Well, it’s time for our mid-year by-the-numbers update, a chance to take a deep breath and see how the real estate market is shaping up for our little corner of the universe here in Southwest California. As a regular reader you know that I have been cautiously optimistic this year in spite of ongoing bad news on the national economic front. I tend to take anything I read in the mainstream media with at least a grain of salt, preferably followed by a shot of Cuervo and a squeeze of lime, and that philosophy has stood me well. If I say we are in a ‘mental recession’ fueled by negative (and often inaccurate) media coverage, I can’t get fired like Phil Gramm – yet we’ll both turn out to be right.
For example, while I was on vacation last month, Bob Shiller of the Case-Shiller Report was widely quoted opining that ‘housing prices will decline another 30%.’ Really Bob? Where I was vacationing, median prices have continued to increase this year – up to $1.2 million in fact. Actually median prices have increased in about 30% of the country to a greater or lesser degree. In another 30% of the country prices have held pretty steady with only minor ups or downs the past couple years. So with 60% of the country at least breaking even or better, does Bob mean the rest of us are going to drop another 90% for his estimate to be accurate? Or is every single market going to suddenly start dropping 30% across the board? Does a reporter ever stand up and say ‘What the hell does that mean, Bob?’ I do. Bring on the salt and lime.
Here’s
where our
local housing market stands as of the end of the first half. In
What
makes it
even better is the
quarter-over-quarter run rate. While last year found our
sales volumes in month-to-month and quarter-to-quarter free fall, this
So is the housing crisis over? One month doesn’t make a trend but 3 of them together equals a quarter of growth. One quarter doesn’t make a trend either but if we can put two or three of them together, we might be turning the proverbial corner on sales.
ON SALES!
But
there’s a
dark side to this sales growth. The reason more people are buying right
now is
very simple – prices are at their lowest levels since I
started tracking them
back in 2004. Each city hit its pricing peak at different times. For
That is definitely a good-news/bad-news scenario. The good news is that first time home buyers are flocking into a market they’ve been frozen out of for the past 4 or 5 years. Assuming they can get a loan (not always easy today), they have a selection of affordable homes available to them unmatched in our market since the late 90’s. There are dozens of homes available under $200,000 and many condos are dipping toward the $100,000 level. Buyers looking to increase their home size are finding homes for $350,000 that cost nearly double that as recently as 18 months ago. Nearly 20% of homes in La Cresta are back under $1 million with some bank-owned homes available in the $600,000 range. Our local Housing Affordability Index has jumped more than 20 points in just the past 14 months.
While this is great news if you are a home buyer, it’s not what you want to hear if you bought your home after 2004. It’s also not great news if you want or need to sell or refinance a home that you bought anytime during the past decade. You will take anywhere from a light shower to a full bath if you are trying to compete with today’s most successful sellers – BANKS. And that’s not likely to end anytime soon. According to most sources, they forecast another couple of rate resets that will impact the market between this fall and next spring and each of those resets results in another wave of foreclosures and more inventory.
Does that mean a continued drop in prices? Not necessarily. In the early 90’s it took our market nearly 4 years for prices to drop as far as they’ve dropped during just the past 14 months. This has been the most precipitous price decline in most analysts’ memory, but the drop may be over or nearly so. As sales increases offset inventory gains, prices will tend to stabilize for awhile even as more foreclosures hit the market. Once that inventory drops and the balance shifts in the sellers favor, banks will get their issues sorted out and get back into the lending business (after all, that’s what they do for a living) and you can expect our market to start another expansion cycle.
You’ve got a few months left of depressed prices and a spectacular inventory of choices – then prices will firm up, your selection will start to narrow and the momentum will have shifted. If you factor in the inevitable interest rate increases to combat inflationary pressure, your window of prime opportunity will be even narrower. Or you can continue to wait for the ‘absolute bottom of the market’ and I’ll remind you of this column next year.
One
last bit of
good news, the
Remember, Don't wait to buy real estate - Buy real estate and wait.
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