During the local Real Estate boom of 2000 to the third quarter of 2005, the role of the Realtor changed from that of a facilitator for finding a home, and closing a sale, to a consultant who helped t property buyers leverage their wealth. It is a role change that reflected the change in the perception of Real Estate for the average buyer, and it is a role that is even more important today.
Starting in 2000 the ability to get a loan became easy and money was cheap. Real Estate values were growing by 20% every year, and more and more people began to amass second and third properties, not as homes, but as investments for the future.
Unfortunately these same factors that lead to the explosive growth of property values, were the same factors that have cooled the current market. Speculation drove prices for homes higher and higher furthering the vision of wealth through the purchase of Real Estate. The existence of no documentation loans, low interest rates, no down payments and negative amortization added fuel to the fire. It all had to end sometime.
When the Fed tightened the money supply in 2005 , I think it gave buyers time to really consider what was happening. After being beaten up for 7 years buyers simply were not going to take it anymore. It really took a couple of months for the Real Estate market to change course, but for we Realtors in the 3
rd quarter of 2005, it felt like it all changed overnight.
All Real Estate is local. National trends are interesting to look at, but in the end, the most valuable information you can get is about the local market where you are interested in buying. While Real Estate prices fell in many areas in the
United States, in the Bay Area prices actually rose. It was a mere 2%, as opposed to the double digits we were used to, but it was still a rise. For 2006 buyers, for the most part, sat back to see what the market was going to do. The volume of sales dropped by 20% in 2006, and buyers did not really come back to the market until the last quarter of 2006.
My next blog will bring us to the present day with the crises in sub-prime lending, and what the market has in store for the future.
