We’ve just returned from our 526th Directors Session for the California Association of Realtors in San Jose (The California Association was founded in 1905). We spent a week mastering new tech tools, social media, dissecting ‘wins’ & ‘losses’ in this current legislative session and formulating our legislative agenda for 2010. Many of our concerns mirror your own about housing, jobs, revenue and housing. (We like housing)

One of the highlights of our fall session is an economic update & forecast with our Chief Economist Leslie Appleton-Young. She provided a fascinating look back at how we got here and a thoughtful look forward to where we’ll be this time next year. (You can view the entire presentation here: http://www.car.org/media/pdf/ econpdf/10-07-09Forecastexpo-FINAL.pdf.)

She begins with summaries of such indices as the Consumer Price Index, Consumer Confidence Index, unemployment, retail sales, monetary policy and mortgage interest rates. If you’re not an economist it probably won’t keep you on the edge of your seat but it does provide some background on where we’ve been the past couple decades.In the housing section of the report she shows graphically how housing sales in California bottomed out in 2007 and has rebounded in each of the past two years. During previous bust cycles it took 5 years for sales to decline by 61% between 1978 and 1982, another 5 years from 1988 to 1992 to decline 25% but just 2 years, 2006 & 2007 to drop 44%. In both those previous cycles it took another five years to stabilize and post modest growth, this time around our growth has been much more robust almost bouncing off the bottom.

Interestingly, while sales plummeted, our median price level remained strong until well into 2007 but has been in free-fall ever since. But there’s several reasons for that. Conceptually we understand that the great influx of bank-owned homes contributed to this. There was a period during early 2007 when local inventories of homes for sale was well over a year. Too few buyers chasing too many homes – simple supply and demand. Prices finally headed down in an attempt to find the level where buyers would be motivated to re-enter the market and have only recently shown some signs of stabilizing.

But a larger factor contributing to the precipitous decline was the credit freeze in August 2007. Charting this process clearly shows a major divergence in home buying practices where the sales of moderately priced homes, those under $500,000 increased from about 45% of the market to nearly 90%. Meanwhile sales of homes over $500,000 dropped from about 46% to just over 10%. By January 2009 homes over $1 million declined to virtually ‘0’ as the availability of Jumbo loans dried up. Backing those properties, which typically carry a higher median price, out of the equation skews the numbers dramatically toward the lower end of the pricing spectrum.

Both of these sectors have shown very modest increase the past 3 months but until the financial markets get back to lending money, you won’t see a significant increase. However, there is a pent-up demand for these upper-end homes, especially among move-up buyers. Once that market returns it will have a very immediate and positive impact on median prices across our market.

One final note on housing inventory. As I’ve mentioned here before a ‘healthy’ inventory of homes available for sale is in the 5 – 7 month range. Locally our inventory had fallen into a moderately unhealthy range of 2-3 months. In September that number dipped below 2 months across the region to a low of 1.1 months in Lake Elsinore (from a peak of 33.2 months in 9/07). Temecula and Murrieta check in at about 1.5 months each and Canyon Lake posted the highest inventory at just 1.9 months (from a peak of 35.8 in 9/07). Even with the promise of foreclosures continuing to impact out market for another couple years, it’s unlikely you’ll see further price declines of any significance in our area.

For those of you who may be frustrated by the home-buying experience right now, all I can say is keep trying. The stories you hear about homes receiving 10 or 20 or more offers is absolutely true. But with housing affordability in California at an all-time high and interest rates bumping their all-time low this is an unprecedented opportunity for residents and investors. If you give up now, a year from now prices and interest rates will be on the rise, affordability will be on the decline and once again your hindsight will look more favorable than your foresight. Gene Wunderlich is Government Affairs Director for the Southwest Riverside County Association of Realtors.

You can direct your questions and comments to This e-mail address is being protected from spambots. You need JavaScript enabled to view it Gene Wunderlich is Government Affairs Director for the Southwest California Association of Realtors. The opinions expressed are strictly that of the author. Share your opinion with This e-mail address is being protected from spambots. You need JavaScript enabled to view it .