Something’s Happenin’ Here…

As the old Buffalo Springfield song goes:  “What it is…ain’t exactly clear!”

The difference between this “slowdown” in the local real estate market and previous slowdowns is stunning! 

When consumer confidence drops (and it is currently free-falling: Consumer Confidence Index – The Conference Board ), usually the number of homes for sale increases dramatically. That is what occurred during the slowdown of 2001 to 2003, ’90-’93, ’81-’83, and all the previous economic slowdowns that we know of.  This time, however, something’s different, something has changed.  Purchases have declined over the past few months, as we would expect during an economic slowdown, but the number of homes for sale has declined in our area, too.

Why?  Why wouldn’t people want to sell when they know that values may decline in the near future?

We think there are a couple of new dynamics affecting potential sellers’ decisions as to whether or not to sell:

1.      Since 2003, reverse mortgages have become more common, allowing folks to tap into their equity and (as the AARP puts it) “Age in Place”.  Instead of moving into a retirement home when empty-nesters can no longer care for themselves, they can now afford to hire caretakers and stay in their homes.  Therefore, fewer potential sellers.

2.      With the current falling value of the dollar, why would anyone want to sell their real estate holdings and convert their equity to cash?  Over the past six months, commodities have been the only consistent appreciating asset class (again, due to the declining value of the dollar) and what better commodity, over time, is there than real estate?  Again, fewer potential sellers.

So, for these reasons, coupled with the property tax penalty in California when trading real estate, few want to sell.  Only a small number of folks: those who may be trading up or down, those moving away for career reasons, and adult children selling the estates of their parents desire to sell – that’s about it.

And that’s not many, unfortunately, not in Palo Alto and surrounding towns!

While homes in other parts of the Bay Area are declining in value, most homes in our area are selling over the asking price, simply because buyers outnumber sellers.  And we don’t expect to see this phenomenon changing anytime soon.

Steve TenBroeck