Copy for Real Estate Guide Column for 5-9-08

REAL ESTATE PATTERNS
By Ken DuVall

HOW FAR CAN YOU GO INTO THE WOODS?

The Answer: Half Way. Then you’re on your way out! That’s about where I see us today. We’re in the middle of the deep dark woods housing slump. The Big Question on everyone’s mind: when will this down cycle end? I figure at least another year. Many experts believe we’ve already reached bottom and are rebounding. If it’s any consolation, European housing is on a major downtrend too.

Last week our economy showed unexpected and welcome signs of a come-back as job losses slowed and the dollar gained strength. But you have to get a home equity loan to buy food and a tank of gas! The unemployment rate even dipped a tad from 5.1% to 5%. Factory output increased after 2 months of decline. Economists are now saying the downturn may not turn out to be as pronounced as once feared. Hallelujah, brothers and sisters!

As buyers and investors snap up thousands of bank foreclosures, multiple offers and sales at list price are back in various metros, including some in Chico. We’re putting 25 or 30 homes in escrow every week mostly in the $250,000 to $350,000 range. We’ve sold over 200 homes year-to-date. This week there were 170 deals in the hopper vs. 414 active listings, a nicely balanced ratio. We’re doing OK.

San Francisco is hot with 10 offers last week on one $10 million home going for $1 mil over price. A $1 mil condo there went for $1.2 mil after 22 offers. Most listings are selling within 30 days. One Realtor there said he’s never seen this volume of high-end buyers before. Go figure.

Las Vegas is strange. Unless homes have been built in the last 2 years, they’re considered “out of date”. New is the most important thing. One developer has homes near The Strip for sale up to $3 mil. Folks then move up to “be with their friends” every 5 to 7 years. Five thousand to 7000 SF used to be enough. Now 8000 to 10,000 SF is the new threshold. Last year some 900 homes sold for over $1 mil. There are now more than 22,000 homes for sale there with over half of them vacant.

Many foreclosures are still coming on the market, now constituting 1.5 million, equaling one-half of a percent of all U.S. homes. There are 18.6 million vacant homes in America. Foreclosures are a recipe for falling home values. It’s a vicious circle. Fortunately the vast majority of the subprime loan problems that triggered the meltdown have been addressed. The big interest rate resets leading to higher payments and foreclosures will be nearly over by year-end. Let’s hear a big amen for that!

Although we’re still in uncharted territory, I think we’re seeing the worst of it right now, shooting the rapids and hanging on for dear life. The hope is that by year-end the waters will calm down. The upturn will be long and slow but the seeds of rebirth are now germinating. The plummeting number of new home starts will trim the inventory, in part leading the way to healthy market conditions once again.

Bottom line: From 1997 to 2006 national home prices rose about 85%, the most monumental housing boom in history. We developed a speculative culture about housing never before seen on a national basis. Many became convinced that housing prices would perpetually increase 10%+ annually. Wrong. We’re paying the price now for that “irrational exuberance”. It’s like we partied too hard and got a nasty hangover. But we’ll get well in time.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.