Will Housing Rebound in 2011?

Will housing rebound in 2011?  It's a question many Americans want answered. 

If you've been following my blog, the housing data for the latter months of 2010 have been raising optimism.  Especially in San Francisco, median home prices have been showing slight increases; seasonally-adjusted new- and existing-home sales figures have been improving; and inventory has been fairly steady, if not shrinking.  All things considered, the data, when aggregated, suggests to us that we are close to being out of the woods, though not everyone agrees.  Many opinions fall on both sides of the coin.

Recovery hopes from the promising months of late 2010 shifted to despair as a few economists published the likelihood that price discounting will continue at least for another year.  Some gained notoriety with an exceedingly bearish outlook, predicting home prices will drop another 20 percent before hitting bottom.  I seriously just don't see this happening in San Francisco based on the activity I'm seeing which is nowhere close to how slow things were in 2008-2009.

The prospect of another wave of foreclosures is the reason so many are so negative.  This, coupled with stricter lending guidelines, seems to be what so many analysts are focusing on.  But in my recent blogs, I've reported some published data that the number of under-water borrowers has actually been improving.  Stricter guidelines is not such a bad thing either.  Besides, you should only consider buying a home if you can truly afford one.  Also in my recent blogs, you'll notice a trend that lending is easing up a little.  Jumbo loans are becoming more available again.  Self-employed individuals are now qualifying for loans again. Now those are things we haven't seen in a while.

The bullish take on housing seems hard to swallow if people keep hearing that home prices still have room to fall before hitting bottom.  However, keep in mind that a bullish take does not necessarily mean a significant surge in home prices.  It can also just mean a steady climb and improvement in housing in general.

Often an indicator, the rising mortgage interest rates, which are up nearly 60-basis points over the past two months, is reflective of economic vigor, and vigor is a byproduct of confidence, which can be directly tied to labor.  It's clear that we won't see a true rebound until we have job growth. 

In its 33rd annual economic forecast for the U.S. and California, the center for economic research at Chapman University forecasted that economic recovery will continue at a relatively slow pace in 2011, but will be enough to generate 1.7 million net new jobs nationwide.  This will cause the national unemployment rate to drop about one percent by year-end 2011.

In California, employment is forecasted to increase by 1.2 percent.  The expected rebound in income, low mortgage rates, lower home prices will help keep housing affordability at historical highs leading to increased housing demand, particularly for first-time home buyers.

Job growth, an increasing U.S. population, low interest rates, and increasing housing demand could drive construction of more homes in 2011.  In an interview with Bloomberg, the chief economist for National Association of Home Builders, predicted that housing starts will reach a 3-year high in 2011, creating about 500,000 jobs and helping trim the unemployment rate.

This, of course, is an ugly economic cycle because of the amazing ripple effect of the housing industry on many sectors.  We need job creation to get people comfortable with buying homes.  If people buy homes, more jobs are created that will reinforce home buying, which fuel additional job growth.

These are unprecedented times.  All I can do is write about what I'm hearing and seeing in my daily dealings with real estate in San Francisco.  Weigh all these opinions and data, and do what makes sense to you based on your long-term goals.  Given the activity that I see now in the market, one thing I do feel despite all the negative press is that the recovery is here to stay.

Sources: (1) A. Gary Anderson Center for Economic Research at Chapman University; (2) Bloomberg; (3) CNN Fortune