Rather than try and distill a forecast of the 2010 Lafayette, Orinda, Walnut Creek and surrounding area real estate markets into a simplistic three paragraph blog post, I’ve decided to give in to my core tendency to err on the side of detail, rather than gloss over important facts in a superficial manner. For those who prefer snippets of information this may not be for you. However, for those who value quality information upon which you can hopefully make informed decisions about important assets in your finanancial life… stay with me, for this may be just what you are seeking. 
To put matters within the proper perspective, the collapse of the world’s largest debt market will probably be the defining economic event of our lifetimes. Understanding the path that got us there will also help us to understand where it is leading us.
After being a stable investment for the second half of the last century, prices exploded beginning in 2000 due to substantially relaxed lending practices and an effective tripling of a purchaser’s borrowing power from 2000-2006. Americans proceeded to borrow so heavily against their homes that average home equity dropped below 50% for the first time. As a result, housing became unaffordable in some areas using conventional 30 year mortgages, and so the lending industry developed exotic mortgage products to satisfy their appetite for profits and the borrowers’ appetite to spend their new-found “wealth”. Most certainly, the Lafayette real estate market, as well as Orinda, Walnut Creek and surrounding areas all found this to be occuring on a widespread basis.
Why did it happen? Well, lenders didn’t care about the quality of the borrower because they never intended on holding the loan in their portfolio. Instead, it was sold to investors, and eventually made its way to Wall Street as a “Residential Mortgage-Backed Security” (RMBS). Note that the last two letters of this abbreviation have profound meaning. Various levels of “compromised integrity” ran rampant in the system… from real estate sales… to appraisers, to mortgage brokers, to wholesale lenders… all the way to Wall Street, due to the easy money.
Our regulatory agencies and political leaders became blinded by a combination of free market ideology and/or a belief that everyone should own a home. Take your pick. Also, there is the immutable law of human behavior… that if you offer people enough money to do something, no matter how foolish, illogical, or illegal it may be… a large number of people will do it. Charles T. Munger, Vice Chairman of Berkshire Hathaway, refers to a bubble of this magnitude as part of the “lollipalooza effect”. Call it what you want, it created the largest economic crisis of our lifetime.
Bad behavior leads to bad consequences. As of the end of 3rd Quarter 2009, 14% of all US mortgages for 1-4 unit residential properties are delinquent or in foreclosure!
Although areas in eastern Contra Costa County have been hit hardest, Lafayette real estate, Orinda, Walnut Creek and similar areas have not been immune from the broader financial crisis.
Stay tuned for “Chapter Two” which will lead us into what we should expect in terms of a forecast for the year ahead.
