With 2011 the fourth year in a row expected to bring disappointing national real estate numbers, consumers question the probability of a turnaround in the foreseeable future. Families, careers and hopes are pinned on the improvement of home values, even with few indicators that it will happen anytime soon.

With 2011 the fourth year in a row expected to bring disappointing national real estate numbers, consumers question the probability of a turnaround in the foreseeable future. Families, careers and hopes are pinned on the improvement of home values, even with few indicators that it will happen anytime soon.

National outlook

Rumor of market upticks and good news seems to be scant, with most reports showing results still historically low. But there is some positivity in the mix: According to the Pending Home Sales Index, the National Association of Realtors’ forward-looking indicator for the housing sector, pending sales of existing homes rose 3.5 percent in November 2010. 

In a December 2010 NAR press release, Lawrence Yun, NAR chief economist, indicated that historically high housing affordability is boosting sales activity. “In addition to exceptional affordability conditions, steady improvements in the economy are helping bring buyers into the market,” said Yun.

NAR projections include an 8 percent rise in existing home sales this year and a 0.6 percent rise in median existing home prices to $173,700 in 2011 from $172,700 in 2010. New-home sales are estimated to rise 24 percent to 392,000, which is still well below historic averages.

Market turnaround

Still clinging to inflated values seen years ago, most consumers are feeling quite impatient about a market turnaround. “The problem with a ‘turnaround’ is that it implies the market in 2006-07 was to some extent in equilibrium; it was not,” says Geoffrey Hewings, director of regional economics applications at the University of Illinois. “Many homeowners were already under water, and even with continued appreciation, many of them would have ended up defaulting on their mortgages.”

Hewings does believe that home prices will eventually stop falling because of the combination of population growth and the decrease in the rate of construction of new homes.  “But whether prices will return to 2007 levels is unclear,” said Hewings.

Expectations

“I still think the public needs to get over the notion of the house as an asset that appreciates so rapidly it becomes a de facto piggy bank,” says Hewings, who sees having realistic expectations about homeownership as a necessary component of enjoying it.

Historically, homeownership offered participants short- and long-term benefits, according to Hewings, who explains that in the short term, a homeowner benefits from occupancy and in the long run, appreciation.

“In the recent bubble, ‘flipping’ houses was seen in the same light as stock options,” Hewings says. “The public basically ignored the current use of the asset as a benefit and focused almost exclusively on appreciation.” Bringing the focus back to realistic long-term appreciation will make homeownership a much more pleasing experience, he says.

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Renting in 2011

With a still-sputtering housing market, many people are left wondering where renting fits into the overall real estate picture. Rich Ayers, owner/broker at Crescent Lake Realty Inc. in Chicago’s western suburbs, shares his expert opinion on renting in 2011.

Who does renting make sense for in today’s market and why?

Renting only makes sense if you have a short-term need or if your credit is too low to qualify for a loan. The majority of folks will be better off financially if they buy a house within their means and take advantage of the tax benefits. If one has good credit and the ability to make the required down payment, it makes sense to purchase. Home prices and interest rates are at all-time lows.

For those who rent, are there guidelines for what they should pay?

When we analyze applicants in our property management business, we look to see if their income is 2.5 times the proposed rent or more. It is a good starting point to determine whether they can rent the home and continue living comfortably It isn’t just rent-price-to-income ratio, though. You have to look at your fixed payments like cars and student loans. Those could make a bigger dent in your budget.

What can renters do to achieve homeownership?

First and foremost, work on your credit score. Then, save for a down payment. Currently, the Federal Housing Administration requires a minimum credit score of 580 in order to put down a 3.5 percent down payment. If your credit score is 500 to 579, you will be required to put down 10 percent. If you go the conventional route, your credit score requirements vary, but it usually has to be 650 or higher depending on the lender’s underwriting requirements. That route also likely will require 5 percent to 10 percent down.