March 17th, 2014 4:37 PM by Gregg Mower
Here we go again a drop in Real Estate values? With the growing numbers of houses listed for sale and the lack of demand for them basic economics say that prices have to float down to reach the demand. Although the American dream of home ownership is alive and well the ability for first time buyers to get into the market might be hampered by a nudge upward in interest rates at the end of last year (2013). It might be hampered with the tightening of underwriting guidelines that went into effect the first of this year. It further may be slowing due to weather related problems on the east coast. Whatever the economics are behind the slowdown, we are seeing Real Estate sales lower than 2008 when Real Estate sales hit rock bottom.
What does this mean and will it continue? First of all I think we all need the Real Estate Markets to be in good shape as this is a large sector of our economy. Many different industries are dependent upon Real Estate, most importantly the Construction industry. If the existing homes are not selling there is no reason for Builders to build new homes if the demand is not there, nor will it be economically feasible if you can buy an existing house for far less than new home. This poses several problems with other related jobs such as all the building supply companies and the heavy equipment industry to mention a few.
If we are going to see an increase in Real Estate sales we need to see more job creation. If people are working they will be able to afford to purchase a home and those that have jobs will feel more secure in making an investment in a home and not have to worry about losing their job. Good quality jobs are what are really needed in our local economy as well as our national economy. Our lawmakers here in California need to be educated on how to bring good jobs to California and keep them here. Texas is doing a great job in bringing new business to their State, whereas California is still pushing those good quality jobs out of our state with high Corporate Taxes, high Property taxes and high income taxes. Texas is doing such a good job of enticing business’ to come in to their state that they are one of the only states that actually have a housing shortage and construction is booming. It is not a popular view point to give business incentives, especially in California, however, not everyone can work for the government ( I digress). But it is an economic fact that more good quality jobs will mean better housing sales and a better economy altogether.
As we can see housing is driven by jobs and those that feel comfortable in their current job. Across America housing sales are slow overall, but we now know that is not true everywhere. The East Coast can certainly blame slower housing sales on the weather as they have seen record cold weather as well as the Midwest and Plane States. California on the other hand has a drought situation and good quality jobs are, for the most part, concentrated to small pocket areas in the State. Silicon Valley, by San Jose has a housing shortage as they have high quality jobs in the tech industry and they don’t have any more land to build on to support the workforce. San Francisco is basically a commuter City as there is no more land to build on so we see support in housing in the cities that surround San Francisco, which is called the Bay Area. In the Los Angeles area in places close to the beaches you have a limited supply of homes so those prices will be supported with a shortage of supply of Beach type properties. Other than that California is economically depressed as business’ are leaving the State in droves to States like Texas that have open arms and incentives for business. California will also have a building moratorium with the pending drought for 2014 as there is not enough water to support any increases in population.
So if you are looking for an answer to the economics of Real Estate look for the jobs and you will find a prosperous Real Estate environment. I, unfortunately, see Real Estate Sales slowing further into 2014 in California especially in the central valley areas. Since the beginning of the year we have seen an increase in the amount of homes for sale and a sharp decrease in demand to purchase them. In the years past we have had institutional buyers come into the markets and buy homes freely and this created a demand and an increase in home values. Unfortunately, those investors have left our State and have left our markets to deal with a normal amount of houses for sale and a still lowering demand fueled by the lack of good quality jobs. I think it is obvious that California needs to change it’s higher than mighty attitude and go back to attracting business to come to our state by lowering corporate taxes, property taxes, income taxes and make it easier to build in our State. By doing this you would see an increase in Companies that want to come to our State and Companies that won’t want to leave. California is a Beautiful State with its Beaches to its Mountains but its Politics are the worst in the nation and that pushes jobs from our state and devalues our Real Estate. Mother Nature is not helping us this year either with the drought.
To conclude, 2014 will probably go down in the history books as the worst year in California for drought, Real Estate, Job growth, and Politics. There will be bargains to be had in Real Estate; however we will see prices fall with an abnormally high of houses for sale. It will and is a buyer’s market here in the Central Valley of California and prices will fall because of that, and unfortunately foreclosures and Short Sales will increase throughout the year. I don’t want to sound pessimistic but I only look at the economic factors that face us as of right now and where they will take us. If you are in the market to buy a home this year you will have many choices and you will be in command of the process and you should get a great deal on whatever you do purchase. Investors better be ready to buy and hold this year as flipping homes will only be profitable if you get a special deal. Rental property owners will have to invest into their properties to keep their tenants from leaving to find a better deal. It will be a tough year for most in the Real Estate business as competition will be tight for that coveted buyer, but for those Real Estate Companies that diversify (like MAE Capital Real Estate and Loan) and offer different ways for Realtors to make a living and serve their customers better will survive and thrive.