By I’ve been in real estate for twenty-five years. I’ve been through down markets before. And I know how they end.
It never varies: The recovery always starts at the entry level. The demographic forces that drive long-term demand for California housing eventually pull first time buyers back into the market.
These first time buyers buy from sellers who themselves “move up” to higher priced homes. This “trickle up” effect eventually reaches the high-end of the market.
And so a recovery goes.
So it was encouraging to me that data from REInfolink, Silicon Valley’s MLS, showed extremely strong activity at the market’s entry level this month. Moreover, in the first week in June our number of pending listings exceeded new listings for the first time since July of 2005. This is an indicator of a healthier supply/demand balance.
In fact, at Intero, we saw the number of closed transactions increase over 48% year-over-year.
Clearly, buyers at the market’s entry level have decided that we are at or near the bottom. The new $8,000 federal tax credit provides extra incentive to move. And according to a recent Gallup poll, 71% of Americans think it is now a good time to buy a home.
So we’re on our way to recovery, right? Perhaps. But it’s going to take longer than recoveries past.
Here’s why: The majority of the sellers in today’s market are banks, not people.
In fact, according to DataQuick, a provider of real estate market data, 55% of California home sales in May were properties that had been foreclosed on in the prior twelve months.
The number of REO or “bank owned” listings in our market is staggering. These are properties banks have repossessed from foreclosed homeowners and must sell.
When a bank-owned listing is sold, there are no sellers – real people — to “move up” into their own purchase at a higher price, no seller who sells to them, and so on. There’s just a bank selling a foreclosed home.
You see my point: The market is moving in a positive direction, but the climb up from the bottom is likely to be a little longer this time.
This is great news if you’re a buyer or investor: Prices at all levels of the market remain attractive. If you’re a seller – particularly at the high end – you must continue to price aggressively to sell.
In the meantime, I’ll be looking for signs the market recovery is moving upward.
