patrick.net

http://realtytimes.com/rtpages/20060818_worsenafford.htm

hings have changed since the California Association of Realtors (C.A.R.) first started producing their annual Housing Affordability Index in 1984. At that time, the index used was very different. Fixed-rate mortgages were the norm, along with 20 percent down payments, and it was assumed that the monthly payments for principal, interest, taxes and insurance would be no more than 30 percent of a household's income. Since then, mortgage products have expanded and underwriting criteria has relaxed, but affordability hasn't increased accordingly.

Explains Robert Kleinhenz, deputy chief economist for C.A.R., the index criteria has changed according to what's more normal today. First-time homebuyers no longer put 20 percent down on houses they can afford on 30 percent of their income. They no longer overwhelmingly choose fixed-rate mortgages.

Today, first-time homebuyers, as reflected by the Housing Affordability Index, buy 85 percent of the median price in the area. They put 10 percent down, the qualifying ratio is 40 percent, and they get adjustable-rate mortgages.

robertoaribas says

Thomas wrong, you have been 100% wrong on here forever. You spent the past three years predicting a housing collapse, that never happened.

Please, tell us what leading predictors you use, so I can use the opposite of them! You have unmitigated gall to say anything about housing, given your completely wrong track record,

You might want to check with that as i said.. it was a good time to buy in Miami...
certainly not in SFBA... so that makes me wrong... it certainly makes you look clueless if not a liar... care to try again...

Real Estate is LOCAL. Roberto’s experience in Maricopa County, Arizona is not necessarily repeatable in other areas. It is good to be a landlord in Arizona. It is a lot less good to be a landlord in California where a renter can get away without paying rent for 18 months.

‘Multiple Offers’ are now common in many areas of California. The reduction in inventory is causing ‘bubble like behavior’.

Bulk sales by the GSEs are happening in Ventura County, Riverside County, Sacramento County, and San Bernardino County. Prices asked have risen by 10% or more at the low end in just two months. But there are also cases where prices are dropping and investors are selling to buy elsewhere.

Inventory is low for many reasons besides foreclosures being held off of the market.

Cash buyers (like me) are losing bids to other cash buyers well over asking.

Asking prices in many areas are now just to bait the hook. At the higher end (400K+ in Socal and 800K+ in Norcal) homes can sell at a discount to asking. The first time buyer is finding California to be “unaffordable”.

Even at Phoenix’s recent price rise, California retirees will likely make Roberto rich.

fedwatcher says

Bulk sales by the GSEs are happening in Ventura County, Riverside County, Sacramento County, and San Bernardino County. Prices asked have risen by 10% or more at the low end in just two months.

Sounds like Bubble II is progressing much faster than Bubble I in CA. The general feeling in the public is already at 2006 frenzy levels, and we are only about a year in. This one is going to be SPECTACULAR. The last one was merely a practice run.

Roberto is lucky he got in when he did. If he can time things right, he can unload everything he bought at 2x what he paid, wait for the next crash and then buy twice as many rentals. Double that cash flow for NOTHING. Just keep an eye on those hedge funds though.....when the big players move, it's going to be swift and without warning.

I'll start out by saying I am a homeowner and bought last year. So theoretically I should be tickled as punch right? Not so fast. If anyone looks at the overall buying demographic, the market is missing a large factor, and that would be first time buyers. The market is being heavily controlled by investors, speculators, and large funds sopping up all the inventory, which then of course makes the leftovers seem precious and thus highly desired.

All its going to take is an exit of the investors ( which will eventually happen because shortly the numbers aren't going to work as well) and then we'll likely see either a decline or a normalization of the market.

So I'd avoid getting smug or cozy just yet.

edvard2 says

All its going to take is an exit of the investors

It could get interesting if the effects of the sequester start being felt this summer and investors pull back. Will there be enough demand from first time buyers at those prices? Or will the prices start to dip and cause a panic by all of those investors who just bought at inflated prices?

In theory another dip shouldn't cause an investor to lose the place (if their numbers made sense). But I think a lot of the newbie investors out there are starting to factor appreciation back into their calculations, which IMHO is a foolish move. For them.. It will end badly.

edvard2 says

So I'd avoid getting smug or cozy just yet.

Doesn't mean you can't be happy with your purchase though, especially as it sounds like it was for you and your family (as was mine back at the end of 2011). There is no real reason for house prices to shoot up and I'm sure things will settle down soon enough, but it also looks like they aren't going to drop down substantially either (and even more so from the prices paid back in 2011).
Monterey prices appear to have gone up a little in the last 18 months, but the number of sales is so minimal I don't really see much difference in the comparables even though the graphs show a pretty meaningful up tick. That's fine with me. I like the house. It's going to be mine for a long time. If its price tracks inflation, then that will be a bonus.

There was no housing bubble

There was a mortgage bubble

If there were a housing bubble, then houses would have been built at such surplus that they'd be giving them away now.

I laugh at these simple folk that generalize, and confuse terminology, to the point that they believe that its possible to have a housing bubble, immediatlly followed by a housing shortage. Ha!

Ha ha ha hahahahahaha

In order for something to be defined as a bubble, the elevating prices have to dupe the market into over producing whatever it is that is being bubbled, which is what brings on the crash. In its aftermath, there would be massive surplus of "housing". There doesn't seem to be any over there on the left coast.

What did bubble, is credit. Credit collaterized by the housing stock. The market became super saturated with this funny money, and that is what caused the bubble to form, and to burst. Mortgage debt is what we're left with in over supply. Not houses.

So get it straight, skippy. It was a motgage bubble,,,,not a housing bubble. If you can't take the facts, best stay out the kitchen.

Well if everyone agrees, they must be right!

sincerely, the dipstick whose boarders pay his mortgage, while he stays at his sugar mommas house for free, working 30 hours per week, and wouldn't be caught dead in a coffee shop. Jackass!

Lmao at conventional wisdum and low iq folk like roberta whom follow it

errc says

Lmao at conventional wisdum and low iq folk like roberta whom follow it

Whom is an object relative pronoun. Just saying.

Bigsby says

Doesn't mean you can't be happy with your purchase though, especially as it sounds like it was for you and your family (as was mine back at the end of 2011). There is no real reason for house prices to shoot up and I'm sure things will settle down soon enough, but it also looks like they aren't going to drop down substantially either (and even more so from the prices paid back in 2011).

Yes- it was a house to live in and whatever its value is of less concern. But if you live in California like I do ( Which I see you do) then you're also well aware of what happens when bubbles get out of control: It wrecks the economy and that in turn is bad for stability and bad for owners and renters alike. So while I 'am' happy we purchased, I am also more akin to like a situation where prices rise only modestly and the market is able to offer a stable entry point to first time homebuyers which in turn keeps the market healthy and predictable. As it is now, things are off the chart.

edvard2 says

So while I 'am' happy we purchased, I am also more akin to like a situation where prices rise only modestly and the market is able to offer a stable entry point to first time homebuyers which in turn keeps the market healthy and predictable. As it is now, things are off the chart.

In small pockets. It's not the case for the country as a whole. And even the price of real estate for much of California isn't that bad when compared to many other countries, so it's all relative.

Its pretty bad here in the East Bay. Seems to me that if we were to have waited to buy now we wouldn't be able to do so, which is crazy seeing as how we bought less than a year ago. For the market to change that dramatically in that short a time seems to indicate that the market is screwy. It just sort of makes me feel uneasy because I went through the last bubble, waiting for that thing to deflate, and it seems like we're almost right back to where we were in 2006 again, and this time it only took about 1/3rd the time to get there. Definitely not normal.

robertoaribas says

Housing bubble is defined as a price bubble.

During the housing bubble builders build more home than they would have due to the price bubble. This is well documented. You are the one that chooses to define a housing bubble as what you want to believe it is.

yup1 says

During the housing bubble builders build more home than they would have due to the price bubble. This is well documented. You are the one that chooses to define a housing bubble as what you want to believe it is.

Is that not a consequence rather than a definition?

edvard2 says

Its pretty bad here in the East Bay. Seems to me that if we were to have waited to buy now we wouldn't be able to do so, which is crazy seeing as how we bought less than a year ago. For the market to change that dramatically in that short a time seems to indicate that the market is screwy. It just sort of makes me feel uneasy because I went through the last bubble, waiting for that thing to deflate, and it seems like we're almost right back to where we were in 2006 again, and this time it only took about 1/3rd the time to get there. Definitely not normal.

You should sell in a year, capture your tax free gain, and wait for it to pop again in the East Bay.

robertoaribas says

Ok, you guys win. Then I guess we didn't have a housing bubble. Cool.

(It's fine, I can handle all of you loser morons single handedly yup1, how is
that housing prices are going down thing working out for you? It's been six
months... They must be so much cheaper for you now!!!!!)

I don't pretend to KNOW as a fact what will happen with house prices Roberto. Do you?

As a short term investment decision in Maricopa county AZ, you made a good decision buying last year, as of now. Was it a good time for a non-investor to buy? I don't know. We will know in a few years. In a few years, your short term investment might be great, or it could be terrible.

Maricopa County sales are down year over year, listings are up year over year, and prices are way up year over year. Listings up and sales down does not sound like a good market but maybe it is.

Bigsby says

Is that not a consequence rather than a definition?

It is what happened. So you tell me.

robertoaribas says

(It's fine, I can handle all of you loser morons single handedly yup1, how is
that housing prices are going down thing working out for you? It's been six
months... They must be so much cheaper for you now!!!!!)

I will not be insulting your highness any longer. Let's see if you can have a rational discussion without name calling?

yup1 says

Bigsby says

Is that not a consequence rather than a definition?

It is what happened. So you tell me.

I think I did.

Prices are still dropping here in SE PA, and that's with interest rates cratering from 7.25% down to 3.5% over the past five years.. most anyone that hasn't waited out the lower rates along with the lower prices, has taken A BATH.

By brother will close on a house this Friday @169k, that first hit the market well over a year ago for (I think) 240k.

My gf agent bluffed that the owners wanted to sell, or try and sell with asking price 260k,,,the same house that they had on market a year ago for 245k. She just extended her lease out another year for the same 1350 she was paying

My neighbor two doors down just put a sign up out front their house again,,,was listed a year ago around 180k before two price drops and eventually pulling off the market

A house sold one block down where I walk my dog past enroute to the park. Asking was 189, sold for 180 (+ seller assist id wager)

I'm privy to info from the large apartment complexes in the area, and just saw a market study for the higher end properties. Rents are stable, but concessions abound. Large concessions.

Real. Estate. Is. Local

robertoaribas says

Roberto was 100% correct in his analysis

Didn't I just do that?

yup1 says

As a short term investment decision in Maricopa county AZ, you made a good
decision buying last year, as of now.

Clearly house prices have turned the corner, now the 'momentum traders' will be tits deep into RE for years.

Even Ivy Zelman and Calculated risk called a bottom last year.

http://www.calculatedriskblog.com/2013/03/zelman-nirvana-for-housing.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29

If I was still renting waiting for prices to go lower I might consider buying, relocation, or suicide. (or all three in that order! ha!)

The Professor says

I speculate that the hedge funds may be trading their paper for real assets in anticipation that their paper may be worth less in the future.

errc says

Real. Estate. Is. Local

Two good points, no Real Estate stampede in Dallas, still bargains in Las Vegas even with the investor flips.

But, here in Southern California it's a virtual wildfire, both a Tarzana short sale and a Calabasas one bedroom with one parking space, poof ! Gone in no more than 48 hours.

mike2 says

he made a hell of a lot of money the last 3-5 years while others called him stupid, arrogant etc. Bottom line to this point he has been right and his investments have soared.

How do you think people renting and investing in the stock market have done in the same time?

edvard2 says

But if you live in California like I do ( Which I see you do) then you're also well aware of what happens when bubbles get out of control: It wrecks the economy and that in turn is bad for stability and bad for owners and renters alike.

yep.. Adams Smiths magical hand of capitalism can bitch slap you ! ouch!

I don't get your list. Aren't 2 and 4 related, or the same? And whatever the reason 2 and 4 happen, then 1, 5, and 6 are a result? 3 might be related if the jobs are construction jobs, for example, but I agree that is generally a positive sign in the economy. Especially since unemployment has been so high in recent years.

I do see some of what you're seeing in that some people will argue there is a personally-tied aspect to the dynamics of society. That personal connection doesn't allow an objective view. Of course, just comprehension comes into play and it is a challenge for anyone to comprehend all of the factors leading to some of the real estate data.

Ahh, yes, I've seen you write that mix part of the situation elsewhere. I forget. I've read numbers on foreclosures and sometimes take the absolute numbers as a big percentage even when I haven't looked up the mix. Thanks.

Also get your number 6 for Phoenix. That's never worked-out in San Francisco. I could make it work out by moving, but I've never gotten the advantage of the freedom of owning a house when it means I have to move to a different area with few of the things I like about the area where I live.

robertoaribas says

've already written all the math you need, to see the next crash coming, my website, September archive, and get out right before the wave breaks...

lets have another Katrina and the Waves hit New Orleans...lets see how many will die this time.

Yes we are all going to be walking on sunshine...
https://www.youtube.com/watch?v=iPUmE-tne5U

LOL! of all things.. we should be looking at preventing bubbles ! and frankly with all the Govt regulations which wont prevent bubbles it still hasnt sunk into the recent govt or the public what Robert Shiller has been saying for a long time... appreciation occurs barely at rate of inflation. Your betting like as if you were in a Casino.. this is not a betting game we can afford.

chanakya4773 says

You cannot prevent bubbles...period !

Yes you are right... you cannot prevent stupidity in the market... period!

Its a shame you were not able to witness the many people I have met in CA from 2000-2005 who utter refuse to consider that home prices in CA.. even in very popular regions of San Diego and LA went down back in the early 90s. Im pretty sure many have met similar bubble heads.

robertoaribas says

There are two possibilities:

its odd that corporate/partnerships/small business entities that buy/sell/rent properties and do avoid highly priced property (bubbles)... after all, key actions they keep in mind are...

act prudently and knowledgeable... ignore emotions (so called multiple bids)... allow enough time to pass, not rush the transaction ...make sure the transaction is transparent (facts) are all known..... are very informed or seek outside independent professional advisors ... act in their self interest... value is unaffected by financing ... where the agreement is legally documented and contract is understood.

definition of Market Value as in relates to Real Estate :

"The most probable price (in terms of money) which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: the buyer and seller are typically motivated; both parties are well informed or well advised, and acting in what they consider their best interests; a reasonable time is allowed for exposure in the open market; payment is made in terms of cash in United States dollars or in terms of financial arrangements comparable thereto; and the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."

Think back.. did we see highly inflated Commercial property during the RE bubble ?

What exactly did these people who bought/sold/rent avoided high prices...

Clearly some can avoid bubble prices and being a "bubble head".
There is something to learn from these folks....

robertoaribas says

#3. cannibal anarchy.

you mean ... go medieval on the Realtors ass !

chanakya4773 says

bubbles are a result of human irrationality which cannot be fixed.

where was this RE mania back in the 70s, 80s and 90s...people never behaved this way over real estate...

So roberto,

1.Are price to rent ratios the only thing to consider when considering real estate as an investment?

2. What is your opinion on condos?

robertoaribas says

So, the correct answer, to "is california housing in a bubble?" is who F*ing cares? buy if price/rent is even close to sensible, keep your eyes open, and get out with your profits before the next crash. It really won't be too hard to do!

My house is what I live in and I don't have any intention of "getting out with my profits". That's what my investments are for. I believe you might have missed my previous point. Housing bubbles- at least once they are established- ALWAYS end badly and in turn cause a lot of damage to the overall economy. So if that be the case, it effects everybody. Sure- there's nothing wrong with a healthy housing market. But a housing bubble is just as bad as a housing slump. And that goes for both renters and owners.

No matter what you say I am not moving to Phoenix.

LA isn't bad though, cost of buying is slightly higher in our area than renting, but it's a very small margin. Just avoid the "fortress" areas which operate outside any reasonable norm. I've plugged in numbers into Patricks calculator, renting is cheaper, but not by much.

Yeah, not that I know you, but Phoenix would probably work even less for me than you.

I have had and continue to have a wonderful life here in Los Angeles.

Roberto, how is it that property taxes are so cheap in phoenix?

Here in PA, at least in my locale, they tend to be 5x more. Next door in new jersey, they are often at least ten times more then what you seem to pay in phoenix,,,,

That in itself makes landlording seem much more profitable.

In my town, I can buy a 3/1+ row home 1200sq ft for 39.9k (in some sort of distress), they tend to rent for around 800. But property taxes can easily surpass 2400 annually on a place like that

FortWayne says

LA isn't bad though, cost of buying is slightly higher in our area than renting, but it's a very small margin. Just avoid the "fortress" areas which operate outside any reasonable norm. I've plugged in numbers into Patricks calculator, renting is cheaper, but not by much.

Me too. The margin is around 35% in the areas of LA I would even consider living in. At that rate, renting and buying are basically the same depending on your assumption of future house price inflation verses rent increases. Since it's break even in my situation, I'm choosing freedom over RE slavery. I have other places to get ROI instead of using Los Angeles RE as a casino bet.

RentingForHalfTheCost says

One thing I learned in life, is delivery is much more important than right verses wrong. I think most of that knowledge came from my very patient wife. ;) I can get to that engineer definite answer, but that skill does nothing in a human exchange if it is colored with emotion. If you goal is to persuade people, then being right is a very small part of your solution.

That is an seriously well informed perspective. I live in SFBA. I am friends with many married couples in which the male in the relationship is an engineer. I see many relationships that could benefit from having some appreciation of this.