The Big Chill

So, I went out for lunch today and dropped off a movie I had rented at Blockbuster and in spite of the fact that it’s been in the mid 80’s around here, and I’m wearing a short sleeve shirt, it sure feels cold to me. I’ll bet it does to you too. Icy actually. That cold that we all feel is fear, brought about by the drama on Wall Street since last Monday. It’s been interesting to me to watch. Open houses last weekend were noticably slower, calls on my listings were down, buyer’s that I’m working with took a step back and maybe most interesting of all…the blog’s stats came down. Do I have an answer for all of this? Are you kidding? Here’s what I do know. This event feels identical to me to what we experienced right after 9/11. The market froze. Even though there was available money everybody’s confidence took a big hit and lots and lots of people went to the sidelines. Same story with all of the phone calls and open houses…no blog then though, so no stat analysis. Fear was the main event, which was compounded by the anthrax scare. I flew back to Denver to go to a football game on September 21, 2001 and the experience getting on a plane was surreal. Nobody spoke the whole flight, it was incredibly tense.

Here’s something else that I clearly remember. I wrote an offer on a townhouse in San Carlos for some clients on September 10, 2001. The place had been on the market for a month or so and we wrote an offer $50,000 under asking just because we wanted to put the ball in play, so to speak. We all fully expected a counter offer and we were hoping to meet somewhere in the middle. The seller was in Hong Kong an didn’t receive the offer until the morning of the 11th…he signed it. The identical floorplan sold 4 months later for $75,000 more. There were other deals just like that in the 4th quarter of 2001…but not many. You see buyers had hit the sidelines because of the fear and then they all came back at once in January of 2002. I remember a listing in Belmont that came on in mid September 2001 that sat for three months without even a nibble. The seller blamed the listing agent and relisted it with another agent I know in January…and they got 12 offers. The new agent didn’t do anything different, other than lower the price $10,000. The market turned around that fast.

I’m going to go out on a limb a little bit here and say that I think that what we’re experiencing right now is the bottom.  I think that in the future we’ll all look back on this with that awareness, we’ll point to September 2008 as the bottom. I’m not predicting that by January we’ll be back to a multiple offer frenzy at all. I’m simply saying that one day the market will come back strong again and those individuals who have the courage to jump into the water right now will be in a very strong negotiating position. If you’re a buyer or a potential buyer right now there are people who are more frightened than you…the sellers.

Comments

  1. I agree that it is a hard time right now. But, I do think the fundamental affordability issue will stay for a long time. There are only two solutions to the problem: the house price goes down by 20%, or the inflation goes up by 20%. Both of these would take a year to show up considering the current financial mess.

  2. I, too, believe that the market is defintely stabilizing. I just don’t know how strong it will come back.

  3. I am with you… I was at a NAR meeting yesterday and the rumor is (rumor, mind you) 7% increase in sales for 2009 and 2.5 % increase in pricing… Woah, goin out on a limb…

  4. Good job! Did you mention that this was a referral client? Buffini Systems work! It’s all going to pop for you now. You are smart, enthusiastic, caring and consider your client’s welfare before your own. All the good qualities to have!

    Jim, I noticed more business the day after the feds saved Fannie & Freddie. Waiting for the Congress to get on the ball. It will make all the difference! Call, write and email your reps in Congress, we need them to vote yes!

    If we can help other countries, financially, why not help our own!

  5. Congress needs to act now. We are on the verge of a recovering housing market and this crisis needs to be solved now! I’m going to email my reps in congress right now!

  6. I am a home owner. So, I would hope the housing recovery can happen. But the affordability issue indicates that this is simply impossible.

    An entry level SFH in foster city would cost 900k, with 20% down, 30 year, 6% interest rate: the average payment each month, including property tax would be 5.3k. This requires at least annual income of 200k for a family. The 2006 average san mateo household income is less than 100k. I do not see how the house value can justify for the two numbers.

    In fact, it is a good thing for housing price to drop in silicon valley because it would attract new families for the next technology breakthrough.

  7. Thanks, Alex, for your interest. While prices are, in fact, falling there’s never going to be a direct correlation on income averages to house values. If it was necessary to have that kind of correlation, how could Hillsborough maintain value? Some people make more, some people have more down payment…and they buy in better areas, like Foster City.

    There really have not been many foreclosures in Foster City and very few short sales as well (mostly in small condos). The reason? Because people who bought here in the last 10 years could afford to do it. They were not getting in by the skin of their teeth with sub prime loans. This isn’t Daly City or Antioch. If they were, we would be clearly seeing significant price erosion here right now…and we really haven’t. Like I said in this post…now will be a really great time to test the softness of the market during this nervous period.

  8. I hope that the situation is true for clear reasons:) But, the baby boomer retiring is a tipping factor for future housing market.

    Looking at my neighborhood, mostly two kinds of people move out:
    . family with high school kids
    . retiring people because they do not need a big house any more
    Mostly, one kind of people move in:
    . family with elementary school kids

    Before, we have the booming high tech companies, like Oracle and Sieble. But, it is not true anymore. The silicon valley can just sustain the current downturn. The tipping point is slowly changing and it takes time to sense it.

    Also, I would not compare foster city with Hillsborough or Palo Alto because the buying forces are fundamentally different. Still, if silicon valley finally feel the pressure, Hillsborough will get affected more than foster city.

  9. Actually, I think Foster City and Hillsborough/Palo Alto, while obviously different, have one thing in common. The vast preponderance of buyers there over the last few years have had decent downpayments and got good loans. That’s alot different than San Bruno, Daly City, Shoreview…etc. I think that means more price stabilty since the average homeowner who’s selling doesn’t have to consider multiple short sales and foreclosures when pricing their home…maybe we’ve beaten this subject to death. Ultimately, only time will tell who’s crystal ball is most accurate. Fun discussion though!

  10. While I do not have a crystal ball to help me figure out when we will hit bottom, I can say that these bailouts that some have been praying for or writing to congress about are not necessarily going to help first time home buyers because they are going to increase long-term interest rates and inflation.

    As I mentioned on my blog,

    “Bond prices have also dropped in anticipation of the U.S government issuing more debt to finance this bailout. Most homeowners tend to either move or refinance their homes within a 10 year period. Hence 30 year mortgages are closely correlated to the 10 year Treasury note and have already jumped last week in response to this bailout plan. Not only are financial institutions being given a “get out of jail free” card but responsible first time home buyers who waited out the real estate bubble are going to pay the price immediately through increased financing costs.”

    This has also started playing out as the 30 year fixed has jumped nearly 25 basis points in a week. If you are interested you can check out the entire blog entry discussing the impact of the bailout here,

    The Rules Of The Game Have Changed

  11. I’ve lived in this area for over 50 years and seen a lot of changes…I can remember in 1980’s when the interest rate hit 20% on a ARM. People still bought homes because they needed shelter.

    It doesn’t really matter if the bond prices go down or if the interest rates go up, people will still buy homes on this peninsula because there are a finite number of homes. Sure the prices have dropped and people are worried about the bailout and it’ll cost some taxpayers some money. Okay, that’s life.

    But this a great time to buy homes because jumbo (loans greater than 650k are @ 6.5%) Still very cheap money historically. People look at the big picture! I remember a 3bd 2 bth in the 70’s for 80k that same house is 1.1m.

    If you plan on working here and you have some talent this is the place to be. Stop watching TV and just go to work and enjoy what this place has to offer.

    If you are smart, buy a home and check back in 10 years and let me know how it turned out? Smart people & businesses always make money in chaotic enviroments. See JP Morgan Chase, Bank of America & Wells Fargo.

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