January 22, 2009

Real Estate in 2009

What’s in store for this year

By Joe Brown
President and CEO of
Coldwell Banker Silicon Valley

The year just past was a year of ups and downs for the Bay area real estate market, including those of us in the South Bay.

While we fared better than many other parts of the Bay area and the nation, we weren’t immune from the difficult economy and the slowdown in the housing market. So, the question likely on the minds of many is what’s in store for 2009?

Of course, much of the real estate prognosis is dependent on the state of the financial system in general and real estate finance situation, in particular. The fact is, we really can’t find traction until the financial markets stabilize.

Knowing this, many experts are predicting that once the fiscal stimulus being created by lawmakers and aggressive action by the Federal Reserve kick in, the economy is likely to improve. According to the California Association of Realtors’ California Housing Market Forecast for 2009, “home prices throughout most areas of California will post declines this year (2008), while sales of existing homes will continue the rise in 2009.” The Oct. 15 report predicts that the median home price in California will decline 6 percent from 2008 expectations to $358,000 in 2009, but sales are projected to increase 12.5 percent to 445,000 units.

According to the National Association of Realtors third quarter 2008 housing market update, “The U.S. economy has entered a recession and will contract for the next three quarters. The recovery, beginning in the second half of 2009, will be tepid. The unemployment rate will peak at 6.7 percent by midyear before steadily holding down. Despite these challenging economic times, existing home sales will be rising.”

Possibly the most important ingredient in the 2009 real estate correction is the fact that real estate makes up 20 percent of the Gross Domestic Product in this country and, regardless of which side of the political fence you fall on, our country cannot be fixed without first fixing the housing sector. With this important information in tow, there are currently several key indicators that may position our country for a real estate recovery in 2009:

Dropping interest rates—According to NAR’s Dec. 17 article entitled “Fed Action Creates Best Interest Rates in 50 Years,” Realtors® Report, “Mortgage rates, which had averaged 6.3 percent in the third quarter, have recently fallen into the 4 percent range in some parts of the country. NAR has estimated that a one percentage point decrease in mortgage rates will increase home sales by more than 500,000 homes.”

Improving affordability — The Calif-ornia Association of Realtors reports that the percentage of households that could afford to buy an entry level home in California stood at 53 percent in the third quarter of 2008, compared with 24 percent for the same period a year ago. In December’s report from DataQuick News, a total of 5,754 new and resale homes and condos closed escrow in the Bay area in November. That was up 12.3 percent from 5,127 sales in November 2007.

Government intervention—The government is currently looking at a number of corrector options including tax benefits, home ownership credits, subsidies or interest rate stabilization, to name a few. President Obama and his economic team are in the process of developing an economic recovery plan designed to help Main Street and Wall Street with an ultimate goal of creating at least 2.5 million jobs while rebuilding our infrastructure, improving our schools, reducing our dependence on oil and saving billions of dollars.

Slowing of distressed properties—The timing of our price recovery may depend on how quickly the government takes steps to mitigate foreclosures. According to CAR, “We expect sales of distressed properties to peak in early 2009—a critical factor in the housing market that directly impacts the time frame for stabilization in the median price.” NAR also reported in its “Fed Action Creates Best Interest Rates in 50 Years,” Realtors® Report that “lower interest rates coupled with increased foreclosure mitigation are the key ingredients to stabilizing the housing market and preserving communities and homeownership.”

Many experts agree that the financial system will begin to show signs of stabilization in early 2009 and we may begin to see a real estate turnaround by the summer. If you are considering buying, this should serve as a good indicator that now may very well be the time to purchase real estate. If you are considering selling, possibly more so than ever, you need a qualified Realtor® who can assist you in selling your home. Visit www.CaliforniaMoves.com for a list of real estate professionals in your area.

Joe Brown is president and chief operating officer of Coldwell Banker in Silicon Valley, Monterey Bay and the East Bay. A 26-year real estate veteran, he oversees a talented team of more than 1,700 real estate professionals in 28 offices. For more information, contact Coldwell Banker at (408) 399-1488.