Waiting for home prices to fall before you purchase? Collapse of housing prices 11 years ago affected many directly and indirectly. Son’s and daughters of homeowners, at the time not old enough to purchase a home, witnessed the stressful ugly slide of home ownership. Today those same sons and daughters are working, have some money saved and were ready to purchase their first home. But, they continue to rent. Why? What happened? A mutated strain of Post-Depression Syndrome has virally spread across housing markets nationwide.
History tells many stories of the 1930s Great Depression. People who lived through the great depression, like my grandparents and my parents, lived their fiscal lives within the confines of a post-depression syndrome. That generation lived through and were scared by the 1930’s financial nightmare. A nightmare of “could go broke.” A nightmare that they never wanted to experience again in their lifetimes. A financial scar that created the perception that the next great depression was just around the corner. Could be in the 1950s, or the 1960s or the 1970s…The next great depression never came during the lifetime of my grandparents. But they lived their lives with the constant fear and perception of a possible wide spread financial ruin. It has been over 85 years and thankfully we have yet to witness that next great depression.
In the microscopic world, viruses need a host to feed, multiply and continue living. Our bodies are smart. Cells of our bodies can immune themselves of subsequent viral attacks. A virus must change, mutate. The mutated virus hopes that in disguise it can once again attach to the host cell. Current generations, long ago, immune themselves against the post financial depression syndrome. From the great recession of last decade, a viral mutation arose. This viral mutation is the fear of falling real estate prices.
Most of us have witnessed the great recession of 2007 to 2009 and the meteoric plummet of housing prices. Prior to 2007 most thought “Real Estate prices never fall”. That is no longer our perception. It is common today to perceive the price of real estate moving both up and down. “Real Estate prices can fall” is a mutated strain of the Post 1930s Post Depression syndrome. Just like in decades that followed the Great Depression, our current generations, through the lens of their own perceptions, live everyday believing that real estate prices will fall.
Over the course of the last seven years real estate prices have risen dramatically. The wildfire of rising house prices initially lit by a pent-up demand but continued to heat up by the fuel of a housing supply shortage. The housing supply shortage is regrettably real. Lack of skilled construction workers started the slow replenishment of our housing supply. And, burdensome government housing regulations (water supply, storm water retention, fire sprinkler requirements for every home, increased engineering requirements, increased testing requirements…) continue to financially discourage builders from buying land and starting new California housing projects. It is a regulatory mess that does not appear to be getting better anytime soon continues to exacerbate a huge California housing supply problem.
Beginning November of 2017, and into all of 2018, the infected generations are convinced that real estate prices have hit a peak. Their vision tells them that home prices cannot go any higher. Their experience is telling them that real estate prices can fall. But to quote a very dangerous phrase, “this time it is different”. It is different for two reasons: 1) real values substantiated by qualified borrowers and 2) the supply problem is not getting any better. Firstly, home buyers prior to 2008 could lie to qualify for their mortgage loan. Phony home buyers created phony real estate values. Our current real estate values are supported by homebuyers who qualify for the current sales prices. Secondly, the housing supply shortage that stoked the flames of rapidly rising house prices continue to plague our California housing availability. Government regulations continue to drive up the price of real estate acquisition. Sadly, our housing supply problem will be with us for years to come. Both the verified quality of today’s home buyer and the continued housing supply shortage make our current real estate market much different than 2007.
Rising home prices have been interrupted. The housing market has hit the pause button. Homes listed at a too high price that came on the market in late 2017 and this year 2018 are being adjusted. Yes, real estate is seeing price reductions. But, because of the supply problem, our real estate market is not falling. We have hit a pricing plateau. This price plateau may continue into 2019. The continued over regulation will insure the eventual continuation of rising home prices.
There is no vaccine for the perception that real estate prices will once again collapse. It will take decades for the ugliness of last decade’s tragic fall of real estate values to fade away. We will have to live with this extremely cautious perception of real estate values – we have no choice. Whether you are a qualified buyer looking for a new home or a seller looking to sell your current home there is no need to wait.