I have spoken with economists, lenders, realtors, seasoned investors, employment counselors....not one of these people see any light at the end of the tunnel until 2013.
Hard to believe? Well, I believe it.
And if all of us are wrong, what have we lost...nothing. If the market turns sooner, all the better.
But, if we are right, and people who sit in their homes, hold onto their investments and watch their equity deteriorate, they will be very sorry.
I cannot tell you how many of my sellers have called me to thank me for pushing them to sell last year.
I am not spreading a negative spin, just a realistic assessment of the market.
Sure there are areas that are not in the tank yet, but not where I live.
Vinicius - 'projected job losses in the valley'? what projected loss? it's reality, and it's happening every day now and is getting worse. not only are companies laying off, they are also reducing salaries and benefits.
See my estimate in the thread on Rivermark. I don't think we've seen anything yet, the worse is still to come.
According to some stat running the other night, I found nearly 90% of short sales/foreclosures to be in the price range under $500K. Makes sense as these were the last homes to be purchased in the "nothing was affordable" time period between 2003 and 2007. It also makes sense that this was also the population most likely to have little money down and to be lured in by exotic loan products.
Many positive folks believe that once we sell our way out of this bucket of foreclosures (mostly in the East and South of Santa Clara County that Bill points out) that we will be on our way to recovery. After all, the impact into the core neighborhoods that did not have the boom in new development and remain strong neighborhoods with good schools have been least effected by the foreclosures. Which also equals to less of a price drop.
But there is the job problem. If job loss continues, we will see the foreclosures increase in the above $500K price range and then these core neighborhoods will also see a decrease in price and increase in foreclosures. The next round of ARM adjustments are dependent on a concise modification program and currently that is not in place. We could see some stabilizing of prices in 2009 just in time to enter another dip in 2010.
In my humble opinion, there are three key needs to turn the down hill slide around for Santa Clara County and any other county:
1.) Renewing credit options for all. As long as credit is tight, the purchasing power in Santa Clara county per household for owning their own home will remain between 20-40% of the population.
2.) Serious loan modification for ARM but specifically NEG AM loans that were simply ridiculous products for the Bay Area.
3.) Job loss trend, reversed. Green and Bio-med technology could be the saviors for the Bay Area. With proper government assistance, this can happen sooner rather than later.
Of course, my crystal ball has a lot of finger prints on it as I it is getting a lot of use lately. It may not be as clear as I want. I posted recently on my blog that it is not the time for every person to buy a home. The fact that prices are down and interest rates remain at 40 yr lows are basic responses. But if you work at a company that is laying off or in general financial trouble, it may not be the right time. If you only have 3% down, it may be worth saving and waiting. If....the decision is individual. Personally, I am looking to buy as many properties as I can over the next two years because I do plan to retire here in the beautiful Bay area and I want my children near by. But that is me. Real Estate has been part of my personal success for nearly 25 years. Even when I did not live in San Jose. Even when I was not a real estate agent. 25 years of continuous improvement is enough proof to me that it is the best investment for me.
"We had hoped we might stay insulated from the global economic crisis, and for a long time we were," said Silicon Valley Network president Russell Hancock. "But then it caught up with us and now everyone is laying off."
"There isn't anybody who isn't laying off," he said, then draws a long breath before reciting this list: "Microsoft, Intel, Hewlett Packard, Sun, Yahoo, Apple, Google." He pauses a moment to consider that. "Google. When Google is laying off you know something is going very wrong."
I can only speak based on my clients, and more than 50% are getting FHA financing so they put down roughly 3%, but the others who have the money are putting up 20% or more as down payment. Yes, many are tempted and acting now to take advantage of the $8,000 opportunity this year plus the $10,000 opportunity with the state. But, keep in mind there is also quite a bit of foreign investment coming in certain areas of Santa Clara County and most of them are buying in cash. The demand is out there, which was my original point. Once the spigot opens up, many of the buyers who were sitting on the fence will get off the fence(as they are doing in droves now) and the sales momentum will push forward.
As to the speculating as to whether the FHA borrower will default or not at high rates, I can't comment as I have no such available data to form such opinions.
I can't say with a 100% certainty that we bottomed out in Feb 09, but , as I indicated in my blog, there is a dramatic shift happening here, which leads me to believe we may have hit the bottom in terms of looking for fire-sale bargains.
There is the raw data, but you must also mix into the equation anecdotal evidence to put things into proper perspective. The market for homes under $500,000 range is unbelievably hot like Allyson mentioned. Ask any Realtor who has made an offer on a property in that price range within the last two months if they had to compete with multiple offers and a majority of them will tell you: yes. There was a dramatic shift in the past couple of months of pending and sold activities as the data indicated. The amount of frenzied purchasing activity is something we in the industry have not seen in many many months. That price point is important because it represents roughly the median price point in Santa Clara County: meaning half of the sold homes were higher and half of the sold prices were lower.
Remember, there are a lot of people out there who are not worried about their jobs and who realize the conditions are great for them to buy, and there are also a lot of investors out there buying up properties with lightening speed who also are making the moves. That market ($500,000 and below) right now is so hot, that if more properties in decent conditions were to hit the market, there are a lot of buyers who lost out on those bids ready to absorb them.
I completely agree with you about the High end market, but what I see every day in the LOW end market is multiple offers on EVERY decent REO/Short Sale going sometimes way over asking price with any where from 3 to 20 offers. You are correct to point out the large amount of REO'S about to come on the market, but from what I see there are the buyers there to absorb them. This is the first time in years that people who have been waiting to buy can finally afford to and boy are they buying. There is VERY stiff competition on LOW end homes and unless there is some drastic economic news I don't see this changing. As you have stated earlier you buy low and sell high, well on the LOW end market now is the time.
I just wrote about my findings in Santa Clara County Single Family Residences and their sales performance. Hopefully that will help you find the answer you are seeking.
If you have question, feel free to contact me.
Protecting your assets, investing wisely, insuring your risks are the keys to wealth preservation. Have a long term vision. "Rome was not built in a day".
Any Real Estate recovery come from the bottom up. The increasing improvement in availability,and prices of homes and mortgages , especially in the 1st time buyer field will be the force that reverses the recent decline in the market. This will not happen overnight but in same parts of Santa Clara County it is already visible. Anyone who has tried to buy a Bank Owned Property recently can tell you of the disappointment of finding themselves out bid due to multiple offers. This is a definite indication of a stabilizing market ready to bounce back once the over supply of Short Sales and REO's works it's way through the market place. This will not be for a few months yet but it will happen.
It's a good idea to remember that the bottom of a market is impossible to see until it's moving away from you.
Just another little observation; for some people this is the best of time. Obviously the 1st time buyer who thought they had missed the chance to own their own home. But less obviously, the existing homeowner wishing to move up. Though he might get 25% less than a year ago, he will also be able to buy at 25% less on the bigger home. Selling a $600,000 home at %450,000 then buying a $1,000,000 replacement for $750,000 is pretty sweet.
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It is true that no one knows where the market will be going based upon the numerous market variables. However, we CAN take existing data and extrapolate trendlines that can act as a projection should the market continue to do what it has done for the past number of months. Those trendlines show a continued downward push. I have that data available if you wish â€“ unfortunately, it cannot be posted I this format. Let me know if youâ€™d like me to send it to you.
The best summary of the current situation and near future predictions for our market actually appeared in the much maligned (especially by me) San Jose Mercury News this past weekend. http://-www.mercurynews.com." target="_blank" rel="nofollow">http://www.mercurynews.com/ci_11356704?IADID=Search http://-www.merc An excellent piece of journalism.
A key consideration when talking about Santa Clara Valley is to understand there are 2 major sections: North East, and South, and North West and South West. The first has a much higher percentage of "distress" properties and will come back slowly. The other, more affluent areas have seen much less impact from this slow down and are already showing strong signs of recovery.
I ran into one individual at an open house that was spewing doom and gloom for the valley. The reality is much different. We have to keep in mind that most individuals that do lose their jobs will have some sort of compensation from 6 months to 1 year possibly. So I really don't think it will be that severe for Santa Clara as a whole. What you really have to look at are the areas where there has been alot of turnover in the last 5 years. These are the areas where homes are most likely underwater and probably will not benefit from any goverment programs or refinancing. As far as other areas are concerned those who can avoid selling are going to delay until the market improves.
In the meantime expect the market to soften as they year progresses. Inventory will pick up and depending upon the mood of buyers the likelihood is that we will experience further price decreases later on in the year.
As a homebuyer I would still be actively looking. Deals are individual and unique. So you may be able to purchase the right home for a great price at any point this year. The best homes usually hit the market in the Spring, and the rest of the year you typically are going to find homes that carried over and didn't sell.
No one really knows what will happen in ANY real estate market in 2009.
The more more certain anyone sounds the more I would doubt what they are saying.
What wil the economy be this year?
Where will the DOW be this year?
Will the stimulus package have any effect?
I believe there is too much uncertainty to be able to predict the near-term future.
My gut sense is market will be flat to slightly lower.
Even this will vary from nieghborhood to neighorborhood.
In areas with many foreclosures, prices will probably drop more.
I do believe buying now for the long-term will prove a wise decision - with a 5 to 10 year time frame - look for a good buy, negotiate a good purchase price and get a very low interest rate loan.