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.
2011: The Year a House Again Becomes a Home

Real Estate 2010: The Year of Intervention

This past year has been very challenging for real estate. The market was defined by outside intervention. This intervention tugged at historic trends. Government involvment caused market fundamentals to be distorted beyond recognition. Unpredictability was the only thing we could predict.

Modifications

The administration’s announced goal of the modification program was to save 3-4 million families from losing their homes. The actual number of homeowners assisted will come in at less than one million. Most consider the program a failure.

However, we believe that there was a secondary unannounced goal of the modification program: to slow the flow of foreclosed homes to the market. Putting homes through the modification process prevented banks from moving forward with the repossession process as quickly as they normally would.

Limiting supply was one of the ways the administration used to help stabilize home prices. However, the administration has recently slowed the modification process (see graph below from the latest Economic Letter from the Dallas Fed). Going into 2011, a larger number of foreclosed properties will enter the market. read more....

Real Estate 2010: The Year of Intervention

Demand for Housing Will Increase in 2011

The last Pending Home Sales Index from the National Association of Realtors (NAR) showed a substantial 10.4% month-over-month increase. According to NAR the index measures:

housing contract activity. It is based on signed real estate contracts for existing single-family homes, condos and co-ops. A signed contract is not counted as a sale until the transaction closes. Modeling for the PHSI looks at the monthly relationship between existing-home sale contracts and transaction closings over the last four years.

This increase confirms a growing feeling that demand for housing has begun to increase.

Bottom Line

Sales will increase over the next several quarters. The increase will initiate a housing recovery. However, price increases will not take place until current inventory levels diminish. That could take 12-18 months. please read the entire article!!

Demand for Housing Will Increase in 2011