As the dust settles and the aftermath of the Millennium Boom begins to be illuminated, consumer confidence in the real estate market once again begins to rise. The utter distress of foreclosures and short sales that have recently weighed so heavily on the minds of both the consumer population and the industry professionals seems to subside as the market begins to revert to a baseline. What was once thought of as an industry beyond recovery only to be manipulated by speculators has once again become ventured by end users. So when will this graphical roller coaster of unstable peaks and pitfalls level out into a stable real estate market again? The answer is simple, jobs.
The currently unemployed and underemployed workforce, specifically in California, is the foundation for an economy struggling to fully realize a recovery. Considering that each state’s economy must be looked at individually and cannot be considered based on a national average, California must experience an employment increase of 350,000 to 400,000 new jobs annually for an 18-24 month period before pre-recession employment levels can be obtained. When this occurs there will be an obvious increase in homebuyers, specifically in the form of first-time homebuyers from Generation Y and retirees from the Baby Boomer generation. Unfortunately, Riverside County experienced the brunt of the recessionary blow and subsequently will most likely take longer to follow suit with the rest of California’s recovery.
As a whole, California appears to be roughly 3 years away from a full recovery to pre-recessionary levels, and 3-5 years from another economical boom. With the end of the 30-year period of down-sloping interest rates and the commencement of an era of increasing interest rates, homebuyers will need to look to the application of increased down payments (around 20%) to offset high mortgage payments. This will also lead to a more stabilized real estate market as owners will have more “skin in the game” so to speak, and lenders will have more security and thus be more willing to lend. Until then, lenders will continue to overlook creditworthiness for the essentially risk-free interest earned by holding their money with The Fed.
So what is a future homebuyer to do in the meantime? Stay informed. Being aware of unemployment rates, interest rate changes, and local market trends are paramount in gaining an edge on the market. The days of speculative real estate dominating the market are over, at least for the coming decade, and therefore real estate needs to be approached as a long-term investment once again. Educated and apprised real estate professionals will be the epicenter of an informed consumer base that exists amidst a stabilized market. The pieces of the puzzle have been picked up; it’s just a matter of time before they are once again assembled.