While the real estate market has been bubbling, Robert J. Shiller doesn’t think we are in a real estate bubble. At least not yet. Shiller who, along with Karl Case, developed the S&P/Case-Shiller Composite Home Price Index, wrote a column for the this Sunday’s New York Times explaining why 2013 is not 2004.
The Case-Shiller 10-City Composite Index has seen a real, inflation-corrected rise of 18.4 percent in the 16 months ended in July, Shiller said, only about 4 basis points below the largest 16 month increase during the years-long run-up to the 2008 financial crisis. Is it possible, Shiller asks, “that we are lapsing into what I call a bubble mentality – a self-reinforcing cycle of popular belief that prices can only go higher?”
He sees a lot of differences between then – the pre-2008 period – and now and uses the results of this year’s installment of a survey he and Case have conducted since 2003 to illustrate them. The survey involves sending questionnaire to a random sample of recent homebuyers in Boston, Milwaukee, Los Angeles, and San Francisco. The results from the most recent survey conducted in May and June suggest, Shiller said, that we are not in a bubble now but there are troubling signs we may be heading into one.
September, 2013 is wrapping up, and currently this month’s closings of NSDCC detached-homes are averaging $468/sf, which is 7% above last month’s $436/sf, and 25% higher than last September’s $373/sf.
But there have only been 220 closed sales, with one day left plus late reporters. Last September we had 289 closings, back when the frenzy was taking root.
But with much higher pricing, we can expect fewer sales. In September 2010 we had 220 sales, and in 2011 we had 228 sales, and in both months the average pricing was under $400/sf:
The UNDER-$1,200,000 Market:
NSDCC Active Listings
The OVER-$1,200,000 Market:
NSDCC Active Listings
Reader elbarcosr suggested that “it would be interesting to see how different the upper end would look if the numbers were for 1.2-2.5 which would capture the higher end of Carmel Valley, low to mid RSF and most of the coast…. while eliminating the uber high end which, for the most part, is not swayed by buyer frenzies and daily ticks of the interest rates….”.
This is what the split looks like today, I’ll see about re-formatting the whole group for next week:
The $1,200,000 – $2,500,000 Market:
NSDCC Active Listings
The OVER $2,500,000 Market:
NSDCC Active Listings
We had a strong week below – can the media quit saying that higher rates are killing the market? Once sellers get their price right, there appears to be plenty of buyers. Price will fix anything!
Perched on the shores of beautiful Lake Okanagan, this Naramata vacation home is a family’s “dream-come-true.”
Inspired by client sketches and the surrounding geography, the project was designed from the ground up. The result is a modern home that remains true to the idea of “cabin,” being humble and unpretentious.
We used French oak on the ceiling and floors, the pre-distressed, fumed planking provided relaxed yet durable surfaces. Forgiving, not precious, it is the strongest design material in the home. Our goal for the furnishings was to achieve a sense of simple luxurious comfort, that feels curated rather and designed.
Blurring the lines between indoor and outdoor living, the home is relaxing, durable, and rugged, with a defined purpose of summertime pleasure.
The new homes being sold in Carmel Valley are about the best thing that could happen for the resale market.
Buyers get to secure their place on ‘the list’, and use it as a marker for resale comparisons over the next 3-6 months while waiting for their number to come up.
But it’s a long wait – if you are selected to purchase in the latest phase, then closings are scheduled for June, 2014. Resales offer occupancy months earlier, and for anxious buyers that is a big plus. Just the certainty of buying now vs. maybe-late-2014-or-2015 is worth something – probably 5% to 10%.
Pardee benefits too; they sell every house before they break ground, and can raise the prices steadily along the way:
Those familar with the mid-century modern homes have probably heard of the Case Study houses, which wiki calls ‘experiments in American residential architecture’. Unfortunately this video is of the corner house which is two doors down, and then only drives by the Case Study House #23A:
Case Study “Triad” House A – standing
2342 Rue de Anne, 1960
One of three related houses where the earlier Arts & Architecture puritanical vocabulary of post, beam and glass are now played off against water (reflecting pond). One of only three (hence “Triad”) San Diego examples of the 36 building Case Study program sponsored by Arts & Architecture magazine editor John Entenza and USC’s School of Architecture (1945 -’66) to promote modernism as a stylish, livable architectural form. Situated three feet below street level, House A’s 10-foot front door is reached via a pre-cast concrete path floated over a shallow reflecting pool. This 6-room modified U-plan is the most complex of the three resawn tongue and groove redwood boarding houses decoratively enhanced by the (wood and steel) post and beam (laminated wood) motif.
In general, real estate markets are hot right now and I know I’ve never seen so much building and activity in the San Diego area as I do today. And if you list a home in a desirable area you better be prepared for a bidding war.
We’ll see if that continues into the winter months. It usually doesn’t, but who knows. As Robert Shiller knows, those animal spirits often get the best of us.
But San Diego and the other California cities appear to be outliers. After all, the national index is still down 20% from its peak after a 20% climb from the bottom in 2011.
The anger of the 99% will ultimately not be bought off by yet another central bank inspired housing bubble, engineered to pacify them and divert their attention as their real incomes fall and inequality continues to grow.
The current bubble will burst, despite the Fed postponing the event by climbing to ever higher diving boards. All the time rising inequality is draining the swimming pool dry and the crunch when it comes will be ugly.
“What society needs to grow in an economically optimal fashion is not equality of outcomes, but equality of opportunity,” wrote Edwards.
“But with the grotesque distortions of income now prevailing, one’s lifetime opportunities are so increasingly dominated by what one’s parents income is that the American dream has increasingly become just that a dream, and an increasingly distant one at that.”
Received today from the National Association of Realtors:
NAR members recently received word that the U.S. Department of Housing & Urban Development would be implementing a new policy on Oct. 1, 2013, that would prevent dual agency agreements in FHA pre-foreclosure transactions.
The National Association of REALTORS® immediately began talks with HUD officials on the proposed change. On Wednesday afternoon HUD officials reported to NAR that they would reissue the July Mortgagee Letter (#2013-23) and remove all dual agency language (Part Three of the PFS Participation Requirements).
The result is that the dual agency policy will not be implemented on Oct. 1, allowing NAR to continue the dialogue with agency officials on a formal solution to the dual agency issue.
HUD had proposed the policy change in response to fraud and abuse detected by the HUD Inspector General in the pre-foreclosure sales process.
NAR, working with state and local association presidents, sent a letter to HUD highlighting the concerns about the policy and the disruptive effect its implementation would have on communities across the nation.
The NAR has applied their considerable political weight to stall the implementation, summarized in the linked letter. It’s a real hoot, scoring high on the David Lereah Comedy Scale:
1. It quickly dives into the standard NAR blast: “NAR takes fraud very seriously. Our members adhere to a strict code of ethics.”
2. He then plays the naive’ card: “One-hundred years after its adoption, the Code of Ethics continues to be what sets us apart as REALTORS. If there is evidence of fraud by our membership, we would like to be a part of an effort to develop policies that effectively address these issues.”
Come on, Gary – everyone has known about the rampant short-sale fraud for years, and N.A.R. has done NOTHING to stop it. Now you are going to play stupid, and forge some phony-baloney compromise with HUD?
All national, state, and local associations, as well as every broker charged with supervising realtors, should take immediate action to stop short-sale fraud. If we don’t, somebody else will.
We keep hearing that inventory is growing, but what does that mean?
In the traditional way that the media reports it, a growing inventory means that there are more active listings of homes for sale. The assumption is made that this is ‘good’ and ‘getting back to normal’.
But if they would look deeper, they would realize that a growing inventory of active listings means homes aren’t selling. In almost every case, it’s because they are over-priced.
If the market hits stall speed, where buyers aren’t willing to pay whatever it takes just to buy something, then a slowdown is in order.
Here is my hypothesis why a ‘slowdown’ for the rest of 2013 would be great, and set the stage for an incredible Spring, 2014.
1. Slowdown means price discovery.
For the last 12 months, the sky has been the limit for sellers, who put any price on their home and buyers paid that or more – often waiving the appraisal contingency.
With over-priced homes not selling, we’ll have additional pricing parameters.
2. Slowdown means more competition between sellers.
In areas where a few motivated sellers might be doing the stare-down, an old fashioned price war could break out.
With prices having gone up 20% to 25% in the last year, sellers who need to sell might take a little less to get it done, and still call it a win.
3. Slowdown re-engages the buyers.
The buyers who have been turned off by the frenzy will enjoy seeing more inventory lying around – and keep the demand healthy.
4. Slowdown gets the attention of agents.
Realtors have gotten away with sloppy pricing this year, but hopefully that will change once their listings start sitting around.
While a 4Q13 slowdown might be just the breather the market needs, there are other factors that could, and should, lead to a robust 2014 buying season:
More formerly-underwater sellers realize they can get out.
More baby-boomers are getting old and need help/money.
More previously-foreclosed and short sellers will be eligible for financing.
Fannie/Freddie and FHA will still be around.
Rates should be higher which makes buyers antsy.
Anti-Buy-and-Bail rule is easier to overcome for move-up buyers.
The high-flying price increases over the last 12 months have been great for headlines, but we need more sales to sustain momentum. The market conditions should be ideal over the next few months to keep the train rolling!
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