Blog Topic #1, Real Estate, Bubble

I don't believe there is a bubble in most markets.

In my local area, the Los Angeles area, we have a fundamental supply and demand problem that hasn't abated. At the same time, we have a median statewide price such that only about 14% of the population can afford to buy. In Los Angeles, buyers generally have to live pretty far from where they work in order to purchase a home, and with gas prices as they are, and our notorious traffic, this makes purchasing a home somewhat undesirable for many people. At the same time, rents are climbing. Interest rates are still historically low, even with the "chicken little" press that our talking heads in our market are (we don't see to have real  journalists here; we have the "Hollywood" mentality with most of our so-called "journalists").

This media hype does not help our industry. At the present time, my opinion is that we have a wide chasm - sellers who still think it's 2005 and buyers who are waiting for the bottom to drop out due to what they hear in the media. Of course, both positions are wrong to some degree.

What we've seen in the San Fernando Valley area of Los Angeles is about a three fold increase in the amount of inventory, which is substantial. Smart sellers are coming to realize that it's no longer 2005; the buyer's are coming from a position of making offers with steep discounts or credits, thinking that this will help them in a "downward" market. In reality, the statistic show sales way down (about 30% give or take), but prices still actually going up, albeit at a much more moderate, single digit rate.

My personal view is that prices will plateau and may come down a little in certain areas, notwithstanding seller credits and the like. I personally don't see a huge price drop, barring a major oil shock, terrorist attack, or earthquake. The Los Angeles area economy is far more diversified now than it was in the last downturn, and employment, while vitally important to the housing market, is much more stratified now than it was in the last downturn, such that a slowdown in any one or two sectors probably would have a negligible impact on the overall housing market. Hence, back to the supply and demand issue.

Our industry here is and will continue to be impacted: the number of real estate licensees in California is huge - just under three quarters of a million with a population of about 35 million. Now, of course, a good percentage of these licensees, are part-time, are brokers who don't directly serve clients, and others who aren't directly in our business day to day. But, even so, that's a huge number of licensees that are still left. There will be a shakeout; there's no doubt about it. Competition will become more fierce and listings will sit for longer, necessitating more upfront marketing costs. But, the industry will survive.

Michael Trust

www.michaeltrustrealty.com