Through the trials and tribulations of life, I’ve learned to trust my “gut” when it comes to people and investment decisions — including what we are likely to see in the forthcoming 2010 Lafayette, Orinda, Walnut Creek real estate markets, as well as the surrounding communities. I’m not suggesting that we toss empirical date out the window, rather that we assimilate it and then use our “gut” to make the right decisions.
With that said, I’ve written quite recently about the fact that we are in the “middle innings” of the mortgage melt-down crisis. There is nothing out there to suggest that 2010 is going to see any type of “rebound” in the market. I wish it wasn’t so, but the data and my “gut” both tell me to face reality here. As a matter of fact, after reading the latest stats on the economy, my gut is telling me that the window of opportunity for both buyers and sellers may lie between now and mid-2010. Yes, it’s very nice to see the encouraging US housing market numbers published in the national press. Like everything else in the news, you need to read the fine print. The improvement is on a national basis, not local, and the average national home price is quite a bit different from what we see in our local markets. The improvement in the market has been largely associated with affordable housing for investors and first time buyers. Very little inventory in the Lafayette, Orinda, and/or Walnut Creek markets fits this profile. Eventually, we’ll see a “trickle-up” effect, but I don’t see it as imminent in 2010. If I’ve captured your interest, read on…
Of course, the latest economic news is very encouraging, but it doesn’t necessarily translate immediately into an improved local housing market. Most economists now believe that the US emerged from the longest recession in decades sometime within the last several months. As one would expect, California is still lagging behind, and has not seen the resurgence that many other states are beginning to feel.
The third quarter report on gross domestic product (GDP) is expected to show an annualized expansion in the US economy of close to 3 percent… a very healthy improvement. According to the Wall St. Journal, economists from JP Morgan Chase and the Credit Suisse Group are predicting 4th quarter growth up in the 4.5% range. The all important consumer confidence numbers also appear to be on the rise — very important to the economic recovery process.
So, where is the bad news and why do I think that the window of opportunity for buyers and sellers may be between now and mid-2010? The potential “bad guy” in 2010 may be The Fed as they assess what they are going to do with the unusual convergence of sound economic growth and low interest rates. Continued high unemployment may temper any temptation to raise interest rates, but since its still possible that prices may rise, inflation will be closely monitored. According to a report in the Wall St. Journal, former Fed Vice Chairman Alan Blinder believes that The Fed may have to boost interest rates as soon as June of next year.
If that occurs, then the effective cost for homes in the Lafayette, Orinda, & Walnut Creek real estate markets will increase as the cost of borrowing moves up. Within an already weakened housing market, any sort of substantial increase in interest rates will have an exaggerated negative impact.
So, as we enter the coming year, keep an eye on The Fed and what they may do to try and tame inflation. Hopefully, they’ll also be mindful of the potential impact a rise in interest rates will have on the all-important housing recovery, but that doesn’t mean that will dissuade them from bumping rates. Just keep in mind that markets are ultimately determined by simple supply and demand. If less people can afford a home, demand drops along with prices. So… a seller’s best bet for the upcoming 2010 market is to sell during the traditionally most active real estate season of late winter through early summer, while interest rates are still at all-time lows. Buyers will find a plethora of long-term solid buys now and for the foreseeable future, although a bump in interest rates could impact overall cost for a short period until market prices reflect the new cost of money.
So… if you find yourself in the Lafayette, Orinda, Walnut Creek real estate markets, or the surrounding communities, prime time real estate season may lie just ahead.
