Conventional wisdom concludes that real estate market is very cyclical , the typical cycle for a real estate market is about 7 years. If we start to count the year of 2012 as the year price started to increase, 2019 will be the year 7. According to Wall street Journal, real estate price in the west started to decline in June.
As I spoke to realtors, they have indicated that price reduction seems to be widespread cross the San Francisco bay area. Usually, the sales would take place when the prices were reduced.
Signs are pointing the downward trend in the coming months.
However, would a crash come?
Before the last real estate market crash of 2017, a lot of the borrowers bought properties with very low-down payments or even with 100% financing. Moreover, borrowers were even given options to make payment only on 1% interest rate( actual rate was much higher). Therefore, when the downturn came, many homeowners and investors simply abandoned their properties.
This time around, however, nearly all of the buyers put down some downpayments and large portion of them put up 20 – 50% down. Even in the year 2017, there were 21% of all buyers paid cash for properties (down from highest of 36% in the year 2009 December 2017 REALTORS® Confidence Index Survey.) the percentage of property owners who own good amount of equity is high, and are less likely to just walk away when imminent slow down comes, and likely create a crash.
Case Study 06.12.17
Many people who live in the Bay Area are tired of the
traffic congestion and a long daily commute which seems to be getting worse every
single day. Their homes are not much of a
sanctuary either, the developers have built homes that are so close to each other,
they can literally open a window and shake their neighbor’s hands.
To avoid such stressful living, many people have chosen to
move away from the Bay Area and live on the outskirt of the big city so they
can have their peace and tranquility back.
Recently, a client of mine visited a home with 40 acres of
land, and he fell in love with the home immediately! He decided he can see himself hiking on his
own property without running into anyone. He said he can picture himself
sitting under the mature giant oak tree, reading a book, and enjoying the
gentle breeze during the hot summer months.
There is just one challenge, his bank won’t lend him money
for the purchase, because nearly all loan programs will only allow for maximum
lot size of 5 acres. Over that amount it becomes an agriculture loan which
would have entirely different qualification criteria. However, my client has no
intention of doing any agriculture business beside planting few grape trees and
setting up a vegetable garden.
Lucky, I found him a “hobby farm loan” which tailors
exactly to his situation. He was able to
finish his purchase and move in right before the summer.