Get On The Train

Our ‘crystal ball’ is about as murky as anyone else’s when it comes to predicting the future. However, we can site trends and dispense some of the ‘urban legends’ when it comes to homes sales in the Valley.

For example, most folks are inclined to believe that our residential home market is seasonally driven. That couldn’t be farther from the truth. While we do see closing pick up somewhat in March, April and May from transactions written in January and February, the increased activity from the beginning of the year continues well into the summer months and then trending down for the balance of the year to about January and February levels. This trend has been the case since at least 2001.

Translating this into unit sales we find that from 2001 to present day projections for 2007, the number of resale homes has been roughly between 60,000 and 80,000, with the well-known spike of investor / speculator-driven sales hitting a high mark of 104,725 in 2005. The aforementioned ‘investor / speculator’ factor has been pegged at about 25% of sales, which explains the differential.

It is a well established fact that the market is soft, but even here there are some contradictory facts to reconcile. The most glaring fact is that in spite of all the talk of “market correction” and “price corrections” the properties that are selling are in many instances continuing to sell at record prices.

The real story this year (continuing from last year) is the record rise in the number of homes for sale. Resale inventory now is in excess of 50,000 units Valley-wide. So, while monthly sales numbers are tracking at about the average for the last 6 years, the sheer weight of ever increasing inventory has driven us to a 10 month supply of homes.

As real estate professionals, we find ourselves most often fielding the concerns of buyers who in spite of their need, hesitate, afraid of paying too much—particularly with all the talk of bursting bubbles! At the same time we are getting calls from the ‘big money’ folks that seem to understand that the opportunity is now. What is the basis for their optimism?

To answer this question we simply have to go from the street level concerns to the macro-economics of our market place. The local economy is robust and the growth in population continues unabated. People have to have a place to live. Real estate at its most fundamental level is ‘shelter’. Knowing this, we can be optimistic that historic trends will continue and our housing market will fully recover over time. The best recent example we can give is how buyers couldn’t sign purchase contracts fast enough in 2005. However, hindsight shows us that the rapid appreciation train everyone was trying to get on had already left the station. Similarly, we might now suggest that 2 years from now folks will look back at 2007 and wish they had taken advantage of the incredible buying opportunity with so many great choices (high inventory), while interest rates remained at historic lows.

So, if you have a need to buy, perhaps you should do what the smart money is doing…buy now…get on the train!

By Dominic Scappaticci
CEO and Designated Broker
Russ Lyon Sotheby's International Realty