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The following article What is Your Worst Real Estate Fear was authored by Scott Williams and is republished in this directory with the author's permission. These articles are published as an information source for real property owners, buyers, sellers, investors and brokers.
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What is Your Worst Real Estate Fear?
by: Scott Williams
Here’s a popular nightmare: the market is near the top, like in 1990, ready to begin sliding downwards into years of dropping prices. Month in and month out, I’m asked if the market is near the top of a bubble by Santa Barbarans who have convinced themselves that “the market cannot keep going up.” According to Robert Kleinhenz, deputy economist in charge of forecasts for the California Association of Realtors (CAR), who spoke here in mid-January, a bursting bubble in local and California real estate is unlikely for the rest of this decade.
There are reasons why the market fell apart in 1990 and there are reasons why it is not ready to do so now. There is no great restructuring of mature industries like defense, aerospace and financial/banking shaking the economy like the triple whammy of 1990. The tech bubble was a consolidation of new industries, common in the early years of the innovation cycle.
Productivity gains have offset job growth to keep inflation in check. Gross Domestic Product (GDP) rose 3% in 2003, 4% in 2004 and Kleinhenz expects it to rise about 4% in 2005. Employment is rising, consumer spending is strong, and companies are committing more money to new technologies. Kleinhenz dismissed the deficit as an issue over the next several years. The federal deficit, while large in number, is smaller as a percentage of GDP than in the 1970’s. Inflation is in check with core inflation near 2% and the stock market is reacting positively to improving economic activity. There still is an affordability problem. However, population growth of 600,000 new Californians every year, growth of age groups that purchase homes, and low interest rates that are likely to continue for at least several years, point to price appreciation continuing. Statewide the median price was up 23.1% in 2004. While that is the highest appreciation in the current cycle it is not as high as the 25% we had for several years in the 1970’s.
Today there is a 3.4 month supply of homes for sale in the state, one half the traditional averages. In April ’04 the inventory statewide dropped to 1.6 months and the market exploded with multiple offers. High demand means high prices. We need to house an additional 250,000 households each year and California builders put up only about 200,000 homes. CAR believes we are in the middle of a cycle, not at the end of one. Have you ever heard, “I wish I had bought back then,” well then is now!
Scott Williams has been involved in the real estate industry since 1977. By 1981 he rocketed to become the number one Santa Barbara agent in an organization with more than 200 agents. He has achieved the annual number one status in his office 14 times. Prior to entering real estate Scott graduated from UCSB. He has two children and mentors in the “Fighting Back” program.
He is a Certified Residential Specialist (CRS), a Graduate of the Realtor’s Institute (GRI), and teaches real estate courses for Santa Barbara Community College. Mr. Williams can be contacted at http://www.scottwilliams.com
This article was posted on January 25, 2005
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This article is the property of and published with the permission of Scott Williams. For more information regarding the author or to contact the author visit his website at http://www.scottwilliams.com
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