2009 Prognostication - The Slightly Cracked Crystal Ball

Last week I promised to come up with a preview of what I see ahead of us for 2009 in the Lompoc Valley real estate market. I'll be straight with you here - this is a lot like trying to project what the weather is going to be like a few weeks from now. You might have a few good ideas about what a seasonal norm would be, but there are bigger forces of nature that we can't control that might change unexpectedly.

I don't know what lies ahead of us this year. I can only look at the information I have now and try to make an educated guess about the future. Like I said last week, if someone tells you that they can say for certain that they know what is ahead of us, forget the grain of salt, take it with the whole darned salt mine.

I think that in 2009, our market hinges primarily on three things: the employment picture, mortgage rates and availability, and foreclosure listings. These are the big supply and demand factors at work. So far, demand still appears to be pretty good - we're still seeing multiple offers on well priced properties and we still have a high number of pending sales. Mortgage rates are incredible right now, and despite what you might have read, qualified buyers are still getting loans.

The employment picture looks a little healthier here for potential home buyers than the national picture would indicate. We've lost some retail outlets in town in the past few months, and while that's not good, it shouldn't be a big factor in the residential real estate market. I'm an optimist about the local employment picture. I think we should see stable employment for the jobs that pay well enough to make mortgage payments, and demand should remain fairly steady this year. I doubt that we'll see a big change in the lending picture for several months. Rates should remain low, although maybe not as low as they are now. And while the days where all you needed to qualify for a mortgage was the ability to fog a mirror are long gone - as they should be - lenders still have to make loans to stay in business.

The supply side of the picture is a little murkier. As I've been saying in previous posts, our inventory is lower than it's been in over three years, and a big part of that is that we've seen fewer listings coming on the market. I've heard some national pundits talking about a big influx in foreclosure listings hitting the market later this year. I don't think that will happen locally. We've been seeing a slowdown in default filings in the past few months, mostly due to a new state law that passed last year forcing lenders to make more of an effort to communicate with borrowers who are behind on payments. Did this just delay some foreclosures, or will it cause a decrease in them? That remains to be seen. The anecdotal evidence I have from talking to REO listing agents is mixed - some have a good number of things in the pipeline, and some have nothing coming on.

I think that we're likely to see active listings edge back up in a few months, but I doubt that we'll get back to a level where we have more than 6 months of inventory unless demand falls off drastically. If we stay close to status quo in supply and demand, we should probably see some price stabilization in the second or third quarter of this year. Quite frankly, I'm a little mystified as to why that hasn't already happened.

Bottom line - I expect that this will continue to be a market that offers incredible opportunities for buyers for the foreseeable future. But when anybody asks me "When are we going to see the bottom of the market?", my stock answer is "I'll tell you six months after it happens". Seriously - if I could see the future, I'd be too busy placing bets at the MGM Grand sports book to be doing this...