The economy is growing moderately, but it is slower this year than originally forecasted, and the biggest culprit is the housing industry, according to California Association of Realtors® Vice President Leslie Appleton-Young. Appleton-Young was the guest speaker at the Women's Council of Realtors (Santa Clara Valley chapter) luncheon held last month at the Wyndham Hotel in San Jose.
According to the C.A.R. official, the beginnings of the downturn in the housing market began already in the fourth quarter of 2005, with Hurricane Katrina, the war in Iraq and high energy costs. These events and situations brought consumer confidence down, which in turn impinged on the housing industry.
Appleton-Young said, "Consumers are skittish. There's a correlation between the housing market and consumer confidence. Consumer spending is two-thirds of economic activity, and it's down a bit."
The drop in consumer spending and its impact on the housing industry is one of the key reasons the Federal Reserve Board is holding back on further rate increases, according to Appleton-Young. Since June of 2004, the Fed has increased interest rates 17 times.
"I think we'll see one to two more hikes," Appleton-Young predicted. "They're very concerned about the level of inflation."
In the housing market, during the past few years, refinancing transactions were greater than new purchases, according to Appleton-Young. She predicted more people will now remain longer in their homes.
"Homeowners may stay in their homes longer because many have cashed out and spent their trade-up equity, and they love their low rate mortgage," Appleton-Young explained.
However, she indicated that much activity can be expected from the baby boomers. Baby boomers are inheriting wealth from their parents and they have a keen interest in real estate for their kids, for their parents and for retirement investment, she said.
"There are 78 million baby boomers. Baby boomers love real estate. They are buying homes now as retirement and investment properties sooner, and more of it," said Appleton-Young.
Expect home sales to drop in the 20-25 percent range this year, Appleton-Young told Realtors. She also said she sees price appreciation at a plateau, with prices up 5 percent this year, a big change from double-digit appreciation of the previous years.
"Those who bought homes in the last two years are not prepared for this," she warned. "We have an affordability crisis in California."
Appleton-Young, who is an economist, said there has been a large increase in million dollar homes in the last two years, with the number up 70 percent in 2004-05, but she expects home prices in California for next two years to be fairly flat, and a slowdown to continue due to affordability constraints, interest rate expectations and psychological factors.
"People are waiting in the sidelines to see if there is any change. It's psychological.
The 2004-05 pace (in the housing industry) was unsustainable, but now there is much uncertainty about the economy. Never has there been a time in my life when there was so much uncertainty of the economy and the market," said Appleton-Young.
"You can't do a lot about the market," she told Realtors. "Use this time to sharpen your personal productivity."
Appleton-Young told Realtors that sellers need to get more realistic about pricing their homes and cautioned them not to take overpriced listings. She also advised them to take a look at housing from the perspective of the buyer.
In 2004, investment buyers were the Internet users, but now, in 2006, seven of 10 prospective home buyers use the Internet. They spend more time researching homes on the Internet than with an agent. The Internet allows for more efficient transactions, and Realtors should sharpen their skills in this area, said Appleton-Young.
A recent California Association of Realtors® survey showed most buyers respond to the first agent who responds to their e-mail. Of Internet buyers, 62 percent expect a faster response from agents; 44 percent expect agents to respond to their e-mail in 30 minutes or less.
"The speed of the response time is important," she emphasized. "Communication is almost everything with your clients. It's all about relationships with people. Respect and listening, luxury service, skills, professionalism is what buyers expect. Always check your e-mails. Nobody wants a middle of the road experience. They expect satisfaction."
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.
For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.