SF Peninsula Real Estate Guru

Gary Watts, a real estate economist, recently gave several conferences to San Francisco Bay Area Coldwell Banker agents.

 Here are some of his comments:

 Brief History of Real Estate

We are in the 24th month of the current housing downturn. Historically, housing downturns average 27 months so we may be near the end. Although there has been a significant decline in sales volume, the Bay Area’s home prices have continued to show small amounts of appreciation – excluding the Napa, Solano, and Sonoma areas. With the Fed cutting interest rates in the near future and the financial markets calming down,  shortly money will begin to flow back into mortgage securities.  It may be wise to give our client’s a little historical perspective about real estate cycles.

1970 to 1980:

                “The goal of owning a home seems to be getting beyond the reach of more and more Americans. The typical new house today costs about $28,000.” - Business Week - 1969

    In 1972, interest rates were 7%, but these rates would not be seen again for over 24 years.
    In 1973, OPEC doubled the price of oil, banks had a run on deposits and, for approximately 8 months, there were no lenders who were in a position to make loans to any home buyers.
    By the late ‘70s, both interest rates and the inflation rate were exceeding double digit numbers.  
    By the end of the decade, California home prices experienced a yearly return in excess of 11.5%!
     
                “The median price of a home today is approaching $50,000 . . . housing experts predict price rises in the future won’t be that great.” – National Business - 1977

1980-1990

 In the early ‘80s, inflation hit 21.5% and home loans were reaching 18%! 
 A recession was taking place and job losses were increasing – leading to home foreclosures.
In 1984, California home prices had their first decline since the Depression – they declined 0.10%!
   
                “The golden-age of risk free run-ups in home prices is gone.” – Money Magazine – 1985

The savings and loan scandal hit the financial markets but the government bailed them out in 1988.
By the end of the decade, interest rates had decreased to single-digit (9.5%) rates.
From ‘86 to ‘89, California home prices rose 46% and ended the decade with a yearly return of 7.95%! 

1990 to 2000:

On Nov.11, 1989 the Berlin Wall came down and, by January of 1990, Congress cut the defense budget.
In a short period of time, a lot of highly-paid workers in defense and manufacturing had lost their jobs.
California home prices declined from 1990 to 1996 by less than 2% annually, for a total of 12%. 

                        “A home is where the bad investment is.” San Francisco Examiner - 1996

In the following 3 years, California home prices rose 19.7%, wiping out all the losses of the early ‘90 and ending the decade with a net gain of 9.35%.
From 1995 to 1999, the Bay Area’s median home prices rose a whooping 25%.
The median price of a home in California has not declined since 1996, and the 38 year average rate of appreciation for homes in California is 7.75%! 
 
          Source: Researches by QTVN (regarding interest rates), U.S.  Dept. of Commerce, CAR