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Jim Klinge
Cell/Text: (858) 997-3801
klingerealty@gmail.com
701 Palomar Airport Road, Suite 300
Carlsbad, CA 92011


Category Archive: ‘Forecasts’

Recession 2020?

Zillow’s panel of economists is forecasting the next recession, with 66% of them predicting it will start between 4Q19 and 1Q21:

Experts in housing are predicting a recession starting in 2020, according to Zillow’s 2018 Q2 Home Price Expectations Survey; however, they anticipate monetary policy—not the housing market—as primarily responsible for the swing.

Panelists were also asked to project the pace of growth in the Zillow Home Value Index over the next five years. The average of all expectations among the 114 experts offering a prediction was for home values to end 2018 up 5.5 percent over the end of 2017, a slowdown from current annual growth of 8 percent. On average, panelists said they expected home value growth to slow further in coming years – to 4.1 percent by the end of next year, 2.9 percent in 2020, 2.6 percent in 2021 and 2.8 percent by 2022.

https://www.zillow.com/research/experts-2020-next-recession-19994/

Posted by on Jun 6, 2018 in Forecasts, Jim's Take on the Market, Zillow | 3 comments

Three-Stage Bubble?

This guy says a housing bubble is brewing because: A)  incomes aren’t going up as fast as homes prices, B) the cost of building materials has risen, and C) oil production should collapse.  But if gas prices go up higher, aren’t electric or hybrid cars the answer?  For home prices to fall, we would need desperate sellers who need the money so bad they will sell at any price, which sounds more like a boomer liquidation sale – which has been elusive so far, and mitigated by reverse mortgages.

Hat tip to Richard for submitting – here’s the summary:

For these reasons, I see a 3 Stage Collapse of the U.S. Housing Market.  The 1st stage of the housing collapse will occur when the broader markets experience a 25-50% sell-off.  At this point, the U.S. median home price will fall 40% to $200,000.  As U.S. oil production continues to decline, we will enter the second stage as the U.S. median home price drops 60% to $120,000.

The 3rd stage of the U.S. Housing Collapse will occur likely by 2030 (or possibly sooner) as domestic oil production falls  50-75%.  As Americans and citizens of the world understand that oil production will continue to decline, the value of stocks, bonds, and real estate will also continue to fall.  Which is why I see the U.S. median home price to $40,000 in the 3rd stage of the collapse.

Of course, my timing could be off by a few years, but not decades.  Either way, the notion that real estate values will always rise in the future will be DEAD for GOOD as the market is impacted negatively due to falling oil production.

Link to Full Article

Posted by on May 11, 2018 in Forecasts, Jim's Take on the Market | 7 comments

HPI Percentage Change From Peak

More news today on the surge in home pricing, with Diana happy to point out that half of the nation’s 50 largest markets are now considered overvalued, meaning home prices are at least 10 percent higher than the long-term, sustainable level.

“The dream of homeownership continues to fade away for the average prospective buyer. Lower-priced homes are appreciating much faster than higher-priced properties, making the affordability crisis progressively worse,” said Frank Martell, president and CEO of CoreLogic. “CoreLogic’s Market Condition Indicators now indicate that half of the top 50 markets in the country are overvalued because home prices in those areas have risen so much faster than incomes. This is clearly an unsustainable condition that can only be remedied by aggressive and coordinated public/private sector actions.”

Looking ahead, the CoreLogic HPI Forecast indicates that the national home-price index is projected to continue to increase by 5.2 percent on a year-over-year basis from March 2018 to March 2019.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The concern about overvalued areas is probably coming from the other states whose prices are substantially above the last peak.  Or in other words, it’s always been crazy in California, and we’re used to it! Click on image:

While this map makes it look like California is lagging behind Texas and others, we probably had a higher peak, relatively.  Most of the subprime lenders with no-doc and neg-am loans were in California, and sales and prices were very bubblicious. This time it’s different!

Link to Website

Posted by on May 1, 2018 in Forecasts, Jim's Take on the Market, Market Buzz | 0 comments

Housing-Bubble Chances

An article based on research from a mortgage insurance company, who has a stake in the game (unlike economists).  The image above shows virtually no risk of prices falling in Southern California over the next two years.

H/T daytrip:

Housing bubble coming? According to one mortgage insurance company’s latest reports, there’s only a slim chance Southern California home prices will fall in the next two years.

Arch MI gauged the economic foundations of home values in 100 major metropolitan areas to determine local housing markets with “minimal” risk. Locally, Arch MI found solid performance among regional businesses and limited development of new homes as factors that should keep home prices firm.

Orange County was the riskiest market in the region — if having a 4 percent risk of a price decline in the coming two years is what you consider dicey. That compares with the county’s 28-year historical average of 25 percent chance of falling home values.

Arch MI noted Orange County’s home prices were up 12 percent in the two years ended in 2017 — only the 52nd highest among the 100 large metros studied. Per-capita homebuilding of 18 single-family homes per 10,000 residents — ranked No. 63 out of 100. Business output rose 5.2 percent last year, the 40th fastest growth nationally.

Los Angeles County had 2 percent risk of decline as 2018 started vs. a 1980-2018 average of 27 percent, according to Arch MI.

That score came as L.A. home prices surged 15.9 percent in two years — No. 32 biggest gain; per-capita homebuilding of 6 houses per 10,000 population was fourth slowest nationally; and business output rose 4.9 percent last year, No. 51 fastest.

In Riverside and San Bernardino counties, Arch MI found risk of home-price declines at 2 percent vs. a 28-year historical average of 25 percent.

Inland Empire home prices are up 15.6 percent in two years — No. 33 highest — as per-capita homebuilding of 26 per 10,000 — ranked No. 52 — while business output rose 5.5 percent last year, 29th fastest.

Arch MI doesn’t find much risk out of the region either: The nationwide risk of decline was 5 percent even after home prices rose 12.6 percent in two years. Yes, that was up from 2 percent a year ago.

“Housing markets in most cities are exceptionally strong due to a shortage of homes for sale,” Arch MI wrote. “Construction has lagged the growth in households and employment for nearly a decade. Even recent interest rate increases and higher taxes on some upper-income earners didn’t slow the market, as many had feared.”

Riskiest big markets, by Arch MI’s math? Texas and Florida!

No. 1 diciest was Houston (22 percent chance of price declines within two years) followed by San Antonio (20.3 percent); Tampa-St. Petersburg (19.2 percent); Cape Coral-Fort Myers (17.8 percent); Austin (17 percent); Fort Lauderdale (16.9 percent); and Miami (16.4 percent).

“Housing markets aren’t likely to cool until the economy slows, either from substantially higher interest rates or an unexpected economic shock,” Arch MI wrote. “Short of a war or stock market crash, housing markets could continue to surprise on the upside over the next few years.”

Link to Article

Posted by on Apr 30, 2018 in Forecasts, Jim's Take on the Market, Market Conditions, Sales and Price Check | 3 comments

Lawrence Yun Responds, Part 2

I sent yesterday’s post to Lawrence – and this was his reply:

Home values falling 8% to 12% were based on taking away all of the deductions-  no MID and no property tax deductions.

Fortunately, MID is set at $750,000 and $10,000 for state and local tax deductions. With these in place in the final tax bill, we have not said of those price declines. Our forecast is for a 2% price gain nationwide. You, nonetheless, bring a good point that there are still many consumers thinking of what we had said earlier. We’ll work in getting the updated info out more aggressively.

I thanked him for his response.

Are potential home buyers going to bother with calculating the specific impact of tax reform, and then not buy a house if they don’t like the result?  Or would they spend less on a house?

Californians are used to heavy taxation.  I’m guessing they will shrug off a few thousand more in taxes if it means getting the right home.

For those who want to estimate their taxes, and are WSJ subscribers, here’s a basic calculator:

http://www.wsj.com/graphics/republican-tax-plan-calculator/

Posted by on Feb 2, 2018 in Forecasts, Jim's Take on the Market, Tax Reform | 2 comments

Lawrence Yun Responds

Yesterday I sent a note to the C.E.O. of the National Association of Realtors to counter the idea that home values will be going down 8% to 12% this year.  I’ve been asking for two months – show us your math.

Here it is – see link below.  They commissioned a study by Price Waterhouse, who used their microsimulation model to determine that demand will drop so severely that home values would tank by 8% to 12%.  The study is dated May, 2017, so it’s not based on the final tax reform legislation – they used samples of what they thought it could be.

Here they note that the mortgage-interest deduction would drop by almost $800 billion when the law that was passed had NO IMPACT on the ability of existing homeowners to deduct the same mortgage-interest as they’ve been deducting all along.

They also drop the Property Tax Deduction to zero – which is wrong too. 

So Lawrence and the N.A.R. are publicizing the negativity based on an old report from six to twelve months ago that used faulty assumptions.

Great.

The data point I included in my email was the bidding war in Carmel Valley  this week on a tract-house listed for $1.2 million that garnered 16 offers. Apparently, the tax reform didn’t impact those buyers the way the microsimulation model expected.

Here’s the email from Lawrence:

Hello Mr. Klinge,

Our CEO shared your note with me, as it mentions my name.

Thanks for sending us the market info on the ground from San Diego. We always appreciate member feedback. We have also heard similar condition of multiple bidding and the lack of inventory in CA coastal cities and in many parts of the country. I will use your comments in my presentations about variations in the country: with upper-end market needing to cut prices in CT and IL and still multiple bidding in San Diego.

We regularly conduct a survey of Realtors® for that exact reason of gauging what is happening on the ground. The latest monthly Realtor® feedback, which we call the Realtor® Confidence Index, is attached. Getting a feel for the market from these 3,000 Realtors® greatly helps me and my staff.  I am asking my staff to contact you subsequently to be part of this survey. There is an open-ended question at the end where we delve into issue not mentioned in the questionnaire and comments like yours will be helpful for us to understand what is happening on the ground and to identify “turning points” in the market.

https://www.nar.realtor/research-and-statistics/research-reports/realtors-confidence-index

I’m very glad to hear that the tax deductions limit on mortgage interest and property tax appear not to be impacting your market. The strong job market in San Diego is no doubt helping boost home buying confidence. That is not what we are hearing in other markets, however. Here’s a couple news interview of academics. I am attaching a link of Dr. Robert Shiller’s interview with CNBC at a recent NAR event, when he gave talk about the market condition. He, unlike most other economists, does not believe that consumers are always rational. In fact, people are more irrational then rational, in his view. Always interesting to hear his perspective and it’s here:

https://www.cnbc.com/2017/12/06/robert-shiller-tax-bills-mortgage-interest-deduction-cut-wont-affect-home-prices.html

Most economists would be like Mark Zandi, believing consumers are mostly rational in their behavior, and has called for negative home price impact from limit real estate tax preferences. Here’s Dr. Zandi’s interview with CBS

https://www.cbsnews.com/news/gop-tax-bill-wont-help-housing-prices/

Our projection is based on Price Waterhouse Cooper research report, which we commissioned. Here below:

http://narfocus.com/billdatabase/clientfiles/172/21/2888.pdf

After taking into account of current market momentum, the job market, local housing starts, interest rate forecast, we have CA home prices rising by only 1% in 2018. It would be presumptuous to imply this NAR forecast will be the reality for 2018. Indeed, CA may experience for the remainder of the year what you are seeing currently. Given that many members have asked for our views for outlook in 2018, and the below forecast is our attempt at that.

https://www.nar.realtor/research-and-statistics/tax-reform-impact-and-home-price-outlook

One big issue we have been working on is to boost inventory and housing supply. As such we have been working with University of California Berkeley … to boost housing supply and homeownership in a sustainable way. Here’s the paper and my presentation at the University is attached.

https://escholarship.org/uc/item/40p726v2

Based on Realtor® feedbacks, we know how critical it is to have more inventory. Therefore, my presentations have focused on this issue. I am attaching 2 powerpoint presentations that talks to the great undersupply in CA.

  • Housing Conference at University of California at Berkeley
  • Homeownership Conference at HUD, with Dr. Ben Carson presiding.

For day-to-day update on the ever changing market conditions, follow us on social media, along with other 100,000 + fellow realtors®. I am sure you will not agree on all things shown, but it is my hope, some of the info can be used in your business.

https://twitter.com/NAR_Research

Finally, if not already, please consider becoming a major RPAC donor. Many very successful Realtors® like to give their time back to the organization by volunteering and by investing in RPAC to help protect private property rights.

Best regards,

Lawrence

Lawrence Yun, Ph.D.

Chief Economist

National Association of REALTORS

Washington, DC 20001

 

Posted by on Feb 1, 2018 in Forecasts, Jim's Take on the Market, Market Buzz, Realtor | 6 comments

Doom Ahead?

From Bloomberg.com – an excerpt:

When real estate investors get this confident, money manager James Stack gets nervous.  U.S. home prices are surging to new records. Homebuilder stocks last year outperformed all other groups. And bears? They’re now an endangered species.

Stack, 66, who manages $1.3 billion for people with a high net worth, predicted the housing crash in 2005, just before prices reached their peak. Now, from his perch in Whitefish, Montana, he says his “Housing Bubble Bellwether Barometer” of homebuilder and mortgage company stocks, which jumped 80 percent in the past year, once again is flashing red.

“It is 2005 all over again in terms of the valuation extreme, the psychological excess and the denial,” said Stack, whose fireproof files of newspaper articles on bear markets date back to 1929. “People don’t believe housing is in a bubble and don’t want to hear talk about prices being a little bit bubblish.”

As the housing market approaches its key spring selling season, Stack is practically alone in his wariness. While price gains may slow, most analysts see no end in sight for the six-year-old recovery.

There are plenty of reasons to be optimistic. The housing needs of two massive generations — millennials aging into homeownership and baby boomers getting ready for retirement — are expected to fuel demand for years to come if employment remains strong. Sales in master-planned communities, many of which target buyers who are at least 55, reached a record last year, according to John Burns Real Estate Consulting. Last month, a gauge of confidence from the National Association of Home Builders/Wells Fargo rose to the highest level in 18 years, and starts of single-family homes in November were the strongest in a decade.

“As soon as homes are finished, they’re flying off the shelf,” said Matthew Pointon, Capital Economics Ltd.’s U.S. property economist.

Stack has a different perspective. While the market might gradually correct itself, history shows that it’s more likely to “come down hard” with the next recession, he said. He described the pattern as a steep run-up in housing prices spurred by low interest rates. The last downturn came about when economic growth slowed after a series of rate increases, exposing the “rot in the woodwork” and prompting loan defaults, Stack said.

He noted that the Fed has projected three rate increases for this year, and said that “raises the risk that today’s highly inflated housing market will again end badly.” He’s watching homebuilder stocks closely because they’re a leading indicator, peaking in 2005, the year he called the crash — and the year before home prices themselves hit a top.

Link to Article

Jim: Of course today’s environment feels irrationally exuberant – it’s hard to believe how well we have done since our pricing recovery began in 2009!

But his reasoning that higher mortgage rates would “Raise the risk that today’s highly inflated housing market will again end badly” is off-base.  Rates were coming down during the mortgage crisis – it was the fury over the neg-am loans that caused borrowers to think their payment was going to go through the roof, burn the house down, and kill their family.  Borrowers who could only afford their initial minimum payment on the ARM then panicked at the first adjustment and hit the eject button.

Neg-am loans are now illegal, and I haven’t seen or heard of any ez-qual loans available at conforming rates – everybody who bought a house in the last nine years had to prove they could afford it, and their payment is fixed.  Besides, we learned last time that just because their home value went down, people don’t panic and sell their house as long as they can afford it.  People have to live somewhere, and we like it here.  If a full-blown depression happened and we had another run of defaults, the government will provide another safety net and just tell banks not to foreclose.

If rates go up to 5% or 6%, it will probably stall the market, causing prices to bounce around.  But there won’t be enough sellers who will dump on price that it would cause a major event.  There could be a skirmish here and there caused by boomer liquidations occasionally.  But that’s it.

Posted by on Jan 23, 2018 in Forecasts, Interest Rates/Loan Limits, Jim's Take on the Market, Mortgage Qualifying, Rancho Santa Fe | 0 comments