Gary Watts...'in the bag'
Here is Gary's predictions for how 2006 will end:
How Will This Year End?
1. As mortgage rates continue to decline, buyers will get off the fence and purchase homes as soon as they believe housing prices have stabilize.
2. Sales of homes should start to rise by the fall, while inventory goes into its seasonal decline.
3. Appreciation should continue to rise in the fall, compared to last year when prices actually dropped.
4. With luck, we may end the year with double digit appreciation in homes with small gains in condos.
Lets take a look at numero uno. Ok, so mortgage rates are declining a BIT, there is no way they will return to the levels of 2003 and 2004. Rates dropping half a point is not enough to force buyers to 'get off the fence' and buy homes that are still overpriced. I am not a highly acclaimed real estate agent, but I believe the stabilization period is many months, if not years away. We have yet to see any REAL sort of correction at this time. BUT, we are seeing huge increases in inventory which is the first step towards lower prices. See this report from the CAR (California Association of Realtors) and see for yourself that the sales pace is off just over 30% from the same time last year, and we all know that inventories are way up as well.
So, with the sales pace slowing drastically, and inventories steadily increasing, how do we get stabilization or even appreciation?
We are almost in October, so fall is just around the corner. I have yet to see anything that leads me to believe that the sale of homes will start rising this fall, or that inventories will decline. There is ONE thing that could make both of those things happen and THAT is a REDUCTION IN PRICES. And I am talking about REAL reductions in prices. Not 10-15k here or there on 500k+ properties.
I am sure there will be a 'median' number somewhere that will show some incremental appreciation in California. But based on the report above, I don't think 1.6% increases are what many people need, or are counting on. Meager appreciation like that doesn't buy new BMW's, Hummers, or kitchen remodels...much less give that 'I'm getting rich' peace of mind that so many people have become accustomed. Not to mention the fact that 'appreciation' has been the major selling point from RE agents, mortgage brokers, and all the real estate seminar guru's out there. I don't know how many times I heard brokers tell people that if they ever get into trouble, they can just refinance...no problem.
I don't know for sure, but I think the holidays will be a bit different at Fashion Island and South Coast Plaza the next Christmas season or two. There IS a lot of money in Orange County, but there are even more people trying to live like they have more money than they really do. Lately, this money has come from the house of ATM. It will be interesting to see how or even 'if' the slowing appreciation in housing will affect the upcoming shopping season. 1.6% appreciation is the equivalent to having a $40 withdrawal limit at an ATM in Las Vegas...it's better than nothing...but it doesn't help very much.
One other quick thing I would like to point out: unless I missed something, how can somebody address the real estate market without any mention to the exotic loans that are making much of this possible? I guess the financing isn't that important when things only go up...silly me.
I will counter his comments about the media and more in further posts this week.