Is it a Boom or a Bubble?

The June jump in California home prices is the highest we’ve seen in years! DataQuick recently reported an increase of 28.3% in home prices within Southern California since June 2012, the largest growth recorded since 1989. With such a dramatic increase, many experts have found themselves asking one question – is this increase the boom needed for the market to recover or is it the start of another bubble?

Are you encouraging your clients to buy before prices go even higher?

Home values in Southern California have jumped by 4.6% since May, reaching a median price of $385,000, some of the highest prices seen in over five years. Although this is still well below the 2007 peak of $505,000, many brokers and agents believe this deficit will be cut soon.

One optimist, founder and president of Rodeo Realty Syd Leibovitch, reported that he expects the price of homes to double from the lows of last year. According to Leibovitch, prices have historically doubled in cycles like this before they begin to fall again. A doubling in price like this could be exactly what the market needs to return to its pre-crisis highs, but if it occurs too quickly we’re likely to see the market stall, potentially leading to another crash.

Similarly, hedge fund expert John Paulson believes there are more increases yet to come. In a conference on NCBC, Paulson stated that he believes we are at the beginning of the road to recovery, and expects this trend to continue for another 4-7 years.

On the other hand, there are numerous experts who believe this trend will end shortly. Glenn Kelman, chief executive of Redfin, is one of the many. Kelman has predicted that the market will cool off later in the second half of the year due to the loss of investor activity leading to a major reduction in demand. We’ve already seen some loss in demand over the past few weeks. In fact, home sales have dropped by about 4% since May.

Although many experts have speculated on the outcome of this increase, the ultimate impact of the price jump is still up in the air, so we’ll have to wait and see how things play out over the remainder of the year.

Do you believe this increase in price indicates the recovery of the housing market? Or will it turn into another bubble waiting to pop? What are your thoughts?