Happy New Year in Real Estate?

A new year brings new excitement and anticipation. It is no different in real estate. Where we have been affects where we are going, but lucky for us the trend is favorable.

As we look at 2011, we saw a real estate market that was still reeling but at a much slower rate.

The real estate market struggled throughout the country even as mortgage rates decreased to all-time lows. The fear of economic woes, job security, credit worthiness with stringent mortgage qualification parameters, and buyers thinking they may be  paying too much for a home, has precluded or prevented them to get off the fence. 

However, Madison and other neighboring towns bucked the market. According to statistics from the Garden State Multiple Listing Service, Madison’s listings to sold ratio was 47 percent, as compared to the Morris County ratio of 31 percent for single-family homes. In other words, the total number of homes on the market for the year to those that have sold and closed in that same time period has been impressively better in the Madison area. 

The reason for the increase is really a simple one. We all know how great of a town Madison is and it is enhanced by its proximity and accessibility to all points through New York direct train line while being close to highways and local shopping. The train line is key, as we have seen an increase or at least a stable market in all similar type communities. Plus, based on prices, it is more affordable now than during the go-go years of 4-7 years ago. The outskirts of Morris County is still seeing a decrease in prices. However, as soon as the prices become less affordable in the “train line” communities, the outskirts will then see an increase in interest and so be it, prices.

There was an increase in the number of sandwich generation homes. Multi-generational living, when the kids and the grandparents are also living in the same home as the homeowner. Other trends for the year included buyers vying for smaller homes. Both types of living are very similar to the European way of life.

What we also saw this year was a major increase of short sales, in which the home was sold for less than what was owed and the mortgage company foregoing the difference to avoid taking it back in foreclosure. These short sales had no boundaries, as they existed in both the upper and lower priced areas. We also saw an increase in foreclosures, however, not as foreboding in the higher end areas as much as the outskirts. Mostly based on the economy, jobs, etc.

However, the buyers that did buy bought homes that were priced at or below market. These buyers included the savvy investors who were cash buyers and many from out-of-the-country. The others were relocated from outside the area that had to purchase based on a job change and those buyers with stellar credit. The market that increased dramatically was the rental market. Shelter is a necessity (Mazlo’s Hierarchy of Needs).

These trends should continue in 2012. We will see a slight increase in the prices and sales in Madison, Chatham, and the surrounding areas, and the outlying Morris County areas will see a stagnation but probably not a decrease. The only caveat is the threat of the banks to release the bulk of the foreclosures in April as the experts are saying may happen. This will slow the process of a recovery by months, if not years, just based on the large inventory that will be produced. It would be to everyone’s benefit to slowly release them as not only does it hurt the market value of the existing homes but also, the banks performing loans home values. The short sale will also still be prevelant especially because the federal moratorium for income tax payment on the difference will continue until the end of 2012. There is always a possibility it will be extended but don’t count on it with a deficit as great as the U.S. has, the money has to come from somewhere.

Another threat to the increase in values is the Federal Government’s lean towards taking away the mortgage interest deduction from homeowners. It is real, and it can be prevented by calling your congressman. The National Association of Realtors Political Action Committee (RPAC) is also fighting to keep it in place.

Overall, I believe this will be a terrific year, with real estate finally coming back to normal with a 2-3 percent increase per year. Homes priced and marketed correctly will continue to sell, whereas overpriced homes will languish. Most likely 2005-06 prices will not return until 2017-19.