Roger Ewing's Blog

By Roger Ewing

As the real estate industry gears up for a substantial year of recovery and steady growth, it’s important that we understand the factors that contribute to home sales and how those factors affect the client’s decision-making process in our current financial environment.

We typically evaluate the real estate market by examining four critical factors: home prices, mortgage interest rates, consumer confidence, and employment statistics.  It is becoming apparent that these factors are combining to create an excellent environment for a sustained housing recovery.

First, we are seeing median home prices at 1980’s levels.  Overall prices have dropped 25% to 35% in most communities.  This is one reason this economic downturn has been deemed the Great Recession.  Housing has suffered greatly as a result of the run away pricing brought on by easy access to mortgage money in the past.

Second, interest rates are the lowest in history.  Many of you were here in the early 1980’s when double digit home interest rates were the norm.  While those days may be a distant memory, in our current cycle all indicators are that interest rates will begin to climb over the long term. However, we don’t anticipate mortgage rates to climb beyond the reach of buyers.  Additionally, jumbo loans are now making a comeback and I expect many more affordable high end mortgage products to become available as the year progresses.

Third, unemployment has been particularly stubborn in this recession.  Historically, California generally has a slightly higher unemployment rate than the national average.  While California unemployment is currently above 12%, CAR is predicting this rate to drop considerably by the second half of this year.  This is an important element if housing sales are to improve and prices are to stabilize.

Fourth, 2010 was a particularly strong year in terms of consumer confidence.  The national consumer confidence index has nearly doubled since the lows of early 2009.  The buying process is an emotional decision for homeowners.  They must feel positive about their ability to afford a home and have good feelings about the future to consider a move up.

Overall, we expect to enjoy a very positive real estate market in 2011. With exceedingly low homes prices and attractive interest rates, the market should maintain steady growth beginning this spring and summer. Now is a great time to be a buyer.