Opportunity... or Risk?

It now seems like each day, the media brings forward more concerning news about the housing market. Although, there is clearly merit to the issues facing lenders who disregarded sound lending practices in favor of quick profits, and those who succumbed to either their own ignorance or to the unsavory practices of some lenders, it is important to look at each geographical market on a case-by-case basis. The fundamentals of many of the Bay Area's markets are markedly different from other areas of the country, yet the media fails to make these distinctions in favor of sensationalism. As a result, markets that should not be experiencing the current level of paralysis are now suffering. A quick check of the $2M+ markets in Alamo, Lafayette, and Orinda shows a total of 4 properties presently pending. One of them is a ranch property, which should not even be in the mix... bringing the real total to just 3.

The perception of the market has now become its reality. The issue is how to react to it. A recent column by Jonathan Clements in last week's Wall St. Journal tried to make a compelling case for sellers aggressively cutting their prices in favor of riding the market down and incurring the ongoing costs of ownership. He also pointed out the lost opportunity cost of the proceeds from sale invested in conservative instruments such as bonds should also be factored into the overall economic decision of a price cut. The final gating factor is looking at the months of inventory in the seller's price range. As an example, I suspect that we are going to have over 12 months of inventory in Lafayette in the $2M+ price range with next week's publication of October sales data. That being the case, any seller should be looking at the possible costs of holding their home that long & experiencing further price degradation vs. cutting their price immediately to a point that makes it atttactive enough to sell quickly -- then investing the proceeds in conservative income yielding instruments.

All markets tend to over react to bad news, and I suspect that the current real estate market is no different. With all down markets, there is always opportunity. Timing the market's bottom is impossible. It has clearly softened, and in real terms, is probably down over 10 percent from the height of this year's spring market. We'll clearly see some selective softening as sellers finally bring their prices down to levels that cause buyers to move forward. In some cases, we're beginning to see that happen already. As a buyer with a long-term view, the present market is ripe with opportunity. If you've found your ideal property, don't hesitate awaiting the bottom of the market. You'll never time it correctly and you'll run the risk of compromising the property you are seeking. Over the long term, I'm confident you'll look back and realize that the real estate market treated you well.