California Real Estate Market is Changing Again

The only true constant is change, and I’ve long said, “embrace change or be swept aside.” I think that’s one thing that’s really helped me last as long as I have in my real estate career. I’ve been able to see the market changing before a lot of other agents have – and before a lot of the public in general. I’m always reading the tea leaves, and the message they’re giving me today is clear: the California real estate market is changing again.

For the past 18-24 months, we have been in an unusually strong seller’s market, driven by several factors:

very low inventory
low interest rates
a recovering economy, especially in Silicon Valley

We have seen double-digit price gains year-over-year for much of the past 18-24 months. Owners who have put their homes on the market have been rewarded with multiple offers, hordes of well-qualified buyers, and offer prices far in excess of asking price. Buyers have been frustrated, often getting beaten out on house after house – to the point where they got desperate and were literally bidding all they could muster to get into a house which in many cases was something less than the home of their dreams.

If you ask me, all of this will soon be a thing of the past. If you’re looking to sell your home in the not-so-distant-future, I want to let you know: this summer is the time. And it’s not so much that inventory has increased (although it has), or that interest rates have risen (they’re up from the rock-bottom, but still very low), or that the economy is tanking (California is doing OK – not great, but hanging in there).

What’s happening is that the mindset, the psychology of the market, is going to be changing – and soon. This change in attitude hasn’t yet made it to the mainstream consciousness of the market. But it’s begun around the edges, and it’s growing into the heart.

How do I know this? The tea leaves. Look at this recent article on Trulia, about the top-10 most over-valued metro areas in the country. Three of them are right in our own back yard: #10: San Francisco (+7%), #7: Oakland (+10%), #6: San Jose (+11%). And check out this recent piece on Business Insider, which quotes an email from Zillow’s top economist, which reads in part:

The reality is that the market is moving from one defined by distortions including high negative equity and constricted inventory, to one defined by fundamentals like household formation rates, jobs and income growth. Unfortunately, some of these fundamentals are still fairly weak.

And that’s just scratching the surface. Look at all these other recent articles in the media about the changing housing market:

Inman News: Fannie Mae says housing remains a “source of concern.”
CNBC: Mortgage numbers suggest slower summer sales
Finance Daily: Mortgage applications fall despite lower rates
Housing Wire: Case Schiller shows housing prices weakening
MainStreet: Millennials retreat from housing market

All of these pieces are very recent. The good news for home owners thinking about selling their homes is that the tone is still at a low pitch. These are not yet “front page” headline stories. But the drum beats are there, and they’re getting stronger. If the pattern continues, as it has in the past and will likely do again, “bad news” about real estate is going to be in the headlines once again.

The psychology of the market is changing

And when that happens, the psychology of the market will shift, in a hurry. The mindset of the buying public, even in the strongest of markets, will change. Buyers will pull back, inventory will continue to increase, and prices will start to sag – and noticeably so.

I’m not saying that the market is about to implode like it did in 2008. But as everyone knows: the market is cyclical. It wanes and waxes, ebbs and flows. And I’ve also said, many times, that there’s no way to time the market. I can’t tell you just when exactly we’ll reach this cycle’s tipping point. The indications, though, now point to “sooner” rather than “later.”

And that’s great news for the very-weary buying public, who is looking for a break. But buyers, you’ll need to be waiting a while yet, as it does remain for now a strong seller’s market. But the winds of change are blowing – mark my words.

If you are thinking about selling your home in 2014, call me today – there’s no time to lose. My phone number is (831) 704-6873 (Santa Cruz) or (408) 548-7348 (Santa Clara). I’m available to give you the best advice on how to capitalize on the tale end of this extraordinary seller’s market.

I look forward to speaking with you soon!