Disclosure – I am not an economist, not a psychic, and not a fortuneteller. My crystal ball is foggy (or cracked!), and any predictions I make are based on my own experience, insight, feelings, observations, wants, hopes and superstitions. I will tell you what I think will happen to the real estate market in Orange County and Southern California, but if you rely on any of my predictions, and they turn out to be wrong, I will refund all that you paid me to share my valuable secrets ($0.00!)
The volume of sales will increase above the 2007 levels.
- This is based on my observation that it can’t get much lower without coming to a complete stop! In 2007, total sales for Orange County will be only around 20,000 (19,900 as of 12/30/07) compared to 27,700 in 2006 and 40,000 in 2005. I think we will see somewhere between 25,000 and 30,000 closings through the MLS in 2008. There is a base rate of transactions that needs to happen regardless of market conditions. Some people get job transfers, some people lose or quit their jobs, we all get older, some people retire and leave the area, or get too old to go upstairs anymore, new families are formed or expanded, some families split up, some people die. These sales will be completed one way or another because they have to.
- There are a lot of “wanna be” home owners who have been sitting on the fence waiting to buy. They have been told by their parents, friends, co-workers, neighbors, Uncle Herman, and their hair dresser that now is not the time to buy, and if they wait they can time the market to hit the very bottom. BUT they are getting impatient! The battle cry of this group is going to be “Close enough is good enough!” As prices continue to decrease, their temptation will overcome them and they will jump in.
- Distressed sales will continue. There will be more foreclosures due to the toxic loans that are coming up for adjustment in the next year. Some lenders will do everything they can to work it out, but many will still be foreclosed. The presence of vacant and neglected homes will not be good for any neighborhood, so my hope is that the lenders will price them accordingly to find a new owner who will take good care of them. (Based on my own experience selling foreclosed homes, they rarely list them realisticly to start, but will listen to reasonable offers after they have been on the market over 30 days.)
Prices will decrease – both listing price and sale price. This will be because more sellers will finally give up and realize that they are not going to get the same windfall price that their neighbor got in 2005, and if they want to sell and move on they have to face reality. This will be a good thing because it will cause buyers (see above) to buy these homes! These realistic sellers will benefit by making up for it on their new purchase, which will be at a similar lower price.
The mortgage market will settle down and find it’s equilibrium, and we will all learn what to expect and how to play by the new rules (possibly based on verified earnings and proof of the ability to repay a loan that still leaves money each month to buy food, gas and utilities!) We will learn what needs to be done to get a buyer properly qualified for a mortgage, and it won’t be done by lying about income, teaser interest rates, or any other shady “do-it-quick” then “do-it-over” type financing.
A lot of real estate agents will leave the business. The National Association of Realtors is predicting about 15%, but I think it will be higher. When homes are selling quickly, prices are rising, and everyone qualifies for a loan, selling homes looks like an easy way to make a living. When the market turns and it requires actual work, knowledge, experience, intelligence, patience and caring about the client’s best interests, there are many who won’t want to stick around, or just don’t have the reserves to make it between closings. It’s lots easier and safer to be on someone else’s payroll and collect a check each month than to actually learn how the market works, how to react to change, how to solve the problems that you can, and let go of the ones you can’t.
The real estate industry will continue to become more “transparent”with more information being shared openly and honestly with consumers, and much of the hype disappearing. More agents will be blogging; some will provide good insight and information, and others will post a few ads about themselves and then give up when they are ignored. The main feature that separates a blog from a standard website, is that it is meant for 2 – way communication. If you want to get more details about a real estate subject, question my reasons for saying something, suggest an improvement, challenge a theory or anything else, you can ask it right here in the comments. Someone else may have the same question or thought, so it will be answered publicly for anyone who stops by to see it.