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Category Archive: ‘Bubble-Era Pricing’

San Diego Peak-to-Trough-to-Now

The trough for San Diego was April, 2009.

Interestingly, only four of the 10 largest metros in the study – Washington D.C., Seattle, Austin and Denver – are considered overvalued. This indicates that despite the growth in home prices in metros like San Diego and Boston, other economic factors such as low unemployment, people choosing to rent, and access to high-paying jobs, have kept these regions within the normal range.

Read full article here

Posted by on Mar 10, 2018 in Bubble-Era Pricing, Frenzy, Jim's Take on the Market | 0 comments

Housing Bubble? Just Wait It Out

An article comparing the performance of residential and commercial real estate during the boom-bust-boom:

An excerpt:

Housing prices have been on a tear over the last five years. The Case-Shiller national composite has risen 35 percent since its post-crash bottom in 2012, and is currently just above its pre-crisis peak, set in the spring of 2006.

What we see here are two different measures of the growth in housing prices:

Both measures are indexed to 100 in the year 2000, so the value can be interpreted as the percentage growth since 2000. The red line represents the growth in real housing prices, or prices after they have been adjusted for inflation. The blue line represents the percentage growth in housing price without accounting for inflation. Economists refer to this as nominal housing values.

Nominal values have rebounded strongly over the past six years, despite a weak economy, increased financial regulation, and a backlog of foreclosures. This rise in nominal values is key because it is tied to the viability of mortgage contracts.

Suppose homebuyers in 2007 had gotten caught up in bubble fever, taken on a mortgage that was a bit too much for them to afford, and then watched the value of their investment collapse. Well, if they could have ridden the wave out for 10 years, then they could have gotten back out at least what they put in. Ten years is a long time, and according to the NAHB, it’s a bit less than how long the median homeowner stayed put through the 90s and early 2000s.

Riding the bust out would have been tough, but not wildly out of the ordinary for the average homebuyer. Yet, it only took this long because inflation has been extraordinarily low, rarely rising to two percent a year. A faster rate of inflation would have brought homeowners out of the dip even sooner.

All of this to say that buying at the peak of the housing bubble was not nearly as insane as one might think. If you planned to stay in the house a normal length of time, you wouldn’t have lost any money.

Now, you could have done better by waiting if you had known that a housing bust was coming. But not timing a bust is not quite the same thing as buying into a bubble.

Buying into a bubble suggests that you are paying irrationally high prices that are premised only on the notion of “some-greater-fool” coming along and rescuing from your mistake. As we can see that is not the case. Missing the bust simply means that you were not savvy enough to time a fluctuating market. Accepting one’s inability to get in at the just the right time is considered wisdom in stock and bond markets, and with good reason.

There is a conceptual paradox with timing the market by buying when prices are low. If you’re right and this really is the best time to get in, then everyone should be getting in. Yet, if everyone was getting in, then prices would already be rising due to the high demand. Thus, low prices which are attracting you are at the very same time a signal to stay away. Wise investment counselors advise their clients to ignore the ups and downs as much as possible, and buy and sell based on your own needs, not your perception of market trends.

Could the same thing be true of housing?

That is, might it be the case that we have entered a phase where sometimes housing prices will go down? Wise homeowners buy and sell based on their own needs, not in some attempt to judge the market. The market will be buffeted by forces that are nearly impossible for the average homeowner to gauge—forces like international changes in liquidity.

Read full article here:

Posted by on Aug 3, 2017 in Bubble-Era Pricing, Jim's Take on the Market, Thinking of Buying? | 6 comments

Bubble Talk

This survey of ivory-tower guys indicates that the threat of a bubble-bursting is low. The last bubble was full of people who couldn’t afford to hang on; this one has been built by the affluent.

Historically, Thornberg has been the most rational analyst:


Will prices keep rising? Are prices close to the top?

We asked a half-dozen economists and industry analysts what the future holds for home prices in the region. Among their answers:

Southern California home prices aren’t about to drop. In fact, they believe prices will keep rising for two more years, at least, and possibly longer.

The market isn’t in a bubble — yet — although bubble talk is starting to “raise its ugly head” at cocktail parties, one economist said. Some analysts are saying Southern California home prices are showing signs of being overvalued.

If you’re thinking about buying a home, now just might be the time to act — provided you don’t overextend yourself and you plan to live there awhile.

Here are five key questions about where Southern California home prices are heading in the future:


Not one of the economists we interviewed thinks we are, at least not for entry-level homes.

Luxury homes, priced at $2 million and up, may have reached a price peak and are facing an oversupply of listings, analysts said.

Nominal home prices have surpassed prerecession highs in Orange and Los Angeles counties. Riverside and San Bernardino counties are about 18 percent below their price peaks. But none of those counties has reached prerecession peaks in inflation-adjusted dollars.

Another fact to consider: During the last market run-up, Southern California home prices increased year over year for 126 consecutive months, or 10½ years. That’s twice as long as the current streak in home price gains.

Lastly, analysts say home prices aren’t rising that much. Price increases averaged 6.3 percent in Southern California in the past year.


Two years at least, most economists interviewed said. Possibly longer.

How much longer prices rise depends on what happens to the overall economy.

“At some point, there’s going to be a correction, but I don’t see it on the horizon,” said Pat Veling, president of Brea-based Real Data Strategies. “Sellers want more than sellers got six months ago.”

Projections by the California Association of Realtors show a gradual decrease in home price appreciation over the next few years, said Oscar Wei, a senior economist for the group. For example, CAR projects prices will go up 5 percent statewide in 2017, 4 percent in 2018, and 2.5 percent in 2019.

Assuming the gross domestic product continues to grow at 2.5 percent and mortgage interest rates stay below 4.5 percent, Southern California home prices could be going up at 6 percent a year for the next six to seven years, said Christopher Thornberg, a founding partner of Beacon Economics and a former UCLA economics professor.

At 6 percent a year, the median home price could reach $800,000 in Los Angeles County by 2023.

“Given the supply shortage and the strength of the California economy, (that’s) perfectly reasonable,” Thornberg said. He added: “Reasonable here means it’s not a bubble and they won’t collapse.”

Read full article here:



Posted by on Jul 19, 2017 in Bubble-Era Pricing, Jim's Take on the Market, Market Conditions | 0 comments

Peak Pricing?

Case-Shiller San Diego history

Above is a graph of the San Diego Case-Shiller Index for the last ten years.

How much higher can it go?

1. The highest reading was 251.71 in March, 2006.  After that, the index dropped 42% in three years, bottoming at 145.70 in April, 2009.  We have gotten about 61% of that back since.

2. Our most recent index of 210.58 is 16% lower than the peak. The no-doc funny money was probably accountable for the entire 16% difference, if not more.

3. According to the BLS, local prices only rose 0.8% in the last year, and +1.9% less food and energy.  Inflation probably isn’t going to drive home prices higher in the near future.

4. It will be unlikely to see mortgage rates go down anytime soon.  Expect a holding pattern in the low-4 percent range.

What could drive prices higher?  Low inventory is about the only answer, and buyers are tired of hearing it.  The Case-Shiller graph shows some sputtering lately, and it has only been interrupted by rates dipping back into the 3s. Without that, prices would be, and should be, flat at best.

Posted by on Sep 8, 2015 in Bubble-Era Pricing, Jim's Take on the Market, Sales and Price Check, Same-House Sales | 6 comments

Frenzy vs. Frenzy Sales Overlay

Every day we hear some pundit talking about the latest real estate bubble forming.  Can we learn anything from comparing recent sales to those during the bubblicious 2004-2007 era?

graph (56)

Sales were dropping precipitously in 2005 and 2006 after the 2003-2004 run-up.  There was one last blowout at the end of 2006 and into 2007 when Countrywide began pushing the no-doc, 100% financing up to $1,500,000.

When Angelo took away the punch bowl in the middle of 2007, the party was over – you can see how sales tanked, beginning in August, 2007.

One big difference when comparing these two eras is that the neg-am teaser rate in 2007 is today’s 30-year fixed rate.  When the teaser rate went away, and people had to qualify again, the market collapsed.

It doesn’t look that way today.

This year, sales have been strong, in spite of the San Diego Case-Shiller Index rising 42% since January, 2012.  If we hit an unsustainable stretch, the first indicator will be sales dropping off, like they did at the end of 2007.

Posted by on Aug 22, 2015 in Bubble-Era Pricing, Frenzy, Jim's Take on the Market, Market Buzz, North County Coastal, Thinking of Buying?, Thinking of Selling? | 4 comments

Bubble or No Bubble 2

double bubble

Analyst Chris Thornberg doesn’t think this is a bubble market, and suggested that you should go buy anything you can get your hands on.

While the current environment may have the same frenzy/intensity of the last bubble, there are three reasons it won’t blow up like it did last time:

1.  Banks have learned to be flexible on foreclosures. 

They figured it out – the houses being foreclosed today are those with some equity, and either the bank is getting their full pop at the trustee sale, or if they have to sell it as an REO they might make some extra dough.

2.  The government is in full support of the housing market. 

Tweak the accounting rules, throw money at loan-mod programs, lower rates, and literally tell the banks to not do anything to harm the economy.  Uncle Sam has your back.

3.  We learned that a surprising amount of people didn’t freak out over being underwater.

They have to live some place, and with some support from the previous two above, they survived.

If prices stabilize, Bernanke and his buddies will come out looking like heroes.  We don’t really need prices to keep going up around here; in most parts of North SD County’s coastal region we are back to peak pricing or higher.

Prices will ebb and flow.  But the vast majority of those who bought in recent years are in for the long haul, and won’t care about short-term fluctuations in value – at least not enough to panic-sell.

Posted by on Feb 20, 2015 in Bubble-Era Pricing, Jim's Take on the Market | 5 comments

Bubble or No Bubble?


This article is talking about Oakland, California, but these conditions exist up and down the coast.  Thornberg has been one of the more level-headed bubble analysts:

An excerpt:

“This is not a bubble,” says Chris Thornberg, an economist in Los Angeles.

Though he’s just one guy, we called him because he has the dubious distinction of having predicted the 2008 market crash. His colleagues used to call him “Dr. Doom.”

He says that the money flooding the Bay Area isn’t built on speculation like the last boom.

“These are people with real money, with real incomes,” he says. “They have enough money to live in whatever cities and neighborhoods they want, so if there’s not enough high-end housing, they’ll just gentrify lower-income neighborhoods.”

And while the growth may slow, it won’t stop, Thornberg predicts. He believes the solution is a matter of adding to the housing supply. As more units come on the market, prices become more reasonable for everybody, he says.

But others argue that without policies making sure some of the housing is affordable, it’s not going to make any difference for middle-class and poor people.

“That’s completely wrong,” Thornberg says. “The evidence tends to suggest that for the most part, when you start layering rule after rule after rule on real estate developers, ultimately you end up simply hurting the supply worse.”

So what should Eaton do?

Thornberg’s answer? Buy now. Anything you can get.

Posted by on Feb 19, 2015 in Bubble-Era Pricing, Forecasts, How Hot?, Market Buzz, Market Conditions | 11 comments

Bubble-Burst Less Likely

Someone asked me if I thought the bubble will burst again.  I said no.

Not in the same way that the previous two bubbles have ended – with foreclosures driving down prices across the board.


Because of these reasons:

1. The Foreclosure Process Has Been Compromised – Banks have been handing out loan mods like candy, and keeping defaulters in their houses at all costs. Of the 13,154 houses that have closed escrow this year in San Diego County, only 293 were bank-owned, or 2.2%. Only eight of those were in our La Jolla-to-Carlsbad coastal region, out of 1,730 closed sales YTD (0.5%).

How can banks reverse course, and start foreclosing again? They can’t, and instead the ‘loan-mod’ will become standard banking policy – though vague.

2.  Recent Buyers Were Well-Qualified – No exotic financing this time around.  Everyone who got a regular mortgage over the last six years had to qualify AND use a down payment.  Thanks to recent prices increases, most have tacked on some extra equity too – they aren’t going to panic-sell now.

3.  Those Who Do Panic-Sell – The kids who come to town to liquidate their parents estate will more likely sell to a flipper offering quick cash.  There have always been investors working the obits, but it is a cottage industry now – and they will improve and flip for a retail price.

4. Boomer Liquidation Less Likely, and Multi-Generational is the Substitute – Many of us have discussed the fear of baby boomers needing to tap their equity, and wanting to downsize. Here is an article:

If they need money, the reverse mortgage is still around, and likely to stay.  If aging boomers want to downsize, they need to leave town to have it pencil – because it’s virtually impossible to buy a smaller one-story house in the same area and still save big money.

Plus their kids – who could have afforded a decent house 2-3 years ago – are now left holding the bag. It’s better for the kids to move in with the folks and take care of them, then to buy the crapshack.

5. Sellers are Resilient – If they can’t get their price, they will wait – and agents will wait with them.  It is typical for agents to take six to twelve month listings and hope that’s long enough for the sellers to eventually wear down if nobody comes along.

6. Higher Capital Gains Tax – The sweetheart 15% capital-gains tax went back up to 20% at the end of 2012 – a 33% increase!  Even though they can sell for more now, investors are very reluctant – they hate paying tax! Especially when a spouse can “die correctly” and leave rental properties to the other spouse with a stepped-up tax basis.

I don’t think we’re going to see the roller-coaster ups and downs any more.  It’s much more likely to feel likely a bloated, stagnant slush of goo than an exciting crash.  Thankfully, agents work on commissions, otherwise sales could come to a halt!

Posted by on Aug 10, 2014 in Bubble-Era Pricing, Jim's Take on the Market, Market Conditions | 18 comments

Double-Bubble Trouble?

Yesterday reader SBT asked,

I’m not in the real estate industry so maybe I’m missing something but does the fact that the ppsf is the same as ’05-’07 mean we are in a mini bubble?? Everything seems too expensive right now?  thoughts?

If it were a bubble, it would need to be “pop-able”.

The last bubble (and to some degree the late-1980s bubble) popped due to exotic financing.  We saw homeowners fleeing in mass numbers around Oceanside and other parts where subprime loans were prevalent.

The rising appreciation that we enjoyed from 1995 to 2007 became embedded – most thought it would last forever.  When it didn’t, those in more affluent areas bailed out over the thought of being ‘underwater’.

Those folks may be having some regrets today.

Today’s mortgages are the most conservatively underwritten financing we’ve had over the last 30 years.  Buyers are using sizable down payments in most cases, and their payments must be affordable to get a loan.

These are folks who plan to stay forever, regardless what happens to prices.

If prices were to drop, they won’t be selling – they live there.

How do we know?

Because they would be more tempted to move if prices went UP – and look how few sellers we have now.  Nobody wants to move at today’s prices, if they were lower they really wouldn’t move!

How can we support these prices when the SD median household income is $70,000?  Have lots of renters – the homeownership rate is 55% in the county.

It is a market for the affluent, and the thought of everyone enjoying the benefits of the American Dream is kaput.

Could a Baby Boomer Liquidation Sale disrupt the market with a flood of inventory?  I doubt it – not in prime coastal regions where the kids would rather move in, than give it away.  The houses are paid off – what would you rather have? Free housing or free money?  The government will provide enough money for food, but you are going to be on your own for housing.


Yet, today’s valuations aren’t as crazy as they seem – here is Rich Toscano’s latest comments and graph:

(T)he peak was over 8 years ago — nearly a decade now! — and since that time, both rents and per capita income in San Diego are up 20%.  “Peak pricing” in nominal terms just isn’t a meaningful number, when the purchasing power of money has been declining while nominal incomes and rents have been rising over that period.

rich toscano san_diego_housing_valuations_12_2013-1

Read more here:

Posted by on Mar 23, 2014 in Bubble-Era Pricing, Double Dip, Jim's Take on the Market | 27 comments

Bubble Schmubble

These ivory-tower guys keep wasting their time debating whether to call this is a bubble or not using vague, mind-numbing graphs. From HW:

There is a lot going on right now in housing and mortgage markets. But one of the debates that continues to rage on is whether or not U.S. housing markets are in a bubble or not.

HousingWire’s own monthly HW Magazine talked about it in detail in our January issue.

So too has CNBC’s John Carney, in a post from late last year with the headline: Yep, it’s another housing bubble. And then on January 14 of this year, Peter Wallison at the American Enterprise Institute wrote a breathless op-ed proclaiming: The bubble is back.

But is it really a bubble just because home prices are rising again?

Read More

Posted by on Jan 16, 2014 in Bottom Talk, Bubble-Era Pricing | 10 comments