Real Estate Trends in 2012

Forecasting where the real estate market will go in 2012 is no easy task, but that didn’t stop analysts at the country’s top investment banks and financial institutions from putting forth their best guesses in their end-of-year reports.

The ongoing recession, the upcoming presidential race and a looming economic crisis in Europe all paint a pessimistic picture for real estate in 2012 – but there is reason to be hopeful in the new year, according to analysts. While a complete recovery of real estate markets nationwide is certainly a long way off, there are some positive indicators.

Here are six things to look out for in 2012:

1. Rise of Rental Properties

Even the most casual observer will have noticed the boom in rental properties in 2011, a trend that is set to continue in 2012. A study from Reis Inc. shows a sharp drop of vacancy rates in the third quarter of 2011 to a nationwide average of just 5.6%. The same study also highlights a 3.6% increase in rents over 2011.

Property developers were not unmindful of the demand for rental properties. Rental unit construction was up 33% nationwide in the third quarter of 2011 – 48 million new units. The high demand in rental properties will inevitably drive up home prices in 2012 as investors look to snap up rental properties and homeowners look to become landlords.

With real estate prices still low in many markets around the country, 2012 is shaping up to be a great year for buying and holding rental properties.

2. The Rise of Shadow Inventory and Its Effect on Home Prices

The specter of shadow inventory looms large in 2012, bringing with it the threat of depressed property values and increased underwater mortgages. Shadow inventory is comprised of properties undergoing foreclosure, properties that have already been foreclosed but not put up for sale, and houses where the borrowers are unable to maintain their monthly mortgage payments. This glut of unsold and foreclosed properties will have the unfortunate effect of reducing property values in affected areas and suppressing buyer demand.

3. Increasing Short Sales

Most analysts agree that home prices are set to decline in the first half of 2012. Falling prices will force more homeowners into a position of negative equity (where they end up owing more than their homes are worth) – which in turn can trigger them to strategically default on their mortgage obligations.

To prevent borrowers from walking away from their debt obligations banks are expected to encourage short sales for homeowners with negative equity. Expect banks and other lending institutions to aggressively pursue short sales in 2012.

4. Fallout from Europe

The ongoing European financial crisis will have a huge effect on not only the real estate sector, but the US economy as a whole. The economic fates of Europe and the United States are closely intertwined – US exports to Europe total around two trillion Dollars a year. A financial collapse in Europe will have dire consequences for US companies at home and abroad. A Europe-wide recession and the ensuing lack of demand for US goods would cause many companies to reduce their operations at home leading to shrinking demand for offices and industrial spaces – a disastrous outcome for the already weak commercial real estate market.

5. Unemployment

The national unemployment rate will have a significant impact on the real estate market in the coming year. Although the national unemployment rate will remain higher than average, experts predict a gradual improvement in 2012. The numbers are encouraging – December saw the rate drop to 8.5 percent, a three-year low, demonstrating that the job market is gaining momentum. Analysts predict the rate will drop even further to 7.5% in the new year. This is encouraging news for real estate markets – moderate economic growth will result in increased demand for both residential and commercial real estate. Improving local job markets will have a knock on effect improving local housing markets, starting first with rental units and spilling into home sales.

6. Commercial Real Estate Woes

2011 was not a good year for commercial real estate. Tight credit markets and a sluggish economy meant there was little incentive for companies to expand their operations, resulting in lower demand for industrial, retail and commercial properties.

It’s not all bad news for commercial real estate in 2012, however. Steve Hentschel, head of Real Estate Banking at Gleacher & Co. indicates “there will be a continued emphasis on major market 24/7 cities that have global appeal.” Cities that are major business and transportation hubs (New York, Atlanta, San Diego, Chicago, etc.) should see positive growth in the commercial real estate sector in 2012.

Things are Looking Good for San Diego Real Estate!

While there’s still a long way to go before a complete recovery, things are looking much brighter closer to home. According to the Emerging Trends in Real Estate 2012 Forecast conducted by PricewaterhouseCoopers and the Urban Land Institute, San Diego is ranked as one of the top ten “real estate markets to watch in 2012.” According to the report, “San Diego benefits from the near-perfect year-round weather, which helps attract talent pools to local biotech companies, as well as a steady stream of upscale retirees.”

Regardless of the overall market trends in 2012, you can always rely on the experienced agents at Team Aguilar with all your real estate needs. Call Carlos or myself today and find out how we can help you!

11 thoughts on “Real Estate Trends in 2012”

  1. Hi Alex! What an in-depth, insightful post. Your final paragraph says it all, though — San Diego is brighter — real estate is VERY local, so you can’t go on what is happening in the rest of the country as an indication as to what is going on in your neighborhood. Sometimes it’s even different street-by-street!
    You really know your market, and that is obvious.
    Happy New Year!

  2. I guess the rise of rental properties is true. I just noticed the incredible increase of residential tenants in our country. Considering that renting is much more cheaper. But can also be more expensive in the long run. Anyway. glad to know that San Diego has lots of opportunities this 2012. Hope real estate business improves all over the world!

  3. Very interesting breakdown and it makes sense. I’d like to see how it differs market ot market, especially for my Seattle homes market.

  4. San Diego Local

    Alex, great break down thank you for the post. I appreciate your outlook and agree that the market is not all bad but I also can’t help but sympathize with Brandon’s comment and wish 2012 looked better.

  5. Alex, great presentation. I think that depending on the area of the country you are looking at, the picture can be quite different. Here in the northeast where there is little in-migration and more out-migration, the housing market continues to slump with supply exceeding demand. Unemployment may be improving but I don’t have full confidence in the numbers since this is an election year.

  6. Well situation is very fluid right now but thanks Alex for giving some hope for the future along with widely expected bad news for home owners. I think it is going to be a mixed bag for the real estate, though over all picture looks slightly gloomy but there seems to be some positive indicators to look forward to.

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