Answering the crystal ball question

By Joel Persinger
YourRealEstateDude.com

As I was leaving church following the morning service, a friend of mine took me aside and asked, “Do you think home prices are going to continue dropping?” Of course, this is the question that is on everybody’s lips and the one most asked of me. I call it, “The crystal ball question” because only someone with a crystal ball could possibly give you an accurate answer. The rest of us poor mortals simply have to take an educated guess. That is precisely why all those talking heads on TV news can never seem to agree on anything even though they are billed as “experts.” It’s also why we “common” folk should take what they say with a grain of salt.

As if to illustrate the point, recent news stories have fanned the flames of consumer worries about the real estate market. They have pointed the finger of blame at real estate for everything from slow or no job growth and rising unemployment numbers to predictions of a coming recession. But, despite all the “bad market” hype the actual numbers still look pretty good.

According to a recent article in a prominent San Diego publication, unemployment in San Diego increased from 4.2 percent in May to 4.6 percent in June. Although this is only a jump of .4 percent, the article in question positioned the slight increase as a harbinger of doom, blaming the bad news on the real estate downturn and the resulting reduction in lending and construction jobs. When I read the article I couldn’t understand what all the hubbub was about. If 4.6 percent of the people in San Diego are unemployed, that means that 95.4 percent of San Diegans have a job! Almost everybody is working! That’s good news, isn’t it? Shouldn’t we be dancing in the streets?

Even the interest rates on home loans are at historic lows. I checked the rates as I was writing this column. In less than three minutes I found examples of thirty year fixed rate loans as low as 6.85 percent and fifteen year fixed rate loans as low as 6.68 percent.

Sure, home sales have slowed in 2007 compared with 2006, and a bunch of fair weather real estate people who jumped in when it was hot are being forced to find something else to do, but contrary to popular misconceptions, homes are still selling. According to statistics provided by the San Diego Association of Realtors website, 2,859 properties sold in June 2006 while 2,468 properties sold in June of 2007. That is a sales decline of 391 properties or 13.7 percent as reported by the Multiple Listings Service for all of San Diego County. Maybe I’m crazy, but a drop of thirteen or fourteen percent does not rise to a level which justifies panic in my opinion.

So, why do media outlets continue pushing negative stories about the real estate market? The answer can be found when we follow the money. The shocking fact is that news outlets exist to make money and bad news sells.

So what about that crystal ball question I mentioned before? Are prices going to drop even more? The answer is, “maybe and maybe not.” No one really knows for sure and anyone who tells you they do is more smoke and mirrors than crystal ball. All I can tell you for certain is that if history repeats itself, the market will ebb and flow like the tide just as it always has. If the current tide is not right for you, then be patient. Given time, it will change.