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larrywww

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Reply with quote  #1 

So far in California we are seeing a decelerating market, not actual declines, but gains are largely single digit---and I think they are shrinking (even though winter is traditionally a somewhat dead time).

But there is some evidence to support the notion that sales are declining (although I will admit that the overall evidence is equivocal and does not exactly show a clear negative trend yet).

According to this website:


1) Half of all markets (199 out of 43) are declining quarter by quarter.  (But is that just the normal winter slump?)

2) 69 market are declining year of year---although none of these markets are in California and alot of these are in traditional cash flow type markets.

3) Almost 1/5 of all major markets are declining when adjusted for inflation.

So far in California we are only seeing a gradual deceleration, not actual declines.

https://www.housingalerts.com/blog/market-reports/market-breadth-getting-weaker/

The global housing market seems to be experiencing declines in the Middle East, South America New Zealand and parts of Asia.  Although housing remains strong in parts of Europe---although these are only signle digit declines.
[PR-Q2-2017-INFLATION-1]


On the other hand, an economist at the Anderson Forecast (UCLA) indicates that although economic growth is sluggish (2%)  and rising interest rates are a concern, although he doesn't believe there will be an economic downturn in the next 2 years.





rickencin

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Reply with quote  #2 
Quote:
Originally Posted by larrywww

So far in California we are seeing a decelerating market, not actual declines


I love it when people explain negative second derivatives!


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larrywww

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Reply with quote  #3 
Here is another way of looking at timing the market.

Their conclusion is that:

Prices will decelerate in 2018 and possibly slip by the end of the year in reaction to rising mortgage rates and disproportionate pricing.

http://journal.firsttuesday.us/how-to-time-the-market/18501/?utm_source=newsletter&utm_medium=email&utm_content=112017&utm_campaign=saprior

Since we've never had a market like this where the sales are just going to peter out at some point and not crash---figuring out what indicates a downturn is imminent won't necessarily be easy.

According to zillow, Los angeles county is predicted to have a 1.2% increase, in Orange County it's a 0.5% increase.  


https://www.zillow.com/los-angeles-ca/home-values/
https://www.zillow.com/orange-county-ca/home-values/

If true, those areas seem very close to zero growth.  And even the counties with better appreciation that are on the coast have single digit appreciation, mostly less than 5%.  

It's a very strange market----the entry level is declining as prices rise, the # of sales has been declining, but the median price rises to some extent because we aren't selling the entry level properties one would see in a normal market.

We've never really backed into a downturn in this gradual manner, it will be interesting to see what happens.  

lukasbmw

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Reply with quote  #4 

I just don't understand how we can keep making gains without wage inflation.

Prices are past peak 2005 bubble prices not only in CA, but also places like Arizona and Texas. 

How can prices keep going up if wages don't go up? Unless of course we start with stated loans again.


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I love buying from wholesalers! Will pay up to 78% of ARV.

mks_97

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Reply with quote  #5 
The biggest risk I see to CA real estate is the proposed tax bill. 

. Mortgage deduction limited to 500K mortgages

. No property tax deduction

. No state tax deduction.

With most of the tax breaks reserved for corporations, it would make a lot more sense to invest in the stock market than CA real estate. Corporations will see improving bottom lines, use money parked overseas for stock buybacks and dividend increases.



larrywww

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Reply with quote  #6 
I haven't analyzed the tax bill in detail, but I agree there are some serious risks there.

Especially for luxury houses it is going to be hard to finance the purchase (except with all cash offers).

But I also think this is part of a larger plan----to "starve the beast" by shrinking government income.  What happens when you so significantly cut the income that the government will be receiving in the future? 

Keep in mind also that the tax bill is scheduled to cause a 1.4 trillion dollar deficit---but that is a serious understatement since the cuts in individual taxes are theoretically supposed to be phased out at some point----though the Republicans know very well that once you give a tax cut like that it will be very difficult to phase it out---and most economists think the deficit will be much higher than is projected.

And what happens later on?  The Republicans will have the lower tax structure that is favorable to business and the only way to balance the budget will be entitlement reform--that will be the other shoe to drop.

On a smaller scale, looks what has happened in Kansas and Oklahoma where Republicans have seriously cut the state budgets.  Kansas used to have great schools and now their schoolteachers are leaving in droves because of all the salary cuts and the misery caused by all the deficits.  Most states (unlike the federal government) don't have the ability to engage in deficit spending----they have to balance the budget----So, for example, schools in Oklahoma are only open 4 days a week because they can't fund the 5th day.  If you think that a business would dare relocate into a state that is so dysfunctional I think you see the problem.

Actually, there have been revolts in both states against this austerity campaign because instead of promoting economic growth they have seriously hobbled both states.

If Republicans won't invest in infrastructure on a national scale and encourage business growth then it might be better to invest in the stock market---but to invest in busineses who operate outside the US.  The other problem is that many economists are predicting an economic recession----and I'm not sure how well the stock market will do during a recession.  The cluelessness of the Trump administration might also trigger a trade war---and we know that won't end well.
mks_97

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Reply with quote  #7 
The predictions of recession were time based as we are in the midst of the longest recovery. However, if the corporate tax is cut to the extent being planned, this recovery may extend for another few years. With increasing earnings, and the cash to buy back stock, the stock market could do a lot better than CA RE. 

At this point CA real estate (and more specifically San Diego Real Estate ) is doing just fine. Record low inventory, low interest rates and strong job prospects are helping. Not sure if that will continue if we get shafted by the new tax proposal.

http://sandiegouniontribune.ca.newsmemory.com/publink.php?shareid=3451992f7
mks_97

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Reply with quote  #8 
Here is NARs take on the effect of of the new tax bill on real estate values:

https://www.nar.realtor/taxes/tax-reform/how-tax-reform-impacts-homeowners-in-each-state


larrywww

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Reply with quote  #9 
I think that given the dramatic changes that are taking place an investor seriously needs to think----why real estate?

I'm not trying to be overly dramatic, but I feel that Bruce might need to rewrite his latest report in light of these dramatic tax changes.

I have written at greater length in the cryptocurrency thread but I am interested in hearing what Bruce will say when he gives his talk in December.

Maybe this is the exit signal from the market that we have all been waiting for---time to head for the hills---I don't claim to know but it seems kind of scary.


chatterweb

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Reply with quote  #10 
All that comes to mind is this:

Has all of the shadow inventory been cleared out
that the Banksters held back in the 2008 crash? If n, well...hmmm

If yes, then the current conditions seem ripe for a correction maybe

I am receiving a lot more junk mail from my mailman that seem to indicate that the banksters are willing to issue liar loans as well as cash out offers

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