I derive my livelihood from the real estate market, and a significant portion of our business is driven by real estate transactions…i.e., people selling or buying homes. While a pessimistic view of future home prices is not exactly a great thing for our business, we have been telling our clients to expect further home price declines near term (i.e., in the next year or two)…and a likely slow recovery in the real estate market over the coming 3-5 years (consistent with recovery trends in previous housing downturns).
Many real estate professionals shy away from having these types of discussions with their clients, as they fear their clients will delay their home transaction…which delays when the real estate professional will make money. However, we try our best to educate our clients so their understanding of the market is consistent with ours…and they make their real estate decisions with “open eyes”. While this does result in some delaying their real estate transactions…we feel this is the right approach to our business and will benefit us long term, by creating a relationship of trust with our clients.
The truth is that home price and whether or not “the market has hit bottom” is not the only factor that home buyers do or should consider when deciding to buy a home, particularly one they plan to live in. There are many other factors that influence when and where a person buys their primary residence including life issues (“I recently got a divorce and really want to settle into a place that is mine, and where my daughter can go to a good school”), financing issues (“I know mortgage rates are historically low right now so I am OK with buying now even if there’s a risk that prices will go down in the next year or two. I don’t plan to sell for many years…and think I will be OK long term as the market is already way down from it’s 2006 peak”) and other issues such as the type of home a person or family wants to live in (“I’ve been looking for a while and haven’t liked anything. I love this new construction condo and want to live in it now”).
Similar considerations also effect investors’ decision making, particularly for those investors that plan to purchase several properties during this down cycle. For some, it makes sense to “start averaging in” by buying properties now….while also leveraging the low mortgage rates available on conforming balance investor loans.
In any event, noone – including me or any real estate professional – can accurately predict the future…so all we are doing is sharing the best educated guess we can make based on what we do know.
Please see below an article from the San Francisco Chronicle which I think is a good read for anyone considering buying or selling real estate in the near term. This represents a more pessimistic view of the market than is generally discussed in the media…but a lot of what the author is talking about makes sense to me.
Signs of more trouble ahead for housing market
Tuesday, May 26, 2009
Warren Buffett and Alan Greenspan say the housing market is near bottom.
Peppy real estate agents and gloomy stock-market traders alike eagerly embrace that supposition. Wall Street is so hungry for good news that stocks rallied at the barest hint of upbeat indicators several times this month.
But an array of serious pending issues undercuts the turnaround theorists.
To be sure, an end to the precipitous collapse that triggered a foreclosure avalanche and wiped out more than $6 trillion of home equity nationwide, not to mention setting off a worldwide economic collapse, would be something to celebrate. And several recent market barometers – diminishing inventory, increasing buyer competition, slowing price depreciation, rising builder confidence – lend credence to the idea that real estate could soon rebound.
A healthy housing market has a decent balance between supply and demand. While at a quick glance those components appear to be stabilizing, on closer look there are numerous factors that are likely to weaken demand and deluge the market with supply in coming months.
On the demand side, the surge in joblessness, still-high home prices, the credit crunch and a dearth of move-up buyers cut into the pool of potential home buyers.
On the supply side, an assortment of factors seems poised to trigger new waves of foreclosures that will continue to bloat inventory. They include the expiration of foreclosure moratoriums, more underwater “walk-away” homeowners, pending recasts of option ARM loans, rising delinquencies in prime and Alt-A loans, and soft sales of high-end homes.
Here’s a link to the full article:
Signs of more trouble ahead for housing market (SF Chronicle, May 26, 2009)
