San Luis Obispo Real Estate: Not a Buy this Summer

I know some of you are tempted to buy a home in SLO County this summer. You see real estate selling at prices discounted from last year’s prices. You hear the Realtors telling you that the decline is over and these bargains won’t be here for long. And that San Luis Obispo is unique, we don’t have the same problems as other parts of the country since so many people want to live here, and with our slow growth policies, there is a lack of inventory here. Don’t believe it.

Think about what the Realtors were telling you the last couple years. Do you remember? They said that this real estate downturn would not hit San Luis Obispo, and if it did it would be a shallow one — “soft landing” was the term they used. They were wrong weren’t they? Why is that? They are Realtors — they know about these things, right? Wrong. They don’t. For the most part, our local Realtors don’t know much about the complex issues of the economy. They are trained in basic real estate and transaction law, and pick up a little housing terminology to throw around. It does not mean they understand real estate cycles, credit issues and other facets of our economy. They were not smart enough to see this housing downturn coming, and if some did, it was not in their interest to tell you. No, most were intoxicated by housing bubble as much as the masses and media were, and thought homes would continue to rise 10 - 20% a year, year after year. They were the ones who told you that an adjustable rate mortgage was a great thing since you could always refinance when the teaser rate adjusted up, with all the equity you’d have in your appreciated home at that time. Don’t worry, be happy. I remember hearing all this unwarranted optimism on local radio real estate shows, and wanting to scream out that they were going to financially ruin many people who thought they were listening to trusted experts. I heard them talking at parties, at the gym, on the street, everywhere, about the money they were making flipping homes, and helping their clients flip homes. Easy money, baby.

Now these same people are telling you that the downturn is ending here, and you better snap up a SLO home this summer before they begin their rise again. But, why would you now trust the same idiots who were wrong before? They don’t have the smarts to understand the problems we are facing, and remember, they are desperate — extremely desperate — for a commission in this slow market. It’s understandably in their interest to be optimistic about the future of San Luis Obispo home prices, but not in your interest.

You’ve heard that history repeats itself, and it’s true in real estate as in everything else. Real Estate busts don’t last just a year or two. Just take a look at recent history: did you know that housing prices declined the entire first half of the 1990s? Incredibly, most people don’t. After the median price of a California home hit its then all-time high in 1989 it dropped year after year until 1996! In fact, the median home price in 1990 was still below the 1989 peak. If we imagine that we are in about the same place in this bust as they where in about 1991-1992, there could be 8-9 years until you see last year’s prices again. That’s 2016. Folks, this boom was much bigger than the boom in the 80’s and its bust will be far worse. And we have far larger demographic problems working against housing now — the baby boomers are done moving up and are now downsizing.

So what about San Luis Obispo being different, isolated? That’s B.S. While our area is unique and could buffer the fall a bit, it does not make it immune. Heck, do you remember in the mid 90’s all the auction signs that were up everywhere? Incredible lots and homes were on the auction block as they could not otherwise sell. Yup, right here in San Luis Obispo. You don’t remember? You better.

Proceed with caution. Remember no one in Real Estate is your friend. And in general, they are not that bright. Most importantly, remember history. Even if you think that prices have stopped declining here, do you really think that they will start climbing wildly again next year? Of course not. No one thinks that. So, what’s the harm in waiting a year to see what happens? Your potential opportunity loss of waiting is much less than the high risk of buying now.

Of course, most of you will ignore everything I’ve just said and still listen to your Realtor, who knows everything because they have taken a $199 home study course to pass their really tough Real Estate exam.

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