Where's the Kaboom?
Two years before the hot air began escaping from the housing market, some real estate economists and pundits were eagerly anticipating the explosion of the real estate bubble. Bubble theorists believed property values were so inflated that they developed the KABOOM theory. The BIG KABOOM would be heard all over the country and since California real estate had the most amount of inflationary hot air, the KABOOM would be the loudest and the ripple effect would be devastating.
Real property values were going to fall like a rock. The collapse of the housing market would result in a severe recession. There would be a plethora of bankruptcies, mortgage defaults and foreclosures. Builders would be standing in long unemployment lines with their buddies, lenders and real estate agents, who were all somehow responsible for the inflated housing market and its subsequent downfall.
It was the summer of 2005 when the number of home sales began to fade. Homes were taking longer to sell and some (surprise) didn’t. Builders quickly adjusted to the changing market dynamics by offering incentives and price reductions. When investors and flippers realized that the market had peaked, they dumped their properties, acerbating the problem of too much inventory and too many skittish buyers. Had the doomsday predictions of the BIG KABOOM come to pass? After a year and a half into this market correction a realistic look at its severity may provide us with a sense of its duration.
Between the summers of 2000 and 2006 the median selling price for a home in El Dorado County appreciated 158 percent or 26 percent for each of the last six years. The Capital region’s average of 103 percent over 5 years was also unprecedented. The median selling price for a regional home has declined 10 percent from last year while the median for El Dorado County continues to hold near last year’s levels. Nationally, housing values are expected to decline 1.7 percent from last year but remain 45 percent above 2000 levels. Although most housing prices have settled below last year’s level, 90 percent of all home values are far above their original purchase price.
To the disappointment of the KABOOM theorist, the housing recession isn’t having the devastating effect on our state or national economy. According to the most recent economic reports from the experts at UCLA and the University of the Pacific, things aren’t so bad as most people predicted. Economic expansion isn’t growing at the same rate as it did in 2004 and 2005 but our economy remains healthy with no recession in sight.
State statistics reflect a 30-year low unemployment rate of 4.5 percent and payrolls continue to grow. Residential construction employment is down but commercial construction is lively. Chuck Williams, dean of the University of the Pacific’s School of Business, said the housing slowdown would continue to curb the rate of job growth but only slightly. Nationally, job creation continues at a healthy pace, inflation is low, the stock market is at an all time high, consumer spending is above last year; economic growth is good by any measure.
The number of home sales is sluggish but they continue. Thirty-five hundred homes were purchased in the region last month and over 35,000 families have closed escrow on area homes since the first of the year. The number of foreclosures is still negligible and bankruptcies are lower this year than last. The real estate market has settled down to a more sustainable pace and the positive economic signs and growing population in the region is a good indication that the worst is behind us.
Declining home sales continue to be the anchor weighting down home prices. Buyers have been paralyzed with uncertainty, much of which can be attributed to the media hyping the BIG KABOOM theory. No one wants to buy a home and watch its value evaporate. There are signs, however, that potential homebuyers are getting weary of the media’s continued emphasis on the free-falling housing values that are not materializing. When more buyers realize that the sky isn’t falling, their confidence will begin to move our market forward.
Real property values were going to fall like a rock. The collapse of the housing market would result in a severe recession. There would be a plethora of bankruptcies, mortgage defaults and foreclosures. Builders would be standing in long unemployment lines with their buddies, lenders and real estate agents, who were all somehow responsible for the inflated housing market and its subsequent downfall.
It was the summer of 2005 when the number of home sales began to fade. Homes were taking longer to sell and some (surprise) didn’t. Builders quickly adjusted to the changing market dynamics by offering incentives and price reductions. When investors and flippers realized that the market had peaked, they dumped their properties, acerbating the problem of too much inventory and too many skittish buyers. Had the doomsday predictions of the BIG KABOOM come to pass? After a year and a half into this market correction a realistic look at its severity may provide us with a sense of its duration.
Between the summers of 2000 and 2006 the median selling price for a home in El Dorado County appreciated 158 percent or 26 percent for each of the last six years. The Capital region’s average of 103 percent over 5 years was also unprecedented. The median selling price for a regional home has declined 10 percent from last year while the median for El Dorado County continues to hold near last year’s levels. Nationally, housing values are expected to decline 1.7 percent from last year but remain 45 percent above 2000 levels. Although most housing prices have settled below last year’s level, 90 percent of all home values are far above their original purchase price.
To the disappointment of the KABOOM theorist, the housing recession isn’t having the devastating effect on our state or national economy. According to the most recent economic reports from the experts at UCLA and the University of the Pacific, things aren’t so bad as most people predicted. Economic expansion isn’t growing at the same rate as it did in 2004 and 2005 but our economy remains healthy with no recession in sight.
State statistics reflect a 30-year low unemployment rate of 4.5 percent and payrolls continue to grow. Residential construction employment is down but commercial construction is lively. Chuck Williams, dean of the University of the Pacific’s School of Business, said the housing slowdown would continue to curb the rate of job growth but only slightly. Nationally, job creation continues at a healthy pace, inflation is low, the stock market is at an all time high, consumer spending is above last year; economic growth is good by any measure.
The number of home sales is sluggish but they continue. Thirty-five hundred homes were purchased in the region last month and over 35,000 families have closed escrow on area homes since the first of the year. The number of foreclosures is still negligible and bankruptcies are lower this year than last. The real estate market has settled down to a more sustainable pace and the positive economic signs and growing population in the region is a good indication that the worst is behind us.
Declining home sales continue to be the anchor weighting down home prices. Buyers have been paralyzed with uncertainty, much of which can be attributed to the media hyping the BIG KABOOM theory. No one wants to buy a home and watch its value evaporate. There are signs, however, that potential homebuyers are getting weary of the media’s continued emphasis on the free-falling housing values that are not materializing. When more buyers realize that the sky isn’t falling, their confidence will begin to move our market forward.
posted by Ken Calhoon at 8:01 AM
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