The California Association of Realtors (”CAR”) released yesterday its “2008 California Housing Market Forecast”. The numbers that you will hear and read about in the media consistently are these:

1. The median price of existing homes is expected to decline 4% to $553,000 in 2008; and
2. Sales are likely to fall 9% in 2008.

The drop in the median home price would be the first decline in more than a decade. Much of this is due in large part to the subprime fallout that we continue to hear about. But what does this all mean if you are looking either to buy or sell a home soon?

Well, read between the lines. Or at least, make sure everything you hear and read about is accurate. According to CAR Vice President and Chief Economist Leslie Appleton-Young, “Geographically, more affordable regions such as the Central Valley and Inland Empire will experience greater softness in the resale market because of the large number of new homes coming onto the market in recent years . . . Higher priced regions of the state, such as the San Francisco Bay Area . . . will react more to affordability constraints.” Excess inventory from overbuilding is what she is referring to. And furthermore, “By price-range, the highest-priced markets - those with medians over $1 million - will show less stress. The lower-priced markets will continue to face fallout from the subprime crisis, tigher underwriting standards, and competition from new home developments where price-cutting has been even more severe.”

The Bay Area and downtown San Jose has not been insulated from the rest of the real estate market. The local market has slowed and prices have also slowly declined. The more desirable areas and locations are obviously less affected by the market downtown, as described by Appleton-Young.

With the new luxury high-rise residential units set to hit the market in the beginning of 2008, namely Axis and Tower 88, it will be very interesting to see how sales will be affected by the market conditions. Will consumers absorb this new inventory and how they will react to the pricing? And how will this new inventory affect current home sales?