California Real Estate Data Study Part #1

Currently we are shifting from a seller’s to a buyer’s market. We are successfully anticipating market trends, because we are the first to see change take place. This is evident in our daily routine. For instance, 6 months ago our business consisted of 2-3 listings a month with a pool of 10 to 12 buyers. Now we have 10 listings with a pool of 2-3 buyers. We can see that the way we negotiate has changed. The buyer now has leverage. More inventory has spawned buyer power. Below are interesting insights about our changing real estate markets. Over the years we have found that our client’s decisions to buy and sell property are often based on big life changes. For instance many of our past clients have had their jobs relocated. Others are starting families and need larger spaces. When our clients don’t plan ahead they often make decisions based on concerns that don’t maximize their financial returns. Although some of this is unavoidable, we pride ourselves on always being available to assist our clients long before they need to sell or buy. We are here to help you plan your next move.

People tend to listen to the news media for insights, tips and tactics. This is bad. When attending the University of California at Davis, we studied stock market tips and techniques. We analyzed the top stock picks of some major financial and investment magazines. We found that if you followed their hot picks you would have a return in excess of NEGATIVE 100%. Ouch! These tips are faulty because as information reaches the masses it becomes common knowledge and the value has disappears. The media is behind the curve. We have found this same investment phenomenon is true for the copious real estate news that we are bombarded with. The news is not a reliable investment resource for assessing real estate markets.

As our market shifts you will hear more about many agents that are struggling to survive instead of putting their client’s interests first. We are already seeing many agents drop out of the business. While this shift is occurring, we have approximately the same amount of business as we did last year. Maybe this is because we always put our client’s interests before our own. We are always looking for new ways to make our client’s real estate transactions more successful.

We pride ourselves on helping our clients better understand the markets in which they are transacting. Instead of selling or buying on a feeling, these postings will allow you to benefit from our expertise, connect with the market and give you the background to explore new opportunities. We hope this will allow you to make grounded decisions and avoid pitfalls.

Click the More Button below to see the first in a series of research I have created to document the history of the California’s real estate market. Take a look and feel free to call us with any questions you may have. We are always available to assist you or any one you know with buying or selling real estate.

California Housing Appreciation History

Note on this graph that the worst depreciation California has seen was in 1995 (a -6% return). The second worst appreciation California has seen was in 1982 ( a -0.65% return). The highest appreciation California has seen was in 2004 (a 27% return). The second highest appreciation California has seen was in 1977 (a 26.76% return). The third highest appreciation California has seen was in 1989 (a 22.5% return).

Data Source: http://www.ofheo.gov/HPIState.asp

Prime Rate History

Prime Rate is the interest rate charged by banks to their most credit worthy customers. This rate serves as a basis for other, higher risk loans. It is a good barometer for average industry interest rate. Note that prime rate was the highest in 1980 (20%). In 2003 Prime rate was at its lowest point (4%) since 1958. Keep in Mind that the average prime rate since 1947 is 10%.

Data Source: http://mortgage-x.com/general/indexes/prime.asp

California Housing Appreciation
History & Prime Rate History

When we overlay the California appreciation history with the history of prime interest rates there are some interesting correlations. We can see that the worst California housing depreciation since 1976 (in 1994 we had -6.3%) was not due to high interest rates. The History is that in the 90’s California had a deluge of military base closures. Note the second worst depression in California’s housing was not that significant in terms of depreciation(-0.65%). It occurred in 1982 and was highly influenced by high interest rates. Historically, high interest rates tended to stagnate appreciation, but did not cause large drops in the market.

What Does This All Mean?

It is interesting to note what has caused dips in the real estate markets in the past. Although we know that past occurrences do not dictate future trends, we can see what kind of elasticity the market tends to have. We know that California has a very different real estate market then the rest of the country. In part this is because we have such a large and robust economy. We also can now see that our worst real estate markets have not been that bad. This leads us to believe in long term value investing in California real estate. We will have our ups and downs, but over the long term California’s real estate markets are robust.

In our next e-mails we will be localizing our data and looking at what average appreciation history verses prime rate history looks like in the SF Bay and surrounding areas. We can speculate that the East Bay economy is even more robust then all of California, based on the fact that our economy was not very dependent on the military base closures that occurred in the 90’s. We will also use this data to take a look at when you should buy in order to maximize your return. Our speculation tells us that now is a great time to buy for, if interest rates go up then the cost of money could outweigh the historical stagnation in Bay Area pricing. One thing is for sure, our real estate markets sure are exciting.