Listening to all the negative news about real estate could have you running for the Pepcid AC or Imodium AD or both.  It would seem like the sky is falling with all the bad news.  Foreclosures up 200% (never mind going from 1 to 3 is a 200% increase) sub-prime is imploding the market place (never mind that it is 14 % of the total loans out there and only 1.25% of them are late) Sales are down 25% (never mind the resent sales pace was not sustainable) all this points to a burst of the bubble.  It sounds like you should enjoy your house now for tomorrow there will be the economic equivalent of Katrina right here in Santa Clara County. 

Yes, Chicken Little – the Sky is Falling!  … Or is it?

The California Association of Realtors has just come out with their mid-year report card and from where I am sitting it doesn’t look half bad. 

Since 1970 when they started keeping these records the number of units sold in 2006 were 477,460 this is the 11 highest (yes highest) year on record.  9 of the record years were since 1998 with the other two years being 1979 and 1980.  Yes 2006 was down from a year ago – but taking a more measured and balanced viewpoint – we did pretty well over all.  2007 is a bit slower but not as slow as 1982 when less than 200,000 units were sold. 

Real Estate has always been a long term investment.  Too bad news cycles are so short sighted. 

Prices are another area where we see great strength.  Medium Prices in the San Francisco Bay area are up 9.3% (Yes I said UP).  In Santa Clara County they are up 4.5%.  So if you are looking for that 20% decrease in prices before you buy, you might be waiting forever.  The best news is that there is more inventory on the market so buyers have more options and less competition.  This combination has been long in coming for buyers and it is amazing to me that more buyers are not taking advantage of this great opportunity. 

Even our first time home buyers who didn’t have a down payment, which by the way was about 40% of all first time home buyers are doing just fine.  Just keep making that payment and turn off CNN.

Oh, but these are the people who are in ugly loans that are adjusting out of this world and they will be defaulting and then the Sky will fall.  Got you on that front.

Not so fast – the foreclosure rate is up and seems to be trending up but we are still under 1% - where in the mid 1990’s foreclosure rates were as high as 2%.  Mortgage lates are also trending up with the latest figures being a smidge over 1% compared to the whopping 6% we saw in the early 80’s.  So we have a long way to go before we even approach all time highs.  With the economy in the Valley very strong, we can easily absorb a 2% foreclosure rate with little or no effect on prices.  Yes there might be a home in your neighborhood that sells below market, but not that low or frankly you would buy it. 

Interest rates are still great, not out of this world fantastic, but nowhere near double digits.  The money supply is tightening and there seems to be a bit of panic in lending land – but that should straighten itself out by the end of this year – when everyone will know that the sky has not fallen, it was a great time to buy and they missed it, then they will all jump in again and wonder what happened. 

Morgan Hill, San Martin and Gilroy are great communities to purchase.  Compared to the rest of Santa Clara County they hold great values and you still can get lots of house for your dollars.  Don’t hesitate to jump into this market.  As a buyer you have more choices and less competition.  I don’t see why more people won’t take the optimistic plunge and get what they want.

And no Chicken Little the Sky is not Falling!