This article looks back on the big topics reported on the first tuesday journal in 2011 and forecasts the state of California’s real estate market and economy for 2012 and the years ahead.

Glancing back, looking onward

A new year summons nostalgia, remembrance. Simultaneously, it beckons prospects and projections. While we glance back at 2011 in real estate, look ahead to 2012. Expect a younger version of the last year coming your way again. [For more information about the economic future of California real estate, see first tuesday’s Economic Historical and Recovery Timeline.]

California brokers and agents, here are first tuesday’s pointers for 2012 and ahead:

Jobs move real estate, but not this year

The beginning of the Great Recession in 2007 marked the start of massive job layoffs. California gained 242,000 jobs in 2011 but still has 1,028,100 to recover in order to get back on track with the pre-recession peak employment levels of December 2007. 2012 will not be the year this happens. Slow, accelerated job recovery will begin in 2013. If California attains jobs gains of a minimum 300,000 to 400,000 annually – which is likely – employment will be back at 2007 peak levels in 2015, that is, eight years and 3,200,000 additional Californians later. Unfortunately, unemployment will be a continuing problem then and after.

End in sight for sales and pricing

Home sales volume and prices look static for 2012 going into 2013. Fortunately, 2011 or 2012 will likely be the trough for sales volume and prices, though prices could slip for a longer period. By the end of 2013, expect the beginning of a gradual pickup in sales volume, but not in prices.

Negative equity epidemic continues

30% of homeowners in California owed more on their home mortgage loan than their home was worth in 2011. Those negative equity homeowners stubbornly resisting strategic default may continue to make their mortgage payments, but they most definitely will not pull themselves out of their black hole assets in 2012, or maybe even by 2022. Financially, this American homeowner herd instinct to martyr oneself to negative equity is not doing any favors for either the underwater homeowner or California’s recovery.

Retirees coming your way

The multiple economic crises of the past decade delayed the mass retirement of the Baby Boomer (Boomer) generation. That won’t completely stop the Boomers from making some serious impact on California real estate, especially over the next 15 to 20 years as they finally do retire and their dis-savings and sale of their family homes spur the purchase of replacement homes. Hold on though, since this flurry of Boomer activity won’t be in high gear until the early 2020s.

Newbie buyers in hibernation

The first-time homebuyers have been quiet. And who can blame them? The housing crisis has traumatized Generation Y (Gen Y), the current crop college post-grads, and instilled doubts about homeownership. However, the American Dream lives on, and thus Americans will dream on. First-time homebuyers will make a comeback – just not in 2012, or 2013 or 2014 for that matter. Gen Y will finally have the income and confidence for homeownership around 2020, tending to the business of finally settling down later than their Boomer parents did.

Caution, construction in progress

Housing starts in construction hit historic lows in 2009. 2011 further lowered the standard and it looks like 2012 will just be a slightly sweeter repeat of 2011. However, this won’t be the golden age for single family residence (SFR) construction. SFR starts will drag through 2014 and probably into 2016, but expect a sharp and steady rise in multi-family construction in 2012 and through the end of the decade.

Tax deduction on trial

Though the mortgage tax deduction has been around since the late 19th century, and has been hailed by most of American society as foundational to the American Dream of homeownership, fuss was made again last year over the sustainability (and rationality) of such housing subsidy policies.

The topic was especially relevant during the national debt and credit crisis, when many began to question government costs and spending. The mortgage tax deduction was a hot button issue, and it will remain so this year and after – maybe even a century ahead, but we doubt the deductions will last much longer. They primarily benefit builders and lenders, and as usual, the most wealthy.

Defaulting to get resolution

With the negative equity plague to deal with, the number of strategic defaults have been on the rise – at least among those brave (and informed) enough to pursue it in the face of lender moralistic scolding. The better educated are more likely to default when underwater. With negative equity so vast and widespread, brokers and agents must stop denying the reality that strategic defaults are the better option for underwater homeowners this year and in the coming years if the negative equity problem is ever to be solved. Government agencies will continue to go to great length to skirt the reality that an underwater homeowner is paying rent to the lender in excessive amounts and is reduced to the status of an economic tenant and nothing more.

How to pull through 2012

No rose-colored glasses here. 2012 is going to be tough plodding. Even with the past year’s indicators of an economic recovery in progress, people (read: the buyers and sellers moving real estate) are uneasy and doubtful. California brokers and agents have to take on the role as a coach and continue to chant  buy, buy, buy.

Of course, don’t scream and pander the lies and illusions which were propagated in the years leading up to the housing boom. Pursue the higher road. Maintain an upbeat attitude shaped by an informed and realistic knowledge of real estate, and push for substantive legislative changes that shape a more stable real estate market. Then your buyers and sellers – and the rest of California – will have a little more faith in better days for real estate. Chin up, so come December this year, we can all raise a glass to 2012. [For more information on how California real estate will fare in 2012 and 2013, see the first tuesday book, Economic Trends in California Real Estate: The Realty Almanac 2012-2013.]