How does the real estate market look five years from now?

Asked by Geeta, San Jose, CA Tue Mar 22, 2011

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Michael Cheng, Agent, San Jose, CA
Tue Mar 22, 2011
BEST ANSWER
Besides the obvious difficulties of forecasting an largely unknowable future, the real estate market is changing, making direct price and demand comparisons five years from now difficult at best. As many have pointed out, it's patently clear that we're in the midst of a big demographic shift with the aging baby-boomers massively distorting the demand curve of multiple industries, including housing. With all our entitlement programs, financial disaster appears inevitable. But, with the introduction of the much maligned Obamacare, we're at least looking at alternatives. No matter what, tough choices will have to be made, and housing and related home hospice care costs are right in the bull's eye.

Along with higher transportation costs, I think the real estate market will look far denser than it is today. Retirees will converge on city centers as we are no longer able to afford the luxury of having each senior occupy an expensive single residence out in the suburbs. A younger generation will fill the the newly vacated suburban neighborhoods, stabilizing prices but not driving much demand for new suburban sprawl. Major cities will have skylines resembling New York or Vancouver, with endless towers of relatively cheap high-density housing being filled by the elderly. So, prices on a quality-adjusted basis will rise to reflect the demand for condo units, but since they're not going to be the luxury condos of the last boom, the market price won't likely rise much.

With current new construction hitting near record lows, the housing market is efficiently adjusting supply to reflect demand. Investors are eagerly snatching cheap rental condos up and those will likely be well rewarded. It's not pretty, but investors are helping to clear the market and normalize housing. The key is to find properties with the right return characteristics as we're doing for our clients. At the current furious rate of investor purchases, I'm betting on the market normalizing in 12-18 months. Five year out, properties closer to city centers will have enjoyed a few years of high single digit appreciation. Those farther out, like the once fashionable exurbs, will be stagnant if not down.
Web Reference:  http://www.archershomes.com
0 votes
Michael Cheng, Agent, San Jose, CA
Wed Mar 23, 2011
Responding to John Arendsen, I actually don't think much of New York's or Vancouver's skyline is particularly spectacular. New Yorkers boast of having peekaboo views of the park or the Empire State Building, while they live in urban boxes of non-descript mid-rise buildings. Meanwhile, Vancouver has areas filled with hundreds of nearly identical towers in an almost blindingly futuristic montage.

We will likely duplicate their mid-rise buildings and offer studios/efficiencies of a few hundred square feet to the elderly and the masses of low-income, college-educated buyers. So, while construction costs are not necessarily cheaper, the lower grade finishes and higher density make each unit affordable. We'll be able to provide regular health care monitoring to avoid the high cost of full-time hospice care, a bit like Japan. Meanwhile, the younger people can stay close to work and use mass transit. Even if these developments will look like the "Projects" of the post-war 50s, I doubt that the elderly will turn them into urban blight. (unless health care really gets screwed up and we end up with gangs of elderly prescription drug peddlers.)

As for where we'll put these mid-rises, there's still plenty of vacant land for urban infill, at least around downtown San Jose and Los Angeles, California's #3 and #1 largest cities. And, I'll definitely concede that this process will take a solid decade to take shape, but I believe we'll see some serious progress within 5 years.
Web Reference:  http://www.archershomes.com
1 vote
Paul Rinde, Agent, Menifee, CA
Tue Mar 22, 2011
Depends on who you are: In Riverside County as a buyer- Great. As a standard seller (Flips excluded)- not so good. As a short seller- getting easier. As a Realtor- Fantastic!
1 vote
Thuan Nguyen, Agent, San Jose, CA
Tue Mar 22, 2011
Although there are some signs of the economy picking back up, i.e. foreclosures returning back to normal levels and the DOW getting back up to pass 12000.

Real estate is local in nature, so my answer would have to say it, depends on where you live. Some states were hit much harder by the Millennium Bubble. It was just on CNN that Florida vacancy rate is about 20%, Arizona 16%, Nevada 14%, and California 8%.

But we can break it down a little further. The newer homes around EVERGREEN VALLEY HIGH SCHOOL haven't dropped in value much (about 15%), because the owners can keep up with payments resulting in fewer foreclosures (one of the catalyst that drive down home values in a neighborhood). On the other side of the spectrum, homes in the Hidden Glens near LAKE CUNNINGHAM are down some 25-30% due to the numerous distressed homes... well that and also the less sought-after high school.

With that said, I think for San Jose it'll take at the very least 3 years to turn around. Oh, it is a good time to buy...

Thuan
1 vote
John Arendsen, Agent, Leucadia, CA
Thu Mar 24, 2011
This has the makings of a great dialog. I've been a SoCal surfer and beach boy for most of my life and never really saw a lot of high rises until I started globetrotting with my wife about a decade ago.I have to say that until I visited cities like San Francisco, New York, Vancouver, Chicago, Paris, Madrid, London and even my hometown, San Diego, just to mention a few, I never had any real appeal for metropolitan areas.

But I must say that contrary to your statement that those places aren't "particularly spectacular" I must once again disagree. I think there's something very charming, exciting and mystical about those skylines. What I didn't find particularly exciting, if not down right depressing, as I mentioned earlier, were the rows upon rows of that failed "Project" experiment which only served to turn those areas into drug and crime infested slums.

It would be very unfortunate to see those magnificent downtown skylines clustered with "urban boxes of non-descript mid-rise buildings" "with lower grade finishes" only to have them eventually become reduced once again to urban blight within a decade or so.

Additionally, I don't see mid rises being a viable let alone suitable environ for an aging population. Especially if what you're describing lends itself to lower and middle class demographics. If you really take a look at what the preferred living accommodations are for aging seniors you would discover that a single story dwelling is number one on the list. Even most of your middle to higher end retirement homes don't seem to extend more than 3 to 4 stories which is hardly a mid rise by definition.

We both know that buildings that small would never pencil in a high rise city. Having said that there is a whole industry of very beautiful high rise luxury condo's salt and peppered throughout most, if not all, of our major metropolitan areas but as we both know they cater to the more upscale and wealthy who can well afford the luxury of full time assisted care options and 2nd and 3rd homes.

Moreover I think that what might be a more preferable solution to the forthcoming entourage of aging baby boomer and beyond would be to start negotiating with the banks and builders who are sitting on mountains of shadow inventory of 1 and 2 story homes, retrofitting them to ADA compliance and turning them into non-assisted and assisted care options for the elderly and newbies.

What about infrastructure i.e. nearby medical care, rehabilitation, physical therapy and emergency facilities and services? There could be a practical and relatively easy solution. Do you realize how many half empty, if not abandoned, commercial and industrial buildings i.e. strip centers, outlet malls, empty warehouses, big box stores, etc there are scattered throughout all the ailing suburban sprawl we've managed to produce. Look at Las Vegas as an example. This would be a great place for aging seniors with their dry and sunny climate and they love those air conditioned casinos and those one armed bandits.

In my own home town alone there are three to four former wholesale warehouse complexes that sit empty not to mention myriad strip centers with 50% or less occupancy. If our city, county, state and federal governments could ever get their acts together with some sound and well grounded leadership we could become very creative very quick and start resolving some of these very soon to be realities.

Rather than tying up that precious land and billions of dollars for the next several years, if not decades, only to turn out "mid-rise buildings and offer studios/efficiencies of a few hundred square feet to the elderly and the masses of low-income, college-educated buyers", I'm all for turning the aging downtown metro areas eventually into places like beautiful Hong Kong or Singapore city scapes and night scapes. A much better ROI I feel and in all reality we're talking about the same time and not much different in cost given the overall relative cost of construction.
0 votes
John Arendsen, Agent, Leucadia, CA
Wed Mar 23, 2011
My question here is directed to Michael Cheng. I'm curious to understand better your point on your statement:

"Major cities will have skylines resembling New York or Vancouver, with endless towers of relatively cheap high-density housing being filled by the elderly."

Where will we build these metros and how will we pay for them? Also your reference to: "relatively cheap high-density housing being filled by the elderly." concerns me in that I can't fathom " skylines resembling New York or Vancouver" being cheap.

What I see as being cheap affordable alternatives for seniors or low income families certainly wouldn't resemble a New York or Vancouver skyline. Moreover I would tend to think they would better resemble the "Projects" that aligned the Chicago skylines and many other urban areas throughout the USA in the post war 50's. They were anything but attractive and accentually lead to a good part of what became urban blight.
0 votes
Bill Eckler, Agent, Venice, FL
Wed Mar 23, 2011
Geeta,

Who would have predicted we would be where we are today, five years ago......any information reaching that far into the future is "purely guess work."
0 votes
John Arendsen, Agent, Leucadia, CA
Tue Mar 22, 2011
Personally, I think there are a number of unsolved issues that our country and economy will be dealing with for sometime. The two major driving forces will be, in this order, unemployment and the economy. Then comes inflation, fuel and food shortages coupled with fighting 3 wars on Muslim soil and a fourth one that has been brewing on our own border for over a decade that has cost over 30 thousand lives so far and counting by the day. This pales the 6 thousand lost in Afghanistan and Iraq thus far.

Now add to that an aging baby-boom generation that will be sucking up what's left of Social Security and Medicare and a looming healthcare (Obamacare) crisis that won't even be able to afford to bury us and I'm seeing home prices falling as much as another 10 to 25 percent before we hit rock bottom.

Personally, and I'm a broker, contractor, manufactured home dealer and developer, if you are renting keep renting. If you own and are not underwater and can afford your payments keep owning. If you're a buyer wanting to buy and hold, hold out awhile longer. If you're an investor wanting to turn and burn think twice. If you're an investor that knows how to buy right and hold to rent keep buying because there will be a whole lot of renters for quite awhile and a whole lot of buying opportunities.

Hope that doesn't rain on your parade too much. But there are blue skies ahead in certain segments of the housing market that will be booming. Give me a call at 760 815-6977 or email me anytime and I'll be glad to enlighten you.
0 votes
Harpreet Sin…, Agent, Ceres, CA
Tue Mar 22, 2011
I have a positive hope for rebound of residential housing market in recovery of whole economy. But I am much concerned about the strategic default by homeowners in long run unless we have principal reduction policy. With strategic default in raise, it seems a week recovery over 5 years terms.
0 votes
Kevin Kreutz…, Agent, Fort Lauderdale, FL
Tue Mar 22, 2011
Geeta, It's hard to say with the way the market has been over the past few years. But like the others said, based on previous market conditions it should be much more improved than what it is now. Down Markets usually last around arguably 4-5 years. And with things going the way they are now, should be without doubt much stronger.
0 votes
Andrea Wince…, Agent, Milpitas, CA
Tue Mar 22, 2011
Let me take a look at my crystal ball ... that is similar to asking what the stock market will look like five years from now :)
0 votes
Gabriel Nguy…, , Campbell, CA
Tue Mar 22, 2011
Geeta,

Do you know how are you going to look like 5 years from now? My point is the market is soft today. However, it may improve 5 years from now or it might be still soft. It all depends on job market and demand. I wish we all have crystal ball so we can tell you.

Warm regards,
0 votes
Steven McCoy, Agent, San Jose, CA
Tue Mar 22, 2011
Historically prices improve over time. It is always a great time to buy. So, in response to your question I think that it will improve.
0 votes
John Souerbry, Agent, Fairfield, CA
Tue Mar 22, 2011
Given that historically real estate moves in 10 year swings, it may look in 5 years from now what it looked like 5 years ago.
0 votes
, ,
Tue Mar 22, 2011
It should be better.

Thierry

Thierry Abel
Senior Loan Consultant
By Referral Only
All California Mortgage
P: (415) 464-8261
C: (415) 378-7508
F: (415) 464-2367
E: tabel@allcalifornia.com
NMLS 304353 - DRE 01380701
0 votes
Christopher…, Agent, Tarrytown, NY
Tue Mar 22, 2011
Hi, Check back with us in about 4 1/2 years for a real honest answer. There is no way to tell for sure where it will be. Many will have their opinion but you'll have a bowl full of opinions and won't know which one to go with :o)

Christopher Pagli
Licensed Associate Broker
Accredited Buyer Representative
GREEN Designated Agent
William Raveis Legends Realty Group
914.406.9023
Web Reference:  http://raveis.com/chrispagli
0 votes
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