East Bay Blog

Hello readers, welcome to the East Bay Real Estate Blog. It’s the final full week in July and the East Bay Real Estate Market shows continued signs of correction. It is especially true in the lower priced markets where I have seen an explosion in Short Sales (where the property is being sold for less than the amount owed to the lender). There are going to be some upset folks next year when they receive a 1099 in the mail for debt forgiveness. If you want to know more about this, read my previous post entitled “Foreclosure and Short Sale Tax”. The higher priced homes are holding up better. That is why you continue to see the median sale price in the Bay Area rise. The more expensive homes are selling, the lower priced ones are not. The secret is that the more expensive homes that are selling are being sold by Professionals instead of For Sale by Owners or inexperienced agents. Overall volume is definitely down. Homes not marketed correctly are just not selling.

One of the most common questions I am hearing is “is now a good time to buy/sell real estate”. It’s funny how everyone tries to time the market. A few years ago I remember hearing people ask how much longer they should wait before selling. Anyone that waited until after late summer of 2005 probably did not get as much as they could have. That is when the market first started to turn. My advice is that now is a good time for buy or sell, unless you are a flipper. Flipping property is hardest in the middle of a changing market. If you only have a 3 to 4 month time horizon, between your purchase and sale, I would suggest waiting a bit to make certain the correction has ended. I do believe we are a lot closer to the end of the correction then to the beginning. So here is my advice:

BUYERS- Now is a good time because-

• Mortgage rates are still near historical lows, and there is still access to easy money.
• Over time your Real Estate will appreciate in value. In the last 50 years, after adjusting for inflation your real estate has appreciated 9% per year in the SF Bay Area, 6.8% per year in New York and 5% per year in Boston. We are pretty much guaranteed long term appreciation.
• You get interest deductions from the IRS for the interest you pay for your home.
• You have control of your hard asset. Unlike stock or bonds, you control what happens to your home.
• The Federal Government allows you to sell your principal residence as long as you have lived there two out of the last five years, and walk away with $250,000 for singles, $500,000 for married couples TAX FREE
• It is impossible to time the market. By the time you see the market has changed it will be too late, the best deals will have past you by.

SELLERS- Now is a good time because-

• It’s not over till it’s over. If you need to sell in the next couple of years, it could get worse by the time you have to sell. As I told the buyers, it’s impossible to time the market, just like things could get better, they could also get worse.
• Inventory is still rising. It’s up to 6.8 months to 9 months from 5.7 months to 8 months in December 2005. More inventory means more competition for you.
• Delinquency rates are increasing. Sub-prime loans show a 10.5% delinquency rate. If you start seeing foreclosures in your neighborhood, it will affect your home’s value.
• Tax laws still favor you walking away from your sale with tax free money. With the government bail-outs that are likely to save the mortgage market, new tax dollars will have to be found to fund these bail outs. This may end up in a change to real estate tax laws.
• Your home can still shine. There are still sellers who are trying to do it themselves or hire “discounters” to help sell their homes. They are doing this because they think they need to squeeze every dime out of their home because of the market. What they don’t realize is the days of “discounters” have passed. It is tough to sell a house now. If you don’t hire dedicated professionals who will invest time and money to sell your home then you will either have to resort to bottom barrel pricing, or not sell at all. Better to lose a little now, then a lot later.

I think you can sum up my advice to both buyers and sellers as follows: It is impossible for anyone to time the real estate market. Try not to look at your real estate as a short term investment, because it shouldn’t be. It’s a long term investment. In the long term it will appreciate, it will house you, or provide cash flow if it’s a rental. It will provide tax benefits. It will give your security and a hedge against inflation.

If you have more questions, or if you want to discuss this issue further, don’t hesitate to contact me. I love real estate, and it’s what I do well. I am always willing to discuss it. Until next time….