The Local Market Update

I haven’t had much commentary to add lately, since there has been no news that has altered my mildly bearish view. I continue to monitor the Wall Street Journal and listen to CNBC business news for the mainstream take on housing and general economic trends. Both lately do not see a ‘bottom’ in the housing market, although neither predicts a collapse. Various newsletters and commentary fill my inbox, and I read many of them in the spare time. They vary from the happy-talk of the usual Realtor suspects, including the predictably rosy National Association of Realtors’ view of ‘Problems? What problems?’ to John Maulden’s cautionary tales of structural weakness on the macroeconomic front. Locally, the numbers of homes coming on the market are increasing as befits the spring selling season, even as the number of homes going into escrow drops. Prices are gently falling… which presages a dive to the bottom as the sellers who really need to sell get realistic and drop prices in search of the elusive buyers.

And just where are the buyers? Open house traffic around the valley has dropped down to the zero range, even in traditionally hot areas of central Valencia. Sign calls are down although Internet hits in various advertising remain fairly steady. The response intensity has fallen, with many buyers deferring decisions or thinking there is plenty of time to consider options. There is a significant segment of buyers who have sold, who are buying out of area or even out of state. Yes, this ‘take the money and run’ crowd sees opportunity elsewhere, and for some, moving out is in itself a move up. But for those tied to local employment, there are still significant ‘move up’ opportunities, as long as their original home indeed sells.

The high-profile agents in our area, whose massive expenditures in advertising are not getting the same return, or in talking with them individually, any return. There are indications that some will be leaving the area, having made their money in the fast market of a few years ago and now a few are ready to move out. Many will stay, but with a lowered advertising presence and cost-containment again coming into vogue.

Mortgage brokers and direct lenders continue to be busy, as those with option ARM mortgages try to convert to loans with better and more stable terms. This refinance activity will maintain the industry, albeit at lower levels than the go-go era that we have come out of, while the new purchase mortgage market goes into decline. With credit standards tightening (especially in the sub-prime market), the resale market is hurting. I would expect that to continue and intensify for the foreseeable future.

Thankfully there have not been huge drops in local housing prices, with overall drops in the five percent range, but this trend of a general but gentle drop in prices is likely to continue into at least next year, if not beyond. For those with a statistical frame of mind, reversion to the mean is a valid concept, and the unwinding of excess appreciation is likely to take years.
That’s not to say that there aren’t some great deals out in the market for a buyer who uses a good Realtor. There are. And with as much inventory on the market, writing up a low offer and finding the deal may take a little time, but it can be done. To ignore this aspect of the market in favor of following conventional wisdom that ‘this is not a good time to buy’ is just foolish. Yes, there are deals to be made.

My advice to sellers? Drop that price down to the lowest of the competition, or lower still if there are adverse conditions such as location or condition. Now is not the market for cutting commissions either on the listing side or the selling side, See-BS’ ’60 Minutes’ report on the housing industry considered and rejected for our local market. With as much inventory as there is out there, price is not the only consideration… you also want what buyers who are out there to be brought to your home by the Realtors. While I would encourage any seller who gets an offer to seriously work with it, the first step is getting the buyer through the door.

Overall, we live in terrific times. There is much to celebrate in the economy: low unemployment (around 4% in our local area), record-setting stock markets, highest rates of home-ownership in history, and low inflation (not counting gas prices!). We are blessed with great weather, excellent schools, responsive local government, plenty of shopping and entertainment options, and so much more. Sure, there are problems and we are in our own ways both culturally and individually addressing them over time. But look around… it could be a lot worse and how much better could it be?

The housing market is dynamic. There will always be opportunity in one or many parts of the market, but there will not be opportunity in all parts of the market all the time. Sometimes individuals over-extend and get ahead of the market trends (or go counter-trend to their eventual dismay), and their opportunity lies in the early recognition of the facts, and then retrenching or re-grouping. Take a look at the SCV Home Team website to see who is selling and who is buying. If you want to find out where the opportunity exists for you and your individual circumstances, give us a call at 661-287-9164.