As an active agent, I talk to buyers and sellers every day. Buyers think it is 1929, and sellers think it is 2003. I talk to 10-20 home sellers daily who tell me they are going to wait a year or so until prices are back to where they were 2 years ago. When I ask them if they base that on any statistical analysis, they always admit that they are projecting their hopes on the market.
Will values go back up in a year or so? Sellers whose homes are 10% too high today are expecting 5% annual appreciation starting today. Does that seem likely to you?
Particularly in the higher ends, I doubt the market is done correcting, as the market shift is just making it up to the higher levels.
My namesake, Bill Gross of PIMCO, the world's top bond trader, wrote in the summer of 1980: "Plankton, of course, are almost microscopic organisms that serve as food for higher life forms. Without plankton almost every fish and mammal in the sea could not survive, since most species depend upon other fish for their existence and plankton are the initial building blocks of the entire process."
What does that have to do with housing prices? He continued: "In the case of real estate, the plankton would be the first-time buyer (perhaps a young married couple) with a desire to own their own home but with very little capital to carry it off. When the time comes that they canâ€™t pull it off â€“ either through an inability to come up with a down payment, or to service the monthly mortgage â€“ then the â€˜planktonâ€™ would disappear and the rapid escalation in housing prices would ease as well. For, unless the current homeowner has someone to sell his house to, heâ€™ll be unable to afford the house with the view or that extra bedroom, and the process would continue into the echelons of Beverly Hills and Shaker Heights. In the end, the entire market would wither on the investment vine and home prices would stop increasing at the same rapid rate. So to gauge the health of the housing market, look first at the plankton."
Entry level markets are red hot. I recently helped a buyer make an offer on a lender-owned condo in Sana Ana, where properties are selling for 100% of asking price. Higher priced markets, like West LA, are starting to see lower priced properties selling and higher sitting for longer. While the news is reporting on the increase activity reflecting the lower price points, the upper end of the market is poised for a challenging year in 2009. Sellers speculating on higher prices in 2010 would not be interested in buying their home as an investment yet are doing just that by waiting aÂ year when they can cash out now.