Heading to an Association breakfast meeting, I turned on the car radio to hear a national real estate market update. The reporter was commenting on the fact that the housing market recovery was going to be much slower than originally anticipated, lasting at least through next year, if not longer. The number of foreclosures nationwide is being talked about in the range of 5-6 million still on the books in the "shadow inventory" we all hear about. Foreclosures are being absorbed at a rate of about 1M per year. Could it really take five or more years for us to see a recovery? Speculation is that recovery will come sooner, as a result of foreign investment increasing, and a natural increase in the number of households requiring housing.
An interesting point was made about the fact that fewer new households are being formed now than a year ago. Speculation is that with such financial pressures, and especially with the fear that they could not sell a home if they own one, couples are less likely to split up and form new households. Adult children are less likely to leave home and start their own households under current economic restrictions. Imigration rates have also slowed.
Jobs are being created at a slower rate than expected, and unlike in previous recessions, many employers are willing to eliminate jobs even at the risk of not being able to replace them when the economy begins to recover. Unlike in previous downturns, now a very large number of positions are occupied by contract workers, without benefits.
That's the fairly grim macro picture. As I listened, I considered that some of my clients or future clients could be listening to this same story. And how do I reconcile this nation-wide picture with my current local experience? This week I spent five hours at a pre-offer inspection with a buyer, inspecting a $1 million home, so that my buyer could make the strongest possible offer in a multiple offer situation. He was already planning to write an all-cash offer, but having no inspection contingency would make the offer significantly more compelling. We were competing against three other offers. (He didn't get the house). That is the kind of pressure that buyers face here in the hot parts of the Berkeley, Rockridge and Piedmont markets right now, where multiple offers and quick sales are again the norm. It's both odd and difficult to counsel clients when our market appears to have hit bottom, picked up, and gone back to the kind of activity level that we experienced at the top of the market. Now prices are 10-20% lower than the peak, but the competition is stiff. Right here. In my neighborhoods. It's all about micro-markets!