Which end is up? or Understanding Our Housing Market
Part 1 of a 2 part series
"Reports of my death are greatly exaggerated"– Mark Twain quotation after hearing that his obituary had been published in the New York
The same might be true for the real estate market in the Bay Area. While everyday there’s some piece of news about the Bay Area’s real Estate market, many of it is focused to capture your attention in a sensational way and does little to offer insight and discussion.
Since no two markets are identical it’s difficult to say where this one will end up. But the relentless news stories about the mortgage industry melt-down and sub-prime loan mess has got even the most bullish investors nervous.
Clearly there will be a shake out (which is already occurring). Many areas of the country experienced a run-up in home values which was unsustainable and are now feeling the pull back which invariably happens after a bull market run-it should come as no surprise (read The Writing Was on the Wall for an explanation of what set the stage for the current crises).
The last large down-turn in Bay Area housing prices was in 1989-1994 when Bay Area communities saw huge paper gains in real estate evaporate-fine if you didn’t have to sell, but there was also a recession and many people were forced to sell their homes due to a company relocation or the loss of a job altogether; which is precisely the main difference in this market cycle compared to 1989-we’re not in a recession-in fact more jobs are being created in the Bay Area than are not.
As in the last housing market adjustment, some states faired better than others and some cities faired better as well. One thing we currently know is inventory levels are up and sales down. These two opposing effects will eventually result in a decrease in home values; when inventory levels rise and sales don’t, inventory grows and homes generally sell for less. There are of course radical pundits on both sides of the debate-one side stating emphatically that values will drop 50% and the other side in denial that anything could affect our precious market. As in most cases, the truth will lie somewhere in between.
How will this affect the Bay Area? For the immediate future it boils down to confidence. If homeowners believe that the market may be headed for a protracted decline they will be inclined to sit back and wait out the market. This of course will have a self-fulfilling prophecy effect since more homes will sit on the market longer and sell for less. If however, interest rates go lower, many homeowners-previously pushed out of the market-may return and seek opportunities.
Drew & Christine Morgan MorganHomes.com Belmont Real Estate
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