Dear Ray, I’m anxious to buy a house while prices are low, but I need to work on my credit score and save for the down payment. What will the real estate market be like next year, in 2011?
— G.J.
I get asked this question several times each week. I would need a crystal ball to predict the real estate market in 2011. (My crystal ball is in the shop for a tune-up so I’ll need to do my best to answer your question without assistance.)
Will real estate values be higher or lower next year? The answer is yes, to both. It all depends upon where you live.
Overall, the U.S. economy is improving, but at a glacial pace. A weak recovery is likely to continue. We’re getting unexpected help from the disastrous economies in Portugal, Italy, Ireland, Greece and Spain (the “PIGS”). Money is fleeing unstable countries and seeking stable investments in the United States. That’s putting downward pressure on interest rates, a welcome gift for all U.S. homebuyers or those who need to refinance. Lower interest rates are forecast for 2011 or beyond.
Lower interest rates always act as a stimulant to the real estate market. I’m already seeing an increase in market activity because of lower interest rates.
You can expect the low interest rates will cause a reduction in the inventory of available homes. That may cause some modest pressure on prices in some neighborhoods. Don’t worry: You won’t see double-digit appreciation like we experienced pre-2006.
Locally, the Puget Sound real estate market is struggling in many communities. The suburbs are doing worse than the cities. Although most experts agree that we’ve “hit bottom,” there may be another 5-percent (or more) value lost in some communities in 2011.
Meanwhile, Mercer Island has seen a 23-percent increase in values in recent months. So you can see, the real estate recovery is uneven at best. Another blow coming I’m going to presume you’re a first-time buyer based upon what you have told me. There are two things you should know: The market for entry-level homes is one of the strongest markets in the Seattle area, and another wave of mortgage defaults will hit the real estate market late in 2010 and continue through 2011.
Seattle is expected to receive a larger blow from the next round of mortgage defaults than most other U.S. cities. Right now, Seattle ranks No. 3 in the nation for cities with a rising rate of mortgage defaults — that ranking could get worse. That will mean a continuing supply of foreclosed homes at least through 2011.
Depending upon the volume of foreclosed homes and when they hit the market, there could be some downward pressure on prices in communities with a large inventory of distressed properties.
As you can see, the Seattle real estate market is being pulled in different directions at the same time. There are market forces putting pressure on appreciation and other market forces undermining property values.
The answer to your question, “What will the real estate market be like in 2011,” depends upon where you live.
Act now My advice: Don’t wait until 2011. Start planning your home purchase today. Be proactive about improving your credit score. There are things you can do today that will improve your credit score in just a few months.
Seek out an experienced Realtor in the neighborhood where you would like to live. Many agents have left the real estate industry in recent years, but the most experienced agents are working harder than ever.
Now, more than ever, you need an experienced Realtor to help you navigate the homebuying process.
Good luck! RAY AKERS has been a licensed Realtor for more than 20 years. Send your questions to ray@gbk.com or call (206) 723-2800.[[In-content Ad]]
