News

Why We Believe There will NOT be a Residential Real Estate Bubble in The Next Few Years

Housing Bubble

Barring consumer reaction to a traumatic international or national event (terrorist attack etc.), there are some major factors in play within the economy and housing market which should prevent a recurrence of a bubble in the residential real estate market in Southern California over the next few years. These factors include:

 

 

 

  1. Return of Annual Job Growth to Pre-Recession Levels In SoCal
  • Job growth in coastal counties such as Orange and San Diego have returned to the pre-recession 30,000 to 40,000 new jobs a year range.

 

  1. Annual Home Price Appreciation Over The Last Year Is In The Annual Inflation Range
  • The six traditional counties of Southern California appreciated at an average of approximately 7% between November 2013 and November 2014.
  • There was little to no appreciation in many areas of Southern California over the last half of 2014.
  • The median price of homes in Southern California (low $400’s), is still 18% less than the last peak (2007).
  • Although a stark contrast to boom years, low annual gains in home price appreciation actually makes it easier for builders to plan for the future as long as land sellers become realistic as to their future expectations (circumstances which have not yet occurred for either party).

 

  1. Although On The Upswing – Unsold Housing Inventory Is Still Relatively Low
  • Historically, 6 to 12 months of new for-sale housing inventory represented a balance in supply and demand in Southern California. Today, virtually no major submarket in Southern California has more than 6 months of unsold inventory.

 

  1. A Scarcity of Toxic Mortgage Securities In The Secondary Markets Combined with Currently Stiff Mortgage Qualifying Requirements
  • A large volume of toxic mortgage backed securities are not dragging down the secondary markets as experienced during the 2006 – 2011 recession.
  • Freddie and Fannie were extremely profitable in 2013 and did well in 2014.
  • Although the appraisal industry has become a little more flexible, relaxation of mortgage qualifying criteria has been slow to move. This contributes to prevention of an overheated market condition.

 

  1. Foreclosures & Short Sales Are On A Downward Trajectory In SoCal
  • Over the course of 2014, foreclosure sales are down approximately 6% and short sales have declined approximately 10 %.

 

  1. Long Term Interest Rates (Mortgages) Are Still At Record Low Rates
  • Conforming thirty year fixed rate mortgages remain below 4.5% – well below the median over the last 20 years.

 

What Are The Two Most Significant Factors Putting A Current Lid On A Dynamic Housing Market?

  • Mid-2012 to mid-2014 home price appreciation has reached a level that has applied the brakes on consumer affordability
  • Continued stagnation in wage growth

 
Stayed Tuned!

Our next blog will discuss what elements must occur for the housing market to return to a more dynamic state.