“When do you think that prices will hit bottom?”

The questions that we keep hearing over and over again is “when do you think that prices will hit bottom?” and “is it a good time to buy now or should I wait?” On the issue of prices we hear thoughts from clients that range from thinking that they have already hit bottom and are actually on the way up to others think that they will continue to decline for years to come. So what do we think? Good question and the truth is that we nor anyone else can tell you for certain. What we can tell you, though, is that the past often is a good predictor of the future, so we have compiled data from the multiple listings service (MLS) that looks at unit volume and pricing trends over that last 34 years with recession dates superimposed to try and get some answers about what lies ahead. Read on…

Units Sold Analysis

The data below represents unit sales volume on a year by year basis as indicated by the orange bars. The black line represents the moving average while the red bars at the bottom show the recessionary periods over the last 34 years. What is obvious is that recessions indeed influence unit volume sales. The steep drops in ’78-’80, ’88-’91, ’99-’01 and ’05-’07 actually occurred in advance of the actual recessions themselves, which is something to think about in terms of seeing these real estate market movements as a leading indicator of impending economic peril.

Average Sales Price

AnalysisSo what about prices? Common sense could lead one to think that an economy in peril would cause prices to drop at rates similar to unit volumes. In all years past prices only flattened at worst. It is clear, though, that we are not in a situation today that is comparable to past downturns as last year saw the first substantive decline in actual prices for this available data. That said, the moving average tells a different story. The steep run up in prices over the past 5 to 10 years is offsetting the decline so the moving average is showing a flattening profile. If prices in 2009 stabilize we’ll actually only see a flattening of the overall price average trend much like what occurred in the early 90’s.

Summary

So what would lead us to think that perhaps now is a good time to buy? We are seeing (literally) once in a life time price declines and armed with lower interest rate loans qualified buyers are looking for bargains. For the astute buyer they can be found but it is not the rule. In fact for well presented and well priced properties we are even seeing multiple offers occurring. We think that the upcoming spring season will see an increase in listings and we advise buyers to start looking early. For sellers, it may be time to test the waters while keeping expectations in check. We are definitely living in very uncertain times, but one thing is certain and that is significantly lower Marin real estate prices are a once in a life time occurrence.

We look forward to talking to you soon,