Housing markets never stay down

Housing markets never stay down, they come back. Is now the time to buy?

By Carole Rodoni

Yes, right now the housing market is battered and bruised. Loans are harder to get, some areas are still in decline, sellers are stressed and buyers are hesitant.

So how did we get to this point?

Post 9/11 the housing market enjoyed robust appreciation, almost 46% - perhaps too much, too soon, too fast. Thousands of first time buyers found access to easy financing and many should or would have never qualified in a saner world.

Meanwhile, the global thirst for yield and the creativity of Wall Street pushed the  demand to buy riskier loans. So investors demanded, Wall Street created, bankers loosened, brokers complied, buyers signed and we all roared with praise and approval.

But alas, most commodities including houses are prone to cycles. Yet a boom is not a bubble, land is permanent, limited and in demand - we can live without stock (the tech bubble) but we all need a place to live. So rapid rates of appreciation are great but they're not perpetually sustainable. The history of real estate proves this. At the same time, declines of great magnitude are limited and largely constrained to where foreclosures and short sales are the majority of the current market.

And remember, not all areas are in decline.

So what direction is up?

There is nothing wrong with getting on the train at the station; just make sure it takes you where you want to go. Remember, the statistics you see are all one year versus the prior year and they take on big generalities (whole states, whole counties). Instead, you must look at specifics to get a real feel for the market: the area you are in or looking to buy in, the inventory, the sales, how prices are holding, is lending available, etc.

By the numbers - they tell the Real Story

No one can truthfully say housing has appreciated at an average annual number of "X" then say this month is off by 8% compared to last year. Why? Housing numbers are not only cyclical, they are seasonal to boot. And statistics need to compare "like periods" to be realistic. As for foreclosures; yes, there may be close to 2 million homes going into foreclosure but there are 110 million homes in this country and 46% of those homes are owned free and clear.

Also, in the San Francisco Bay Area, annual appreciation has been 8.4% adjusted for inflation taking into account good markets and bad. Lastly, real estate has the "power of zero."

Every 30 years history has added a zero. Example:

Year Home Cost

1906 $200

1936 $2,000

1966 $20,000

1996 $200,000

2020 $2,000,000 projected

Example: Rentals in San Francisco Bay Area

Year Rent

1906 $10

1936 $100

1996 $1,000

2026 $10,000 projected

So, as far as real estate is concerned, the key is to "get in" and let it start building wealth for you.

Rents are up in San Francisco Bay Area

â^TM¦ Average rents climbed to $1,578.00 up 8.8%

â^TM¦ Occupancy rates rose to 95.8%

â^TM¦ Since 2004, rents have risen 23.7%

â^TM¦ Some examples:

â-º South San Francisco 31.6% to $1,867

â-º San Francisco 14.4% to $2,326

â-º Oakland 4% to $1,435

â-º San Jose 9.3% to $1,568

Source: San Francisco Chronicle

Foreclosures: Yes we have them here but they are very specific by area.

The percentage of homes sold that were foreclosed on April 2008:

Alameda 24.2%          Contra Costa 44.7%

Marin 8.9%                 Santa Clara 14.4%

Napa 28.7%                San Francisco 5.9%

San Mateo 13.2%        Solano 54.2%

Sonoma 29.7%            Monterey 28.7%

Source: Dataguide Information Systems

A Glimmer of Hope

Sales results for the San Francisco Bay Area show an increase in sales in April 2008 over March 2008. Sales were up 33.3%. This is the first increase we have seen in six months for the area and might be the first sign that the market is beginning to stabilize. Yes, sales year over year were still down 14.2% and the median prices are still declining, down 26.4% to $530,000 year over year. The first step in any turn around is that buyers have to come back into the market and sales month over month have to increase. So finally some good news - stay tuned! Entry level affordability gets better - more households in California and the San Francisco Bay Area could afford an entry level home in the first quarter 2008 according to the California Association of Realtors.

Region: CA Housing Affordability: Q1/2007: 26% Q1/2008: 44% Entry: $356,000 Qualifying Income: $68,000

Region: SF Bay Area Housing Affordability: Q1/2007: 24% Q1/2008: 30% Entry: $596,000 Qualifying Income: $113,000

Source: California Association of Realtors

The Bottom Line

Let's just look at the facts. Prices have fallen in many areas, home sellers are abundant, interest rates are still low, the vast majority of foreclosures are concentrated in 5 states, fear and panic can drive the market but at this point, is it driving us in the right direction?

Remember, there are two sides to every transaction - one selling, one buying. And right now the market favors the buying side. So while many will avoid the market, some will realize the time is right. Why? Get in; get all the tax benefits, give it time to appreciate (at 3-5 years) and you'll do fine. Others will look back and say "if only we had bought back then."