How Long Will the California Real Estate Boom Last?
The California real estate boom is back, and if you’re looking just at the numbers, you may be misled to think this is a sure sign of good things to come. However, a closer look at things seem to show its just another bubble, and its not likely to last.
The clock is ticking
First of all, the Fed’s rates are artificially low, and that means that families and low-volume home investors are not the only ones interested in the market. Many large banks are pushing families out of homes through the foreclosure process, then taking advantage of the market conditions to rent out those houses, or flip them to new investors. Median house prices have spiked 15-25% over the last year, and while there are clear market factors driving the increase, the economic conditions haven’t caught up yet. That suggests this bump is a bubble, and buying in a bubble means big potential losses in value. Job growth is too weak, and even if folks are verifying their income, their low wages may not be enough to actually cover mortgage payments.
The gains are about one-third of what they were at the peak of the housing bubble, but it’s the pacing of the price increases coupled with the Fed’s admission that they have essentially created conditions favorable to investors that are most telling. Good news for Wall Street, but cautionary news for John and Jane Doe. This boom is not likely to last through the end of the year.
If you must buy now, be aware of the competition
Keep in mind that a huge percentage (34%!) of recent sales were from cash buyers. The market is saturated with investors, and that means people are looking for quick returns on their investments. With conditions like this, your best competitive edge may be offering cash over asking price, writing a personal letter, or even sending over fresh baked cookies. On top of that, the bubble is not likely to extend past the end of the year. Like 2004 and 2005, when the frenzy really kicks in is when toxic mortgages are all too easy to come by. Long term risk is high right now.
What to watch for in Malibu
As with the rest of California, inventory in Malibu is down and , indicating competition for homes is likely. Year over year gains in median home prices are far more modest than in the greater Los Angeles area, but the price per square foot is up in recent weeks, and so is the average listing price. Perhaps the most interesting statistic is that the number of sales spiked from 70 per month to 100 per month in just a few months time. While those numbers have since come down slightly, the trend seems to indicate that investors are taking more chances in buying homes in the Malibu area. On the other hand, the most recent quarter has seen a slight decline in pricing following a 32.1% gain from April 2012.