Things May Not Be as Bad as They Seem

Every day and every night lately, we are bombarded by media stories about how terrible the real estate market is, and how these bad days are going to last for years to come. While there are problems associated with the large inventory of homes on the market, and many foreclosures occurring in many markets around the country, sometimes we need to balance the sensational bad news with some reasoned analysis.

In my email, I received the text of a speech given last month by Gary Watts, a real estate economist. Thank you to my friends over at the local office of Fidelity Title for forwarding this information to me. I wanted to post the text of it here, because it provides some detailed insight as to why the Northern California real estate markets may not be as bad as we are all hearing daily on the news. And why things might get better, sooner than we think.

Here is the email as it came to me. With the permission of Fidelity Title, I'm happy to share it with you:

Last week Gary Watts a real estate economist, who's been forecasting real estate trends for 34 years, gave a presentation on the state of the current market.

His perception seems almost twisted when compared against the massive amounts of negative news being force fed by the unscrupulous and fear bating media.  But if you can step outside of the doom and gloom of it all you will see that there may be some truth to what he says.  In 32 years, he has certainly weathered his share of our industry's storms.  By applying the principals of economics, he has come up with a most uncommon twist on our current state of affairs.  So for all the bad press our industry has received of late, for all the companies who've gone under, for all the people who've been displaced, there may be the one positive outlook.

Our attention spans are short as we have experienced an unbelievably strong market from 1996 - 2005, but the preceding 6 years were when the market was incredibly slow. Basically, when we've had almost a decade of a strong market, we forget all markets go in cycles, so when there is a downturn, everyone thinks the "bubble is bursting", and the media uses their fear tactics of reporting to attract more viewers, readers, etc. I've included Gary's link that outlines a "Brief History of Real Estate" since the 1970's, along with his forecast @ http://www.impactre.com/Forecast.html - I highly encourage you to read it. Since his seminar was just last week, a couple things talked about, but not on his website include:

1)      We are in the 24th month of the current housing downturn. Historically, housing downturns average 27 months so we may be near the end. Even though sales volumes have decreased, the Bay Area's home prices have continued to show small amounts of appreciation.

2)      The Sub-Prime Market: Only 3.25% of all sub-prime loans have entered he foreclosure process (experts forecasted 7%). Only 0.65% of all prime loans have entered the foreclosure process. In the Bay Area, 79% of homeowners in default are successfully avoiding foreclosures, and compared to last year, foreclosure are up only 1.5%. The media will say that we are close in number with foreclosures now as in 1996 (the all time high), but they fail to mention we have millions more homes, don't they?

3)      Last year our population increased by almost 3% - that is 9 million people! A big part of that increase is immigration (thanks to our shrinking dollar), and the Bay Area's climate and healthy job market attract 200,000 immigrants per year. In the next 20 years, the population of California alone is expected to double - reaching almost 20 million! Obviously, a need for housing remains strong.

4)      Northern California's appeal: The Bay Area's employment is growing at approximately 1.8% annually, which adds 50,800 jobs. The Bay Area is one of the wealthiest areas in the world. Of California's top 10 counties for household income, 6 of these counties are in the Bay Area. Silicon Valley continues to rank #1 for venture capital.

5)      Gary predicts that with decreasing interest rates (last week the feds lowered the prime rate by 0.5%, and they are expected to decrease more over the next 6 months), a decent inventory of homes, the ending of a cycle, immigration, unemployment at a 6-year low of 4.6%, and our healthy job market, that NOW is the time to buy, and feels we are at or near the bottom of the current cycle. 

That's this months food for thought from your Realtor in Davis, California.

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