Kingside left this comment regarding the Norris seminar:
I attended Norris’s presentation at SDCIA on Tuesday. Well worth attending.
He acknowledged that wages have not gone up, but he believes we are truly in a new normal. The phrase “lowest interest rates in 50 years” we hear is because they don’t keep records older than 50 years. He recently went to DC to research the history back to 1850 and said that rates have never been this low. It is an unprecedented event.
His perception of course is based on the Riverside market, but he made a big point of saying that a 20% price increase will not significantly affect a buyer’s mortgage payment, and even after such an increase the rent to buy comparison will still be overall cheaper for the buyer to buy than rent. This affordability comparison is a rare event for California. He believes there is a lot of room for price increase in California as long as rates stay low, and everything he sees is that there will be no government policy change that will affect rates.
Some of the many other points he made:
A 20% increase will eliminate a lot of negative equity. Banks know this and there will be no dumping of inventory. Their strategy to not foreclose for years and leave the borrower alone might actually be better for them financially.
If the fiscal cliff or whatever creates a national recession next year, the national government response will be to lower rates further, and California real estate prices may actually benefit from a national recession.
Sounds like he does a good job explaining what would happen if prices went up 20%, but not so much at explaining what exactly will drive prices up 20%.
Rates have been low and moving lower for a couple years now and inventory levels have been low for well over a year – and guess what …
… price levels are about the same as they were in late 2010 and late 2008.
So, given these perfect conditions, why hasn’t it happened already ?
P.S – I think your “Range Bound” post on CV was dead-on and I think it applies to most of CA as well.
Thanks sdduuuude, and welcome back to the commentariat!
explaining what exactly will drive prices up 20%.
It was Bruce who said it, but I’ll take a stab at answering.
I think prices have been going up, especially in the lower-end markets, but who and how we measure prices are so lame that the soundbites haven’t hit the newswires.
It is getting more ridiculous now that Dataquick and other allegedly reliable sources are touting increases in median prices as “California Home Prices Up 19%”.
Given that there has been little else demonstrated for years, appreciation claims like that look and sound crazy, don’t they?
I think Bruce is a great guy and is an active player in the game, which makes him more of an authority than just about everyone else.
But how is he going to measure his 20%? Median price increase? A very safe bet for the Inland Empire, and as Kingside pointed out, another 20% pop in pricing won’t change the payment much for those buying in the lower-end markets.
What will cause IE buyers to pay more? When they see that it will only cost them a couple of hundred more dollars per month to get their wife off their back, they will gladly do it.
At the meeting he spent more than two hours going through the details that lead to his conclusions, including detailed charts. He also made the balsey statement that predictions once they start happening are easy. Predicting what occurs before it happens is where the big money is made. He is putting his money where his mouth is.
If you join SDCIA (I think it is still $45), the audio of his presentation and a download of his charts will be available when SDCIA posts it.
He also gave a warmup at an investor club on 11/28/12 (not as detailed as last Tuesday’s presentation) which can be accessed here:
http://www.investorsworkshops.com/videos
The theoretical 20% increase in the equity/debt ratio theorem is just to keep people from doing the math. I understand the “hold on” a bit plea but one needs to do the math as to who benefits.
The bigger issue is arrears. If you fall behind the chances of ever getting back to even decline exponentially unless your lender grants concessions.
With rising prices and stable interest rates lenders are not going deal.
I would expect lenders to question more short sales too. The sellers with income and flimsy excuses should be more likely to get denied.
Who would have thunk it just 6 months ago that both foreclosures and short sales could be wrapping up in 2013!
“He acknowledged that wages have not gone up……but he made a big point of saying that a 20% price increase will not significantly affect a buyer’s mortgage payment”
What kind of meaningless double talk is that?! If wages haven’t gone up, then value of one’s take home pay goes down over time because of inflation in consumables (i.e. gas, groceries, health care). So how can a 20% increase in the price of house not significantly affect the mortgage payment?
The whole game of housing is like stocks..Doesn’t produce/add value to anything. Its like find the bigger fool to win.. Fool is available abundantly only if wages/opportunities are growing..
Riverside’s unemployment rate is 12.1%, a “tad” higher than 2008.
The key there (as is in LA & SD) is simply super-tight inventory and yield-chasing investors, both of which Jim has noted repeatedly. That may lead to continued short-term gains, but is definitely not a recipe for sustained growth.
“New normal” is a phrase that makes me want to keep a tight grip on my wallet.
people who took the risk and bought when everyone else was talking doom and gloom are laughing all the way to the bank once again.
How has chasing yield performed in sectors other than RRE? Actually pretty good. at least recently.
After careful thought, I happen to agree with Norris on this (but I don’t want too). I’d love to see prices fall so I could re-buy CA RE at decade’s low prices.
While nominal prices may appear high still, payments are relatively low compared to both renting and past years. Thus, more people can and want to buy now.
I’ve visited the IE a few times and was surprised at how packed the mall and restaurants were(same as Bill @ CR) in Temecula.
Wouldn’t all the Fed pumping cause inflation that will make this happen? The Fed is pumping $45 billion next month I believe and will continue for the foreseeable future.
I feel bad for the retirees. For many of them the purchasing power has a third cut off with the inflation.