East Bay Real Estate

One of the key challenges in current market conditions is short term memory!

I am about to get on my soapbox and address one of the key issues that is happening in the East Bay real estate markets - SHORT TERM MEMORY!  There are only a handfull of Realtors who are serving the East Bay who were also here in 1989 - 1994.  Because of that, there is a large population of Realtors who have no memory of largest recession in California history that was taking place in the early 90s.  The defense industry generally left the State.  California’s economy at that time was based on the revenue from the defense industry.  So, when it left, there was a huge income void with California. 

The economic factors impacting East Bay real estate are much different today, but the effects are similar in many of our markets - declining prices, tightening of credit for home loans, businesses downsizing, loss of jobs, increased divorce rates, and so on.  So, we are having a similar experience as the early 90s, but for different economic reasons.

Here is a prediction for you to consider…“We will have a similar experience with our real estate in about ten years.”  The reason I predict this is because of short term memories.  Our current economic conditions are complicated, but let’s pretend they are because consumers were hooked into the banks providing a “FREE LUNCH” with mortgage money.  Remember, there are no free lunches!  The mortgage industry was giving money away without any checking to see if the borrower could pay back the money.  One of the aspects of our real estaet market that they were betting upon was the non-stop increase in values that had accellerated to galactic speed in the early 2000s.  There is no way that appreciation spike was sustainable and a house of cards began to crumble with many people standing in amazement as the debris started falling on top of them.  Still the median home price in California has jumped from $450,990 in 2004 to $588,970 in 2007!

Now we have banks and lending institutions that don’t know what to do with the mountain of foreclosures and bank reposed homes.  One of the reasons why there is so much chaos within the banks is because there are very few bank employees, if any, that were at the banks.  So, there is no LONG TERM MEMORY at the banks as to how to serve this current economic consequence of them lending money without any basis of customers paying the loans back.  It took almost two years in the early 90s for the banks to get their act together and figure out how to efficiently and effectively manage the sale of the real estate they were taking back.  Hopefully, it won’t take them that long this time around.

Last week the Wall Stret Journal posted an interview with Mr. Mervyn King, the head of the Bank of England.  He shares a similar opinion I have regarding the short term memory issue and why he is convinced we will have a similar experience in the next ten years.  Regarding this topic, he said, “Optimism takes over.  It’s a natural human instinct to interpret success as a sign of one’s own ability, rather than good luck.”

Here is the GREAT NEWS on May 4th…Interest rates are GREAT!  Inventory is shrinking so Buyers are understanding the urgency to make decisions instead of wondering around hoping they prices will decline further, and the East Bay real estate markets, espcially in the San Ramon Valley are doing very well this year regarding pricing and a lowering of days on the market.  It is time for Sellers to become Buyers as fast as possible.  And it is time for Buyers, to jump in with both feet and buy a home!  As always I welcome your comments.  Until next time…

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