Is the Sky Really the Limit????

by Palm Springs Home Team

For those of us old enough to remember the Real Estate market from 2006 to 2009, the current trend in many cities feels a little like deja vu!  Could the Real Estate market and economy tank again like it did during the last recession?  Good God..I certainly HOPE not!  However, given the rising home prices in many major cities, it’s easy to understand why some people are a bit nervous!

We do a lot of open houses and I love it when someone from San Francisco, Seattle, Los Angeles, etc. stroll through and we get to talk prices.  Last weekend, I was hosting an open house in a magnificent mid-century masterpiece* that is 3,700 square feet on little more than 1/2 acre with EVERY bell and whistle, when a buyer from the Seattle area happened through.  Come to find out, the price of our listing is about the same as the price of a small vacant lot where they live – around $1.5 million!  (Gurrrl!  Have I got a deal for you!!!!)  It got me thinking, is there a limit to how high prices can go?)

In many major markets, thankfully, home prices do seem to be topping out with a deceleration in appreciation happening.  Some areas have been inching – no leaping! – towards new highs, so a slight slow down is actually good news.  If you are in the market to buy, you might be finding yourself getting priced out of the market, so we want it to slow down a little bit.  More on that in a minute. 

In Palm Springs alone, the median home price is at an all-time high and our average price point – while still super affordable compared to many major cities – continues to climb.  What we’re starting to see happen though, is a price “correction” on some properties.  Some have started out too high trying to take advantage of the hot market only to languish and remain unsold for longer than hoped.  We’re also seeing some opting for a condo instead of a single family home while others are starting to explore adjoining cities where their money might go farther. 

None of those options are really a “win” for many sellers, but the good news is those who price appropriately, who have a well maintained home and have hired quality agents (ahem!!!!) to market their property, will have success and still make a very sweet return on their Real Estate investment.

As for price increases slowing down a bit, I often think of the guys who bought next door to our former home in Long Beach and wonder how things finally played out for them.

In 2003, we bought a beautiful Spanish home for $350,000 and in 2006, sold it for $715,000.  (Talk about a sweet return on investment!  We made almost $122,000 for each year!)  Around 2005/06, our next door neighbors bought a similar home for about $850,000 and then started a major remodeling.  It should not have been a problem, right?

The problem is, the people who bought our home, ended up defaulting and losing the home in 2007/08 during the recession.  Our old home was now only worth around $350,000 again!  Still not an issue, BUT!  Our neighbors’ jobs were both downsized in the recession and each had to take jobs in different cities just to survive.  Through no fault of their own, they were now stuck with a home that was worth about half of what they owed on it.  How can that happen?

When increases to wages do not keep pace with increases in home prices, we’ve got a problem.  That’s why it’s good for things to slow down a little bit right now.  Increases to both that are balanced, means: 1)  if you own and need or want to sell your home, you will still make an excellent return;  2) the pool of able buyers is larger meaning probably less time on the market; and 3) like the old tortoise and the hare, slow and steady wins the race!

If selling your home is on your radar, by all means, do it and strike while the iron is hot.  Find an agent who knows and understands your market, who has only your best interest at heart and who has a proven track record of success.  I’ve said it before and I’ll say it here…whomever you choose to represent you is perhaps the most important step in the process.  (We were laughing at a meeting this morning because it seems a Real Estate license must come with every California voter registration since there are so many of us!)  Do yourself a favor and please choose wisely.  (If it’s not us, it might be someone we have to work with on your transaction and it can be painful sometimes!)

If you’re considering buying, remember it’s been said that the best time to plant a tree was 20 years ago.  The second best time to plant is today.

The second best time is right now!  Prices are still affordable, tax benefits are still there and interest rates still super low, so it’s a great time to invest in your future by buying a home. 

And while buying a home is commonly emotion based, selling is often more financially grounded.  It is essential to think of your purchase as an investment (for many of us, the largest investment we’ll ever make) and as with any investment, whoever you choose to help you with the purchase, needs to be knowledgable, professional, ethical and savvy. 

Buying a home must fit your financial needs as much as it does your emotional, which is why we are obsessed with bottom-line numbers too.  In as much as we focus on the  architecture, the market, you as clients listening to your wants and needs, we also look carefully at the numbers to make sure we’ve really got your back at the end of the day.  Would I sell you a home I wouldn’t live in?  Possibly.  Would I sell you a home I wouldn’t buy because it didn’t make financial sense?  Never!

And to that end, the sky really should be the limit!

* By the way, this home was completely restored by Jonathan Wasser, who is beyond incredible.  If you ever get a chance to buy one of his places, jump on it but quick!!!  We’ve been pitching him to our producer friends at HGTV, so remember that name – he’ll be a star one day mark my word!