BELOW IS A COPY OF A MARKET UPDATE I RECENTLY SENT TO OUR CLIENTS:
Dear Client,
In response to a recent survey of 75 clients, I am going to give quarterly updates on the state of the residential resale and residential rental markets in Santa Clarita and the surrounding areas. These updates are simply my opinion of the current market based on my studies of the current and past market reports for this area. I promise to never "sugar coat" anything I say. I will shoot straight, the way I see it.
As you may well know, the current resale market in Santa Clarita is in shambles. There are still a few optimistic reports trickling out, mostly from associations whose memberships stand to gain from a positive consumer attitude. Most reports are painting a "doom and gloom" picture, which, in my opinion, is not far from the truth. We have seen well over 10% depreciation, nearly across the board in the Santa Clarita market, since the beginning of 2007. The total depreciation since the beginning of 2006 is over 20% in some areas of Santa Clarita. (For instance, a Lower North Oaks home recently sold for $335,000.00. This same model sold for over $450,000.00 at the peak of the market. They were comparable in condition, location, etc...The home that sold for $335,000.00 was originally listed at $460,000.00. After being in escrow for $399,000.00, and $379,000.00, the owner took an offer of $335,000.00. This is not uncommon in many areas of Santa Clarita.)
Why is this happening? You may have read reports that the mortgage market imploded, exploded, or any other "ploded" that may apply, or you may have read about the weakening of the dollar, the rise or fall of interest rates, overbuilding, or any other number of factors. My question is this: If any of those were the reason, than why are there areas in the U.S. where double-digit appreciation is still occurring? I believe that the reason the market is adjusting so drastically is that the gap between the monthly cost of owning a home and the monthly cost of renting a home was so large. That gap occurred for some of the reasons listed above. That gap is closing. In areas where that gap is very small or nonexistent, home values are climbing.
When will the gap close? When will the market turn? No one knows for sure, we are all just guessing. There are many factors that can affect the market - rates, terms, loan restrictions, strength (or weakness) of the dollar, and a U.S. presidential election are just a few. My personal opinion is that in Santa Clarita we are going to level off quickly and then slowly adjust downward for another year or so before we see a real leveling of the market. I feel that it will be 3-5 years before we see appreciation, and then we will probably spike up for several years.
The rental market has been strong in 2007. We are seeing a slowdown right now, which is probably caused by: 1) The holiday season and 2) The influx of rental homes. While there are many people looking to rent (because they can't - or don't want to - buy), there are a great many people who have been trying to sell their home and have not had success and are turning to leasing out their home as an alternative.
I believe that the rental market will remain strong, but not quite what we have seen in 2007. 2007 saw very low vacancy rates and sharp rent increases in many areas. 2008 should bring slightly higher vacancy rates and slightly lower rent increases. Overall, however, it should be a very good rental market.
Remember, this is my opinion for the Santa Clarita area only. The Antelope Valley is a much different picture with rent decreases, much higher foreclosure rates, and less immigration. Other parts of the country are seeing different things as well. Miami, for example, is seeing sharp depreciation in home values, and sharp decreases in rents, in many communities.
What does it all mean? I believe that this market is preparing to transfer huge amounts of wealth from one group of people to another. Many people who are watching the market are going to start buying property and either "flipping" or renting them. Many people will lose their homes while many people will "gain" more homes. Which side are you on? If you are interested in buying, please contact me (unless you were referred by a realtor, then contact the realtor who referred you!).
I hope you enjoyed my snapshot of the current state of residential real estate in Santa Clarita. Feel free to let me know if you agree or disagree, and why. The easiest way is to e-mail me at john@rentwithclassic.com.
Best Regards,
John Evarts, CEO
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