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”.
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?
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:
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.
The latest from Altos data @mikesimonsen: financial markets are correcting dramatically + #mortgagerates are at their highest in 2 yrs. How quickly will this impact #homebuying decisions?: https://hubs.ly/Q012SS230
Jim the Realtor is legit - I interviewed three brokers; he said list price should be $100,000 higher than the other two brokers; listed it with him and had all cash (no financing) offer in two days, five day contingency period, closing in two weeks - and it closed at his recommended list price. I could not recommend anyone more than I recommend Jim the Realtor.
When we moved to San Diego in 2005 we rented a big house on Mt. Soledad (La Jolla) with 180 degree ocean views for the same payment as a mortgage on a dump in Chula Vista. Clearly something was wrong. Yet, the media was full of the usual happy-talk nonsense, so I was glad to find Jim's blog. I've followed his honest assessments and data since.
We decided to sell and move to AZ at Thanksgiving. Dec. 1st we met with Jim to sell our home. We closed today (29 days later). Jim orchestrated a feeding frenzy -- we had 25 showings in 2-1/2 days, multiple offers, and sold for well over asking price. I'd say he earned his commission! We have owned and sold homes in 5 different States always using experienced, productive, full-time realtors. Jim outshines them all.
You don't decide to sell and close 29 days later over Christmas (with COVID lockdown) without some miracles. Donna was amazing at performing lots of those miracles and ensuring that everything was done right and on time. They are a terrific team with a very responsive and professional network.
Where do we begin..2020 has been a year for everyone. When COVID hit and shut down both my husband and my businesses, we were left with a mortgage and very little income coming in. We were stressed, scared and felt stuck. We made the hard decision to sell our home and move out of state. We contacted the Klinges' and spent a good hour going over what we hoped we could accomplish. Jim and Donna came over with comps in hand and suggestions on improvements to get our house ready for the market. It was overwhelming to think about, but Donna was there and one step ahead in every scenario. Basically we just approved what they suggested and Donna handled literally everything. We placed our house on the market and within the first day we had multiple offers well above asking price! We couldn't believe it. We were overjoyed! Jim countered the offers to weed through them, and everyone came back with way more. It was amazing, and we are ?? sure it was because of the staging and repairs the Klinges suggested we do.
Due to unforeseen dishonesty from the buyers lender, we hit a big hurdle when trying to close. We had already moved out of state and were shocked when three days before closing the lender dropped a bombshell on the buyers and us. However, Jim and Donna handled it like veterans, not afraid to play hard ball and represent their clients. After a few phone calls with us, and several between Donna and the lender, they had a plan B-Z to make sure we were taken care of. In the end we closed with even more money than we ever thought possible and with very little work from us. The Klinges handled this entire "2020" worthy event with the utmost professionalism and did everything in their power to not only make this as smooth as possible for us, but we also walked away with more money from the sale of the house than we ever hoped for. After working with Jim and Donna, you don't ever use anyone else. They are hands down the best team to represent you in any scenario.
Working with Klinge Realty Group was a great experience! They are very responsive, professional and knowledgable about the real estate market! I would definitely recommend Klinge Realty Group.
Jim and Donna Klinge made the sale of our condo extraordinarily easy. They know the market and gave us sound advice backed by details and very considerable experience, reflected both in the initial pricing and subsequent negotiations. They work together as a team and are always available to talk. We had a few challenges with our property and they were able to coordinate the resolution to everything, including items that I would not think would ordinarily be their responsibility to handle. They made the whole process effortless on our part. They are folks with high integrity and we cannot recommend them highly enough.
Review for Member: Donna Klinge
I cannot believe there are no reviews of Donna yet, ugh!! She is the secret sauce of the Jim Klinge/Donna Klinge combo! I will touch on Jim here, but Donna is why I'm so totally loyal to these two (no offense to Jim :)).
I consider myself a rather savvy buyer/seller. I've bought/sold 7 times in about 15 years. On the buy side, Jim is the PERFECT combo of: completely digitally savvy (he will pull data all day long until you feel comfortable with your chosen house, area, school district, anticipated appreciation rate...anything!), he's super well respected and known in the area by other agents, an amazingly cool but strategic negotiator, is totally devoid of desperation for a sale/commission, and more.
Then once you get into contract phase, Donna literally handles every last and final detail in a concierge-like manner -- totally shielding you from the daily back and forth, noodling and annoyances of the buyer's requests. She solves it ALL; it's miraculous what that woman accomplishes over and above what is even expected in a buy/sell transaction.
On the sell side, Jim and Donna do the same, but even moreso. Donna in particular truly takes everything off your plate: she'll manage getting the house painted, the carpets replaced, she'll go on site (as she Jim both did for me when selling our rental properties) to work with the renters and make sure the house is ready to show -- freeing me to have to take time off of work to do so. They work with A+ integrity, too, so you know you are serving all parties fairly and lawfully throughout.
A home purchase/sale is the most considered you'll ever make. HIRE A SAVVY AGENT, not a friend!, and get what you need out of the transaction. Jim and Donna are our agents for life.
Jim and Donna Klinge are by far the most professional, personable and responsive realtors I have ever worked with. They provide VIP concierge level service in every area of the process of selling your home. My home was marketed so successfully that we received an offer the day after our first and only open house. Thanks to Jim's pricing and negotiating, our house is now the highest sold in our community. Jim's vast experience means he has worked with several realtors and knows the market all over north county. Donna is AMAZING in processing everything in the transaction. She scheduled trades people to work on the house in preparation for the sale as well as the repairs needed before closing. She communicated clearly every step of the way about what would be happening. She took the weight off my shoulders for the whole process. I will always use Jim and Donna for my future real estate needs and I whole heartedly recommend them to anyone buying or selling a home.
Jim and the team at Klinge Reality are without a doubt the best in the business! Not only was Jim helpful and extremely knowledgeable, he was patient and determined to help me find my first home. Jim and his team have been in the business for many years, and it shows. Jim is a wealth of knowledge and was my biggest proponent despite the temperature of the competitive market. I ended up getting the perfect property in my dream neighborhood all thanks to Jim. From the day my offer was accepted, Donna was a real lifesaver. She was extremely helpful, responsive, and knowledgeable when it came to every minute detail, and held my hand through the process. As a first time home buyer I had no idea what the process would entail, but Donna curtailed every concern I came across and made the escrow process feel seamless. Jim and Donna provided me the best home buying experience, and I am very grateful for all they did for me. It was truly a pleasure to work with Jim and Donna and I am already looking forward to the next time we work together!
Review for Member: Richard Morgan
Richard is an amazing realtor! He has high integrity and genuinely cares about his clients and their needs. Richard paid close attention to what I was seeking in a home and was very patient in our search to find it. I would highly recommend Richard and will use him for future transactions. Truly a different kind of realtor experience!
Could not be happier with my experience with Jim and his team. He helped me sell a very unique and challenging property. Throughout the entire process he was always available, honest, transparent, trustworthy, and always put my interests as a seller first. A (rare) true professional! During close of escrow Jim went above and beyond to complete the deal. It would not have been possible without his experience, fantastic team, and pure dedication. Highly recommended!
Thanks Jim and Donna Klinge!