Real Estate Tasting Room

The U.S. Real Estate Recovery Has Begun

The Demand Institute Issues “The Shifting Nature of the U.S. Housing Demand”

The news of an end to the U.S. real estate market doldrums has been hot and heavy this past week. This follows the release of a comprehensive report on the state of U.S. real estate demand by the Demand Institute. The report cautions that projected price increases can vary substantially based on state and local factors, however on average it is very encouraging. With that caveat, here are some of its key conclusions.

1. There will be a two stage recovery, projecting house price increases of 1% in the second half of 2012, rising to an annual rate of increase of 2.5% percent by the end of 2014. Between 2015 and 2017, they will rise by 3-3.5 percent per year on average. [My comment: this would put the estimated average price increase over the next five years at about 15%.]
2. The recovery will be led by demand from Buyers for rental properties.
3. Rental demand will help to clear the huge oversupply of existing homes for sale.
4. The housing market recovery will not be uniform across the country. …The deciding factors will include level of foreclosed inventory and rates of unemployment.
5. There will be vast differences within the states. The report articulates local factors that will influence housing prices.
6. The average size of the American home will shrink.
7. Despite the number of Americans who have been hurt financially by the housing crash, the desire to own a home remains strong.

You can download the full report, “The Shifting Nature of the U.S. Housing Demand” at DemandInstitute.org.

What About the Santa Ynez Valley Real Estate Recovery?

This is a tough one to call, as the Santa Ynez Valley does not fit neatly into the Report’s local parameters. That being said, we have seen an enormous escalation of buying over the past month, largely centered on the affordable segment of our market. However, we are also seeing a significant increase in sales in the luxury segment as well.

I do not believe that the Santa Ynez Valley is as sensitive to employment as many other areas. A significant segment of our market’s wealth is asset based. That being said, we have seen a large number of short sales and a dwindling number of foreclosures, largely in the lowest price segment. There are local properties in the pipeline for foreclosure, but we cannot assume that many will actually come to market.

We are certainly seeing an increasing number of Buyers in the downsizing mode. This can mean a smaller home, a smaller parcel or just a lower price point. I suspect that this dynamic will continue, creating a strong local demand for mid-range and affordable properties. The demand for our mid-range and luxury properties is very much driven by the Los Angeles and Santa Barbara real estate markets and economies, as a substantial number of Buyers for these properties come from these two markets. The information coming to us from these areas is very positive, with strong demand including multiple offers and dwindling inventories. We have seen this as well, but probably not to the same extent.

I believe that the Santa Ynez Valley real estate recovery has begun and should continue in step with those of Santa Barbara and Los Angeles. Hooray!

As always, I welcome your comments and questions. You can call or text me at 805 588-3616, or email me at [email protected]

Cheers!