patrick.net

I know other markets have already started correcting at a healthy clip. Others might even be nearing the end of the cycle. But much of coastal California, and especially the San Francisco Bay Area, have barely begun to see the downward hill in residential real estate prices.

It is my current opinion that nothing significant will break in prices -- and I mean significant -- until next Spring. In fact, I really don't expect the nicer areas of the Bay to start going down meaningfully until early Summer, '08.

My reasoning is that everyone who can, by any means possible, will hang on until next Spring's "selling season". They're being told by a lot of pretend "professionals" that they should hold out, that by next Spring the storm will be over and they'll get their price, or better.

There will, of course, be plenty of foreclosures and the sporadic forced-sales (divorce, job change, etc.), and some of those may be good deals on prices, but they'll be very hard to come by, in my estimation. Agents are doing everything they can to hide the real sales prices of those deals with some agencies outright not reporting those sales to the CAR statistics because they don't qualify as "standard sales". Foreclosures may not even be priced all that attractively. A lot of banks are still trying to figure out what to do with their growing inventory of houses on their balance sheets. Right now banks aren't really in a position to start marking down hard assets, and they don't have enough inventory to make a material difference yet anyway.

Cometh the Spring I expect that prices will be right around where they are today, maybe a few points lower, but nothing major. On the ground we'll all see the same old houses sitting there, or relisted, for the same prices they left off at after the Summer of '07. Then the real fun begins, as I finally expect by the end of Spring a number of sellers will capitulate and take their lumps. Once price cuts really start, then it should turn into more competitive pricing by sellers, each trying to out maneuver the other as they all chase each other down the market.

I should briefly qualify what I mean by "lower prices". I mean price cuts from the true peak, which given your specific area should be anywhere from Q4-2005 to Q4-2006, even Q1-2007 for a few super prime areas. Fantasy wishing prices listed between your area's peak and today are nonsense, and cuts off of those prices are essentially not cuts at all. Assume the price is listed at your area's peak price, and ignore any goofball premium some real estate party latecomer tried to squeeze out of the waning days. For example, there's a home here in Mill Valley the current owners bought the end of 2005 for $1.895mm, which they listed the Summer of 2007 for $2.45mm. In my mind, that home peaked at $1.895mm, and is at best likely to sell again for around $1.48mm, the price a nearly identical home on the block sold for in early 2005.

--Randy H

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