The Sky is Falling! The Sky is Falling!

We’ve been reading about it and reading about. It’s been on TV and in the national news – even my mother called to warn me and let me know my old bedroom is still available when California real estate crashes.

Well, mom – relax. The rest of you also take a breath. There is a lot of bad news in real estate and the housing sector of the economy, but the situation is far from Armageddon. In fact, the savvy buyer or seller can take advantage of the situation. While the hysterics run around over-reacting, the savvy buyer, seller or investor is leveraging all the bad press to their advantage.

The East Bay area of California is rife with an abundance of micro-markets. Many of these micro-markets have hardly skipped a beat this year despite all of the hoopla.

The market that is suffering the most and putting all the downward pressure on California housing is the moderate to low priced housing market. This is especially true in areas where there is a significant amount of new home construction available.

The rate of return on California real estate from 2000 to 2005 was 10.3%. Sure it's taking a hit, but who is getting hit?

The biggest change influencing California real estate is the change in Psychology of the Market. It’s no longer the wild west of 24 offers, a bidding war, and the shootout at the OK Corral.

We are expecting to see a 23% decline in real estate transactions this year over last and 2008 may see an additional 9% decline marking the bottom of the market.

From January through August of this year, the low end of the market shrunk the most. The high end is going up. (BTW – you can see this clearly in our Market Details Reports)

September was a whole different animal because the jumbo loan market suffered a major hiccup. Prior to September the market transactions above the $million mark shrunk a mere .5% (under $million deflated 24%). In September transactions above a $million went bonkers  – about 20% decline.

The upper-end of the market is continuing a healthy appreciation in a sluggish economy. Four-bedroom plus homes are doing better than smaller homes.

While the subprime meltdown has had a significant impact on first-time buyers, the forecast for 2007 is that first-time buyers will account for 29% of sales.

There is no Fire Sale happening for East Bay real estate. There are some good deals out there, but in general, the East Bay economy is outperforming much of the state and nation. Consumer confidence is volatile, but research shows that consumer confidence does not necessarily affect spending.

Rents are on the rise in the East Bay, almost 6% year to year. Almost 25% of home sales are for people moving into the area.

So, here it is – our 2008 forecast: sales will be down 8% to 10%. The upper end of the market will continue it’s appreciation while the lower end will stabilize.

Changes in legislation and business practices to deal with the “crazy loan madness” will bring first-time buyers back into the market.

Many buyers will wait too long to capitalize on the advantages available right now. Some sellers will finally understand that the glory days may not return until 2010 and decide to price their homes at market value. People that bought Yahoo! at $20 a share and sold at $85 instead of $200 still believe they lost money.

Such is life – people are born and die, get married and divorced – houses continue to sell in any market.