February 7th, 2012 2:48 PM by Gregg Mower
What is going to happen to the housing markets? This is a matter of opinion only based on 48+ years of life and 28 years in the mortgage business. History is said to repeat itself over and over based on human nature, our current economy is a direct reflection of this phenomenon. We have to first start with some basic economics of the housing markets. The single most important aspect to housing is affordability, simply put if people cannot afford to make a payment associated with the housing in a particular market then there will be a oversupply of homes and thus prices will have to go down to move the supply lower. Conversely if there is a higher demand for housing than there is a supply housing prices will rise. So when analyzing local housing trends the first thing one must look at is jobs and how much they pay. If an area such as the Silicon Valley where there are high paying jobs and not much room for new housing there will tend to be an under supply of homes making prices rise or at least not go down and remain higher than most markets where incomes are smaller.
Let's look at the State of California as that is where I reside and do business in so I understand the local economies well. In California we have a ton things working for the housing market such as the simple desirability of living in a state that you can surf in the morning and snow ski in the afternoon. California also has the 5th largest economy in the world which is good for jobs and thus incomes. California has several high paying industries that are considered based in California such as the Tech industry and the Movie industry. California also has several things working against itself such as high taxation and Regulation that makes it prohibitive for big business to start and do business in this state. That being said California has the potential to be a strong market throughout the state and will remain strong in those areas where the good high paying jobs are. Other places in California where the job market is not so good is directly related to good paying jobs, and those markets have suffered tremendous looses in housing values. These areas we are seeing investors come in and purchase rundown homes for way under market and they are fixing those properties and getting top market dollar for those homes as builders have left those markets. So overall the California Real Estate Market has stabilized and I predict it to stay that way for the next few years. There will be no real big increases in prices as there is still double digit unemployment in the State.
So for local markets in California the are going to vary greatly, from the central valley to to the coastal cities to small mountain communities. The major factor in any market is going to be the availability or proximity to good paying jobs. The obvious areas that will remain strong are the Silicon Valley and cities in the San Francisco bay area and parts of Los Angeles and surrounding cities that support the entertainment industry. As for areas that are in the central valley they are still going to be slow due to the lack of jobs. In the Northern most of the State you are going to see a slow economy as well thus a slow Real Estate Market. The State Government has made it prohibitive for big business to enter our State with high taxation and prohibitive regulations. There is no change in sight for the Government to loosen up taxes and regulation so it could be a long time before these slow job growth areas can recover. One of the biggest problems seen in the central valley is the fact that big companies are being enticed by other states to move their headquarters to other states and they are moving out and that means further job losses. People just are not going to purchase a home if they feel their job is not stable. So if you are a first time buyer in this market and are looking for a home to live in for a while now is a great time to purchase as it will get better over the next 10 years and you will see appreciation in your home if you keep it up. If you are an investor and have the capital to fix homes up you can make money in this market. If you want quick gains on real estate now is not the time. One must remember the fundamental principal of real estate and that is that there is only so much land and they are not make more land so as population increases and new generations enter the Real Estate markets and with normal inflation Real Estate over time will be worth more.