We’ve seen that the bottom of the Carlsbad detached-home market has been around $800,000 all year. Can you get into something similar for less?
Here’s a tour of a 4 br/2.5 ba, 1,997sf twin home in the far-north end of Carlsbad built in 1987 and without any real improvements since. This closed for $620,000 in October:
We are happy to cover all sides of the bubble beat. This is the second release this month from our perma-bear, Mark Hanson. He has been saying the same thing for 3-4 years, and it’s all based on theory and previous history. Around here, our market is almost completely driven by owner-occupiers who are buying homes for the long-term:
If 2006 was a known bubble with housing prices at “X”, affordability never better, easy availability of credit, unemployment in the 4%’s, total workforce at record highs, and growing wages, then what do you call today with house prices at X+ 5% to 20%, worse affordability and credit, higher unemployment, weakening total workforce, and shrinking wages? Whatever you call it, it’s a greater thing than “X”.
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.
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?
We should see Bubbleinfo-TV-by-drone before too long, and I was wondering what else could be done with real estate videos. Remember these guys? You don’t think it will come to this, do you?
Nick at the Wall Street Journal has been doing a great job covering the real estate market lately. He likes to stir it up on Twitter, and yesterday he got a few experts to chime in about pricing in 2014:
There is always a lot of banter and hyperbole, but pricing is somewhat predictable. Sales are the leading indicator – and when sales start lagging, typically prices will follow shortly thereafter.
Here are the quarterly NSDCC sales counts for the last three years. While it looks like there was a big drop-off last quarter, the sales in 4Q13 were actually higher than they were in 4Q11, when rates were comparable and pricing was 32% lower – so no panic yet:
Quarterly Sales
1Q
2Q
3Q
4Q
2010
496
736
653
576
2011
553
728
699
582
2012
577
900
845
832
2013
672
996
883
631
I think we will see the same ingredients in early 2014 that led me to believe we’d have little or no appreciation. What changed was the how I think sellers will react to it.
They will likely tack on the usual 5% to 10% (or more) onto the recent comps, and tell their agent that they aren’t in a hurry, and don’t have to sell. Buyers will hesitate, and the only homes that will be selling are the best-quality buys.
But instead of lowering their price to help cause a sale, the remaining sellers will wait or cancel, chalking it up to the ‘changing market’, and not to their unwillingness to sell for what the market will bear.
So while it might appear that pricing is on the rise, it will be on thin trading. Once it becomes obvious that sales are falling – after being compared to strong counts from the frenzy – then we’ll see if the usual market fundamentals cause prices to follow.
They may not – after all, it is the new normal now. We could see sellers put their home on the market every spring until they get what they want – the ultimate ‘Make Me Move’ market.
Bubbleinfo on Twitter, where you’ll find links to additional articles by others, with the first line authored by me as a tee-up. Each new bubbleinfo tweet is posted in the right column here on the blog (and if you access via a mobile device, underneath the posts):
A panel of esteemed housing experts speaking at the ABS East 2013 conference underway in Miami disagreed on Robert Shiller’s recent call that U.S. housing is in a bubble.
Moderator Howard Esaki, managing director at Standard & Poor’s, who himself puts out regular morning emails encapsulating finance news, played a video on Bloomberg of Shiller talking of a housing bubble.
Shiller co-developed the S&P/Case-Shiller Composite-10 Home Price Index and actually said housing was looking bubbly. His words were later moderated in a column in the New York Times.
The panel elaborated on whether or not U.S. housing is actually in a bubble. No one believes it is.
Mark Fleming, chief economist of CoreLogic, said price appreciation is slowing down, and is only correcting for an overshoot in price collapse. He didn’t think it would return to the inflated pricing before the housing bust.
“We are certainly not in a housing bubble,” said Laurie Goodman who heads up a housing thinktank at the Urban Institute. Both Goodman and Fleming said housing could absorb higher interest rates and remain attractive. Goodman posited that even with a 6% interest rate, affordability would remain at 2000-2003 levels, which were pretty stable compared to 2006-2007.
“I don’t see interest rates going to 6% any time soon,” she added.
Esaki then addressed the crowd at ABS East, where attendance is at a record high (3,500+) with an estimated 1,000 investors, according to data released by organizer Information Management Network.
Esaki asked for a show of hands: “Do you think there is a housing bubble?”
Not a single hand went up.
Later an audience member pointed out that “no one raised their hand, so maybe we are.” The devil’s advocate then sat back down and the panel moved on to talk about the slim chance of near-term GSE reform.
The folks at www.1worldonline.com like to poll their audience, and last month they used a bubbleinfo.com blog post in one of their surveys. Their readers voted on this question:
Is the increase in real estate value a sustainable trend? Home prices have increased substantially in the last year compared to the previous seven years. Is the increase a sustainable trend, or just a miniature housing bubble?
Chris says 55% of respondents believed another crash was going to come, with more Republicans strongly believing in a crash.
Those who voted for another crash may have been influenced by the opposing blog post to mine, which talked about the millenials facing a weak job market, and shrunken workforce in general.
This was his summary paragraph:
With investors fleeing the real estate market because of higher interest rates, with fewer people working and those that are working are earning and saving less, who is going to be able to buy houses in sufficient volumes to keep the real estate “recovery” going? It doesn’t matter how low interest rates are if people don’t have the incomes, savings or credit to buy homes. Rising interest rates can only make a bad situation worse.
My rebuttal, which, like my blog post, pertains to our local market:
Investors fleeing? Supply evidence please, or is that just a guess? I still get emailed every day by investment groups wanting me to send them deals. If there are fewer investors buying, it’s because there are fewer deals, which would mean prices are holding up or going higher – too high to make sense for flippers. Investors are supplying the floor to the market.
Unemployment has been terrible, with little or no improvement in the last few years – yet our real estate prices have gone up 20%. Apparently, the local real estate market is NOT influenced by unemployment.
Savings or credit? You can obtain an FHA loan up to $697,250 with 3.5% down payment and a FICO score as low as 580. PacTrust Bank will give you a 30-year fixed rate around 5% even if you have had a short sale in the last year. Most anyone can get a mortgage if they want it bad enough.
Even if it’s not as bad as he says, we keep hearing how ‘demand has been pulled forward’. If so, it’s a good question – who will be the future buyers?
The future buyers will be the first-timers and others who want to finance their purchase, especially with a lower down payment, who have been shut out by the big-money investors and cash buyers in general. This future-buyer pool will likely have a limit on their resources, so the appreciation trend will probably moderate, and prices will fluctuate from area to area.
But with a county population of 3.14 million people, we don’t need everyone in the pool – we only sold 3,466 homes in the county last month. You could exclude 90% of the population from the market and we’d still have enough demand…at least until the baby-boomer liquidation sale starts around 2020.
The perception of affordability, combined with the fact that home prices compared with rental rates are at levels last seen in the early 2000s, is making it tempting for people to think now’s a good time to buy a home.
“We are currently in a carnival funhouse mirror,” says Stan Humphries, chief economist at Zillow. ”Homes seem quite affordable when at base they are not.”
Humphries says there’s a lot that worries him. The main tool the Federal Reserve uses to fix the broader economy—lowering rates—”could, if it hasn’t already, reinflate a bubble in the housing sector.” If incomes start to grow more, home values could move more into line with historic norms, but that’s not likely.
More likely, in his view, is that as rates rise and push mortgage payments higher, people are going to realize that homes—and not just mortgage payments—are overpriced for what the nation as a whole earns, which in turn could send home prices tumbling again.
Humphries’s outlook is unsettling. He says many people think that once home prices corrected from their overinflated bubble levels, the market would be back to normal. But that’s not the reality he sees. “It’s really a period of oscillations that will be disorienting for buyers and sellers, and I think we are far from done.”
Remember the days when residential real estate gained equity each year? It’s happening again in California, and a year from now homeowners could see as much as a 20 percent increase in the median price of homes across the state, according to Bruce Norris, a Riverside-based real estate analyst and principal of The Norris Group.
“My best guess is that California we will have significant price inflation. Prices could escalate so strongly that we will think we are in 2004 instead of 2013.”
Some may ask how this is possible. But Norris has experience predicting the unpredictable.
A real estate consultant, investor and educator for the past 30 years, Norris publicly predicted the current sub-prime lending and foreclosure crisis in January of 2006, more than a year before the nation’s leading economists and real estate industry analysts would even acknowledge the possibility of a downturn. Norris also correctly forecast both the real estate boom that began in 1997 and the subsequent doubling of home prices.
Norris now says he has identified three reasons why median home prices in California will go up.
For starters, he said, policy decisions have resulted in record low inventory levels.
“In many areas,” Norris said, “there’s one month of inventory. Inside of that one month of inventory are very few REOs and a lot of short sales that may or may not really be available to buy and close anytime soon. The properties that would normally be purchased by owner occupants are being snapped up by billion dollar hedge funds. These hedge funds, unlike the smaller investor types, are keeping all of the properties as rentals. There’s a little inventory for sale by ‘normal sellers with equity,’ but, right on cue they are getting the idea their property just might be worth more than the last sale.”
With the absence of inventory, Norris predicts, prices will escalate.
A second factor paving the way for the rise in median home prices in California is the return of the former homeowner who was foreclosed on in 2008 and 2009.
“The numbers of trustee sales in those years were staggering,” Norris said, adding, “As a percentage of whatever had happened in the past, 2008 and 2009 will go down in history as the California Real Estate Collapse of all time. The numbers differ across the state but the percentages are similar. In San Bernardino, the numbers of foreclosures exceeded the number of sales in 2008 and 2009. Fast forward to 2012 and you now have those same people ready and capable of buying a home again.”
So, how is it these people can buy homes so soon after going through a foreclosure? The answer, Norris says, resides with FHA, which will now make a loan to a buyer who lost their home via foreclosure after three years. “Buyers have realized that their house payment would be less than their rent, and that’s fueling demand and pushing up home prices,” he said.
The third factor setting the stage for a significant increase in median home prices is interest rates. “Interest rates are at all-time lows, and that allows for price increases to take place without significantly increasing mortgage payments,” Norris said, adding that he expects California’s median prices to up by as much as 20 percent during the coming year.
Donna and Jim provided exceptional support and professionalism throughout the entire process. We couldn't have been happier with their efforts. They made our house shine, and thanks to their expertise, it sold above the listing price in the very first weekend! Truly a fantastic experience from start to finish.
jesus a sahagun
2024-11-10
Verified
This year has been difficult on our family, mainly due to having to sell our home. Thankfully we knew God had a plan for us and working with the Klinge team was a key part of it. It was an obvious decision to work with them again after such an amazing experience when purchasing the same home we needed to sell. The challenge was, how will we do this in so little time with so much going on? Jim and Donna held our hand every step of the way. Whenever an unexpected issue arose they found and provided a solution. Never once did we feel pressured to make a decision and the Klinges were always reassuring after providing the information that the decision was ours to make. Despite the curve balls, they never panicked and exemplified the “can do” attitude, making us feel optimistic and taken care of. Their expertise and professionalism was superb. But of all the reasons to work with the Klinges, the most impactful and valuable is their compassion and genuine care for their clients. We pray that we can one day purchase our forever home and you better believe that Jim and Donna will be representing us - as long as they will have us of course. Thank you again Klinge team! Your execution, experience, and care are unmatched.
SabihaPasha
2024-07-22
Verified
Jim and Donna were fantastic! Jim understanding my needs, recommending potential places, pointing out the pros and cons of each property was invaluable. Then when the offer was accepted Donna’s organized guidance through the inspections, paperwork etc made the whole process seem effortless.
So grateful that I had them on my side!
dodyfrancis
2024-07-10
Verified
I appreciate Jim & Donna's great teamwork, sound advice, and guidance that eased the stress of selling our Carlsbad home. Their professional input and assistance throughout the process was very helpful. Highly recommended!
sbisachsen
2024-07-10
Verified
The Good
The Klinge Realty Group operates like a finely tuned machine, with a very personal touch. We contacted them on a Sunday and they were talking to us about our family and our needs on our living room couch the following day. They carefully listened to us and worked with us to identify the best and quickest path to listing within 2 weeks to take advantage of the low inventory conditions in our South Carlsbad neighborhood. They knew our tract specifically and had many previous sales there over the years - they came prepared with a thorough analysis of comparative sales and recommended a pricing strategy that they felt confident would yield offers the first weekend on the market.
The Great
Over the next two weeks Donna coordinated a range of vendors who she knew from experience could get the preparation to list work we needed done on time and with high quality. Our light tune-up involved excellent experiences with their stagers, landscapers, contractors, electricians, and plumbers. Throughout this period Donna's daily communication was clear, concise, and responsive. Any time we had questions Donna picked up the phone or texted immediately - but almost always, she answered our questions before we even knew we had them.
The Outstanding
We had a tricky situation with a shared fence that could have delayed our escrow. Donna used superb mediation skills to negotiate the terms of replacement and was personally on site with the fence contractor to make sure everything went smoothly. The fence looks great and escrow closed on time.
The Truly Exceptional
Our house came on the market on a Wednesday and between then and Monday morning Jim was personally at all three open houses. He was in constant communication explaining potential buyer reaction and strength. As he predicted offers began to come in on Saturday and each one was incrementally higher than the last. At the end we had 5 offers, 4 of which were over list, and the final accepted offer was $100,000 over list. In addition to being over list it included rent back terms that met our needs.
The Recommendation
For all of these reasons we would strongly recommend The Klinge Team to anyone wanting to sell in North County Coastal San Diego. I had been reading Jim's blog for 15 years and knew when the time came to sell that he would be our first call. Jim Klinge is not your standard realtor. He is keenly aware of market conditions and sales strategies. And, works his tail off - though not as hard as Donna . At this point he's gone from realtor to friend and I plan to have him over to grill and chill at our new place to talk real estate, but also just about life and raising kids in San Diego. He's more interested in relationships than his sales numbers - and that's why his sales numbers are so high. We have already recommended the Klinge's to some close friends and another successful sale is on deck right around the corner...
user19164788
2024-06-21
Verified
We recently had the pleasure of working with Jim and Donna from Klinge Realty Group to sell our house, and we couldn't be more satisfied with the experience. From the initial meeting, they listened attentively to our needs and provided invaluable guidance on specific improvements to get our home market ready.
Their responsiveness throughout the entire process was truly impressive. Anytime we had questions or concerns, they were quick to address them, ensuring we felt comfortable and informed every step of the way. What stood out the most was their team and extensive network of tradespeople, which made addressing any necessary repairs or updates seamless and stress-free.
Thanks to their expertise and dedication, our house sold quickly and at a great price. We highly recommend Jim and Donna to anyone looking to buy or sell a home. They are a fantastic team who truly care about their clients and deliver exceptional results.
cali4neal
2024-05-07
Verified
We had a wonderful experience buying our home with Donna and Jim! In particular I was very impressed with their efficiency and support through the purchase process. As we were doing the walk through, Donna started contacting roofers, plumbers, aircon, electricians, etc for all the areas we needed potential repairs - by the time we were done with the walk through appointments were already set up to get estimates for all the major services. When we had to change an appointment, or couldn't make one, Donna was there to arrange things to fit our schedule. Even after we closed on our home, Donna helped set up the repairs we needed before move in day. They truly went above and beyond to deliver exceptional service. I'll be calling them for our next home!
zuser20160809095816651
2024-03-16
Verified
The sale of our home exceeded our expectations - Jim and Donna Klinge are the best!
We’ve followed Jim’s Bubbleinfo blog since the 2006 housing bubble. After he helped us buy in 2017 we stayed in touch and Team Klinge were the obvious choice when it came time to move. They guided us through the preparation of the house, including a kitchen refresh - Donna and Lisa skillfully managed the various contractors for us after we had moved out of state. Donna’s excellent attention to detail and regular communication made the whole process run smoothly from a distance.
Jim’s market knowledge, expert negotiating skills and candid opinions, together with Donna’s responsive communications and problem solving, set them in a league of their own.
Highly recommended!
bourmakin
2024-02-09
Verified
Jim and Donna have exceeded my expectations with sale of my house. It was best experience with house sale. Professional, responsive, superior negotiating skills. I would recommend them with 5 star (I would give them even more than max) rating. Sale of my house was closed for really good price in 10 days. Jim and Donna perfectly handled house preparation for sale. Thanks a lot!!!
user1916779
2023-11-17
Verified
Jim and Donna have exceeded my expectations and made my most recent move back to California go so much more smoothly than I expected. Jim’s Bubbleinfo blog was full of useful information about the current market conditions. His experience helped us make a successful offer for the home we wanted in a desirable neighborhood. After the purchase Donna organized the work we needed done in the house without us having to make an additional trip. We were pretty worried when we started searching for real estate that not being in the area was going to makes things really difficult but Jim and Donna made the process so much easier. I enthusiastically recommend them.
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