With another record setting year for home values drawing to a close, our attention begins to shift to what's in store for the real estate market in 2001.  As strong as the market has been over the last several years, the California Association of Realtors (C.A.R.) is forecasting yet another strong gain in median home prices for 2001. 

Last week's economic growth report from the federal government showed that the long-expected "soft landing" economic slowdown appears to be underway.  This is exactly what C.A.R was calling for in their 2001 Economic Forecast when they forecasted the median price for a single-family detached home in California to increase 8.5% to $269,200 in 2001.

But with the stock market as volatile as we've seen it in years and evidence of an economic slowdown, why does the real estate market appear to be immune to the slowing economy?

Very simply: Supply and Demand. 

Traditionally, real estate has always been considered a hedge against inflation:  when inflation increases, home prices increase.  However, inflation is almost nonexistent yet home prices are at record levels.  In fact, housing values across the country are rising faster now than at any time in the last 12 years. 

How do you explain this boom?  Combine high demand with near-record tight supply and you get record setting home appreciation numbers, despite the fact that the rest of the economy is softening. That's what's been happening here and in most parts of the country.

Locally, our area is gaining a reputation as a little Silicon Valley.  Many start up technology companies as well as established companies like biotech giant Amgen, call Ventura County home.  As a result, we've seen a surge in demand and a shortage of supply in our own area.  Of course, affordability is always an issue with median home prices being over $300,000 for most of the area. 

But even with affordability being a concern, especially for first-time buyers, the variety of loan packages available today like zero downpayment loans and loans that cover your closing costs, has only added to the pool of potential buyers.  And with interest rates well below 8% for a 30-year conforming loan, the cost of borrowing money is relatively cheap. 

Add all of these factors together and here's what you get:  On average, in California, homes are selling in 4 weeks and within 1% of the asking price.  Compare that to 1993 when it took about 16 weeks and more than a 5% discount to sell a home. 

Is it a good time to buy?  Is it a good time to sell?  That all depends on your personal needs and situation.  But from an investment standpoint, right now your home is probably your best-performing asset in your entire portfolio and will probably continue to be for the next year. 

Copyright Michael Rice