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Category Archive: ‘Forecasts’

Bubble Talk

fhfa

This is what you get when a college professor looks at today’s real estate market – faulty assumptions.  1) The graph he included shows the two years (2012-2013) of rapid appreciation; and 2) the building-permit numbers are skewed by the lack of land available, plus 3) rapidly rising rents help to reduce the home-price-to-rent ratio.

From the latimes.com:

http://www.latimes.com/opinion/op-ed/la-oe-0818-yu-la-housing-bubble-20150819-story.html

If history is any guide, the L.A. housing price cycle seems to last about 12 years on average, of which seven years is spent in the bull market with at least 65% real price appreciation, and five years is spent in the bear market. We are three years into the housing recovery that started in 2012, with 27% appreciation so far. On average, there will be four more years or 38% more price growth before we reach the turning point.

Of course, it’s possible the bear market could come earlier or later than four years, but that is quite unlikely to happen in the very near future.

How can I be so sure? Often, during a bubble-making period, we see an accelerating rate of home price appreciation, as in 1988-89 and 2004-06. In the last two years, we haven’t seen that kind of rapid appreciation in Los Angeles.

Another way to understand housing price cycles is by looking at building permit numbers. Speaking roughly, if developers are investing in new properties, that’s a good sign that demand, and prices, are rising or keeping steady. If developers are holding back, that suggests demand, and prices, will soon fall.

L.A. housing permit units peaked in 1977, 1988 (50,500 units) and 2004 (26,900 units), one to three years ahead of the real housing price peaks in 1980, 1989 and 2006. Permits bottomed in 1982, 1993 (7,300 units) and 2009 (5,700 units), a few years before the housing price troughs in 1984, 1997 and 2012.

Over the last three years, we have seen L.A. building permits increase from 11,200 units in 2012 to 18,200 units in 2014. The 2015 number will most likely be higher than 2014. Therefore, we can predict the next home price peak is at least two years away.

Yet another measure of rational housing value is a simple price-to-rent ratio. The ratio is calculated by taking the median home price over the annual median rent in L.A. If the ratio is high — meaning that home prices are beyond their fundamental value based on expected rental revenues — that points to a bubble. Again, let’s look at history.

Two previous peaks were in December 1989, with a ratio of 14.8 to 1, and in February 2006, with a ratio of 24.4. According to Zillow, the current price-to-rent ratio in L.A. was 17.1 in May, which is far below the 2006 bubble level but still higher than any time before 2003.

That doesn’t worry me, though. A high ratio doesn’t spell danger for Los Angeles because, similar to New York (ratio: Manhattan 25, Brooklyn 23) and San Francisco (ratio: 21), it’s now a “superstar” city. L.A.’s size, amenities, weather and geography make its houses an investment target for the global elite. Wealthy individuals from all over the world don’t care that it might make more financial sense to rent, because they’re not simply buying Los Angeles houses to live in them, they’re also trying to diversify their financial portfolios.

Even though Los Angeles is one of the least affordable cities in the U.S., all factors indicate that it is not in a housing bubble. Of course the bull market will end eventually, but that doesn’t mean we’re heading for a devastating crash, like in 1990 or 2007. Whether you should put up a million bucks for that bungalow is another story.

Posted by on Aug 20, 2015 in Forecasts, Jim's Take on the Market, Market Buzz, Market Conditions | 2 comments

Bubble or No Bubble?

thorn

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:

http://ww2.kqed.org/news/2015/02/18/is-the-bay-area-in-a-bubble-and-will-it-burst

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

SD Lower Tier Is Hotter

SD Tiered

The ivory-tower opinion below is blaming speculators for a mini-bubble, but around here I’d say that over 90% of the home sales were regular, organic real estate transactions in 2013.  Prices may fall in the coming months (slightly), and if they do, it will be because buyers are being patient and picking off only the best buys.

http://journal.firsttuesday.us/california-tiered-home-pricing/

Home prices displayed mixed signals in Los Angeles, San Francisco and San Diego in the single month of October 2014. Prices dipped in San Diego, remained roughly level in Los Angeles and rose slightly in San Francisco. Low-tier property prices are still on average 10% higher than one year earlier. Mid-tier and high-tier prices are 6% higher.

As in 2010, today’s price movement is the tail end of a mini-bubble, set into motion some 18 months earlier. This price rise was produced by short-lived speculator interference in 2013 (not a tax stimulus, as in 2009). This pricing activity is under pressure from insufficient personal incomes, rising fixed-rate mortgage (FRM) rates and new construction.

Prices are expected to fall in the coming months, likely bottoming in mid-2016 and retreating toward the mean price trendline. The cooling of speculative fever and continually rising mortgage rates will prolong the falling trend in sales volume, pulling prices down in turn. Remember, real estate prices track and run with bond prices due to interest rate movement. A lag time of up to 12 months exists due to expectations of continued recent price movement — the sticky price phenomenon.

The graph tells the story – the higher-end market is ‘soft’, and only those with precision pricing are selling.

Posted by on Jan 8, 2015 in Forecasts, Market Conditions, Sales and Price Check, Same-House Sales | 2 comments

Hot Start in 2015?

Here’s why I think we’re going to get off to a fast start in 2015:

mortgage rates 123114

1.  Mortgage rates are LOW!

We’ve seen previously how sub-4% rates have energized the demand.  Now that rates have been in the 3s for a number of weeks, the word is getting out.

2.  Inventory is picked clean.

December 31st is the day that has the most listings expire, and we lost 126 last night.  This morning there are only 695 houses for sale between La Jolla and Carlsbad, an area of roughly 300,000 people.  Not much for buyers to consider.

3.  Old listings are selling during the holidays.

Of the 64 NSDCC houses that went pending since December 18th, twenty-nine of them (45%) were on the market for more than 60 days – and that’s not counting the relists.  During the Hanukkah/Christmas time, buyers went out of their way to snap up a home that has been sitting for months?  You would think it would be tempting for them to let an old listing ride a couple of more weeks and get back to Santa instead.

4.  Smart-pricing is being accepted.

Now that prices have been flat or barely rising for a year, sellers and agents are figuring it out – you can’t throw any old price on a house and expect it to sell.

SD market conditions

All we need is more product!  We should see a slew of relists this month – my guess is 50% of the ‘new’ listings will be ones that failed to sell in 2014.  But they will help shine the spotlight on the hot, fresh new listings!

Get Good Help!

Posted by on Jan 1, 2015 in Forecasts, Jim's Take on the Market, North County Coastal | 0 comments

Blog Down

2015

Bubbleinfo.com was down for a while this morning.

This blog is hosted in Germany, and my main WordPress guy is in Ireland – the internet is an international market!  We had changed from BlueHost to MediaLayer, and since then I haven’t noticed any problems with the blog being down over the last couple of years.

Has anyone experienced any problems connecting to the blog?

I want to make sure everything here is running smoothly, because I’m going to come out blazing in 2015 – more listings, more videos, and more Kayla!

Posted by on Dec 28, 2014 in About the author, Forecasts | 1 comment

‘Axis of Housing Happiness’

Today’s GDP report should make a few people giddy, but this guy is way ahead:

Next year is going to be a great one for real estate, two pros in the sector told CNBC on Monday.

For broker Fred Glick, it’s all about jobs, oil prices and interest rates, which translate into more money in consumers’ pockets and more confidence.

“This is all going to turn around to a happiness. I call it the axis of housing happiness in that you have jobs, you have low oil prices and you have low interest rates,” Glick told “Closing Bell.”

“This is great, I love it here.”

http://www.cnbc.com/id/102290355

Posted by on Dec 23, 2014 in Forecasts | 3 comments

Upbeat on San Diego Market

2014-01-17 16.54.56

I think this is the first time we’ve heard from the chief economist of realtor.com, so glad they are trying to at least stay even with Zillow in the sound bite department.  From the UT:

http://www.utsandiego.com/news/2014/dec/04/trulia-realtor-housing-forecast-mortgages-homes/

An excerpt:

“San Diego falls into a short list of markets where I would say demonstrably already that demand outpaces supply,” Smoke said.

“That very tight supply condition puts it in a market that has next to zero chance of seeing prices decline.”

Jed Kolko, the chief economist for Trulia, noted that people expected interest rates to rise last year, and that never happened. He listed San Diego as one of the nation’s 10 markets to watch next year, with Fresno the only other California metropolitan area to make the list. Others making the positive list are Boston, Dallas, Nashville and New York.

“They have strong fundamentals for the housing market without the risk that prices look overvalued,” Kolko said. “These are the markets who are in that sweet spot where the conditions are ripe for a strong year, without much downside risk.”

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

At the end of this video she mentions the most hilarious comment in the history of real estate by the Case-Shiller talking head, David Blitzer – a guy who has never been seen outside of his ivory tower:

“It’s no longer about location, location, location, it’s about data, data, data.”

Posted by on Dec 5, 2014 in Forecasts | 0 comments

Local Valuation Changes

Zillow has refined their forecast of local ZHVIs over the next year.  The Zillow Home Value Index results have tracked the Case-Shiller Index closely, and are probably as good as any crystal ball in predicting the future.

These are the predicted changes in the ZHVI by October 31, 2015:

Zillow Appreciation Forecast
La Jolla
+1.7%
Carlsbad
+1.4%
Solana Beach
+1.2%
San Diego
+1.2%
Del Mar
+1.0%
Carmel Valley
-1.0%
Encinitas
-1.0%
RSF
-2.0%

The Case-Shiller Index for September will be released on Tuesday, and Zillow is predicting that the non-seasonally-adjusted numbers (which are the ones publicized) will be negative:

z prediction sept 2014

The media will be using words like ‘fragile’, and ‘struggling’ to describe the real estate market, and we’ll probably hear calls for more intervention.

But the market is supposed to go up and down; that’s why they call it a ‘real estate market’, and not a ‘real estate guarantee’.  The history of real estate has followed a ten-year pattern (which it did until Angelo’s creative financing skewed the timeline), which means we are due for at least a plateau.  The local trough was April, 2009, and we’ve been flat for at least six months.

Our market is fine – you will still be able to sell your house next year for more money than it has ever been worth.  We’ll still see bidding wars and OPTs.  Just don’t buy the media’s version that the sky is falling just because prices aren’t going up constantly.

More forecasts here:

http://www.calculatedriskblog.com/2014/11/update-more-2015-housing-forecasts.html

Posted by on Nov 23, 2014 in Forecasts, Jim's Take on the Market | 3 comments