How low will home prices go is a question on the minds’ of many. Although it’s a buyers market, many buyers are still trying to time the market bottom, struggling with new credit regulations or trapped in indecision.

The East Bay housing market is actually experiencing mostly – normal market – conditions, meaning the people buying and selling homes are those that need to. The exuberant sales activity of previous years, fueled by unsound lending standards, was not normal. Comparing today’s market to the 1996 to 2004 market distorts the reality of the situation. Historically, the current real estate market in the East Bay is still a healthy normal market despite all of the correction taking place.

While mainstream media continue to give foreclosure, short sales, bad lending and slumping building first-page billing, the business of buying and selling real estate goes on.

Here are a couple of today’s news items:

Home Construction Drops 25 Percent – The prolonged slump in housing pushed construction of new homes in 2007 down by the largest amount in 27 years with the expectation that the downturn has further to go.

"Builders are taking a realistic view of the continuing housing market correction and doing what they should to get inventories under control and restore greater balance to the supply-and-demand equation," Brian Catalde, the trade group's president, said in a statement. Catalde is a homebuilder from El Segundo, Calif.

Bernanke Seems Open to Stimulus Package – A recent string of dismal economic reports has raised fears the country could slide into a recession this year. Retail sales have plunged. The nation's unemployment rate has jumped from 4.7 percent to 5 percent, a two-year high. Manufacturing activity has slowed. The nation's major banks are piling up big losses and Wall Street has been mired in turmoil.

Communities in the I-680 Corridor facing the most downward pressure on price are Concord, Dublin, Livermore, and Martinez. Walnut Creek, Pleasanton and San Ramon seem to be more in the middle while Danville and Alamo are weathering the downward pricing pressure better.

There are three major factors in this equation:

• New Home Pricing – Areas with new home construction projects have to deal with the pricing discounts being offered as incentives to move existing inventories and keep the company afloat as builders try to weather the storm.
• Middle Market Blues – Homes priced at or below the median price level are taking the biggest hit in price reduction pressure.
• Foreclosure Activity – Neighborhood foreclosures increase surrounding property devaluation.

If this trending continues, then the best advice for:

• Sellers – if you have to move in the first half of this year, then you need to give serious consideration to entering the market as early as possible and being as aggressive on price as you can. If you don’t need to sell by July, then keep your house off the market. Putting your house on the market at an “I hope I can get this” price is going to hurt you in the long run. Patience will serve you better than hope at this point.
• Buyers – Waiting for the market to hit bottom is just bad thinking at this point. The existing pricing pressures are probably at their maximum right now. Now is the time to enter the fray while your negotiating power is high.

At this point, banks and builders are beginning to hunker down for the long haul. They have set their bottom lines taking into consideration the projected foreclosures and the slowing market. They are not going to give it away, they are going to try and outlast the downturn. Being open to 80 cents on the dollar might find them agreeable to 79 or 78 cents, but looking for less is probably more emotional wishful thinking than fact-based analysis.

And that’s my two cents for this Thursday!