Not all housing markets taking a downturn

While news that the housing market is in yet another painful correction, there still remain a few markets where the downturn has not made as much headway.

In the San Francisco Bay Area, for example, more expensive homes (homes priced over $721,546) have dropped in price by only about 10.7 percent from their peak.

The lower priced homes (under $473,711) have not fared as well. If you live in one of the fortunate markets, be aware that you may not have as much time to respond as you think, if the market in your area begins to slide downward.

"In this cycle, we had a real abrupt change in demand (because) a certain segment of the home buying public, mainly subprime and Alt-A buyers, were just completely shut out of the market overnight," said Mark Dotzour, chief economist of the Real Estate Center at Texas A&M University. "Then what happens is that you get too much inventory and prices go soft." He also suggests there are two factors that have exacerbated the severity of the current housing cycle.

"Lenders flooding the housing market with subprime loans and risky borrowers who were not able to pay back their loans when the lenders cut off the easy credit.

Builders, who had expanded to meet the new demand, couldn't stop building new homes fast enough to match the sudden disappearance of buyers. Supply exceeded demand and prices dropped too quickly."

A market can practically spin on a dime and go from being quite healthy to being practically dead. As a result, you could find yourself holding a property that you are unable to sell. If this is an investment property, this could be quite serious. However, even if it is your own personal residence, it could still cause problems if you need to sell for a profit for some reason. This is why it is imperative to make sure that you have protected yourself now so you will have options available to you in the event the market turns in the wrong direction.

The first step that should be taken to protect yourself and your investment is to change from an interest-only loan or adjustable rate mortgage to a fixed rate mortgage. A fixed rate mortgage will provide you with the opportunity to tap into lower, more secure rates.

In addition, you need to take steps to ensure that you will be able to afford to remain in your primary residence. In the event you do not foresee a move in the near future, there should not be any real concern regarding whether the value of your home goes up or down right now. Home owners who can afford their monthly mortgage payments and who are not feeling the pressure to sell due to employment reasons may find they are better off riding out this market. There is a wide belief that once the market rebounds, these homeowners could still be poised to make a profit on their home.

Recent data suggest real estate market pessimism may be overblown. Even economist Karl Case, father of the S&P/Case Shiller Home Price Index, admits many industry pundits and members of the media are ignoring key facts-as demonstrated by their focus on negative year-over-year price figures rather than more recent monthly data. An example: Home prices actually increased slightly in eight of 20 Case Shiller markets between March and April. Instead, the focus of most media reports was on year-over-year figures which continue to support the notion that the market may not have hit bottom, let alone begun to improve.

According to an article in The Record, July 17, 2008, pending sales in San Joaquin County have continued to rise for the fifth consecutive month. There were 921 closed escrows in June of 2008, up from 859 in May 2008. Granted, the median price has fallen because of the number of foreclosures in the market. But, the foreclosures need to be cleared out before we will again experience a rise in home values.

Linda Bush is the president of the Lodi Association of Realtors.