“This Market Can’t Last”


Ever hear someone say that?   Ever think that yourself? 

This area has lots of bright, clued-in people.  So it’s not surprising that they feel up to the job of predicting the future of real estate.

 Besides, predicting the future is human nature.  Predictions are our way of trying to control the future.  That’s why our predictions often have a little wishful thinking in them.

But fortunately, you don’t need any special insight to say “this market can’t last” and be absolutely right.  It’s a no-brainer.  The current marketwhether it’s up, down or sideways as you read thiswon’t last.  Real estate runs in cycles, and here they’re measured in months rather than years. 

Once you understand how volatile local real estate is, you know that the current market isn’t a fluke.  Whatever the state of real estate, it’s just part of a spectrum of normal market conditions.  Prices here skyrocket, or drop like a stone, or trend gently up or down.  This broad range of markets, not just one market with steady and predictable appreciation, has put prices where they are today. 

Enough market theory.  What makes Peninsula real estate so volatile?  Any sharp increase in demand quickly overwhelms our limited supply of homes (we’ve been built out since about 1970) so prices quickly go through the roof.  Downturns can be equally dramatic.  That’s why I say that buying a house here is like parachuting:  you just jump, pull the cord and hope the parachute opens.  Fortunately, it almost always does.   

So don’t be one of those people who’s been waiting for a “normal real estate market” since 1996you’re in one now.  Why shouldn’t you try to time the market and buy or sell at exactly the right moment?  Whenever I hear that “strategy” I think of the client, moving from Sacramento to the Bay Area, who sold her house in 2002 because she knew, absolutely knew, that the boom in Sacramento real estate couldn’t last.  But instead of buying down here, she decided to rent up there for a while because she knew, absolutely knew, that the boom in Bay Area real estate couldn’t last.  It was a plausible theory, but the boom lasted another three years, both here and in Sacramento, and now she’s priced out of both.  So guessing wrong has big consequences in real estate.  Knowing, absolutely knowing, which way the market will go will cost you if it doesn’t go in that direction.  

 Still skeptical?  Let’s see what it takes to predict the real estate market, accurately and profitably.

 First, you need to understand market forces at a level few of us have the time, training or aptitude to attain.  A strong record as chairman of the Federal Reserve is helpful but no guarantee because…

 Second, you need to be all-seeing and all-knowing, to anticipate the random events that come from out of left field to throw a giant monkey wrench in the machinery of the market.

 That’s all it takes:  genius and omniscience.  How hard could that be?

 Take this simple test.

 Since 1998 these ten-plus events have influenced real estate prices.  How many did you predict?  More important, how many did you take to the bank?

 The “Asian flu” currency crisis.

 Another Silicon Valley boom.

 Another Silicon Valley bust.

 The NASDAQ reaching 5000.

 The NASDAQ reaching 1100.

 The energy crisis.

 What energy crisis? 

Ten interest rate cuts in one year, with mortgage interest rates at a forty-year low.

 September 11th, 2001.

 The war in Iraq.

“Mission accomplished.”

The credit boom.

The credit crisis.  

And, finally, a housing boom without a credit boom.                                                                                                                                    

 How’d you do?

 If you predicted all ten-plus events and took them to the bank, I’ll subscribe to the national newsletter you should be writing.  I may also report you to Homeland Security and the SEC.

 If you predicted most of these events and made a few bucks, I’ll still subscribe to your newsletter.  I just won’t pay as much.

 And if you predicted none or only a few of these market movers, and you’re still stuck in your day job, well, don’t feel too bad—you have plenty of company.

 Interested in buying or selling?  Please contact me at jfyten@cbnorcal.com

 copyright © John Fyten 2004-2014

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