Early last year Temecula Valley Real Estate started off pretty strong. As we moved into Spring and Summer, the traditional busy season was slow. And in August 2006 was saw a severe oversupply of homes on the market. This increased competition and lowered prices. Through the rest of 2006 and now midway through 2007, the supply of homes on the market has remained very high with the market firmly moving into a buyer's market. Prices have retreated about 10 to 15%.
Over the first six months of 2007 we have seen business finally increasing. As we move through Summer things are looking brighter. Prices seem to be holding steady and some houses are beginning to move. But they are still moving very slow and sellers need to exercise patience and do what they can to make their house standout.
Right now there are some big challenges to home prices, namely foreclosures and short sales. Many people bought homes using 100% financing at the peak of the real estate market and those homes have lost some value. Buyers who used adjustable mortgages or even pick a payment loans with a short fixed period are now experiencing rising payments and due to the reduced market price of their home, can no longer refinance. If these buyers owe $300,000 (100% financing) and it is only worth $280,000 now, there really is no option to refinance their loan. On top of that their adjustable rate continues to climb making their payment even higher.
This is a tough financial bind. Once in this situation, many southern California properties go to either a short sale or even foreclosure. When these transactions close they lower the comparison properties on the market and thereby further impact market prices and people's ability to refinance.
Even with all this said nice homes in sharp condition are still selling. But sellers need to adjust their expectations from last year's pricing. And if a seller needs to sell their home in order to buy another home they often lose money on their sale but will gain it back on the new home they are purchasing.
With all this said, right now is an excellent time to be a buyer. Interest rates remain historically low. Buyer's ability to negotiate is also a major factor. As we move through summer some of that negotiating ability may dry up as demand increases andand rates stay low. If you know someone that has been considering making a purchase now is an excellent time for them to start looking again.
Overall, the market is moving in the right direction and many economic professionals say we are on the road to recovery. Southern California has always been a leading Real Estate market and historically averages 3-5% appreciation a year. It will take some time to get through the existing supply and the banks will be tightening lending options signficantly. You should expect the loan and sub-prime mortgage market issues to remain a drag on Real Estate for the next year minimally.
One thing that is very important to keep in mind while we negotiate through this challenging time, Real Estate remains the best investment with the most benefits. And while Temecula, Murrieta, Wildomar and Menifee Real Estate we won't see gains like we have over the last 5 years (29.5%), we should begin to level up a bit in 2008 and have a soft landing as the market starts to straighten out in 2009.
