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When I moved home to Redding in 2001, I had spent a year in Roseville watching that real estate market surge. Here in Redding things were still fairly quiet. Knowing what was happening in the rest of California, I ran around to every person I knew and begged them to buy homes or investment properties. In most cases I was met with vacant stares and the standard response that "prices in Redding will never going up".
At the time we were representing the builders of Mary Lake Subdivision where you could buy a brand-new 1,609 square foot home with a three-car garage for $169,900. Sales for us in 2001 were slow and steady, began building momentum in 2002, got very brisk in 2003 and 2004 and peaked in 2005. There were still some sporadic market highs early in 2006. In mid-2006 financing began to tighten up, more escrows were falling out and now as we begin 2010 prices have tumbled downward for nearly four straight years. To follow the Mary Lake house, here's an exact trajectory over the last nine years for that 1.609 square foot home:
2001 $172,145*
2002 $212,000
2003 $249,900
2004 $295,000*
2005 $345,000*
2006 $379,900*
2007 $329,900
2008 $279,900
2009 $255,000*
2010 $225,000**
* Represents an actual closed sale transaction of the 1,609 floorplan within a 2-block radius.
** Represents my estimation of what this home will sell for in 2010.
Now, on to the psychology lesson. At what point in the market were Buyers most anxious to buy? Despite that high price point in 2006, the fever pitch for buyers in Redding was 2005. In 2005 buyers felt that if they didn't buy now, they would never have an opportunity to own a home in California. As we all recognize now, this point in the market was the "bubble". It was also a time of "mass hysteria" because buyers were not making decisions based on value or what they could comfortably afford, but rather based on what everyone else was doing and telling them. Obviously it was very speculative as well. I recall buyers telling me that their lender and other Realtors were telling them that prices would keep rising forever at 10%-15% per year. I would often tell buyers that while real estate has always appreciated over the long-term, it would be mathematically impossible for that to occur. In our example, with 15% annual appreciation our 1,609 square foot home would be worth $605,584 in 2010. As we can see on the chart, there was certainly a fork in the road somewhere.
Back to our chart. So, knowing what we know now, if you could jump in your time machine and buy a home during any year on the chart, in which year would you buy? DUH! You'd buy in 2001, of course. So, here we are in the cycle again where just as in 2001, you can own a home with the same monthly cost of renting a home and yet most buyers are paralyzed by fear. When will most buyers start buying again? Probably in 2015 or 2016, when prices have risen to unaffordable highs again. Be smart. BUY LOW. SELL HIGH. Buy a home with a payment you can actually afford and don't use your home as an ATM. Your house should be a HOME. A place to spend time with your family and friends. A home should be your sanctuary, a place that showcases your interests and style, a place to create memories. It is not a tool to borrow money you can't afford to pay back.
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