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If you have not read “Future Shock” by Alvin Toffler, don’t bother. We have all lived it.
Back in 1970, Toffler predicted that in the coming decades the world – standards, methods, beliefs, and just about everything – would change so rapidly and drastically that we would not recognize them until after they occurred. These societal changes would cause “shock” to our culture and senses.
The real estate business and market are classic examples of this phenomenon. A few years ago the greater Stockton area was considered the “foreclosure capital of the world.” There were so many “for sale” signs that potential buyers could not analyze and digest all the possibilities.
We at Art Godi Realtors were visited by The New York Times and CNN, among others, and even had reporters from Japan and television crews from France doing feature stories of our plight. In fact, we took them to one neighborhood where there were 103 short sale and/or foreclosure homes within a half-mile radius.
From having a plethora of homes for sale, we have now gone to a shortage of available listings.
In California, the Unsold Index, the number of months needed to sell the supply of homes on the market at the current sales rate, is getting shorter by the month. The inventory in California has gone from 5.3 months in 2011 to 3.7 months in 2012. And it is even lower in San Joaquin County. Six to eight months used to be considered the normal inventory time. According to a recent Zillow report, Central Valley markets have seen the biggest drops in the supply of lower cost homes with inventory down about 55 percent from last year.
When I started in the real estate business long ago, the real estate market generally shifted in long, slow waves. Now, change comes rapidly and with the great impact of a sudden tidal wave. From a buyer having three or four suitable homes on one block, he now might be lucky to find three or four in a whole section of town. If he or she is qualified financially, he has a chance to join the competition for a reasonably priced home. The chances are there will be multiple offers. Therefore, the listed price is often a starting point, and many people bid over that number in hopes of getting the property.
A year ago we had a buyer, Sharon, who could not get prequalified for a loan at that time. She was interested in an approximately 2,000-square-foot home in the Spanos Park area of Stockton for about $250,000. There were 25 listings available then. Last month, she became qualified financially and faced a new problem. There were only four places available in the area or anywhere near it. The rest had either sold or the prices had risen beyond her $250,000 limit. She just got one last month, having to compete with other offers and having to pay $12,000 over the asking price. When a higher offer is accepted another problem arises. It is sometimes difficult to obtain a high enough appraisal to secure desired financing.
I have always taught in my real estate class at San Joaquin Delta College that market value appraisal is one determined by what a knowledgeable buyer will pay on an open market within a reasonable time period. Due to the fact that appraisals were often high and easy to obtain during “boom times,” now the system has changed to one where it is necessary to show comparable sales within the past six months to get the higher number. As a reaction to an easy system, the pendulum has swung to an almost opposite extreme with lenders and underwriters being extremely cautious.
There also seems to be a general lack of confidence in the economy and concern about the job market. That is a subject for future discussion. In spite of these obstacles people are buying thanks to a higher affordability index and historically low interest rates. The good news for Sharon, besides owning her first home and being a part of the “American dream of homeownership,” is that her loan carried an interest rate of 3.2 percent fixed for 30 years. Prices are gradually moving up now. Will this trend be a slow wave in a tsunami?
The author has been a Realtor since 1961 and is the principal broker of Art Godi Realtors in Stockton specializing in residential and commercial brokerage. He was the president of the National Association of Realtors in 1996, president of the California Association of Realtors in 1981, and is a past president of the Stockton Board of Realtors. He has taught real estate courses at University of the Pacific and San Joaquin Delta College since 1962, and has taught internationally for nearly 20 years. He was honored as the “Outstanding Real Estate Educator” by the National Association of Realtors and for his international consulting efforts. He also has been honored as Realtor of the Year by several agencies.