Every year I write my annual housing market review and projection for the coming year.
First, let’s take a look at what I predicted last year for the 2011 housing market in my column published on Oct. 14, 2010:
“I was hoping that I might be able to report that we had finally reached the elusive ‘bottom’ of the housing market by now, but we are not there yet.
“I think we are in for another year of slowly falling prices next year. I do not expect a dramatic crash in home prices, but I think there’s a good chance that home prices will continue to drift downward by an average of about 5 percent.
“But again, home price appreciation/depreciation will vary widely from neighborhood to neighborhood with some doing much better and some doing much worse than the overall average.”
I was pretty close to the mark. According to Standard &Poor’s/Case-Shiller index the most recent stats show that home prices in the metro Seattle housing market declined 6.2 percent from October 2010 to October 2011.
We don’t have end of the year stats for 2011, but that’s pretty close to my prediction of a roughly 5 percent average drop in overall home prices for 2010.
Case-Shiller includes everything from Everett to Tacoma in its Seattle housing market, and as we all know there is a very wide range of different neighborhoods within that broad region.
Some neighborhood home prices lost much more than 6.2 percent while others fared better. Therefore, it’s always hard to make general statements about the overall Puget Sound region housing market.
Still, I’m going to go ahead make my annual prediction for the 2012 housing market.
Once again, I wish I could say we have finally hit “bottom,” but it’s too early to call a bottom. You can only truly know that the housing market has hit bottom after home prices are appreciating on a consistent basis. Unfortunately, we are not there.
However, if this were a “normal” housing market I’d say we are very close to a turning point because the number of homes currently for sale is down, the number of new foreclosures has been decreasing and mortgage interest rates are near historic lows.
These are all positive signs that would normally point toward a strong housing market for home sellers this spring.
However, these are not “normal” times. We have unprecedented global economic instability. Depending on which economic expert you choose to believe, we may be headed for either massive deflation, in which case home prices would fall dramatically, or massive inflation, in which case the value of the dollar would drop dramatically and home prices would increase because of the declining value of the dollar.
The drawback to the inflation scenario is that while the dollar price of homes would increase, so would mortgage interest rates, making those homes less affordable and thus offsetting much of the “benefit” of higher home values0000.
Therefore, the economic uncertainty makes it hard to look at the housing market in isolation.
But I’m going to go out on a limb anyway and say that I don’t think home prices will fall much more than another 5 percent or so on average, and the overall Puget Sound region housing market will probably be “flat” in 2012, which means I don’t expect much depreciation or appreciation.
After several years of declining home prices, I consider that “good news.”
If you are uncertain about your job and economic future, you are probably better off continuing to rent. You don’t have to worry about being left behind by a roaring housing market in the coming year.
But if you are financially stable and you are certain that you will remain in a home for at least 7 to 10 years, now is a pretty good time to buy. You can lock in ridiculously low interest rates, and as long as you plan to hold long-term, you can weather a temporary drop in housing prices because they will eventually bounce back.
Remember, you should buy a home because it’s a nice place to live and it fits your lifestyle. Do not buy a home as an “investment.” The easy-money days of rapid home appreciation are not coming back anytime soon.
If you are a home seller, price your home realistically (i.e., less than the competition in your neighborhood) and it will sell. Start at the lowest price you’re willing to accept.
Do not make the common mistake of adding “negotiating room” to your starting price, or you will just end up chasing the market down.
Steve Tytler is a licensed real estate broker and owner of Best Mortgage. You can email him at email@example.com.