Are Forecasts to be Trusted?

Yesterday we posted a link to an article in the OC Register about California home price recovery in 2012. But how accurate is the information? Seven Gables and COO Mike Hickman took a closer look at the information and this is what we found:

Prestigious schools like Chapman University, UCLA and Cal State Fullerton have issued forecasts of what’s expected to happen in the real estate market during the year ahead. Reliable, credible sources, right? Yes. But how accurate and truly conclusive is this expertly forecasted information? We for one are not entirely convinced that all the variables are being taken into account. So let’s take a look at what UCLA economists are projecting for the housing market, and see if the loopholes are as apparent to you as they are to us
According to the UCLA Anderson Forecast as reported yesterday by the OC Register, here’s a quick summary of a few of the key projections:
• There will be an 11.5% increase in median house price from $321,138 next year, which will then rise10% more in 2013 to $353,411.
• The recovery is expected to run through 2017.
• California sales will climb from 2013 through 2015, hitting a high-water mark of 547,945 transactions that year.
• By 2017, sales will settle back to $507,000 which is barely 3.6% more than this year’s projected total.
• Median home sales prices will be up 6.1% in 2012 and 7.2% in 2013.
• Foreclosures are not projected to flood the market again.
Now keep in mind that the Orange County unemployment rate is at 8.6% (below the 9% national average), a fact we must be mindful of as we continue this discussion.

So we went to Foreclosure Radar after reading yesterday’s article and keyed in a 20 mile radius of the city of Irvine. Guess how many distressed properties lie within that radius spanning most of Orange County all the way to the Long Beach border? Answer: 15,605 to be exact. That’s reason enough for us to be careful about presenting an overly optimistic view of the market ahead.

All it takes is one property to sell for less than the last sale in a neighborhood to affect pricing. So if an REO comes on the market and sells, the appraisers must base their appraisal on that price. How can it be said that foreclosures and short sales won’t affect pricing?

If we are going to be a resource to our clients we have to get our facts straight. If you want a PhD in Real Estate, do your research. Look at Economic Forecasts. Look at TrendGraphix. Look at Foreclosure Radar.

Talk to your sellers. If there is a time to sell, it is now . . . within the next 12 to 18 months. While there are fewer homes on the market. While demand remains high. And while interest rates continue to hover at about 4%.

Home sellers can control their own destiny. It won’t matter what is forecasted. Because REO sales will be the new reality.

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