A 2007 Big Bear Real Estate Prognosis…

It seems like you can’t open a paper or go to a news website nowadays without reading some doom and gloom article about real estate. Beyond the commonly held belief that the media can sometimes exaggerate or mislead in their stories, it is obvious that the real estate market has seen better days. But these news stories also beg a few important questions that most people should have answered before jumping to the conclusions about the current market and where it is headed.

I will try to answer some of these questions, and in doing so, hopefully give you some insight as to what is happening and expected to happen in the Big Bear real estate market.

Is real estate doing poorly everywhere?

An important question to ask! Certain areas of the country are still doing just fine. If you spoke with someone from Albuquerque, El Paso or Salt Lake City, they’d let you know that real estate is doing great. If you talk to people from certain areas of Miami, San Diego and Las Vegas, you’d probably get a different story.

So before you judge the real estate market in any given area, it’s important to realize that when CNN, USA Today or FoxNews.com is talking real estate, they are usually talking about the national market on a whole, or focusing on the hardest hit neighborhoods to create a better story.

So how is Big Bear’s real estate market doing?

Big Bear’s real estate market is unique. It is a far different area geographically and homeownership-wise than most other areas of southern California. When considering the current real estate market in Big Bear, you need to consider a few things.

First off, before this last real estate boom, properties in Big Bear were already far undervalued compared to other southern California areas. As properties appreciated and owning a second home became a more viable and popular thing to do, Big Bear got discovered! People who never knew Big Bear existed now realized there had been a hidden gem right under their nose all these years. It seems like Big Bear has been put on the map with the recent influx of thousands of second home owners who have learned what a great place Big Bear is as a vacation place.

Due to the property being initially undervalued and with the new found increased popularity, where certain other Southern California markets saw a 2% to 4% drop in prices last year, we saw a 6% to 8% increase in average sales price across the valley.

Looking at the first five months of this year, we are seeing the market stabilize in Big Bear. Compared to the first five months of last year, the number of sales are down by almost a third, but the average sales price has remained relatively stable having fallen slightly as of the start of May. It is only the people who must sell that are conceding and dropping their prices.

Bottom line is that compared to the rest of Southern California, Big Bear is doing relatively well with respect to homes retaining their values.

What do you expect out of the market over this summer into next year?

No one has a crystal ball, but my feeling is that you’ll see prices dip slightly but stay relatively stable compared to the rest of the region. And here’s why:

Interest rates are still quite low. Although they’ll do their seasonal adjustment and rise slightly towards summer, many expect the Federal Reserve Bank to lower rates this fall which will help interest rates drop significantly. This should prod more homebuyers into buying and encourage the market to head upwards once again.

Secondly, we’re well into this downturn. Most other areas have been adjusting for some time and buyers are starting to realize that there are some good bargains to be had out there. It has undoubtedly become a buyer’s market, and deals are out there to be found. After 5 years of sellers demanding price and terms, people who have been waiting to buy are now in command. This kind of leverage will justifiably encourage home buyers to continue to look in Big Bear for the vacation home they’ve been waiting for.

What about beyond the next year? What will the market look like then?

As if predicting the rest of the year was hard enough! Let me give you some historical background on real estate in general and some information about Big Bear’s projected future as well, then you decide.

On a national scale, the real estate “downturn” started over two years ago. We are well into what has been one of the worst downturns in real estate history – again, we’re talking on a nationwide scale.

Sounds terrible, huh? But let’s keep that in perspective. Historically, the average sales price of a home nationwide has fallen only once since 1900 - and that was during The Great Depression. This year is expected to be the only time since then that we’ll see a year to year decline in average sales price, with the National Association of Realtors (N.A.R.) predicting a 1% drop.

Compare that to the average appreciation rate of a home. The appreciation rate of homes nationwide has been 6.4% per year since 1968. In California, it has been 8.6% per year during the same time period! Take another look at that: the worst year ever nationwide was a 1% decrease – and that only happened once! Yet your average year sees a 6.4% increase annually.

So let’s say we have a few bad years. And admittedly, we are already into the middle of this downturn, so historically, it is reasonable to believe we are close to the bottom right now. When the market adjusts and we get back to some resemblance of normalcy, at 8.6% per year in California, you’re probably making up for any of the equity you may have lost during the one or two down years you’ve experienced.

There are a few other local factors that support real estate in Big Bear’s future as being strong and steady as well.

For years, economists have been telling us that baby boomers will make a significant impact on second home markets. With millions of baby boomers living within a three hour radius of Big Bear, it is expected that Big Bear will be a prime destination for these baby boom buyers. We expect this demographic to create an added demand for Big Bear real estate starting within the next few years and continuing for almost a decade beyond.

Couple this with the fact that Southern California is one of the faster growing areas in the country, demand for homes in Big Bear should increase significantly in the foreseeable future.

Another factor to consider in the long term outlook for real estate in Big Bear is its geography. Big Bear is surrounded by National Forest on which private building is prohibited. The number of homes and land is limited on which to build within the valley. Where in most places, cities can sprawl almost indefinitely to accommodate the housing demand, the supply of land to build on in Big Bear is finite. In the not too far off future, Big Bear will be “built out”. The limited homes coupled with increased demand for these properties will expectedly result in considerable appreciation in real estate values.

So here’s the bottom line:

Real Estate may be tough in many places around the country, but luckily, Big Bear’s prices have remained relatively stable at this time. Additionally, there are several factors that suggest that for the long term, property values will increase at or beyond the average rate of appreciation in the Big Bear area. Historically, real estate has been a remarkably stable investment. And when you couple this with the fact that you can use and enjoy your real estate investment – something you cannot do with most other investment vehicles - it makes all the more sense to consider buying a vacation home in Big Bear.