Now that half the year is over, it’s time to take a look at how close to (or far from) reality my predictions were that I made in my December post about 2008 real estate activity. You can go back to read my justifications for each prediction, but this analysis will only address the basic predictions:
The Volume of Sales will increase above the level of 2007. (Wrong!)
- For the period of Jan 1 through June 30 2007 : 11,532 properties closed
- For the period of Jan 1 through June 30 2008 : 9,732 properties closed
Year-to-date volume is down by almost 16%. Much of this is the result of the lack of financing due to so many major lenders dropping lending programs, or going out of business.
Lending standards have also continued to tighten even for solid borrowers. Appraisals are routinely questioned, or the values discounted (even though the appraiser already discounted from the last comp) and borrowers are burdened with much more documentation that we have seen for a long time.
Prices will decrease – both listing price and sale price (Correct!)
The average price for homes sold fell from $768,931 to $632,638, a decline of 18%. (Some price ranges are down by 30% and some are off by only 2%.) I will review the average price declines by price range in another post in the near future
The mortgage market will settle down. (Wrong!)
Fannie Mae & Freddie Mac need to be bailed out, IndyMac just tanked this week, BofA took over Countrywide, many other institutions are hanging on by a thread. Underwriting standards are tightening, or overtightened in some cases, appraisals are being reduced due to “declining market” conditions even though the appraiser already included that fact in his calculations! Congress has not yet approved the final FHA reform bill, or extended the increased loan limits that are currently set to expire on 12/31/08. We have a long way to go before the mortgage market will be stable!
A lot of real estate agents will leave the business. (True!)
The actual statistics won’t show until next year when annual dues get collected, but there are a lot of agents getting 2nd jobs, or leaving the business altogether now.
The real estate industry will continue to become more “transparent.” (True)
(“Transparent” is a current buzz word! I interpret it to really mean “open and honest”.) Consumers are more knowledgeable and demanding the answers to lots of the “hard questions.” There is more information available every day for buyers and sellers to do their own research of listings, including pricing history, past sales, average values, advice about buying, selling, financing, staging and the merits of different marketing programs. Delivering notepads, refrigerator magnets and calendars is no longer the way for agents to market themselves to consumers. They need to prove that they have something of value to provide to their clients, instead of pointing to a “I’m #1 Agent of the WeekTrophy”
Conclusion : Ok, so I already said my crystal ball is cracked. I am an optomist, or I couldn’t stay in this business. I believe that there are a lot of very cautious people who would really like to buy a home, but they keep getting mixed signals. We have come a long way in a short time compared to the market declines of the 1990’s. There is no doubt that prices got totally out-of-control and unreasonables due to the easy financing of recent years, but once we get back to something resembling fundamental values (for California!), we should begin to see pricing stabilize. It may take some more time to get there, but I believe that it will happen.
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