Those of you who have been following us for some time know at the beginning of each year we re-cap the previous year and take a stab at where the market might be headed in the upcoming year. We’re still compiling the numbers for 2008 and the analysis will take another few days to complete but preliminarily, it appears Belmont fared better than most of the Bay Area and even her neighboring cities. Check back next week for a full run down and re-cap of 2008.

Before I wrote this post, I went back and re-read our assessment of where the market might be headed in 2008. Of course very few people could have predicted that the dire real estate woes would drag the entire economy to the brink of collapse and we were no better at guessing that than most. However, for your enjoyment we’ve clipped a segment out of our 2008 market forecast made on January 4^th 2008—we’ve highlighted some of the more interesting comments:

EXCERPT FROM OUR 2008 MARKET FORECAST:

“This is precisely why the Peninsula should fare better than other areas [in 2008].

·         There is little room for expansion

·         Few new development has occurred in the past five years as compared to areas with growth potential

·         High paying jobs are plentiful

·         Low rate of speculative ownership

·         Few sub-prime loans

Of course not to be overlooked or under-appreciated is the desire to live in the technologically and culturally rich Bay Area.

However, it’s entirely possible we are on a precipice which could collapse at any time. What is impacting the Peninsula is the rising cost of energy—especially gasoline. What could have an incalculable impact would be a prolonged recession and loss of local jobs; either of these would undoubtedly bring a decrease in home values to the Peninsula. So much of the values in the Bay Area rely on the perception that it’s a great place to live. A natural disaster (such as a large earthquake) or terrorist attack would also have a detrimental economic effect on housing. Buyers who are sitting on the sideline and not availing themselves of the current conditions are essentially betting on any one of the former conditions manifesting in the near future.”

Thankfully, the events we eluded to which did not occur was a terrorist attack or natural disaster. Investors did begin to snap up undervalued properties in the central valley and a few of the nine bay area counties which were hard hit by foreclosures. This had the desired effect of liquidating the tidal wave of inventory but the undesirable effect of sinking the reported median price by skewing the sales mix to smaller homes (since smaller and distressed properties sell for less). The media continued its relentless and incessant reporting of the falling median home price without the slightest application of responsible journalism. Bombarded by the media’s reckless lack of analysis, invariably many buyers were frightened by the reports of falling home values and quite reasonably and expectedly took a “wait and see” attitude. That’s not to say the media was wrong, they just reported numbers without the necessary perspective leading many to believe the housing situation to be far worse than it was in some areas, and far better in others.

What’s in store for 2009?

With the perfunctory disclaimer that past performance does not predict future results, we fear in 2009 it may however be quite true. We wouldn’t be surprised at all to see a continuation of the stagnant real estate market which has had a choke-hold on home values for the past two years. Interestingly, the last major downturn in real estate which began in 1989 was caused by an overall weak economy and most importantly the loss of jobs. In contrast, the current housing downturn has in effect created the recession—a causal reversal from past cycles.

That’s a long way of saying that housing cannot recover until the economy does. And while it appeared in the second quarter of 2008 that the real estate recovery might begin in 2009, we since believe that will be pushed out another year. That said, any recovery will begin with a leveling off of inventory and declining home values. A period of stagnant home values will invariably last for another year or two following the price plateau as buyers still wary of a volatile market will only reluctantly reenter the market. Most will wait too long and catch prices on the way back up but there’s no telling when that will happen. We’re not telling you to run out and buy a home as part of a fear based campaign, “Hurry or you may miss the bottom”. We learned long ago to resist trying to explain to people why they should buy a home and rather help those who are already motivated. Like the old saying, “You can lead a horse to water…” but he has to be thirsty.

Cheers,

Drew