Will the real estate market bottom out?

May 6, 2008 7:27:13 PM PDT
There is a new prediction that the foreclosure mess will get worse, before it gets better.

One estimate: another 18 months of rising foreclosures.

Eighteen months 'til we bottom out means we're only half-way through a very painful period for home owners.

Median home prices in the Bay Area have fallen about 12 percent in the past year, and the pace of foreclosures is having a big impact.

"Foreclosures have not peaked yet. My guess is they're going to continue to rise for the next 18 months," said Chairman for UC Berkeley Center for Real Estate Ken Rosen, Ph.D.

California already has the dubious distinction of having the second highest foreclosure rate in the country.

There were 169,831 filings in the first quarter of the year. That's one out of every 78 households.

Experts tell us why the pace will accelerate.

"There are tens of billions of dollars worth of adjustable rate sub-prime loans that are going to reset through the second quarter of this year. They're going to go into default and foreclosure over the third quarter, forth quarter, even the first quarter of next year, so we're nowhere out of the woods yet," said RealtyTrac Marketing vice president Rick Sharga.

Rosen is the chairman of UC's Fisher Center for Real Estate and Urban Economics.

At its annual conference, Rosen warned that median home prices appear to be dropping across wide areas, but that's not the case.

Just as we have micro-climates, we now have micro-markets. The biggest drop in home prices has been in areas with high foreclosure filings.

"The prices are down a lot in those areas. But in the core areas, we have very few foreclosures of course in San Francisco and in Silicon Valley prices there actually went up in the past year. It may be a little soft right now, but not a big decline," said Rosen.

A major reason for that is job growth.

San Francisco last year added 20,000 jobs, San Jose, 7,200 jobs. Home prices are up in those markets. But in Oakland, a loss of 8,600 jobs has led to falling home prices.

Home prices could soon be affected by a flood of foreclosed homes put up for sale.

"We're estimating that by the end of this year, there will be over one million bank-owned properties in the market. It could be 25 or more percent of all the properties available. That's going to depress home prices. Those properties will typically sell for 20 percent below estimated market value, and that's going to drag all the surrounding properties down with them," said Sharga.

Gas prices might also contribute to dropping home prices.

Economists say as oil prices rise, that takes away disposable income from consumers. That makes it harder to buy a house, shrinking the pool of potential buyers.

ABC7 Extra

Watch unedited excerpts from our interviews with Ken Rosen and Rick Sharga in the media player at the top of this page.


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