We're heading into the final stretch of 2006, and the real estate market remains at fever pitch. I've appraised 1,800+ homes this year. The trend is crystal clear: this market is strong, and next year looks even stronger.
If you're thinking about any real estate move, don't wait until January. Here's my year-end market analysis and what you should do now.
2006 Performance: Historic Year
This has been one of the strongest years in Southern California's history. Appreciation across Orange County has been 20-25%. Coastal properties are up 25-30%. Even inland areas saw 12-15% appreciation.
That means if you bought in 2003, your equity has roughly doubled. If you bought in 2004, you've still gained 40-50%. That's meaningful wealth creation.
Inventory is tight. Days on market are short. Buyers are paying asking price or more. It's a seller's market like I haven't seen since the late 1980s.
What's Driving This
Three factors are fueling the boom:
Demographic demand — Southern California is where people want to be. Families are relocating from colder climates. Tech workers are moving down from Northern California. International buyers are investing. The demand is real.
Limited inventory — Sellers are sitting on appreciated homes and not listing. If you bought in 2002 and your home is now worth 50% more, why sell? That keeps inventory tight and prices high.
Easy lending — Banks are practically handing out mortgages. 3% down, stated income, liar's loans (yes, that's what they're called)—if you can fog a mirror, you can get a loan. This looseness is fueling demand.
2007 Outlook
Here's my prediction: 2007 will be as strong or stronger than 2006.
Why? Rates are still reasonable (around 6%). Lending is still easy. Inventory is still tight. The fundamental demand is still there.
I'm not predicting a crash. That would require something significant to change—a recession, rates spiking to 9%, or a credit crunch. None of those seem imminent.
That said, I think 2007 might be the last year of 20%+ appreciation. We can't appreciate forever. At some point, gravity catches up. But that point isn't yet.
What You Should Do Before Year-End
If you're a seller: List now. You have less competition than you'll have in January. Holiday buyers are serious. You'll get a cleaner sale now than in January. Plus, if you're closing by year-end, your 2006 capital gains exclusion might apply (consult your CPA on this).
If you're a buyer: If you haven't found your home yet, accept that 2007 will be competitive too. You're not going to miss the market by waiting until January. But if you see something now that you love, move on it. Don't wait.
If you're a refinancer: Rates are stable around 6%. If your rate is above 6%, refinancing makes sense. If you're thinking about a cash-out refi, do it before year-end. Lenders are more aggressive now than they might be if credit standards tighten. Get the appraisal done, lock in the rate, and close before January.
Holiday Market Reality
Don't assume the holiday market is dead. Plenty of serious buyers are shopping between Thanksgiving and year-end. Families relocated for jobs need to close by year-end for tax purposes. People buying in winter often have specific timing needs.
If you're selling, don't take your home off the market. You're turning away serious buyers.
2007 Spring Market
Even if nothing happens in the next 60 days, spring 2007 is going to be incredibly competitive. If you want to avoid that gauntlet, make your move now.
If you're buying, you'll face fewer bidding wars now than in March. You have leverage now that you won't have later.
My Bottom Line for Year-End
This is one of the strongest real estate markets in a generation. Don't waste it waiting for January. The buyers, sellers, and refinancers taking action now are the ones who'll benefit most from 2007's continued strength.
Get an appraisal if you haven't already. Understand your home's current value. Make your decision. If you're doing anything in real estate, do it in December.
January will come soon enough.