Assuming the stability of macroeconomic factors such as large and extended oil price spiking, foreign economies collapsing and significant interest rate increases I can tell you exactly where the market has already hit bottom.
I sold my Novato condo for the second highest price in the Gateway Commons (formerly the Crossroads) development in 2005, soon after I sold someone else's for the highest. I knew the top and had no idea how far the market would fall, but my experience identifying the top and personally taking advantage of it should qualify me to give some educated speculation about the bottom.
As a case study, condos in Santa Rosa under $80,000 have already had a little bounce off the cellar floor. What does the bottom look like? Dynamics like consistent demand, inventory being snapped up, multiple offers, fewer expired listings and properties (with the exception of short sales) having shorter days on the market are strong indicators the bottom has already been reached. To summarize, at the bottom the market heats up and is not in equilibrium, favoring the few sellers in the market willing to sell at the bottom price levels with intense competition between buyers.
I helped retirement investment portfolio buyers purchase four condos in Santa Rosa and one in Rohnert Park last year, all in the $60,000 to $80,000 price range. All year my fingers were on the pulse of that market for my investors, the same way they were on my Novato condo market when I sold in 2005. As of Jan. 17, 2012 per BARIES MLS (information not verified and subject to change) there were 15 condos on the market in Santa Rosa and Rohnert Park between $60,000 and $80,000, and only four were not in contract. Of those four, three unspoken for properties had been on the market less than two weeks. That’s a segment of the market that is clearly not in equilibrium, favoring the sellers.
Market bottoms vary tremendously depending on the area. Last year I felt we were close to a bottom for condos under $250,000 in the 94903 zip code in San Rafael. Some complexes like Roundtree in Marinwood dipped a bit further but I feel confident we are there now because inventory is sparse and fast moving when it hits the market with buyers lining up to make offers.
We may have already seen the bottom at Roundtree with sales over the winter hitting lows of $185,000, $186,000 and $195,000. However in January we got a little bounce when a comparable until sold for $239,000 in only 19 days on the market. Currently there is nothing else on the market in Roundtree, and when the next property comes up you can bet it will go quickly if it shows well and is priced attractively.
The Meadows in Terra Linda has performed comparably, my last sale being $225,000 in October. There’s no available inventory and buyers are waiting for the next one, so those prices in the Meadows may bump up a little this year like Roundtree already has.
The good thing for sellers is that they don’t need to worry about a glut of inventory. At these lower price levels fewer people are willing and or able to sell. In general in this market we see a majority of trustee sales, divorces and relocations. These are the people that are most motivated to sell. I am also seeing more people buying up and down for bigger and smaller houses, which is a good sign. It’s a return to normalcy in the market.
Foreclosures are still out there, and the sometimes lower pricing can cannibalize the market, but can also lead to multiple offers. Recently bank-owned 285 Hillside Ave. in Mill Valley was priced dangerously low at $1 million and ended up selling for $1.5 million on Jan. 13, 2012. Had it sold for $1 million as originally priced the property would seriously threaten neighborhood values.
Some regular sellers will still price their homes based on previous values, and those will have a difficult time selling. Overall though, realistic sellers in today’s market are finally working from a position of strength, rather than chasing the market down.