Copy for Real Estate Guide Column for 5-16-08
REAL ESTATE PATTERNS
By Ken DuVall

WHAT RECESSION??

The facts just don’t add up. If you’re following the news these days, it seems indisputable that the U.S. is in recession. Some 90% of the public think so. The gloom merchants keep telling us so. But there’s just one problem: There’s little evidence that we’re either in a bear market or a recession. It’s not as bad as perceived. Unless the Dow Jones average falls below its March lows, we just ain’t in one yet! Thankfully, our economy still has a feeble pulse. I’m reporting all these economic and global elements as they weigh heavily on our real estate markets.

Treasury Secretary Henry Paulson just stated the worst of the credit crisis may have passed. Wachovia Chief Economist John Silva says, “While there’s no question the economy is struggling, just how anyone could confuse the current environment with the worst economy since the Great Depression is baffling to say the least.” There are some 8 million homeowners stuck with loans bigger than their house is worth. Many are tempted to simply walk away and mail the keys to their lender. But think about it: If you don’t sell, you don’t lose anything. Moral: Don’t panic.

Despite all the bad news, the subprime mortgage crisis and the wave of home foreclosures, domestic product growth was still in positive territory in the 1st quarter, albeit up an anemic 0.6%. It’s not worth breaking out the bubbly over, but it’s not a recession either. Jobless claims last week fell to 365,000, well below economist’s forecasts. Contrast that with the 2001 recession when they stayed above 500,000 for 2 years. We may hit that again but not yet.

Given all that’s happened, the housing bust, food prices figure to be up 5% this year and may stay high for years- blame the ethanol madness for the most part- crude oil over $125 a barrel and gas over $4 a gallon, it’s no wonder we’re all feeling besieged. In Latin America alone, some 16 million people face destitution. High food costs may push 100 million people into poverty. The threat of global food rioting is a valid concern. And then there’s the ongoing tragedy in Burma, plus the new devastating quake in China this week. It’s not a pretty picture.

Commodities are unsustainably high but that bubble may burst by summer according to Kiplinger. A number of factors could do it: A cut in worldwide commodity demand, big stock market gains, a more stable dollar or tamer inflation. Prices could drop by 30% if all these factors come into play. Kip says oil could slide back to $85 a barrel. So be it.

The credit markets are finally showing some hints of a thaw, repairing their balance sheets and retrenching, raising $212 billion and recouping recent losses. But it isn’t over yet. The market won’t pick up until 2009. Yet a $2 mil property on the corner of Esplanade & Eaton went into escrow this week. Also on this week’s hotsheet was the Black Crow building downtown listed at $2.3 mil. And a primo 5.64 acre commercial use parcel on the corner of Bruce Rd. and Cal Park Dr. hit the market at $3.5 mil. Another new listing set for residential use is the 1437 acres up Richardson Springs Rd. above the airport priced at $10.7 million. Life as we know it goes on in beautiful Chico.

While it might be tempting to view this unfolding crisis as someone else’s problem, the current situation is a mess that promises to touch everyone. The Nat’l Assn. of Realtors says the foreclosure rate will be rising through 2008, estimating the ultimate toll at close to 2 million. U.C. Berkley predicts that number could double by the end of 2009. While property values are always dictated by local market factors, the national median existing home value dipped by 1.4% in 2007, marking the first time we’ve seen a nationwide decline since the Great Depression. But we shall prevail in the long run. We have so far. “Give us this day…”

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.