The Real Deal
Change is only sure thing for this year
While everyone wishes they had a crystal ball to predict where the economy and, therefore the real estate market are headed, the fact is no one really knows for sure what the future holds. There are many conflicting theories and much speculation, but one thing is certain. Change is in the air.
The surprise half percentage point rate cut by the Federal Reserve the first week in January, spurred a spike-for-a-day in the stock market that quickly reversed itself. With a strong possibility of further cuts by the Fed at the end of January, it's anybody's guess how stocks, bonds, mortgage rates and real estate will be affected.
The stock market's dive in 2000, with its sinking values in tech stocks, left many with shrinking portfolios, as a result. In Silicon Valley where the real estate market boom has been so closely associated with a healthy stock market, there is some concern about housing prices, as well as the overall economic outlook.
Although there may be a bit of a chill compared to the hot buying frenzy last year, many experts believe the real estate market will take on a more realistic look in 2001. Somewhat flatter prices might mean more affordability, especially for first time buyers or for those who have been priced out of the market in the recent past. Last year housing affordability dipped to 31 percent in California, compared with nationwide affordability at 54 percent. According to the California Association of Realtors, only one in three California households could afford the state's median-priced home at $252,510, while in Silicon Valley, less than one in five households could afford the median-priced home.
With a softer economy and an unpredictable stock market, investors are likely to look for safer options. Bonds are one choice and real estate is often a beneficiary with more financing dollars available, resulting in reduced mortgage costs. Even before the Fed rate cut, national average mortgage interest rates dropped to 7.2 percent at the end of last year. While some financial institutions are saying it's time to get a fixed mortgage, others are taking a more cautious approach and waiting for additional economic indicators.
So, it's important to watch national trends and note the impact on loan rates, but real estate trends tend to be localized due to a variety of factors, including the local economy, job opportunities, location and desirability. In Silicon Valley, even though the stock market has taken a downward slide, there's still plenty of money and the location remains at the top of the list.
When it comes to deciding how you view the financial world or the real estate market, now is the time to consult with experts in the industry. In addition to checking in with your financial advisor, your Realtor can give you up to the minute data on the latest housing statistics and help advise you about the trends and development in your local real estate market.
Information provided in this column is presented by the Realtor members of the Silicon Valley Association of Realtors. Send questions on any topic to: Ask Your Realtor, c/o SILVAR, Los Altos District, 345 San Antonio Road, Los Altos, CA, 94022; call 650.949.9115; or send email to ppompei@siliconvalley-realtors.org.
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