2011 Real Estate Outlook

2011 Real Estate Update

The past year posed quite a challenge for anyone looking to sell a home, especially after the expiration of the Federal Government’s $8000 tax credit which occurred at the end of April. Overall, closed sales of residential property in the Capital District were off 7% from 2009 figures, and a substantial 23% under 2007 levels. Will 2011 be any better?

There are many factors that effect real estate sales, but none are quite as important as people’s confidence in the economy. Persistent high unemployment rates have been a real issue for the economy in general over the past couple of years, which has fed the lack of consumer confidence.  When confidence is lacking, people tend to back away from big ticket purchases, and there is no bigger purchase than a home. Fortunately, it looks like things are now beginning to change. The DOW recently crossed the 12,000 mark for the first time since 2008. Corporate profits have been strong for some time now, and many companies have built a substantial cash reserve. Payrolls increased by over a million jobs in 2010, and while unemployment remains stubbornly high at 9.4%, the trend is improving. All of these factors are beginning to increase consumer confidence, which bodes well for real estate sales moving forward. I wouldn’t expect a boom anytime soon, but we should see a welcome return to stability.

There’s no doubt that real estate has gotten a “black eye” over the past couple of years. It’s estimated that almost a third of the sales that took place nationwide in 2010 were of distressed or foreclosed properties. If you look at the longer term picture however, you’ll see that owning real estate still remains one of the best investments, and no other investment comes with the important benefits of home ownership. From January of 2000 to January of 2011, the DOW returned 5.8%. The S&P had a negative 12% return and the NASDAQ had a whopping negative 34% return. During this same period, the average real estate investment returned 45.3% nationwide. Not bad considering the past 3 years have generally been considered a horrible time to be invested in real estate.

The benefits of home ownership are hard to put a dollar value on, but they are very real. Home owners typically feel less transient and more part of the community.  Values may fluctuate short term, but every month you make your payment you reduce the amount you owe on your mortgage. Rent never ends, and always goes up. These traditional reasons to own a home haven’t changed, and I expect them to return us to an improved real estate market in 2011.