By Mike Southwick
I was speaking to one of my past clients this week who asked me if could help her friend find a home. This particular buyer was initially looking in a different county and I chose to refer that buyer to another Realtor who could better service her.
I had initially found about five properties that met the basic criteria that were important to this buyer and I shared that with the referred agent. The agent called me back in about 30 minutes and told me that all five of those properties were either in contract (pending) or they had more than five offers on them already.
To my real estate colleagues this scenario is no big surprise as we have been dealing with this shortage of available housing in some areas for more than six months.
This shortage of available homes is a real issue and it is very good news for existing homeowners who are seeing the value of their homes increase rapidly. The driving factors are an abundance of qualified buyers eager to capitalize on upward trending home values, low interest rates and a lack of new home construction.
I have agent friends in the East Bay Area who tell me that buyers are offering $40,000 to $50,000 more than the list price on their properties. Some people may think that this seems insane but the reality is even with the over bidding taking place we are still well below the peak (especially if you factor in inflation) of the real estate market of 2005.
Most real estate professionals will tell you that from the peak of the market to its lowest point we witnessed a loss of home values somewhere between 50 to 60 percent in most areas of California. This caused an abundance of housing inventory which brought on one of the largest and longest blow-out sales on homes that I think any of us has ever seen. In the words of Daniel Jacuzzi, president of Select Group Real Estate Services, “That sale is now over”! In the past six to nine months we have regained a portion of that loss, which has allowed some homeowners who have been in a negative equity position to sell their home and move up or even downsize because of the increase in home values. The increase in home values has also allowed others to refinance and even leverage themselves to buy investment and or vacation properties.
The current assessment by the most conservative forecasters tell us that until we surpass the home value peak that was achieved in 2005 there is little fear of a downturn in home values. In my opinion we may surpass those peak values because new housing construction is a little
slow to getting going which means demand will continue to outpace supply until new housing constructions gains more traction.
The conversation that I had with the past client that I referred to at the beginning of this article continued with this question: “So are we back to that same market of 2005”? I think there are a few things that are different. The interest rates are lower than they were in 2005, financing requirements are tighter especially when trying to obtain a favorable interest rate, appraisal regulations are tougher and the lessons learned from such a dramatic loss of capital seems to be keeping things from getting out of control. This doesn’t mean that we won’t repeat some of the mistakes made that led to real estate downturn but what remains true is that housing has rebounded and the blow-out sale is over.
What really excites me, and the reason I titled this article “The Housing Revolution,” is what a robust real estate market means to our overall economy. The real estate market is going to be the engine that will drive our U.S. economy and it will create and bring back jobs to a strong and intelligent work force. Even the Industrial Revolution had several starts and stops but once it took off the sustained growth was phenomenal.
Our history as Americans tell us that when we have an abundance of jobs, the cycle of increased opportunity perpetuates and sustains itself. When fueled by American ingenuity and creativity, we always exceed our previous achievements.
I think we could all do ourselves a great big favor and spread the word that housing is back, prices are up and the light at the end of the tunnel is not a train. I would like to think that we are not experiencing a housing bubble but actually a housing revolution.
Mike Southwick is managing broker at Century 21 Select – El Dorado County.