Why 2016 isn’t 2006…but it may still be the time to sell

Recently, I was discussing the market with a client and he was worried. “This market just seems….unsustainable,” he said. To be sure, 2016 has been better than expected for most. The market is red hot under $500,000 in Santa Clarita. There are so few properties, especially detached homes, for the amount of buyers waiting, it’s laughable. In the last 90 days, the higher price points of Canyon Country (over $600,000), Saugus (over $700,000) and Stevenson Ranch (over $900,000) have joined the party, with some of the highest numbers in years. Pretty much everywhere in Santa Clarita there aren’t enough quality homes under 1 million. Over that price point is a different story, but under 1 million? Universally, it’s pretty strong. So why was he worried? This is a homeowner, like many in our valley that remembers what happened in 2006-2012. Simply stated we went from a 100% sellers’ market in 2005 to a 100% buyers’ market in 2 years. Prices dropped so much that many neighborhoods are still 20% away from their peaks. He barely held onto his home. He remembers the almost silly euphoria of a market that seemed to have no possible chance of ever correcting; prices seemed to just naturally continue going up and never stopping. Like most of us, he knows that isn’t how Real Estate works.

My client isn’t alone. I have had more people, including Realtors, comment with concern that we MUST be nearing a peak. After all, we have 3 years of straight up appreciation. It will end, wont it? Yes, it will. And there may be a correction of some size when it does. It always happens that way, especially in California where the highs are really high and the lows really low. With all that said, there are virtually none of the factors in place to cause any kind of major correction in the market and I see no reason why the market under $500,000 won’t continue to chug forward in Santa Clarita and most other parts of California. The supply/demand equation is completely out of whack and there are ample buyers that can afford that price point. Affordability becomes a bigger concern over $500,000, but here is why we aren’t anything like 2006 and any correction that comes is likely to be small. First, 2006 was based on funny money loans, investor speculation and factors that not only don’t exist today, they couldn’t. No one has gotten a loan with nothing down that they can’t afford. Next, if some economic issue affected jobs or interest rates (the two biggest normal factors that cause a slump), virtually everyone has equity in their homes, unlike 2006. If they have to sell, they sell and get money. They don’t walk away. That is a BIG difference. Last, rents are so high that if someone didn’t have equity and couldn’t sell at a good price for a few years they can almost always rent their home out and cover their payment. There are many people in Santa Clarita that have done exactly that over the past few years waiting for the market to improve.
So, it’s safe to say we probably are near a peak. Whatever correction we experience will be small or nonexistent under $500,000. My friend owns an $800,000 home. Should he be concerned? It depends. He lives in Northbridge Valencia where the supply/demand equation is also out of whack. Multiple offers are common place and the market defines “frothy”. This describes Fair Oaks Ranch, Stevenson Ranch, parts of Saugus and Castaic and a number of other popular areas in our valley. I would say to many of those people though, that if they are planning to sell I would look VERY carefully at sooner than later. My personal experience is that I have literally hundreds of clients that currently own homes larger than they need. I sold them these homes 10 or 15 years ago and the kids are gone. They don’t need that large a home anymore. But they aren’t selling. Some don’t know where they want to go, or they do but there isn’t much for sale. Or they just aren’t ready to let go. These are all good reasons. Some, however, are waiting for the market to go even higher, and that is where it gets dangerous. You can’t time these things; we’ve certainly learned that. In many cases, money and getting the highest possible price is a big concern. That is certainly understandable but the value of their property hasn’t been this high probably since 2006. No one can predict the future, but history does teach us that the appreciation will stop at some point. Maybe even take a step back. To that group of homeowners, it likely makes sense to make that move sooner than later. It’s tough sometimes making a move you aren’t 100% ready for. It’s tougher to try to make it when you have to and you are competing against dozens of homes instead of 2 or 3.