In the long run, the answer is easy. It's going to go up. To give you an idea, let's check out how a 1500-1700 sqft detached home has done in Brookvale since July 1996.
Hiccups on the Road to Higher Valuations for the Brookvale Homes Community in Fremont, CA
As you can see the long term trajectory is upward and this will be the same for every neighborhood in Fremont. However, I indicated 4 periods on the map which had hiccups along the way to a higher price.
A - In 2001, the dot.com collapse caused home prices to decline for about two years.
B - In 2007, the Subprime Mortgage Market Collapse caused the real estate market to collapse and it took around 6 years to recover.
C - In 2018, there was a market exuberance which took about 1 to 2 years to recover.
D- In April 2022, (I'm going to call this the Post COVID Collapse and Recovery) the Fed took action to curb inflation by increasing interest rates, which resulted in reduced buyer demand. The tech industry, which had hired extensively during the COVID lockdown, responded by laying off some of its employees. This caused some buyers to postpone their purchase decisions to ascertain if they may be impacted by a layoff. As a result, home prices have returned to levels seen in 2018. Have home prices reached the bottom?
Past economic collapses, such as the dot.com and subprime crises, were also characterized by uncertainty and slow recoveries. The dot.com crisis self-corrected quickly due to a lack of government intervention, while the subprime crisis took longer to recover due to various relief efforts and moratoriums on foreclosures.
The mini crash of 2018 was influenced by rising interest rates, similar to what occurred in April 2022. Although rates have risen rapidly, they are still relatively low historically as the chart above shows. As a result, homebuyers will eventually adjust to these new rates and resume buying homes. Sellers so far are also holding back on selling. Inventory levels continue be low.
15 to 30 Day Forecast
To get a sense of what the next 30 days may look like, I like to survey the lenders, home inspectors, and stagers I work with to see what they are experiencing. In the middle of January, I received positive feedback about an increase in pre-approval requests from buyers. However, the buying power (judged by factors such as down payment, debt-to-income ratio, and budget) seemed to be weaker compared to earlier.
Today's survey indicates that activity has slowed down again and some of the earlier inquiries did not result in pre-approvals. More consolidated data will be available in a few days, but it seems that buyers are currently being cautious.
Given that no one can predict a market bottom, and given that inventory of quality homes is always low, my advice has always been and remains, when you are buying a primary residence, buy something you will be happy to live in for 5-7 years and can afford. If you follow this advice, you will ride out any recession and enjoy the time you had in the home.
I look forward to you comments and questions.
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