Tom Foolery, Pogo And A Market Update

Yes, you read the headline correctly, Tom Foolery.  I really don’t know how else to describe what just transpired in Washington.  I read an LA Times article that said, “We have met the enemy and he is us;” a reference to Walt Kelly’s iconic comic strip, Pogo.  In the original comic strip, Pogo says this phrase in reference to walking along a litter filled forest floor; we are the enemy because we litter and it hurts his feet.  Later, Kelly uses this image in political satire with regards to the Joseph McCarthy communist witch hunt of the 1950’s.  Kelly recognized that our fears of communist infiltration and the subsequent attack on our citizenry by McCarthy’s Senate Subcommittee on Un-American Affairs, was the greatest threat to our democracy, not communism.  The LA Times article argued that we elected this Congress and the infighting there is merely a reflection of the deep divides within our democracy and also that we can change it by voting differently.

The effect of the government shutdown on real estate and the economy at large, has yet to be determined.  The fact that our confidence has been shaken clearly cooled some of the jets of home buyers.  But because we were down this road in summer 2011, I actually think we’ve done a pretty good job of brushing it off and moving on.  After all, real estate is local and for most of the nation, what happens in Washington is a world away from what happens at home.  That said, there are clouds a brewing in the world of real estate.  They are not dark clouds, but they are clouds none the less.

So what am I talking about?  Well for starters, in most of the nation, sales were down from August to September, though they were actually up in the West 1.6%.  This is the first time in 10 months that month over sales have declined.  Prices of course remained up double digits year over year.  NAR says the slowdown is due to a combination of pressures: rising interest rates; rising home prices and the lack of substantive income growth.  In other words, affordability.  I think it’s pretty obvious at this point that prices dropped too far during the housing meltdown and financial crisis and that’s why they roared back so vociferously.  So now they are back to what historically would be considered a substantial correction of around 10-15% from market peaks; at a point where we might normally have been had lending not been so loosey-goosey during the boom and prices not gone up so much.  In other words, had they not gone up so much, they wouldn’t have come down so far.

What should we then expect for the months ahead?  I think it reasonable to expect we will give a little back.  We went up a lot; really fast and it wouldn’t be the least bit surprising to give some of those gains back, besides, summer is over and we are entering the cooler real estate season of fall to boot.  To use a Wall Street term, I am expecting a modest pull back.  I believe we are actually seeing that now.  I have several homes currently under contract and in escrow.  The prices my sellers accepted are a bit less than we might have sold for last summer.   A seasonal drop off is pretty normal and exacerbated perhaps, by our shaken confidence.  That said, inventory remains very tight.  I have buyers I still can’t find homes for.  So demand may be waning some, but the supply is not increasing and in fact the total number of units remains stubbornly low at about 480 in the Conejo Valley.  While that is double what it was in January of this year it’s almost a third of what it was in fall of 2008 when the market was in free fall.  In other words, this modest pull back is not in any way a dramatic collapse in our market nor does it portend to one, our inventory is just too low.  And even with lower affordability due to rising prices and rising borrowing costs, I think it’s reasonable to expect prices will slacken a little near term but rebound next year and probably appreciate another few percent.  Traditionally California home value appreciation is around 3% per annum and as we continue a path towards normalization in real estate, I expect that type of result going forward.

2014 however, does bring the midterm elections and this time it should be very interesting to see how we as a nation vote for our leadership.  I think it best to remember what Pogo taught us so many years ago, “We met the enemy and he is us.”  We vote these people in and we can vote them out.  If we vote in radicals, we will only have ourselves to blame.  Hopefully the radicalization of Congress abates and cooler, compromising heads prevail.  It’s up to us to elect officials that we want and I think it’s safe to say, we don’t want what we have today.  For real estate professionals, property owners and would be property owners, we hope the government just stays the heck out of the way and lets us just get on with the recovery at hand. To quote Pogo and Walt Kelly one more time, “We are confronted with insurmountable opportunities.”  Let’s just take advantage of them… what do you say?

About Tim Freund

Tim Freund has been a licensed real estate agent/broker since 1990. He spent 14 years as a new home sales rep, ran his own boutique resale brokerage for 5 years and is currently an Estates Director for Dilbeck Estates/Christie's International Estates in Westlake Village, Ca. Tim is a Certified Residential Specialist (CRS), an Accredited Buyer's Representative (ABR), a Corporate Mobilty Specialist (CMS) and a Senior Real Estate Specialist (SRES). Tim has successfully negotiated a loan modification for a client and has been a professional short sale negotiator. Tim sells along the Los Angeles and Ventura County lines, “from LA to Ventura..”. Tim has been married 31 years, has 2 children, is a native Californian and has been a resident of the Conejo Valley since 1991.
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