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Real estate market is regional. Real properties don't trade through the same national or international exchanges. Socioeconomic shifts may impact one region more than the others. The best approach is perhaps to analyze the regional markets first, especially the major regions that represent a large slice of the national real estate pie. According to the Census Bureau, California is the most populous state. These 2 counties in my analysis are two of the 10 most populous counties in California. While this does not represent the entire housing market, the mere size of this metropolitan area may help shed some light on the overall housing market. We all know the inventory's been rising and the sales have been slowing down. There's really nothing new there. Let's take a look at something else. Looking merely at the price action, things seem to be going well. Chart 1 below shows median price of existing homes sold moved above the previous resistance of $530,000 in March 2005 and surged up to the current $620,000 level. That's an incredible increase of about 117% over 2 years. If I don't know any better, I might even draw the conclusion that the San Francisco Bay Area is right in the midst of a booming housing market. But, once we look beyond the price movement, we start seeing cracks in the foundation. I'd draw parallel to the current price action of the stock market. The price is getting way ahead of itself with little or no support from other technical measures.
Of course not. My monthly Average Over/Under Asking Price chart (Chart 3) below shows that sellers continue to receive less than their asking prices since this indicator dropped below $0 (blue horizontal line) in December 2005. Currently, sellers are getting more than $16,000 below their average asking price.
Since the divergence between the prices of sold and new listings has nothing to do with the bidding war, it only shows that the majority of the properties that are sold are the properties listed in the higher price ranges. We're already aware that the sales have generally been slow, this also means that properties in the lower price ranges are simply not selling. And, since lower income earners are generally qualified for lower price range properties, this tells us that the first wave of buyers who have stopped participating in the purchasing activities are the lower income households. This, nonetheless, does not mean that the lower income households have stopped participating in the selling activities. Chart 4 and Chart 5 below are almost like mirror images. The median price of all residential properties on the market is a little above $500,000, so we'll use the $500,000 as the cut-off. Chart 4 shows properties over $500,000 are in decline, while Chart 5 shows properties listed below $500,000 are on the rise. Lower-end properties are coming on the market at a disproportionately faster pace than the high end properties. Unless it's a necessity, no one likes to sell low in a slow housing market. For whatever the reason may be, it's becoming more of a necessity for the lower income homeowners to sell. We're therefore experiencing a fundamental problem that's being manifested technically.
These lower-end property owners are now marketing their properties to the same demographics that are no longer participating in buying homes. This trouble at the bottom is going to affect home sellers in the higher price ranges and, eventually, the entire market. It's only a matter of time. When the real estate market started to recover in 1998-1999, the market was catalyzed by middle to lower income earners' renewed interests in homeownership. That bottom-up enthusiasm eventually propelled the entire housing market to its new high. The middle to lower income market, to me, was the corner stone of the housing market. They ensure and solidify the foundation of the housing market's prosperity. Now that we've begun to see cracks in this foundation, the top may be collapsing in due time.
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