Sizzle or Fizzle? Is it Time to Make a Real Estate Move?

All signs are pointing to a red hot real estate market for Marin in 2013. Is the train leaving the station? Is it time to jump in to the housing market or not? These are the questions that first time and trade up home buyers are asking themselves.

Here’s the Sizzle for Prospective Home Buyers:

Interest rates are at an all time low. The Federal Reserve has decided to keep short-term interest rates low until the employment situation improves. It is also buying up Treasury bonds in an attempt to keep longer-term rates low as well.  What does this mean in plain English?  Borrowing is being subsidized by the Fed, which makes it a good time to be a borrower.

Mortgage payments are starting to look very attractive vs. those monthly rental payments. The cost of owning is now cheap when compared to the cost of renting. In the aftermath of the last housing crisis, many prospective buyers, and some homeowners became renters putting upward pressure on rents. Limited new construction meant that the supply of rentals was absorbed, further supporting rent hikes. 

“Family Formation” is positive. People who are roommates leave to buy their own homes or apartments or adult children are leaving home to establish their own place of ownership. This means a larger crop of potential buyers.

Lots of wealth creation from the likes of the Facebook IPO means money to buy real estate. The Bay Area has a vibrant job market thanks to the technology industry and the economic uptick that radiates out from that industry shows no signs of slowing for the next 18 months.

And Then There’s the Fizzle:

Getting a loan is still difficult because banks have yet to recover from the effects of the last housing crisis. Qualified applicants are still able to qualify for loans, but don’t expect the same surge of buyers we saw in the middle of the last decade.

Personal income levels are still stagnant even though the economy is improving. In addition, our economic growth and rising asset prices (housing, stocks, etc.) has been at least partially due to government stimulus which is waning. As this stimulus runs out, the economy will have to stand on its own. Will it be able to?

It Doesn’t Hurt to Look.

Housing prices have been through a major correction. Buyers and sellers are starting to rebound in their attitude. Its likely the market will be lively and progressively hot over the next year if these trends continue. As they say on Match.com, “It doesn’t hurt to look.”

-       Lots of thanks to Andrew Pratt, Wealth Manager at Wetherby Asset Management