Prices will continue to decrease, sales will increase

The Coastal Mendocino Association of REALTORS® (CMAR) Multiple Listing Service (MLS) reported that within our ENTIRE Coastal Mendocino Market Area that median home prices decreased 38.9 percent in 2009, from $489,000 in 2008 to $299,000 in 2009. Coastal Mendocino annual home sales increased 18.1 percent in 2009 to 111 homes sold, up from 94 homes sold in 2008.

The two graphs below illustrate recent market history and help suggest what might occur in the near future. From 1991 – 1997 there was little change in the Residential Median Sold Price across the ENTIRE Coastal Mendocino Market Area. Beginning in 1997 when the Median Sold Price stood at $160,000, it began a steady climb, increasing 364% to $582,500 in 2007! This tremendous run up in prices was a great thing for those who owned real estate during that time. However as we now know, it was simply unsustainable.

In a nutshell, real estate sales all comes down to affordability. If homes aren't affordable, they won't be sold - it's that simple. Affordability is determined by three factors: Personal Income, Interest Rates and Home Prices.

Looking back on it now it's obvious that we were living in a fantasyland. While home prices increased 364% from 1997 to 2007, who do you know whose salary increased 364% during that same period? Certainly no one I know! Everyone isn't going to get an incredible boost in personal income to suddenly make homes become more affordable. Meanwhile, interest rates are at historic lows that haven't been seen for years! It all comes down to lower home prices.

Fortunately home prices decreased enough in 2009 across the ENTIRE Coastal Mendocino Market Area to improve affordability substantially and as this trend continues, we should see improved real estate sales on the Mendocino Coast. My prediction is that home prices will continue to fall to 2001-2002 levels before bottoming out and as that happens, home sales will continue to improve.