The market doesn’t always move in an upward trajectory. Sometimes it can certainly seem like it does, and it’s been going up pretty steadily since about 2012. Back then, the Great Recession and liquidity crisis had ravaged our housing market for several years causing the prices to fall due to a lack of demand and an oversupply of distressed houses. Because I’m a Realtor and I sell houses for a living, that translated into me spending several years helping people with short sales before transitioning into representing banks. It was a tragic period for many people who were forced to sell short, which is where banks agree to take losses on the property, or forced from their homes by foreclosure.
Many people were taken by surprise when the entire market went down in 2009, although there were already pockets of decline by 2007. The Realtor I used to purchase my first condo in 2000 told me that the ‘market never goes down.’ I knew a thing or two about economics and didn’t argue with her on that point. Ultimately real estate prices will always continue their ascent in Marin County, however there can be dips and potholes on the way up.
In 2006, two years after I first got my real estate license I remember overhearing a conversation a Realtor had with his clients, who outbid several other buyers on one of my listings. He told them the market goes up $100,000 every year. As I recall a few years later they ended up selling the property short. In fact, a number of that Realtor’s clients also lost their homes in a similar fashion and that Realtor’s former assistant told me he left Marin County for another state because he was ‘run out of town.’
So I’m not going to tell you the market always goes up or that it goes up $100,000 every year. However, I have seen it going up $100,000 in a year, in fact several years in a row. And when it went down from the Great Recession it fell at about $50,000 per year. In general it seems to go up approximately twice as fast as it goes down, and it goes up for longer periods than it goes down. When you are in it for the short term or even medium term you can find yourself at the wrong end of the economic cycle. If you are looking for a canary in the real estate coal mine, condominiums can be particularly volatile, and the axiom is they are the first to go down and the last to come up.
Which brings me to what could go wrong. Over the past few years some condominium prices in Northern and Central Marin have stagnated, and some HOA (Home Owner Association) values have even declined. Single family homeowners don’t need to fret just yet, as there seems to be plenty of demand with the low interest rates and not nearly enough homes for all the buyers out there. The key is the low interest rates.
Rates are under 3% currently. When I bought my first condo in 2000 the interest rate was 8.25%. They dropped from there, and went up a bit with the liquidity and lending crisis. I remember how when they jumped up by about one percent in 2009 the market stalled. Home buyers could afford less, and many ended up on the sidelines. When our mortgage interest rates come up again, because they can’t stay this low forever, demand is going to take a hit. Maybe even enough to cause inventory accumulation, longer days on the market, and competition among sellers.
If we get a period of inflation, the Federal Reserve Bank may need to raise interest rates to combat inflation. The effects on the housing market would be significant. In time, the market will rebound again and home prices will continue to appreciate as the market moves through its cycles. The best strategy is to purchase a home that you like, can afford, and want to keep for a long time. This minimizes the risk of price adjustments and ensures your piece of mind.