So Cal Real Estate News

In our last post we explained why we agree with Freddie Mac’s chief economist, Frank Northaft that “We just don’t know [when the market will hit bottom or how low prices will drop] because we’re in totally uncharted territory.”

As if to illustrate our point, since we wrote that we’ve seen huge swings in stocks as Federal Reserve leaders twice surprised the markets with supposedly clear indications they intend to further reduce rates.

Now, as promised, we tackle the logical next question of what buyers and sellers should do in such an uncertain situation.

The key is to base your decision making primarily on what you know, not on speculation about market trends. Market timing is nice, but it’s highly speculative and subject to surprises from the Feds, politicians, consumers, other nations, and even terrorist attacks. Instead of trying to precisely time the market, figure out what you really want or need and brainstorm options, work, & wait until you find an acceptable solution.

As my mortgage broker once told me when I was trying to time the interest rate market in locking a loan, “if the loan works at the current rate, go ahead & take it. ” In other words, don’t gamble on something that works. As my mother used to say, “A bird in the hand is worth 2 in the bush.”

This approach usually works with buying, if 3 conditions are met:

1. You’re planning to live in the home for a long time, 5 - 10 years.

2. You’re buying with a loan that’s fixed for at least 10 - 15 years.

3. You’ve got fairly stable income.

If it works, do it. The better it works, the more you should do it. Especially if you like the location and the floorplan. After all, location is the one thing you can’t change, condition is the easiest thing to change.

The same goes for selling. If you can sell & move up to your dream home at today’s prices, don’t roll the dice on prices going up. Especially any time soon. A year from now you may wish you’d sold today. What your neighbor got two years ago is irrelevent–the question is, will today’s price work for you?

For those of us who are people of faith, we’d add in prayer. God is the only one who does know what the future holds, but he’s also a lot more concerned about our character than our money. (Actually God’s the only one with a perfect perspective on money, too.)

King Solomon was the wisest and richest monarch of his day and he said it well: “Trust in the Lord with all your heart, and don’t rely on your own understanding. In all your ways acknowledge Him, and He will direct your paths.” (Proverbs 3:5,6) That worked almost 3,000 years ago, & it still works today.

Note, 7/15: This is our classic post on the current housing turmoil. We think we’ve been proven right by subsequent events, so there’s no need to modify it, although we’ll occasionally add updates at the end. We think it’s as relevant today as it was when it was written.

Yesterday (11/27) the Los Angeles Times front page asked “Homeowners’ big question, How low will prices go?”

Today, they gave us a partial answer: “L.A., O.C. home prices decline sharply.”

We’ve got a better answer: “Nobody knows.” We first heard it at the California Association of Realtors’ economists panel in Anaheim last month. It came from Frank Nothaft, chief economist at Freddie Mac, as he was discussing how low prices would go and when things would turn around: “We just don’t know,” Nothraft said. “We’re in totally uncharted territory.” His point being that the problems brought on by sub-prime lending make this “correction” a new animal.

In a way, however, Northaft was just restating the conventional wisdom regarding any market’s cycles: “They don’t ring a bell when it hits the bottom. Or the peak.”

The consensus seems to be we’ve got 1 - 3 down years ahead of us, more if a major recession hits. Most economists also predict that Southern California real estate will take a bigger hit than the national average, just as we went up more. Prices are predicted to “correct” between 15% and 40%, with most economists in the 20% to 25% correction range. Maybe worse for outlying areas like the Inland Empire or Palmdale, and for entry level condos everywhere.

Having a bit of a contrarian nature, when everybody gets on the recession bandwagon, we start thinking about getting off. To be honest, we’ve already seen price corrections of as much as 20% in Lakewood, Los Alamitos, parts of Long Beach and Orange County and some other markets we serve.

That’s from peak to current low, and it’s comparing like homes (similar location, size, & condition), not the almost useless median selling price that takes comparing apples with oranges to an insane new level.

With interest rates dropping again and prices already down, we wouldn’t be surprised to see prices start moving upward this coming February. But we wouldn’t be surprised if they kept dropping as well. (We’re talking about prices on homes going into escrow in February, not closings. So the increase that may come this February would show up in March or April closing statistics.)

Why don’t we know? “Uncharted territory.” Too many variables: interest rates are dropping, prices have dropped, but more foreclosures are coming, and Congress may be making the “liquidity crisis” worse with the House’s proposed “reform” bill. We just don’t know. Nobody does. If they say they do, they’re either lying or deluded, or God.

What to do when nobody knows when we’ll hit bottom? That’s in the post which follows this one, (”What to Do When Nobody Knows What’s Next”).

7/15 update: Nobody knows what’s next, but that doesn’t stop us from making our best projection, which we try to update regularly as needed. For our latest posts, just look under “Recent Posts” near the top of the column to the right.

On a more uplifting note, you might also want to check out “A little perspective.”

Finally, we’ve added two links at the top of the column to your right so you can search almost all of Southern California’s Multiple Listing Services directly:

Search So Cal M.L.S. gives you direct access into the MLS covering Orange County and southeast Los Angeles County (think Greater Long Beach).

Search M.L.S. Alliance gives you direct access to a search across almost all Southern California Multiple Listing Services.

Feel free to play with them both & see which one you prefer. You shouldn’t find any ads as you use them, but you will have to deal with our picture as you search. We’ve been told you can print it & put it in your attic to deter termite and pest infestations.