten.

What happened: Fannie Mae tightened their guidelines earlier this year, no longer funding balloon mortgages and requiring borrowers to put down more money and have a higher credit score. There was lot’s of talk from Congress on further tightening as well.

My prediction: The FHA’s waiver of anti-flipping rules might expire, but shouldn’t.

What happened: On January 28th, the FHA extended the suspension of the anti-flipping rule. Sales to 3rd parties grow substantially in 2011. California saw an increase of 29.4 percent year-over-year, while Arizona and Nevada fared even better, with growth at 101.6 and 79.9 percent, respectively.

My prediction: There will be no new housing stimulus or tax credits in 2011, and the 2010 tax credits will steal demand from 2011.

 

What happened: Nothing. There were no new stimulus programs in 2011. Most markets experienced a decline in sales volume in 2011.

 

My prediction: Mortgage interest deductions will not go away in 2011, but are at risk longer term.

What happened: They remain intact.  The year ended with the NAR announcement that there will be no immediate proposals to limit the mortgage interest deduction in 2012. The National Association of Realtors appointed a super committee to vehemently defend the mortgage interest deduction. A historical year in review can be seen here.

My prediction: States face unprecedented shortfalls and begin to look to property taxes to make up the difference.

What happened: Property taxes saw varying increases around the country, California’s Prop 13 was increasingly called into question, and many saw services cut in light of declining property tax revenue. Still total tax revenues are higher than they were pre-bubble in most areas, and the reality is that rapid increases seen during the bubble were a windfall that should have been saved not squandered.

My prediction: The government will continue to roll out programs that do little to help distressed homeowners.

What happened: More of the same. This year saw some progress on loan modifications, short sales and refinance programs, but what homeowners really need is principal balance reduction and there has been little, if any, progress there.

My prediction: Confidence will remain low that the housing market has stabilized due to the government’s handling of the robo-signing controversy and intervention in the foreclosure process.

What happened: Consumer confidence remains low, and with the budget showdown, and drama in Europe, it became clear the lack of confidence extends well beyond housing.

My 2012 Real Estate Market Prediction

Pulse Loans should make a comeback – but won’t. Back when prices were so high it didn’t makes sense to make loans at all, anyone with a pulse could get one. Now that prices, at least in some areas, are so low that we should give loans to anyone with a pulse, loans are difficult to come by. I’d rather invest my money in a home loan for a family who has strategically defaulted, then give it to a bank to use for free. Yet lending regulations essentially prohibit me, and anyone else looking for reasonable returns in a zero interest rate environment, from making those loans.

In Washington DC, the politicians say that the government shouldn’t be in the business of making home loans. Yet at the same time they ratchet up lending regulations to such onerous levels that no one but the largest banks backed by government lenders or insurance would dare lend.

While I predict very little change in an election year, it is still my hope that leadership will emerge to build consensus around a clear path back to a functioning housing market. A market that provides American’s both access to the opportunity to buy a home, and to the opportunity to get decent returns by investing in home loans.

What is your 2012 Real Estate market prediction? Change or more of the same? We’d love to hear your thoughts.

10 Comments

  • Doug Willis says:

    Sean,

    Great insight for 2011 and I am paying more attention to your 2012 predictions.

    Posted a link to the article on our Facebook page, with this highlight “I’d rather invest my money in a home loan for a family who has strategically defaulted, then give it to a bank to use for free.” We agree!

  • Justin says:

    Nice work. We need more people who review their predictions: it shows an objective interest in predictiveness as well as personal accountability.

    I do modeling slightly differently, more geared to macroeconomic climate and not specifically geared to the housing sector, with monte carlo simulations that compare to prevailing sentiment and information, but I’m happy to put my predictions out there.

    Around the beginning of December I valued a 50/50 chance of a rise in real estate for 2012 (before that I was negative). Since then I’m even more confident – I think the risk of low probability, high risk downsides are balanced by three things: bad news correctly factored into pricing, a generally improving economic picture, and political incentive to stimulate the housing market.

    To me, if I were a politician who wanted to find an engine of recovery, it would be easier to legislate policy to stimulate the housing markets than the manufacturing, financial, energy, or agricultural sectors. It may be accomplished by the Fed via something akin to continued quantitative easing: at some point raising the target on inflation will trigger investment into hard assets, and I could see this happening this spring.

    I’ll be happy to revisit this in 12 months 😉

    • Sean O'Toole says:

      At one point I shared your thought that we would see more government stimulus for housing, but I’ve changed my view as I see too much divisiveness in Washington, and some strong headwinds against the housing stimulus we already have (GSE’s, mortgage interest deduction, etc.), let alone new stimulus. Certainly will be interesting to watch.

  • Jo La says:

    My home for 2012 homeowners who have been responsible rewarded first? I am disgusted at the many foreclosed victims such as the ones listed in this article http://dailyproperties.com/foreclosure-victims-tactics/ getting rewarded before responsible home owners.

  • Sofie C says:

    I’ve been watching FM on facebook. http://www.facebook.com/homepathbyfanniemae and knowyouroptions too. Have you checked it out?

  • Trent Adams says:

    With millions of foreclosed homes on the market and millions more coming within the next couple years we need goverment out of the picture,i’ll keep in eye out on your predictions…thanks

  • Joe says:

    My prediction;
    Another 25% drop in home values. The government has spent trillions stimulating the housing market, including dropping rates for a 30 year mortgage to below 4% and had very little apparent success. But the success is really displayed by the entire housing industry staying afloat. The stimulus programs are about dead and rates will rise in the second half of this year. Then my friends, we will see where we really stand. It will not be pretty.

  • suzanne says:

    unfortunately…i agree..

    which is why i’ve dropped the sale price on a great house 30%
    better than the50 %+ loss i expect.. in next 6 mo

    i sold 1 house in 2005 at 285k it just sold for 85k.
    another in 2006 at 245k .it just sold for the 3rd time for 80k
    i live in a very small town no.ca

    the flip extension till 12/13 will help. i’m still buying.

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  • Joe says:

    I happen to agree with Joe above and it’s not because we have the same name.
    The government has pulled everything it has out of it’s bag of tricks and it only slowed the decline. With the millions of homes being held by the banks and many buyers preferring to rent at this point, I say another 25% is possible and then little to no appreciation for a decade.