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January 24, 2011

Volatile Market Remains

Michael Kurtianyk

With dire predictions about the 2011 real estate market, it’s time to return to a local analysis of the situation.


Many in the industry predict that 2011, nationally, will be just like 2010: a year wherein we saw a “normal” real estate market. This is defined as a market that, if it could be graphed, would look like a bell curve.


The line would start off fairly level in January and February. This would be followed by an increase in home sales from Spring through August, and then the line would come back down though December. There is also, in a normal year, a slight uptick between October 10 and December 10. This happens because people want to move in (or move out) before the holiday season.


However, this assessment does beg the question: “When will the Spring market begin?”


Our best prediction, locally in western Maryland, is that the Spring market will start sometime around March 1, with a 10-day window on either side of that. There will be some factors affecting this range of dates: the weather; how ready sellers are; and how many other properties are on the market in a particular neighborhood.


There is also a great unknown that some experts are talking about, but no one knows for sure when, and if, it will happen. This has to do with the banks themselves.


Remember, last year many house were on the market that were either a short sale or a foreclosure? Well, not all of them sold. The banks still have them, and they can’t get rid of them. Furthermore, there are a number of other properties that the banks had to take over in the last quarter of 2010. What will the banks do with this real estate inventory?


Conventional wisdom indicates that the banks will flood the market in the Spring, timing it in such a manner as to match the bell curve discussed earlier. We don’t know yet when – of if – this will occur, but it seems that it’s more a question of when, not if. This will further increase the number of properties on the market and will keep the sale prices of housing down (the old “supply-and-demand” scenario).


Foreclosures will increase in 2011. Just follow the number of filings for unemployment benefits. As the filings increase, so, too, are the numbers of people not making their mortgages payments. Lenders are going after the delinquent homeowners sooner these days, and this will contribute to more short sales on the market.


The current real estate market is great for first-time homebuyers. They have many houses to choose from, and the interest rates are low. If they can buy, then they should buy – after considering their job situation and making sure they don’t pay more for a house than they can afford.


This is also a good time to buy if you’re looking to trade up. By this I mean a homebuyer who has a condo or a townhouse may be able to afford a single-family detached dwelling. It is true that on the sale side they may have suffered a 30-40% decrease in the value of their home. However, on the buying side, they may purchase a home that has also suffered a 30-40% decrease. No matter what, by trading up, these people are beneficiaries of the current real estate market.


Locally, we have a split market. Homes under $300,000 are selling, and homes above $300,000 are not selling (as well as those below $300,000). This trend will likely continue through 2011.


We haven’t seen the bottom of the market yet; hopefully sooner rather than later.



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