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Bubble is not bursting in housing market, Realtor official says

Thursday, February 8, 2007

A California Association of Realtors® (C.A.R.) official told over 200 Silicon Valley Realtors gathered at the Palo Alto Golf Course last week that the California housing market has slowed down, but contrary to many media reports, the "bubble" is NOT bursting.
 
"The market is just adjusting because it got out of hand and overheated. The Bay Area, more than any place in the state, is doing well. It has the strongest market, the lowest inventory and the greatest demand," according to C.A.R.'s vice president and chief economist, Leslie Appleton-Young.

C.A.R. reports home sales decreased 15.3 percent in December in California compared with the same period a year ago, while the median price of an existing home increased 3.7 percent. The median price of an existing, single-family detached home in California during December 2006 was $567,690, a 3.7 percent increase over the revised $547,400 median for December 2005.

Appleton-Young characterized the 2002-2005 housing boom with very strong sales, double digit price appreciation every year, homes receiving as many as 25 multiple offers in a 24-hour period, when "the rate of return was so high, you could not afford to buy a home in California."

"It's not the same today, but it doesn't mean the bubble is bursting. The housing market at that time was overheated, and the last four years were just not sustainable," she explained.

According to Appleton-Young, the tipping point came in late summer of 2005, when consumer confidence dropped from 105.5 to 87.5 percent due to factors like Hurricane Katrina, the war in Iraq, rising energy costs and increases in long-term interest rates.

As a consequence, today's housing market is merely undergoing a period of adjustment, and though sales have declined in comparison to the last four years, the market is still very good, especially in the Bay Area, according to the state trade group's economist. She said the decrease in the state median price, which dropped by 2 percent, is being influenced by areas where there is too much supply of homes, especially new homes.

Appleton-Young assured Realtors that the Bay Area's housing market, particularly the Silicon Valley area, continues to do well. Silicon Valley has a growing economy, the strongest market, the lowest inventory and the greatest demand, Appleton-Young told Realtors.

The median price in Santa Clara County was $668,000 in December 2006, up 0.5 percent from $665,000 the prior year.

"The Bay Area is the best market in California right now, with the L.A.-Southern California coming in next. The slowdown is led by the Central Valley, which has been hit by too much speculative interest and new construction," she noted.

Appleton-Young said those experiencing financial difficulty right now are speculators who intended to flip homes right away and those that obtained interest-only loans and other exotic loans.

"I don't mean to diminish the rising rate of foreclosures, but they are increasing from a very low base," explained Appleton-Young. "There's no doubt they are up because people who have invested in properties. It's like playing musical chairs and someone took the chair away."

She pointed out, "Those in trouble are not typically your normal homeowner."

The bubble isn't bursting because the economy continues to hold its own, said Appleton-Young.

"Job creation in California is keeping pace with the nation and there continues to be moderate growth. Taxable sales are up, reflecting job and income growth, and the stock market is positive." said Appleton-Young.

She acknowledged homes sales in the Bay Area dropped about 19 percent in December 2006 compared with the same period a year ago, "but the market is not falling off the cliff. ... The reality is buyers and sellers are having to find the middle ground."

Baby boomers will be big news in this decade, Appleton-Young told Realtors.

"A lot of baby boomers are interested in real estate that exceeds beyond their primary residence. They buy second homes for vacation, for retirement, for their aging parents and even for their children in college. It's important to keep in contact with your past clients," she advised Realtors.

The forecast for 2007 is for moderate growth of about 2.9 percent. And the good news is there will always be a demand for homes in the Silicon Valley region because of its job growth, location and other assets.

"Silicon Valley is a very, very special place. It's enterprising, has a tendency of rebuilding itself, reinventing itself, reinvigorating itself on a regular basis," Appleton-Young said.

"There will be no major changes in the market. We're poised for a good year. The demand is there, the rate of investment is fabulous. You now need to focus on your clients," Appleton-Young predicted.


The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.

The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.

Variations of this article have appeared in local area newspapers.

For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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