Monday, February 20, 2006

Housing - Just Cool or Going Cold?

by Glen Bell

Here's an article from yesterday's Sunday's San Francisco Chronicle that asks some very good questions about the real estate market. These questions are then addressed by examining past historical cycles within the Bay Area.

It's entitled; "Housing -- just cool or going cold? With home sales continuing to drop, questions about its cyclic nature are taking on a new sense of urgency." The article is written by Kelly Zito, a Chronicle Staff Writer.

Here are a few interesting exerpts to give you a flavor of the article. It's definitely well worth reading.

"The Bay Area real estate market typically runs in cycles, forming almost a stair step pattern of multiyear price increases followed by periods of stagnation or even mild declines."

"At the end of the last two major housing booms in the early 1980s and 1990s, prices in most areas did not collapse."

"On the coasts, you see price run-ups, and then instead of having large price declines, you have mild declines and flattening for a period -- it's what you'd call a stylized fact of the industry," said Andrew Leventis, economist at the Office of Federal Housing Enterprise Oversight, the overseer of mortgage titans Fannie Mae and Freddie Mac.

"Nothing leads to big declines in house prices except job destruction," said John Krainer, economist at the Federal Reserve Bank of San Francisco.

"San Francisco may have more of a chance to not ha ve a severe (correction) because it's so hard to build here," said UC Berkeley's Rosen. "The difficulty in putting on new supply protects home prices from big adjustments."

"People ask why are home prices so high in California, and my response is: 'Everybody in the world wants to live in California,' " said Michael Carney, real estate professor at California State Polytechnic University at Pomona.

flickr photocredit nhanusek used under a creative commons license