WHERE ARE WE NOW? – JULY 2006

It started last summer. The interest rate bottomed out, and there was massive new construction. The media began talking about a housing bubble, and even Greenspan commented there was “Froth” in the real estate market. The US economy involves how we feel collectively, rather than inventories of consumer goods, stock market averages, unemployment, or inflation.

But last summer talk ensued about the housing bubble. It was on every broadcast being debated by every talk show host. By October it had affected everyone and sales plummeted.

From October 2005 to December 2006 prices in Morro Bay fell by 6%. Since there is no massive construction of new homes in Los Osos, Morro Bay, or Cayucos the elements of a housing bubble did apply but it was like being unemployed during a season of low unemployment: the collective feeling of the nation was in control. Interest rates were still great. Baby boomers were still retiring, but now buyers could wait and see if prices were going to continue downward in which case it paid to wait.

Price Reductions in Morro Bay

*note* July has 11 more days to equal or exceed Junes statistics.

As buyers left the market and demand fell, sellers were forced to lower the price of their homes; therefore, home values in the area continued to decline from January 2006 to the present (July 2006). I surmise along the lines of another 6%. In the chart above it is obvious that REALTORS® and sellers were late in reacting to the downward trend, partly because it was felt to be a temporary anomaly (bad press, holidays, and an extended rainy season).

While it was obvious to me in October, I gave it 6 months and expected it to bottom out in April 2006. My real estate predictions have been incredibly accurate for the past 6 years but I missed this one.

Based on current indicators this may last a year and bottom out in September or October. This means that the best time to buy a home on the central coast is anytime in the next three months. When things do turn around, I fully expect annual appreciation to return to the 15%-20% range. How can I say that you might ask? It is simply this: we are small communities and will remain small. This quaint lifestyle is very attractive to anyone who has been stuck in traffic. The air is clear and the climate is fantastic. But most importantly: We are still the most reasonably priced area between San Diego and San Francisco.