As we know, real estate is cyclical from buyer to a sellers market and back. After the real estate downturn in 2007, the market lost significant value in most of the country. Fast forward to 2016, many people who were "under water" are now experiencing increased home values. In Santa Maria, CA the average house price is about the same as it was in 2006-2007, after a 30-40% drop in home price.
How will a downward market shift affect home owners? I guess it depends. If the market drops like it did in 2007, home owners might not be able t sell their house if they own more than their house is worth. Options are limited and do not favor the home owner.
If a home owner has a problem,rental property and the property is not producing a good cash flow, this might be a good time to sell and capitalize on appreciation gained. Another scenario is a home owner planning to move up or downsize. If you are counting on gained appreciation to be applied as a down payment for the next home, this option might disappear if home prices decrease significantly. Another option is to sell your home, and apply the proceeds to another home as a 1031 exchange and avoid capital gains tax.
I know this scenario first hand because I encountered this in 2007. I, like many other homeowners, enjoyed the rapid home value increase prior to the "housing crash" which produced a false sense of security.
When the market adjusted, home owners with tight financing lost the option to sell. Short sales, foreclosures, etc. and financial hardship were the only options for many homeowners who lost their homes. Are we approaching another adjustment? Only time will tell. The question is not, will it happen, but rather when and how severe will the adjustment play out.
This possible might be a strategic time to sell. A home owner might ask. What happens if I miss out on future appreciation? Are you willing to gamble anticipated appreciation and ignore the other option, if home prices decrease significantly and any gain is lost? I guess if you own your property free and clear or you have significant equity, a market change does not affect you, although it always hurts when we see our homes value decrease.
Reviewing your financial situation and personal goals is wise. Timing is crucial in the Santa Maria/ Orcutt, CA real estate market. The big issue is the housing shortage. For various reasons, housing supply has not keep up with housing demand. Our current housing dynamic drives home prices up, favoring sellers. Unfortunately, if a buyer is no longer able to afford a home, this generates a "cause and affect" or a housing market adjustment.
Are you ready? I think it is wise to consider how you will be affected if the market changes and how to minimize any loses.
What are your thoughts? Do you think a market adjustment will occur sooner or later and why?