The Real Estate Rollercoaster

Posted on December 20, 2007 by Gene

Consumed by my own drama, I have forgotten to post lately. So here’s a little note about California real estate, in which I am now heavily invested.
A report today shows that home sales in the Bay Area are at a 20 year low… but the median price is up.

Sales of existing, single-family homes in the nine counties that border the bay plummeted 39.4 percent, from 5,308 last year to 3,217 in November, DataQuick reported.
Year-over-year prices for existing detached homes continued to diverge sharply from one city to the next. Solano and Sonoma witnessed drops in median home values of 18 and 11.4 percent, respectively. Meanwhile, Santa Clara and San Francisco showed increases of 9.5 and 6.9 percent.
For all existing homes in the Bay Area, the median price in November was $670,000, up 1.4 percent from $661,000 a year ago. The median means that half the homes sold for above the amount and half below.

I thought that this meant my house had retained its value, but now I’ve realized what it really means.
You know when George Bush claimed that the average tax cut under his help-the-rich plan would be something like $1000 per person? Well, averages are calculated by adding everything up and then dividing by the number of samples. So, that average tax cut is $900 for a rich guy and $1 each for the next 100 people. Same thing with real estate.
The sales are down and the prices are up because the only people who can afford to buy — or who can qualify for a loan now — are those who can buy million-dollar homes. Thus, if there are 2 homes for $2.5 million and 98 homes for $450,000, if every mansion was bought the sales rate would still be 2%, but the median price would be over a million dollars.
My house is small and expensive. It isn’t comfortable for a family of 4, although there are such families living here on my block in the same small quarters — and when it was built in the 1930s, there were probably at least 4 people living here. No, these days my house is built for a 1 child family or a couple, the same people who are probably looking for their first home and their first mortgage. Which is the problem: they can’t get loans in this current climate, especially for houses in Santa Clara County, where most homes are above the jumbo mortgage line.
I wish I had been this insightful before I bought my house — I probably still would have bought it, because I love it; but I would have been more realistic about it.