Wednesday, August 5, 2009

Have We Seen The Bottom

On Tuesday, the National Association of Realtors released Pending Home Sales are up for the fifth consecutive month, the first time in six years for such a streak. In addition an assortment of economic reports and news articles have suggested that the U.S. housing market has bottomed out, but before you believe the experts I would like to take a wait and see attitude.

Given that there are so many unknown factors like shadow inventory, alt-A loans, loan modification, Jumbo Loan Market and job security -- the state of the housing market has very little stability and makes these claims that are very hard to believe.

Our little Island of Alameda, has been able hold off the cataclysmic events that have hit California and the Nation, but we have not been immune to falling home prices and loss of home value.

According to Zillow’s Home Value Index, Alameda peaked at $697,200 in late 2005 and has dropped $155,800 to $541,400 by early this year. The price per square foot for sold homes reached $449 and has fallen over $120 to $326. This has rebounded the last couple months, but the numbers have not been consistent.

This trend continues in other part of the San Francisco Bay where residential real estate has fallen dramatically in areas like Antioch, where the Zillow Price Index went from $516,800 to $203,100 a 61 percent decline. The Antioch prices per square foot dropped from $240 in late 2007 to around $100 today. The ratios are similar for Vallejo and Richmond.

It appears high valued areas still have plenty of room to fall. Affluent communities like Piedmont, Marin, and Palo Alto that also saw a doubling or tripling of home prices during the boom, even though their residents' salaries have not followed suit.

For many part of the Bay Area residential rents are not aligned to reflect the home prices. This is a sign that home prices may have further to decline. Alameda has a situation where rent on a home is roughly $2,500 and the mortgage of a $550,000 home with 10 percent down payment is over $2,900 not including homeowners insurance or taxes. My guess it will cost you about 30-percent more to own than rent an equivalent home. This type of ratio makes it difficult for people to make the move.

So before people start declaring that we have hit bottom continue to watch employment, inventory and interest rates. These factors will let you know when we hit bottom and have begun to recover.

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