When I talk to buyers there is a clear divide between those that believe 2011 is the year of opportunity and those that believe the market will continue to decline. Yes, the media paints a gloomy picture of a “double dip,” a flood of new foreclosures are expected to hit the market and yes, unemployment is still dismal. Only time will tell which path we are on, but I argue that this year will be flat and IS the year to buy. Here’s why:
1. The San Francisco Bay area and greater Los Angeles markets are our feeder markets. San Francisco and Silicon Valley in particular are heating up. 27-30% of all the deals that are closing in the SF Bay area are all cash. This figure is expected to rise to 35% this year. Silicon Valley is booming. Companies like Facebook, Twitter, Salesforce.com are all expanding with new offices, or really campuses, and hiring. Vacancy rates in San Francisco have declined from a high of 17% to 8%. Rents are back up to almost boom rates. The boom to our north is bringing back the vacation home buyers to our market.
2. Interest rates are going to remain flat this year, but are expected to rise by year end. You can read my previous post “The Rising Cost of a Declining Market” to understand just how an increase in interest rates affects you as a buyer. But bottom line, it will cost you more to borrow money in the not too distant future. Not only are rates expected to rise to 6% for a jumbo loan in 2012, but there is a risk aversion fee now put on every loan ranging from 1/4 of a percentage to 3%.
3. Demand from international markets is also expected to increase, as I mentioned in another previous post, “Global Hot Spots.” We are really expecting to see this in the next 18 months.
All in all, the market is expected to be flat in general this year. All cash is prevelant, and in some pockets of our area we do have a competitive, multiple offer scenario. Pebble Beach has been leading the high end activity with 5 sales over $4M since the beginning of the year. Carmel is mixed. It’s Golden Rectangle has really been golden, but the neighborhoods to the north are slower and still facing pressure on pricing. Carmel Valley has been rather flat so far this year. The inventory still feels a bit overpriced and buyers seem to be waiting until that market adjusts further.
So where will this year take us? Only time will tell but I’d bet when we look back on 2011 we will view it as a year where some really good buys were had. Now the question remains, what side of the fence do you fall on?