Bubble Watch 2016 – Market update for November 2016 and forecast. Values are rising! How far though?

Bubble Watch, October 2016. In this episode we review the real estate market numbers for October 2016 and forecast the future of real estate.

Home prices have been flat for the last 3 months! Summer months when prices typically go up. Why have the plateaued?

Los Angeles Median Home Price (excluding desert and mountain areas): $601,000

Sales Volume: 4,600

Active Listings: 10,255

Pending Sales: 8,192

Los Angeles County real estate market update. Market statistics for May 2016. New future cast forecast. A long term projection of the real estate market.

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.

bub·ble: used to refer to a good or fortunate situation that is isolated from reality or unlikely to last.

Every month I run the LA housing statistics with a constant theme of the bubble watch. I will continue to use the term bubble when writing and doing the podcast, but I’ve been thinking a little different lately, at least today. Are we entering a bubble? Or, are we just running through a typical cycle that every type of market goes through? Looking at the true definition of the word bubble and thinking about a REAL bubble, like the 2003-2007. It seems like we’re just entering an overpriced market that will continue to become more and more unaffordable until there’s a correction. The “Bubble Watch” is more of an “Over Priced Watch and How High Will it Go Watch.” The Los Angeles real estate market is certainly high and signs are pointing to a continued rise in prices, but I’m not seeing boats in driveways and people who shouldn’t be buying purchasing multiple properties. Now with that said, I will continue to use the term bubble, but it’s more in the sense of overpriced run up that will be pushed further by slight mania and an overly optimistic general public.

Sale Price

The median sales price for Los Angeles County single family homes came in at $584,875 for April. Up 2.6% from March and 7.3% year over year. 6% of the homes sold had downward price changes before selling, which is down from 7% last month. 2015 downward price changes bounced between 20% and 30%. So, less and less sellers are having to drop their prices in order to sell. 7.3% year over year price change is a nice increase, but I still would rather see price increases around 4%. Still, 7.3% is better than 10% (keep out of double digits).

Volume

3,992 homes sold in April. Up 5.8% from March and down 4.8% from April 2015. It’s been over a year since we’ve had negative year over year volume change. This is not good for the overall health of the market. Keep in mind that health does NOT mean price. It’s looking like this negative year over year change will continue, at least for another month.

Actives and Pendings

There are currently 9,011 properties for sale. Up slightly from a month ago, but down 10% from a year ago. This offsets the drop in sales, which is why health does not refer to price, more on that later. 6% of Active listings are distress which is a continuing decline as we expect as less and less homes are foreclosed on and/or have negative equity. Speaking of which; what happened to all the sellers that were supposed to be bring their properties to the market after coming out from being under water and gaining a little equity? Are they not selling because they are happy to have a little equity and are doing okay financially now? Probably… They probably don’t have enough equity to sell and buy something else and also they may not qualify for a loan. Credit is loosening, but still tight. It would not be a wise decision to cash out what equity they may have and rent, losing the tax break. Thinking back, this makes sense. Others and myself were thinking that these under

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.

Over the last several months I been writing about a boring real estate market and have been happy to write about the boring market. Boring markets are stable markets. I’ve enjoyed watching the numbers flatten out, which has been allowing for incomes to catch up to prices. I would really like to continue writing about flat numbers for this year too, but unfortunately, it’s not up to me. March is the month where we usually the numbers turnaround from the winter lull and a pretty good spike in volume. This March did not let us down. There was the large jump in volume and a clear change in the direction of the year over year price change. The sales data itself is not shocking, it’s actually on par for the last few years for March, but the ratios of how the numbers relate to each other, particularly the Active and Pending counts are telling us some big news. According to these signs, my hopes for a boring 2016 have been shot down. But then again, things may change over the next few months. Let’s take a look…

Sale Price

The median sales price for Los Angeles County single family residence came in at $570,000. A 4.6% jump from February, which is big but not abnormal. Year over year prices are up 8.6%. Over the last several months we’ve seen the year over year change declining, which is good. We need a prolonged time of appreciation between 3% and %5. This would keep us out of a significant bubble. Although the 4.6% and 8.6% increases are not abnormal, it would’ve been nice to see the flattening out continue through March. Meaning that these changes being more like 2% and 5.5%. It would be positive change and relatively sustainable. Of course all property owners get excited about high appreciation, but too much growth too fast will come back and bite you.

On a more positive note, distressed sales dropped to 8%. Down from 11% in February and basically for every month in 2015. With the prices going up the way they are the distressed market will continue to decline as less people are forced into a short sale and more have equity to sell to avoid foreclosure. Also, downward price changes were at 8%. In 2015 downward price changes bounced between 20% and 30%. So, less and less people are having to drop their prices in order to sell, what’s that starting to tell you?

Volume

Sales volume had a nice jump from 2,780 sales in February to 3,750 in March, a 34.8% gain. Again, as we come out of the winter lull, sales volume is expected to increase 20 plus percent. There’s nothing bad I can say about large jumps in volume, we need it. We also need a big jump in inventory though too, in order to balance it out and keep prices from shooting through the roof. Let’s also keep in mind that the 3,750 sales is nothing significant, 0% change from March 2015.

Actives and Pendings

There are still only 8,821 single family homes for sale, still low and sticking with trend as of late. The big news (for me) is that there are 8,077 currently in escrow. More on why this is the news later, but think supply and demand. Distressed Active listings and Pending properties continue to decline too, 7% and 18%.

Ratios and Comments

Let’s talk about the sustainability index briefly. It is currently at 8.97. New income data came out recently; I’ve adjusted the estimated median income up 4%, which in turn drops the S.I. This is great news, but it’s not enough. The ratios of Sales to Actives and Pendings to Actives are the stars of the stats. These ratios are the leading indicators of where prices are going. Sales to Actives are at 31%, jumping up from the

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

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

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