Gary Watts, a noted Real Estate Economist, spoke to us yesterday about "The State of Real Estate." I thought that it would be helpful to share some of his opinions in the next few posts.
He said that we are in the 24th month of the current housing downturn. Historically, housing downturns average 27 months so he thinks that we may be near the end. Although there has been a significant decline in sales volume, the Bay Area’s home prices have continued to show small amounts of appreciation – excluding the Napa, Solano, and Sonoma areas. With the Fed cutting interest rates in the near future and the financial markets calming down, money should begin to flow back into mortgage securities. Here's a little history of real estate cycles.
1970 to 1980:
“The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000.” - Business Week - 1969
♦ In 1972, interest rates were 7%, but these rates would not be seen again for over 24 years.
♦ In 1973, OPEC doubled the price of oil, banks had a run on deposits and, for approximately 8 months, there were no lenders who were in a position to make loans to any home buyers. (I used that time to get my Brokers license!)
♦ By the late ‘70s, both interest rates and the inflation rate were exceeding double digit numbers.
♦ By the end of the decade, California home prices experienced a yearly return in excess of 11.5%!
“The median price of a home today is approaching $50,000 . . . housing experts predict price rises in the future won’t be that great.” – National Business - 1977
More tomorrow....
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