Let’s Talk Recovery. What does it mean for your opportunities?

Thank you to Think Panama for the photo.

I just read the new East Bay Economic Development Aliance report. If you have not read it I suggest you give it a look (here). In the latest report Jerry Nickelsburg a Senior Economist for UCLA’s Anderson Forecast discusses what California’s turn around may look like.

One thing I found funny is that the report is titled July 2009 Update with Overview by UCLA. Are we not in September? Well as it occurs all data is provided on past events, thus a reader should keep this in mind when reading the report and speculating about what is going on now in the market.

I do agree with the report that a Bay Area residential real estate turnaround is underway. Being that we are transacting frequently in this market, we are observers of the current market climate. Today we are seeing really low inventory with lots of buyers to gobble it up. In fact, most properties are now receiving multiple bids and selling for over their asking prices. Of course, this is reflected in the above report as an increase in median prices in the Bay Area. It is simple supply and demand.

So, What about all the foreclosures that we are supposed to be seeing? Well I believe the banks have gotten smart and are happy with the competition and multiple offers they are now receiving.  They also have the staying power to trickle listings on the market and produce a greater and greater return as the market continues to improve. For example, there is an agent in my office that is in the REO business and said the number of deals given out by the banks has dropped to a trickle. Even a prominent purveyor of Foreclosure information, Foreclosure Radar is saying the wave of foreclosures some are expecting may never crash on the East Bay’s shores. You can read there article (here).

So, what does this mean for buyers? Well, we now have some very low interest rates with some moderate pressure upward on rates. Many economists believe that we are in for an inflationary period sometime in the future due to all the money the US government has pumped into our economy. Thus there is a real risk for buyers that a contracting supply coupled with rising rates may make housing less affordable. Not to mention that in inflationary times your home should increase in value while your payment stays the same. That means that net worth will be built for those that can buy property and hold on to it through the ups and downs of the market.

So, how should you move in this market? We have just had the worst real estate crisis in California’s history. Prices are back at 2003 levels and well below Bay Area’s median housing inflation trends. Knowing that values tend to return to the mean this is an opportunity for buyers who can buy and hold. Will the road be bumpy along the way? Of course, but taking action to minimize your mortgage risk while maximizing your opportunity is the name of the game. Those that get into the market and hold their homes through the rough patches are in for handsome returns.