Because of the rise in home values, much of that financial distress has been covered by the increasing amount of equity that people have had in their homes. That equity is now being created at a slower pace, and default activity is inevitably on the rise.
Sales are strong, but not at a peak, and price increases are slowing down, especially in the markets that took off first back in 1998 and 1999.
We're a bit surprised at how stable the market is in all categories. Usually one segment of the market will be outperforming the others. Right now, though, the same trends apply to all parts of the market from entry-level on up.
This stability means that the market will probably stay strong at least through the end of the year.
The frenzied part of this real estate cycle is behind us and what we're seeing so far is a normalizing of the market. Mid-market and entry-level homes are selling well, the move-up and prestige markets are leveling off.
Today's Bay Area real estate market has all the characteristics of a relatively normal balanced market. We knew the year-ago numbers were unsustainably strong. Right now it looks like current trends will last well into 2006, with strong, but not record-breaking sales, and continued appreciation.
In other words, homes that would have sold for $900,000 in 2004 sold for more than a million last year.
People lose their jobs, have medical emergencies, get divorced, pass away or make bad money decisions at a certain rate. Because of the rise in home values, much of that financial distress has been covered by the increasing amount of equity that people have had in their homes.
We're watching the market carefully for any signs of a turn, for any signs of the 'bursting bubble' that some analysts have been predicting. So far we're not seeing anything other than the normal incremental changes you would expect in the ebb and flow of a real estate cycle.
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