Oft Asked Question: Are we at the bottom of the real estate market yet?



Answer: We won’t know the market has hit bottom until the evidence is “in the rear view mirror.” But by then it may be too late to capture the best deals in years.

More Insightful Question: When was the last time we had a dip in Bay Area real estate prices, very low interest rates, and high rents at the same time?



Answer: 1993-1995, which was just before the last run up in real estate values.

We’re currently in a period of buying opportunity that we won’t see again for awhile. With prices and interest rates down, the cost of real estate ownership today is as reasonable as it’s been for 5 to 10 years. Yet rents have not retreated very much. They have remained high in San Francisco, Marin and San Mateo. Rents are at levels that allow a buyer to break even with as little as 25% down in some cases.

Reasonable break-even figures are obviously important for apartment investors, but they’re also important confidence builders for home buyers. A person should be more confident of buying a home if that person knows that he can rent it out without suffering a loss if he loses his job and has to relocate to a find a new one.

To arrive at this convergence of low prices, low interest rates and high rents wasn’t easy. We’ve had to suffer through the worst economic implosion in modern times. There was a lot of excess to be eliminated. Out of control lending had to be reined in. Property values had to reset down to comprehensible levels.

There are emerging signs that signal that the economy is no longer in free fall. In fact, there is reason for some encouragement here and there:

• Yes, unemployment is high and likely to go higher, but the last few announcements show a slowing of unemployment.
• The stock market, almost always a leading indicator of economic trend, has been rising during the last few months.
• First quarter corporate earnings have not been good, but were expected to be worse.
• Existing home inventories in many locations have been dropping from their painfully high levels.
• Fortunate demographics have prevented the worst from happening in Marin or San Francisco.

A cautious person might wait until there was no doubt of economic recovery and of increasing property values. This would be a fine approach for some. However, perhaps by then the Federal Reserve will have raised interest rates to fight expected inflation and sellers will have become more firm in their asking prices. An opportunistic buyer will look at the existing convergence of favorable property prices, interest rates and rents and act now.

The table is set for those who want to look ahead.