Is our real estate market “unhealthy”?

TenX, a real estate auction and analytics company, calls the San Francisco real estate market–and, by extension, our own market–unhealthy.  With housing demand strong and prices stable or rising in most Silicon Valley neighborhoods, how can this be?

“Prices are so high and inventory so weak that the potential for both sales and price growth are very low”, explains CNBC’s Diana Olick in her summary of the TenX report.

My questions:

  1. Since when is sales volume a metric of a healthy real estate market?  We’re not selling widgets here.  We’re not concerned with market share, or with keeping factories running at full capacity.  Valley home sales have been constrained by inventory, not demand.
  2. Valley home prices were extremely high in late 2016, after a run-up that started in 2010 in a few highly-regarded cities, 2012 in others.  Could they go any higher?  Heck no!  But they did.

Will prices continue to rise in the short term?  I don’t know.  No one knows, although over the years plenty of people have thought they did.  Since 1998 I’ve been hearing “Silicon Valley prices can’t go any higher”.  Many have bet on it, most lost.  In January 1998 the average sales price per square foot of a Palo Alto single-family home was $459.  In January 2017 it was $1473, according to MLS data.

TenX’s five “healthiest” markets?  Four–Tampa, Columbus, Las Vegas and Jacksonville–were hammered–absolutely flattened–by the Great Recession.  Now, finally, their economies are rebounding, and home prices with them.

But here’s my concern about touting housing markets that are coming back from the dead:  they needed resurrection.  That’s not an endorsement of their blue-chippy-ness.  These markets suffered mightily through some mighty lean and mighty long years, typically from 2007 to maybe a year or so ago.  Resurrection is wonderful, even miraculous, in concept, but imagine being a homeowner or investor in a market that hammered, that much, for that long, dutifully paying your mortgage while homeowners and investors around you abandon their properties and torpedo your equity

Columbus, for example, has struggled for “most of the past two decades” according to the website of a lender, FirstOption, that services the area.  Tampa “lost thousands of homes to foreclosure in the past decade” says Olick.  As late as January 2015 Jacksonville’s “huge pool” of cut-rate foreclosures was fueling demand, with the number of foreclosures up compared to January the year before, according to a market report on the FortuneBuilders site.  And Las Vegas was, as Olick puts it, “ground zero” for the implosion of speculative real estate during the recession, with home prices today still 20 percent below their pre-bust peak.

Bargains with upside, or cities that have been down so long that anything looks like up?  I don’t know, and I’m not sure TenX does either.  So be sure to ask for the money-back guarantee.

copyright © John Fyten 2017


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