When Was California Real Estate Normal

Many potential homebuyers and sellers are waiting until the California real estate market returns to "normal" levels to make a purchase or sell their homes.

However, if you do a thorough examination of the California housing market over the last 30 years, you may be surprised to find out there has never been anything even close to "normal". So how do you determine when the time is right?

We are currently bottoming out of the 2007-08 collapse. The Riverside and Sacramento markets took an especially hard hit. These areas were decimated like Las Vegas and Arizona. But if you look at Orange County and other coastal areas of Southern California you will notice that these markets still have inflated prices. So what gives?

Lenient lending, meddling by the Fed and shadow inventory play a significant role in these inflated prices. Looming conforming loan limit expirations will lower prices in areas like Orange County, but previously hard-hit areas will likely see little impact.

I have no idea what a "normal" scenario might look like. During the last forty years, a 30-year fixed mortgage had an average 8 percent interest rate. Now interest rates are at historic lows. That is thanks to the Federal Reserve purchasing a crazy amount of mortgage back securities.

Conventional wisdom says now is the time to buy with interest rates at the lowest levels in several generations. But how long will these low interest rates last? Most potential California homebuyers are looking for a starter home, so they won't be in it for the long haul.

Historically, homebuyers in the state were motivated by profit. Buy a house, build quick equity, sell and move into a larger home with a further inflated price. The most recent crash may have irreparably changed the mindset of the average homebuyer.

Hopefully the recession and stagnant housing market have knocked some sense into the heads of potential homebuyers. There's a ton of shadow inventory lurking out there, which will lead to more downward corrections. The days of making a quick buck and trading up may be over.

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