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Bubble Watch: LA Market Update for Jan 2016
For this real estate bubble watch, the statistics and figures noted in this article were obtained through the MLS and AccuFlip.com, and are for Los Angeles single family residences.
Los Angeles real estate remains on the cusp of entering another bubble. Home prices have dipped slightly from December, which was predicted, but not very significant to the overall direction of the market. There are two factors that need to be in play for the official bubble call; first, overpriced properties, which we certainly have. Second, mania, which has yet to come. Los Angeles is a highly sought after market, one where we almost expect people to over extend themselves to be in. While the percentage of the population that can afford the median home price is smaller than most markets around the country, I don’t think that we are completely out of control just yet. But still, home prices are too high and will continue to rise. We will know we are officially in a bubble when the mania starts. One indicator of mania setting in will be higher than normal volume, inventory and cash out refinances. Right now both volume and inventory are pretty low (new normal), but this could change.
Another thing to consider is the possible return of Alt-A financing. Alt-A helps credit worthy buyers with a lack of income documentation get in
to homes, but once that window opens, what’s next? Lending institutions are saying that they “learned their lesson”, but once the money starts flowing, they’ll forget and next thing you know we’re back to full on undocumented sub-prime lending.
The real estate market is looking like it will continue to appreciate and investors should be looking forward to riding the price wave. The current market price for homes is safe. The reason why I call it safe, is that we haven’t reached a point where if and when we have a correction, values will NOT drop below today’s price point. However, be smart and pay attention to the actual numbers. Don’t give into hype. With that, let’s look at how January panned out.
Sale Price
The median home price for Los Angeles single family homes came in at $545,000. This is a 1.8% drop (as I predicted) from December, but up 6.85% from January 2014’s $510,000 median price. The winter lull usually bottoms out between November and January, if this holds true, we bottomed out early, November.
Volume and Actives
There were 2,831 home sales in January, a 29% drop from December. This is huge, but understandable. First off, because January closings went under contract in
December and late November, when everyone is in Holiday mode, January typically has a drop in volume. Second, because of the new TRID lending disclosures, November sales got pushed into December, which dramatically increased the overall December sales volume. What is important, is how we compare to January 2014. January 2015’s sales volume beat January 2014 by 9.9%.
The Active property count remains low, 8,487 homes for sale. This is low, which will only drive competition among buyers. We should start to see Active listings increase.
Key Ratios and Comments
Because of the 1.8% dip in home prices, the sustainability index dropped down to 8.86. Still above the sustainability threshold of 8.75. If we can have a nice jump in household incomes, we will be able to keep sustainability index from getting WAY too high, too fast.
The ratio of sales volume to active listings, is not giving us too much information, but pending to active properti
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By Bret Pfeifer: Real Estate Broker and Real Estate InvestorFor this real estate bubble watch, the statistics and figures noted in this article were obtained through the MLS and AccuFlip.com, and are for Los Angeles single family residences.
Los Angeles real estate remains on the cusp of entering another bubble. Home prices have dipped slightly from December, which was predicted, but not very significant to the overall direction of the market. There are two factors that need to be in play for the official bubble call; first, overpriced properties, which we certainly have. Second, mania, which has yet to come. Los Angeles is a highly sought after market, one where we almost expect people to over extend themselves to be in. While the percentage of the population that can afford the median home price is smaller than most markets around the country, I don’t think that we are completely out of control just yet. But still, home prices are too high and will continue to rise. We will know we are officially in a bubble when the mania starts. One indicator of mania setting in will be higher than normal volume, inventory and cash out refinances. Right now both volume and inventory are pretty low (new normal), but this could change.
Another thing to consider is the possible return of Alt-A financing. Alt-A helps credit worthy buyers with a lack of income documentation get in
to homes, but once that window opens, what’s next? Lending institutions are saying that they “learned their lesson”, but once the money starts flowing, they’ll forget and next thing you know we’re back to full on undocumented sub-prime lending.
The real estate market is looking like it will continue to appreciate and investors should be looking forward to riding the price wave. The current market price for homes is safe. The reason why I call it safe, is that we haven’t reached a point where if and when we have a correction, values will NOT drop below today’s price point. However, be smart and pay attention to the actual numbers. Don’t give into hype. With that, let’s look at how January panned out.
Sale Price
The median home price for Los Angeles single family homes came in at $545,000. This is a 1.8% drop (as I predicted) from December, but up 6.85% from January 2014’s $510,000 median price. The winter lull usually bottoms out between November and January, if this holds true, we bottomed out early, November.
Volume and Actives
There were 2,831 home sales in January, a 29% drop from December. This is huge, but understandable. First off, because January closings went under contract in
December and late November, when everyone is in Holiday mode, January typically has a drop in volume. Second, because of the new TRID lending disclosures, November sales got pushed into December, which dramatically increased the overall December sales volume. What is important, is how we compare to January 2014. January 2015’s sales volume beat January 2014 by 9.9%.
The Active property count remains low, 8,487 homes for sale. This is low, which will only drive competition among buyers. We should start to see Active listings increase.
Key Ratios and Comments
Because of the 1.8% dip in home prices, the sustainability index dropped down to 8.86. Still above the sustainability threshold of 8.75. If we can have a nice jump in household incomes, we will be able to keep sustainability index from getting WAY too high, too fast.
The ratio of sales volume to active listings, is not giving us too much information, but pending to active properti