A “Great Depression 2.0” Update

Before you sink deeper into this depressing depression we’re in, consider these two pertinent points:

1.  If you live in SF Bay Area, be glad – be very glad!   According to an article in this morning’s SJ Mercury, 39% of the total domestic VC investments were made in the SF Bay Area region in 2008.  That was 11 Billion dollars worth, by the way.  Naturally the total dollar amount will be much smaller this year, but we will undoubtedly get the lion’s share  of VC capital again.

2.  Potential home buyers are (understandably) extremely nervous at the moment.  We hope that by offering some long-term perspective, it might ease some of that buying anxiety. 

Over the years since WWII, the housing market on the SF Peninsula has generally followed the business cycle which has ebbed and flowed in 7 to 10 year cycles.  Starting from the previous market top, the local housing cycle typically moves like this:  2 to 3 years of depreciation (down 20-30%); then 1.5 to 2 years flat; then 1.5 to 2 years of appreciation (values get back to previous high); then 3 years of appreciation (typically 25%/yr – homes in the better areas will have doubled in value from the previous high!). 

The best time to buy is during the downturn.  It’s emotionally hard to do, but a buyer has all the advantages on their side: a large selection to pick from, the ability to negotiate the best price and terms, plus good interest rates.  We have seen that when ones buys during the downturn is much less important in the long run than what one buys.  Product selection will trump timing at this point in the cycle.  A buyer should look for a home with the least number of un-remediable defects.

Is now a good time to buy?  Yes!  One makes money by buying low and selling high, right?  That means buying when others are selling and selling when others are buying.  This is clearly the time to buy.   But it will take more than money.  It will take courage.

Jeff Stricker & Steve TenBroeck