How Savvy Consumers, Who Know the Facts, Are Making the Most Out of Today’s Real Estate Market
There are a lot of bright spots in Northern California’s
real estate market today. Attractive interest rates. Sizeable inventory. Historically strong housing market. Immigration’s affect on our market. And how about the fact that we live in one of the most desirable areas in the world?
So while some headlines say that the sky is falling, I am urging my clients to see the silver lining in today’s real estate market so they may make the most out of what may be one of the decade’s best opportunities to enter
the real estate market.
A Correction is Exactly What We Needed
To understand where the economy is heading, it helps to take a step back and discuss how we arrived at this point. In the early part of the 2000s, investors, who took advantage of attractive interest rates and favorable economic conditions, helped drive prices to new heights so they could flip purchases for profit. Some markets, including ours, saw price appreciation rates of as much as 30-50%, versus the average annual rate of about 10%.
While many of us enjoyed the benefits of the early part of the decade’s housing boom, what this did to our market was make housing extremely unaffordable. Prices are moving back to be more in line with household incomes and that sets the stage for a healthier market. Furthermore, last year we began to witness the result of the sub-prime crunch. Brendon Riordan, the Senior Vice President of Production for Mortgage Banker Princeton Capital, describes the background behind the crunch: “In
short, the underwriting guidelines for loans started to loosen up around 2002. As we progressed through 2005, the guidelines became even more liberal. It seemed as if the easier the guidelines became, the more loans were generated. The more risk these loans had, the higher the yields were to the investors who purchased these loans. At one point in time, a buyer with a low credit score could purchase a home without any down payment and not have to verify his/her income or assets. These lenient underwriting standards led to many people buying homes that they probably couldn’t really afford.
“The mortgage industry has returned to the traditional way of lending. Where just a few years ago, 100% financing and non-stated income had become the norm, today those options are almost non-existent. Lending rules are more stringent with buyers, in most cases, now being required
to have higher credit scores, at least a 5% down payment, and buyers have to fully document their income and assets.”
Despite challenges in the housing market over the last couple of years, some experts are predicting that we will escape an economic recession in 2008 with a projected market turnaround by 2009.
According to NAR Chief Economist Lawrence Yun’s December 27, 2007
report entitled “The Forecast,” “All in all, we will easily escape
recession – despite the anticipated screaming headlines of impending doom. The GDP reading for each of the successive quarters in 2008 will be positive: 2.2 percent in the first quarter, 2.6 percent in the second quarter, 3.0 percent in the third quarter, and 3.1 percent in the fourth. Job gains also will continue into 2008.”
trend, 2008 may become one of the best opportunities to enter the real estate market, giving consumers the potential opportunity of getting in on the ground floor and potentially reaping the benefits of one of the best buyer’s markets in more than a decade.
In 2006 we entered a transitional market – one in which sellers were still looking at prices of old and the appreciation they had realized in the early part of the decade while buyers were beginning to be a bit more conscientious and were looking for a “deal.” What this meant for buyers and sellers was a bit of a “wait and see game” with both parties often holding out. Now, the stars are much more aligned for buyers and sellers.
• Sellers are motivated.
• In many areas there is a sizeable inventory of homes to choose from.
• And, according to Freddie Mac’s January 31, 2008 Primary
Mortgage Market Survey, mortgage rates are well below the historical average with 30-year fixed rate mortgages averaging 5.68% with 0.4 points.
What this means for buyers is they can afford more today
than they may be able to tomorrow, should interest rates
increase. Couple that with motivated sellers and sizeable
inventory, and buyers are in a favorable situation.
• Historically speaking, the housing market remains strong.
o According to Freddie Mac, national average home prices have yet to post a year-over-year decline in the 37 years the Federal Government has been tracking them.
o In fact, the last significant decline in average U.S. home prices occurred during the deflationary era of the Great Depression.
• The affect of immigration on our market is tremendous. According to the 2006 Census and World Wealth Report:
o From 1980 to 2000, over 6.2 million immigrant households joined the ranks of middle-income earners, and they are purchasing housing.
o Immigrant children who arrived with their parents in the 1980s and 1990s are now buying homes.
o As first time home buyers, these individuals represent 35% of the first time resale market.
o The falling dollar makes U.S. real estate an attractive buy for many foreigners.
o The Bay Area ranks in the top five U.S. areas for Asian immigrant growth and California as a whole is the nation’s leading state for immigrant real estate purchases.
• Even with the market corrections, there remains a great deal of pent-up demand. According to the State of California U.S. Bureau of Labor and Statistics:
o California is home to 36.5 million residents with the population growing over 800,000 last year; by 2050, our population is projected to explode (nearly doubling) to 60 million people.
• We live in a highly desirable area.
o The Bay Area is one of the wealthiest areas in the world; of California’s top 10 counties for household income, six of these counties are in the Bay Area, according to the California U.S. Bureau of Labor and Statistics.
o Northern California is one of the few areas in the country, where home prices, in some pockets, are still rising slightly, according to the California Association of Realtors.
So there you have it. A lot of interesting facts about today’s market. Facts that you don’t always get to see in the Sunday paper but truly paint a vivid picture of today’s market. There is a silver lining to today’s market and ultimately a great deal of opportunity. As your real estate professional, I would welcome the opportunity to counsel you on the opportunities
available in today’s market and help you take advantage of them
before it is too late.
Please call me today so we may get started.