Stability Returning to East Bay Housing Market

We’re approaching the Spring selling season in the East Bay – it’s time to tackle the question of where we think the local housing markets are heading.

The downward pressures on the housing and lending markets have taken their toll on the resilient East Bay housing market. The I-680 corridor remains one of the healthiest housing markets in the country, but that doesn’t mean we escaped the impact.

Will recent actions taken by the Federal Reserve, the Federal Government, and the major lending institutions have any real effect on housing? Most pundits agree that these programs will only benefit a very small percentage of home owners in trouble.

The most significant factor in the mix for East Bay homeowners is the change in the conforming loan rates. This change is something that has been long sought by the real estate industry in California.

But don’t expect this change to send the housing market skyrocketing back to new heights. The market is still in transition. The long-term effect of bad financing, foreclosures, tighter lending standards will (hopefully) be a more solid and sane foundation of lending standards to promote and support long-term home ownership.

Housing affordability is the big issue that needs to be addressed. Even with the downturn in housing prices, the cost of home ownership is out pacing income growth for most Americans.

The number one factor that will influence home prices this spring will not be foreclosures or financing availability – it will be seller motivation. Sellers that need to sell to get on with their lives will be influenced by market forces and they will price their houses accordingly. It is the sales of these houses that will set the new comps for your neighborhood.

We can expect to see more price reduction throughout this year which should flatten in the second half. I would expect this to be in the 2% to 5% range. Which means that buyers hoping for another significant drop in prices will probably miss out on the better deal because increased interest rates will negate any price reduction.

Housing prices are going to flatten for the most part. The bottom half of the market has seen about all of the reduction it can take. The upper half has done its job of stabilizing the median home price, but here is where we will see some significant impact because price reductions in the upper end will result in the median home price dropping – and this will give the media more cannon fodder to bombard us with – The Sky is Falling, The Sky is Falling!

All of the mess we read about in the papers or hear on TV, in general, relates to less than 10% of the housing market. You’ve heard of the 80/20 rule? Well, in journalism, it seems to be the 10/90 rule – take 10% of something and turn it into a major catastrophe.

The psychology of the market is returning to the pragmatic – gone is the hyper-drive of easy money and doom & gloom will also pass. Practical people that need to buy or sell real estate, will be the force that returns the market to sanity and stabiity.