So...Where's the Market?

The question that invariably gets asked by both clients and other real estate agents these days is "What's the market like?" After a full-on assualt by the media over the last 6 months with predictions of a massive market slide and bubbles bursting, everyone associated with the real estate industry has been a bit tentative as we've entered 2006.

In January, we saw agents tip-toe into the market with listings, unsure of pricing and marketing strategy. Some of their clients were still valuing their homes based upon the highs of the 2005 market, while others seemed to be realistically recognizing the tentative nature of the early 2006 market with more modest list prices for their homes.

I always try to apply objective "science" to market analysis and the development of an appropriate marketing strategy for our clients. Although it is too early in the year to draw any major conclusions about the market, there are some early indications about the sort of market that may lie ahead.

I use an index of "market strength" based upon the relationship of sold and pending sales to available inventory. Although a snap shot of a given month won't tell the whole story, it will give us an indication of market strength. Here are the Janurary index values for the following market areas including a comparison to January of 2005:

"Ron's Market Strength Index"

Jan 2005

Alamo 2.07

Lafayette 1.19

Orinda .70 .29

Walnut Creek 3.18

Jan 2006

Alamo .74

Lafayette 1.08

Orinda .29

Walnut Creek 1.01

My conclusion based upon objective, January data... we've got a more rational market than last year with generally less sales activity in relationship to available inventory. The exception is the Lafayette market where early year activity seems to be approximately the same as in 2005.

The intangible factors sometimes are more difficult to capture. What's the "mood" of the market among buyers, sellers, and those that represent them? How many buyers are in the market looking for the "right" home at the "right" price? Are buyers generally optimistic about the future of the housing market, or are they tentative and unsure? Albeit intangible factors, the answers to these questions really get to the heart of the market. This is one of the reasons that I have been so critical of irresponsible journalistic policies that have so widely published dire market predictions that don't reflect the realities of our local real estate or business economies.

In general, I am very optimistic about the market based upon observations of recent sales activity. In the last few weeks, I've observed homes in the $1.5M-2.5M range sell with multiple offers, albeit not with the same energy or quantity that we saw last year. The best homes that are priced fairly, where the market perceives sound relative value, are still selling rather quickly and some with multiple offers.

Based upon our own pool of clients and after talking with numerous other agents in the area, there is clearly a "wave" of housing inventory getting ready for market. I fully expect inventories of available homes to increase dramatically over the next 30 days. Fortunately, there also appears to be a large number of buyers with needs that have not been satisfied by the present inventory... across all price points. This is very encouraging, and bodes well for the 2006 real estate market. I fully expect a strong, but much more rational market in the coming months where homes sell for their fair market value in a reasonable amount of time. I anticipate this will occur without the frenetic activity levels of prior years where valuations sometimes got pushed to irrational levels. I believe this will be healthy for our market, regardless of whether you are a buyer or seller.