Is it Time to Sell? Experts Answer the All-Important Question

Written by Posted On Sunday, 29 May 2005 17:00

Whether you're an investor or simply following the real estate market as it pertains to your primary residence, most people have a great interest in the industry, especially these days. Here in California the market has sizzled for quite a long time with extremely low interest rates and unbelievable appreciation. However, some argue the sky must fall one day, while still others believe the market will remain hot.

At a seminar for industry professionals sponsored by GMAC Mortgage, leading real estate analysts debated the future of housing in California and San Diego. Panelists included, Kevin Burke, Kohn & Burke, Inc. Realtors; Alan Nevin, Marketpointe Realty Advisors; Sandy Goodkin, Sanford R. Goodkin & Associates; Gregg Seaman, One Source Realty-GMAC Real Estate; and Bruce Norris of The Norris Group.

The panelists shared their concerns, predictions and visions for the economic forecast of California housing.

Nevin and Burke painted an optimistic picture for homeowners and industry professionals."We've got demand for housing here and we've also got pent-up demand for housing. Right now we need some 200,000 new units each year and we're only producing between 78,000 and 85,000 units," says Burke.

"Our forecast for the state of California this year and last year, which turned out to be true, was to sell about 200,000 new homes and condominiums, and we are. We're right on track to do that this year and I think we're going to do that again next year," says Nevin.

Nevin says that if a sufficient number of homes were being built then appreciation would not have been as high.

"You don't get 20 percent a year appreciation in an environment where there is a balance of supply and demand. The good news for all homeowners is the fact that it's virtually impossible in this state to have a supply and demand balance because of the political situation which is 100 percent anti-development," explains Nevin.

Burke believes that a feeling of not wanting to be left behind will also fuel the market. "Consumers today are buying property because they're afraid they won't be able to buy it next month."

"You really need to think in terms, as far as I'm concerned, of a fast moving train, and you just have to make a decision whether you're going to grab on because it's going to keep on going," says Burke.

California has seen a decade of housing price increases that Nevin doesn't think will stop.

"If you look at the long-term bond market, 30-year mortgages are a function of the 10-year bond. The 10-year bond is continually strengthening... So, I'm telling you that there's a rather reasonable shot at mortgage rates dropping another percent or so and that would only fuel our market even more," says Nevin.

A triangle of continual growth, imbalance of supply and demand and the lowest interest rates of any period in US history are the factors that Nevin predicts will keep California in good shape. "As I look out to the next year, I think all of you will be in smashing shape," says Nevin.

"The only thing that we have to do is ensure that we have a supply of first-time buyer housing because every time someone buys a new home, we sell 4.5 re-sales," says Nevin. "In our case it has to be condominium conversions. If the city screws up condo-conversions that is going to screw up our entire real estate market."

Goodkin says people should pay attention to major events such as droughts, terrorist attacks and gasoline shortages to try to determine the future of real estate. "The loose canon is gasoline because it steals from the consumer as far as wanting to buy other things," says Goodkin.

Norris claimed to bring the realistic viewpoint to the debate when he predicted that things were headed for a downturn in the next five years. He recently wrote the report, California Countdown: Why foreclosures will go up 1,500 percent between 2005 and 2010.

"We are entering exactly the same scenario that we've had two other times," says Norris.

"In 1974 to 1980 we tripled in price, going from $34,000 to over $110,000," says Norris.

"In 1980 we peaked in price. It was another down cycle. We went from 15 percent interest rates to 12 percent interest rates from 1980 to 1985; interest rates improved, yet the market declined. Lowering interest rates had nothing to do with helping [the real estate market]," says Norris.

"Interest rates have been down for the last two years to 40-year lows and it's accompanied at the same time [by] the highest level of foreclosures in the country. So, if interest rates were the complete answer you wouldn't have had that problem. So interest rates alone don't tell you the future," says Norris.

Instead Norris claims a key indicator is the affordability index, which is nearing 17 percent in California. "A lowering affordability tells me that your product is in demand and you're going to get price increases," says Norris.

That begs the question most people want an answer to: How do you know when price increases stop?

"It doesn't really matter how high prices go. What does matter is where it repetitively stops,"

Norris says 17 percent is the repetitive number that California has hit in 1980, 1989 and will hit it in 2005. "This is the first domino of a down market," says Norris.

"When I decided to write this last report, talking about foreclosures going up 1,500 percent, it wasn't to encourage anybody to sell anything, but what it was meant to do was to allow you to make a decision... whether you wanted to get off or not...," says Norris.

Norris says it's fine to hold real estate throughout a downturn, but to be prepared and know that it may be coming.

"I bulletproof myself from things that I've seen before. The people who are going to get hurt are the people who don't think it can occur," says Norris.

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Phoebe Chongchua

Phoebe Chongchua is an award-winning journalist, an author, customer service trainer/speaker, and founder of Setting the Service Standard, a customer service training and consulting program offered by Live Fit Enterprises (LFE) based in San Diego, California. She is the publisher of Live Fit Magazine, an online publication that features information on real estate/finance, physical fitness, travel, and philanthropy. Her company, LFE, specializes in media services including marketing, PR, writing, commercials, corporate videos, customer service training, and keynotes & seminars. Visit her magazine website: www.LiveFitMagazine.com.

Phoebe's articles, feature stories, and columns appear in various publications including The Coast News, Del Mar Village Voice, Rancho Santa Fe Review, and Today's Local News in San Diego, as well as numerous Internet sites. She holds a California real estate license. Phoebe worked for KGTV/10News in San Diego as a Newscaster, Reporter and Community Affairs Specialist for more than a decade. Phoebe's writing is also featured in Donald Trump's book: The Best Real Estate Advice I Ever Received and The Complete Idiot’s Guide to Buying Foreclosures. She is the author of If the Trash Stinks, TAKE IT OUT! 14 Worriless Principles for Your Success.

Contact Phoebe at (858) 259-3646 or phoebe@livefitmagazine.com. Visit PhoebeChongchua.com for more information.

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