Surviving and Thriving in Today’s Market- Part II

Fortune Magazine just published its top ten list of “Worst Real Estate Markets in the USA for 2009”, and many of the cities that appear on their list are in California. According to the report, Los Angeles-area home values, which had a median price of $375,340 in 2008, are projected to drop by 24.9 percent in 2009 and drop an additional 5.1 percent in 2010, according to Fortune magazine.

How do those numbers crunch out? Let’s say in 2006 my Los Angeles home was valued at $499,000, and today its appraisal is only $375,000. Fortune Magazine predicts that in 2009, the Los Angeles housing market will see further price erosion, and my home may drop to an all time low of $290,000.

As a homeowner, if I have to sell in 2009, this is obviously horrible news regardless of whether or not my mortgage is upside down. I am not suggesting otherwise in terms of the perspective of the homeowner. We’ve never seen housing fall so deep before, and to define this in terms other than a “crisis” to homeowners would be naïve.

But as a licensed real estate broker, whose livelihood depends on commissions based on transactions, this news has a silver lining.

Interestingly, once the pricing of these typically 3-4 BR, 2BA homes in L.A. falls to the range of $300-$350,000, a number of favorable things occur in the marketplace:

  1. Average “middle class” families in L.A. can once again afford to buy these homes, because their PITI on a $300,000 loan is less than $2500/month, for even a standard fixed loan. That means that typical two-income earning families will have no trouble qualifying for, or making their monthly payments. Demand will increase as families in 2009 try to capture these good “deals”.
  2. Families who arrive in L.A. from other countries by and large will find the housing more affordable in L.A. in 2009 than what they could buy back home, which will also stir up more demand.
  3. First time homeowners, be they young couples just starting out, or not so young individuals who have saved for the day when they could own a home, will jump bigtime into this market in 2009 because…well, they can! Mortgage companies will be fighting to land this kind of qualified buyer, and no amount of doom and gloom will dissuade these customers from realizing their “American Dream” of owning a home.

It all comes down to what in 2009 will be an amazingly affordable, attractive market that will be irresistible to many. Seeking Alpha blogger Ira Artman wrote this yesterday:

“Home price affordability is now close to an historic record due to the decline in home prices and lowering of interest rates.”

What that means to us as real estate professionals is simply this: homes are going to be priced at such historic lows, with mortgages for qualified buyers remaining at such very attractive rates, buyers will find it very difficult not to enter this market.

And as I’ve written before, as a real estate broker, what’s better, NOT selling a million dollar house, or cranking through four $250,000 homes?

Isn’t the commission on the latter much greater?

Geoffrey Thompson

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About The Author: Geoff Thompson is an owner and founding partner of Colibri Real Estate, LLC. Since 1996 the companies under this banner have offered online real estate licensing and insurance licensing courses as well as online real estate exam prep and insurance exam prep.