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?

  • PB

    Bank foreclosures were slowed by the federal bill that required banks to halt a foreclosure action while they discussed restructuring a loan with a borrower. This led to a temporary shortage of supply which squeezed supply just as demand accelerated from people buying cheap loans before house prices rose.

    Now foreclosures are rising, interest rates are a full point higher than at a year ago, so a market slowdown is inevitable. It won’t soften, but it will slow.

  • lee

    It is another bubble! Prices go up, they go down. Come on real estate agents and brokers, show some principles here. We are heading back to where homeowners will be way underwater when the bubble bursts like last time and then we will have a lot of foreclosures again. Houses should not be used as investment vehicles to make someone rich. What is wrong with a stable affordable market. Nothing wrong with appreciation so a homeowner can move up, but flippers stay out! You are the ones that caused the market to go insanely high and the homeowners are the ones who paid when the market crashed.

  • commando

    It’s not about R. E. agent or broker prices are going up, it’s about investors getting rid off their $$$ buying as much as they can before our currency crash.

  • Let me just start by saying I am an agent on the Westside of Los Angeles, and my comments are for my specific market.

    Prices go up, they go down, that is the nature of all markets in capitalism not just real estate. Are you going to continually call every market a bubble? Yes, the prices are up and yes, there is very little inventory creating competition for properties out there driving prices up even higher.

    BUT, the money markets are different than they were 10 years ago. People could get loans based on fraudulent information making money easy to come by, easy to throw around and easy to walk away from properties purchased. People were able to inflate prices because the buyers could get loans for them. As the lending industry has tightened, the loans are given to people that have the good credit and skin in the game (20% down), making default unlikely. The market has also opened up to foreign money in a way never experienced before.

    In LA, if you writing an offer with a loan with less than 20% down, chances are you will be passed up by most sellers. Here it seems that most affordable properties have at least one all cash or non-loan contingent offer. Here we are not dealing with theoretical money on paper, we are dealing with real money. For people to foreclose, they will be losing a lot more than credit scores. This makes the likelihood of mass foreclosures leading to a bubble burst more unlikely.

    That being said, there are 2 things I see that will bring prices down. 1) Interest rates going up will make buying power go down so prices can take a hit. Again, in LA I am seeing so many cash deals I wonder how much of a fall it will take. And 2) when sellers realize the money they can get for houses, and everyone decides to put their houses on the market, that will quell inventory scarcity.

    However, think about what your parents paid for their house, what your grandparents paid for theirs…. Even with inflation, I really don’t think it is possible to say overall the markets were ever a true bust. Don’t think of homes like stocks and you will do fine.

    It really makes me sad that people like Lee are so prevalent today. (People that hate real estate agents and blame them for crazy markets.) Agents and brokers are here to help people purchase and sell homes. We are advisers and not creators of the markets. We study and advise. We don’t create the capitalist system we are working within. Supply and demand are still the real creators of the market we work in.

    And guess what? House flipping enables upgrades in dusty neighborhoods that most buyers are not willing to take on themselves. Yeah, people get paid for that. Hopefully you get paid for the service you provide to society. (Crappy house flipping excluded in opinion.) (Another comment aimed at “Lee” who seems to hate flippers.)

  • Lisa Rivera

    Small Fleepers buying for $240k & fleeping for $350k or $350 & selling for &450k they buy cash or hard money they get all the properties our 10% buyers or FHA buyers don’t stand a chanceThese Fleepers are helping the bubble, but my question is when they sell how do they get the appraisers (who are supposed to be neutral now&honest ) appraised these properties so soon for over $100k in 2 month since they purchase the property OK when they buy they buy cash but when they sell they got it sell to a regular buyer FHA or maybe 20% conventional I’m an old timer and the market is so corrupted beginning with the banks
    I’m sure agents know what I’m talking about .