A View from the "Field"

The past few months have been quite a challenge for those of us who are active professionals in this industry. Even though it is hard for me to intellectually buy into a “housing bubble” within the east bay communities that we specialize in, the market has clearly changed. Even if the underlying quantitative and qualitative factors contributing to a “bubble” don’t apply to this market, the trickle-down affect from other markets has clearly impacted this one. Buyers are much more cautious in their purchase decisions, but once a decision has been made, the media has empowered them to make offers much farther under list price than would have ever been considered acceptable several months ago. As a result, we have found that buyers are often having a difficult time accepting the softened prices of the market, and buyers are sometimes equally unrealistic about what they think they should be paying for a property. The gap between the market perception of buyer and seller becomes the real estate professional’s challenge.

I believe that the rather sudden shift in the market is temporary in the Lafayette and Orinda communities, and expect to see a general flattening of prices following the recent decline. I foresee the market reaching a point of relative equilibrium between buyers and sellers as we get into the prime selling months of 2007, and more normalized local markets being restored. The sales results for September and October seem to suggest that the downturn we experienced in the summer was artificially induced and that normal market forces have begun to restore order in the marketplace.

Within Lafayette and Orinda, approximately one in five homes on the market is finding its way into escrow. On a year-over-year basis, inventories of homes on-market in these communities are up about 50 percent over 2005. Nevertheless, following a dismal August, pending sales in September and October rebounded and were approximately equal to 2005’s levels for the same period. In fact, October’s pending sales for Lafayette hit 129 percent of October 2005’s level. Areas such as Alamo are still substantially under-running last year’s levels due to the abundance of inventory on the market, combined with above-average rates of spec building.

The present market calls for both buyer and seller to hold realistic expectations about what can be achieved in the marketplace. It is no more realistic for a buyer to expect to be able to purchase a home today at 2004 price levels, than it is for a seller to expect to that he/she will sell at the compounded appreciation rate that we saw in ’04. Honest communication with buyer and seller helps set realistic expectations.