The California housing market has slowed down, but contrary to many media reports, the "bubble" is not bursting, California Association of REALTORS® (C.A.R.) Vice President and Chief Economist Leslie Appleton-Young told over 200 SILVAR Realtors who gathered at the Palo Alto Golf Course last week.
"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 Appleton-Young.
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.
The tipping point came in late summer of 2005, related Appleton-Young, 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 Bay Area's housing market, especially Silicon Valley, continues to do well. It's got a growing economy, the strongest market, the lowest inventory and the greatest demand, Appleton-Young told Realtors.
"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.
"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. … 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."
In this decade, Appleton-Young told Realtors baby boomers will be big news.
"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 told Realtors. "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."
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.
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