1. More Distressed Homes Come on Market, but 'Regular' Deals Have Cachet
The number of homes repossessed by banks dropped off pretty dramatically at the end of 2010, partly because of the robo-signing foreclosure freezes, and partly because the average time between initial mortgage default and foreclosure has stretched out to as long as 16 months in some states, 22 months in others.Lenders appear to have slowed the rate of foreclosure filings in an effort to:
- avoid responsibility for carrying the costs on some foreclosed homes
- let soon-to-foreclose homeowners take care of their homes
- avoid flooding the market with foreclosures
Short sales and foreclosures will continue to constitute a large number of the homes being sold. Foreclosures and short sales made up 25% of the homes sold in the third quarter of 2010, which was a 25% decline from Q2, and a 31% drop from the third quarter of 2009.
At the same time, foreclosure activity--the homes which received notices of default and have their homes scheduled for foreclosure auction--rose in 65% of U.S. real estate markets. So next year, we'll see an uptick in the numbers of foreclosures that make it onto the market for sale. (Fortunately, the numbers of new defaults are down, which assuming the job market also improves, could mean a deeper, overall market recovery coming down the pike--but way down the pike, like 2012.)
Those planning to sell their homes in 2011 should know that foreclosures and short sales will still be around, maybe even in larger numbers than they are now. And they'll still be offering deep discounts; in fact, the most recent numbers show that the average foreclosed home sells for 32% less than the average non-foreclosure.
The saving grace? The robo-signing scandal has made buyers fear that they may not get a clear title if they buy foreclosures; the crazy delays in getting short sales approved by banks has turned other buyers off from those properties, too. So, individually-owned homes will continue to grow more attractive to buyers next year. But don't expect them to be willling to pay more for them.
2. Sellers Learn to Manufacture Urgency
Anyone with an eye on the housing market's ups and downs should feel drunkenly dizzy by now. But the most real hangover in the market this year was the drop-off in buyer urgency and home sales activity that happened after the tax credit expired (for real, this time) on April 30. Every month since then, sellers have escalated their list price cuts, slashing prices like a big box store on Black Friday.
In 2011, only sellers who need to sell will sell, in all but the few stabilizing and rising markets. The trend of sellers getting aggressive about cutting their list prices will continue, and truly serious sellers will begin to simply set prices aggressively low in the first place.
Sellers will continue to ditch the cutesy, kitschy "selling strategies," like burying religious figurines in the front yard, and will get more extreme about differentiating their homes from the competition. Increasing numbers of home sellers will aggressively prepare, repair and stage their homes for sale, to set their homes apart from the bargain-priced short sales and foreclosures. And more sellers than ever will undertake creative transactional strategies to get their homes sold, from extreme incentives (like the couple who will throw in their Florida vacation condo if you buy their main Connecticut home!) to reverse offers.
3. Condos Become Even More Difficult to Sell
Homeowners' associations have taken a hit in this recession--big time. When condo owners get strapped for cash, their HOA dues are one of the first bills they put off. And when units are foreclosed, the banks sometimes don't pay the dues until they resell the place.
The problem: When more than 15% of an HOA's members are behind on their dues, its unlikely that a lender will extend financing to a new buyer. From there, it snowballs: Units can't sell (except to cash buyers and investors), the buyer pool shrinks, the values go down, and homeowners feel trapped or, even worse, more inclined to walk away.
Complicating matters for HOAs are the challenges that buyers have in obtaining FHA approval on condo complexes.
Condo-buyers have relatively lower incomes and down payment reserves than single-family home-buyers, so FHA loans are the mortgage of choice. But the kibosh has been put on many a condo sale by the inability of the complex to obtain FHA approval. And approval guidelines are set to get even tougher in 2011.
The FHA is drawing a line, only backing loans on up to 30% of the units in a complex. If your complex is already at or beyond the 30% "saturation" rate, your pool of prospective buyers will be pretty slim--limited only those who can qualify for a conventional loan, and have 5% to 20% down (not FHA's 3.5%). Accordingly, already tough-to-sell condos will get even tougher to sell in 2011.
4. Prices Bounce Along the Bottom, With Notable Exceptions
Remember those commercials from the '70s and '80s, where the little ball would bounce along the bottom of the screen, atop subtitled lyrics? That bouncing ball presages what housing prices will look like next year; they might be up a tad one month, but they'll be back down the next. Many insiders are predicting as much as a 5% to 10% decline in housing values nationwide, but it's tough to be that specific (and be right).
A caution here too: The real estate market is, now more than ever, highly localized. Nationwide data is interesting, but it's just numbers. What counts is what's going on in your specific neighborhood.
Some caveats: If the job market takes off and many more jobs are created, wary wanna-be buyers might hop off the fence, and home prices could begin to really recover, for good.
Also, in some of the markets that have had and will continue to have positive job growth and population growth--mostly Southern and Midwestern metros like San Antonio, Salt Lake City, Oklahoma City and Raleigh-Durham, N.C.--home prices will be stable or even on the upswing in 2011.