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RobertB

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Reply with quote  #31 
Bull trap, return to normal !


Quote:
Originally Posted by kaihacker
Quote:
Originally Posted by kaihacker
This is a great chart to show the different parts of an "average" cycle....



 


I think we are in the late part of "media attention" and moving into "enthusiasm".  

brycewheeler

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Reply with quote  #32 
I agree.  That is where I see it too.    Middle to late "media attention" and on way to "enthusiasm".

Bryce
PeterB

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Reply with quote  #33 
I saw an interview on TV with the CEO of Quicken Loans and although new mortgage apps are way down, he was quoted as saying that ARMs were becoming more popular again in order to keep the monthly payment down even though the fixed rates were now rising. If this does in fact gain traction, higher is possible.
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brycewheeler

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Reply with quote  #34 
Thinking more about where "we" are in the real estate cycle, I think needs to be refined further.

I think "we" meaning the general public are high in the "media attention" phase, starting up near "enthusiasm".

But looking at the early bird groupings of investors, contrarians, speculators, I think about 2/3 of that group were "contrarians/speculator" and were 4 years ahead of the public in general to the "enthusiasm" phases, having skipped the "media attention" phase entirely.  And, the other 1/3 of that group were the
run of the mill "investors" who were 2 years ahead of the general public, also skipping most all of the "media attention" phase.

All of the "contrarians, speculators and investors" for all kinds of reasons, recognized early signs of
the expected eventual upturn, and were willing to act far ahead of the crowd.

Bryce


GeorgeB

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Reply with quote  #35 
Interesting article:

US Home Prices: Don’t Expect a Rebound

http://www.biggerpockets.com/renewsblog/2013/08/28/us-home-prices-321/?utm_source=BiggerPockets+Newsletter&utm_campaign=27ed683599-August_29_13_BiggerPockets_Newsletter8_29_2013&utm_medium=email&utm_term=0_97489b8401-27ed683599-70859509

kaihacker

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Reply with quote  #36 
The BP article is interesting but the data he selected is not conclusive IMO.  Specifically... I would suggest that payments is more important than prices when comparing to rents.  He also suggests that supply doesn't matter because its easy to build more houses...this is just not true.  There are new fees and high cost materials (not because of just Hurricane Sandy as he suggests...but because of international demand).  He obviously started his analysis with a predetermined outcome and chose data to help make that argument.  I guess that is why I really like Bruce Norris...he works hard to keep an open mind an just follow the data...ALL of the data.

As seasonal factors kick in this fall the bears are going to get very vocal.  Its going to be entertaining but at the end of the day I plan on focusing on YOY data or seasonally adjusted data to try to understand what is actually happening.  

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brycewheeler

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Reply with quote  #37 
I agree with you Kaihacker.  This guy is all wet.  He said it all boils down to supply and demand, 
but conveniently ignored the demand factors to back up his pre-determined prediction.

He has a number of weak or non-applicable arguments, mostly on supply and seemed to ignore
the huge buildup and backlog of demand.  Plus he ignores that real estate is local in making his
generalizations.  Maybe some of his thinking is local to some soft spot but it doesn't ring true at
all for the West Coast and So. Cal in particular.

Maybe the So Cal market will slow down to a more sustainable increase in prices, but the increases
in prices and demand will continue IMO.

Bryce
daveklee

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Reply with quote  #38 
Just wanted to bump up this post and see if anyone has any updated opinions on where we are in the real estate cycle.
Jgaubeca

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Reply with quote  #39 

kaihacker - Beautiful Chart !!! So true. I'm guessing we're in full "Greed" section now, still not giddy enough for the "Delusion" stage, but that should come early next year after the next round of government budget suicide dances. The "gasoline or water" element to this chart is, of course, interest rates. We continue to be in a boom market because of the historically way way way low interest rates. Even the recent small blip upwards had a palpable chilling effect on the San Diego market, as it began to see some slow down. But, rates are back down again, and the bull run continues. I'm guessing that rates are going to stay this low and a lot depends on what happens at the Fed level in January and February.

I think that this chart is very accurate in describing the behaviour of a typical bubble market cycle. What it can't do, however, is in timing. The different phases can last just a few months but maybe stretch out to years before moving on to the next phase.

Also note that this chart can run a full cycle at different intensity. Few would dissagree that the latest cycle (1998-2008-2012) was a VERY intense cycle, with prices and activity breaking historic levels. However, we have seen similar cycles before thoughout history of US Real Estate, like the one in 1986-1991 that was intense but no where near the last one. What I'm saying is that I think the current cycle will not be as intense as the last one, but more similar to older ones. It will also be alot more sensitive to borrowing interest rates and government programs. Has anyone noticed that San Diego has been and is on FHA life support?

brycewheeler

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Reply with quote  #40 
I disagree.  We are YEARS away from any GREED phase.  There is HUGE pent up demand that has not
been satisfied, and won't be satisfied for several years yet in the current real estate phase.   Most people in the general public haven't even woken up to the fact that the real estate market has started to recover in earnest.  When we hit the GREED phase in several years, everyone in the general public
will talk about real estate as a sure way to get rich at cocktail parties, taxi cab drivers and barbers will spout their expert advice on getting rich quick etc.

Interest rates have already backed off on the 10 year note to 2.59% as of today, and mortgage rates
backed down the past two weeks.  Many of the experts think inflation (fake, lower "inflation" as  
misreported by the govt. will stay relatively low for quite a period of time yet.  Real inflation will be more than reported but will still not be a problem for quite a while IMO.  The residential real estate cycle will
plow ahead at a slower but healthy pace with the usual blips up and down for several years yet.

Not to worry yet.

Bryce
abc

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Reply with quote  #41 
Actually I think FHA loans as a percentage of the market has been declining for some time since they peaked a few years ago.  The state of CA went up around 30% this year in price.  It's hard to see anything close to that happening in 2014.  This spring/summer will be interesting with more inventory and less investors.  But the sellers will also be less motivated as it will more equity sellers testing the market vs. REO's and short sales (which are down to like 15% of the market now in the state).  And also equity sales many times create a move up buyer (vs. REO's and short sales which do not).  I think inventory is up from like 1.5 mos in a lot of areas to like 3.7 mos or something like that.  I know from listing one of my rental units for sale this fall that I think this summer would have been a better time for me to sell as their was WAY less competition back then.  Right now everyone is seeing the big year over year price increases in the headlines but the month to month price numbers are flat or showing a slight decline.  
 
Bruce Norris seems to think there is very strong buyer demand in CA.  He also always points to his affordability chart that right now is at like 36% and usually a market doesn't peak until that gets down to 17%, so that chart would say there is a way to run.  I don't know though, this spring/summer will be very interesting.  Rates have been falling again.  I think you can get a FHA 30 year fixed loan in the high 3's again

kaihacker

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Reply with quote  #42 
 
At the surface this article put out a few stats and draws devastating conclusions. 
 
But when you actually dive into it you realize there isn't much to their argument.  The big headline is that affordability is at 5 year lows!!!!  But if we look back at historical long term data trends we will see that affordability is no where near dangerous levels.  5 years ago was record setting high affordability (crazy low interest rates coupled with massive home price collapse).  So its no wonder that 4 years ago we were at 4 year lows, 3 years ago we were at 3 year lows, and today we are at 5 year lows.  That would be expected in a recovery from a historic collapse.   
 
Its funny that the article uses the word “collapsed” when most seasoned investors would have chosen the word “recovered”.  But as any ZH reader knows...we are supposed to dislike housing. 
 
Of course the article dose not share the long term numbers that would help put everything in perspective. 
 
Next it focuses on sales.  Showing that sales numbers have fallen in recent months.  But if we dive into those numbers, its clear that in many areas the lack of sales is because of lack of inventory.  Inventory has been back up in the foreclosure process and is in limited supply in many areas. 
 
Lastly the article quotes a previous prediction about that would happen if interest rates went to 6.5%...of course we know that this has not yet happened.  But they seem imply that it has.  This is misleading at best. 
 
I enjoy ZH but their bias against housing is strikingly obvious.  Its entertaining but sad that their readers have likely gotten some very bad advise over the past few years on the future path of real estate.  I assume the same will be true going forward.  

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kaihacker

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Reply with quote  #43 
Quote:
Originally Posted by abc
.  Right now everyone is seeing the big year over year price increases in the headlines but the month to month price numbers are flat or showing a slight decline.  
 



Declining MOM numbers were predicted (check out post #36 in this thread) as we went into a slower time of the year for home sales.  I am more interested in YOY numbers and seasonally adjusted MOM numbers.



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Gene Hacker

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brycewheeler

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Reply with quote  #44 
2 days ago heard a radio ad from Quicken Loans hawking 3.99% fixed rate 30 year loans.  That's about
1/2% what they were a few weeks ago.  Also the 15 year fixed rate was way, way down but don't recall the exact rate to cite here.  (Quicken Loans claims to be one of biggest lenders)

Bryce


kaihacker

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Reply with quote  #45 
Quote:
Originally Posted by GeorgeB

Hedge Funds Dump Housing

http://video.foxbusiness.com/v/2431023704001/hedge-funds-dump-housing/



A few of the big players are setting up to hold for the long term...

http://www.housingwire.com/articles/27622-three-banks-set-to-market-blackstone-home-rental-bond

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Gene Hacker

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JimLloyd

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Reply with quote  #46 
I've sold 16 properties (multifamily) here in Austin Tx over the last few months. Buyers have been chasing sellers' rising prices during this time. In the past few weeks, sellers have been pulling back or slowing their rising prices. Prices aren't declining, they just aren't rising. We are at a plateau of sorts - temporary or not. I don't see that in the cycle unless we are at the "mania-Blowoff" junction. Personally, I think prices will stay up the next couple years - here at least.
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Kingside

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Reply with quote  #47 
Quote:
Originally Posted by kaihacker
Quote:
Originally Posted by GeorgeB

Hedge Funds Dump Housing

http://video.foxbusiness.com/v/2431023704001/hedge-funds-dump-housing/



A few of the big players are setting up to hold for the long term...

http://www.housingwire.com/articles/27622-three-banks-set-to-market-blackstone-home-rental-bond


From the Reuters article:

"Therefore, despite the recording fees and administrative costs involved with filing individual mortgages on each property, the mortgage structure seemed the best route for the first single-family rental securitization deal, sources said."

Broken down to basics, sounds like the bond holders will functionally be fractional lenders with the net rental proceeds as income and underlying rentals as security. Wonder how they are going to try to deal with all the state laws that regulate the arranging and servicing of "the mortgage structure" they are creating? I bet the rating agencies have not even thought of that in saying that is the way they have to be structured. Would be very curious to see the details of what they say the LTV is, what the income will be (after all the cost layers built in), terms of pooling and servicing agreement, etc.

mlreits

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Reply with quote  #48 
It's no doubt the housing market is taking a breather now in certain pockets of the Bay Area.  In my opinion, we are anywhere near the top of the market because there are still a lot of fears in the market.  This reminds me of the saying "the market always climbs a wall of worry."

In addition to my rational, the housing affordability index is still sitting at 32% for CA as a whole.  Fannie/Freddie and the big banks haven't done anything stupid YET in terms of loosening their lending standards.  Rents have gone up quite a bit in the recent years, which will push some buyers into buying in the next few years.  The rent/buy ratio is fairly balance now.  In many cases, it's cheaper to buy than to rent once the forced savings and mortgage tax deduction are factored in. 

Some people argued that the recent home price increase was ridiculous and anomaly.  I beg to differ.  The market over-corrected, which explained the sharp rebound in such a short amount of time.  30-year fixed mortgage interest rate for jumbo loans (>$625k), is at 4.125% now, which is the same as the interest rate for conforming loans.  Money is chasing yields right now.  Low interest rates are here to stay in my opinion.  This goes back to my prediction a couple of years ago that I wouldn't be surprised if we hit 2.75% to 3.0% interest rate on the next housing correction. 

Of course, the hyper-inflationists would disagree.  This is what makes it so interesting. 

Warren Buffett bought 8 residential brokerages in the last 2 years.  He recently bought Intero Real Estate, which is a prestige brokerage name in the Silicon Valley.  They are the number 1 competitor to Coldwell Banker in the Bay Area.  Does anyone have any opinion on why WB has been buying residential brokerages?  Does that mean he's bullish on residential sales in the near future?  [biggrin]

 

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Minh

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Reply with quote  #49 
Quote:
Originally Posted by mlreits

....Warren Buffett bought 8 residential brokerages in the last 2 years.  He recently bought Intero Real Estate, which is a prestige brokerage name in the Silicon Valley.  They are the number 1 competitor to Coldwell Banker in the Bay Area.  Does anyone have any opinion on why WB has been buying residential brokerages?....  

 


The RE brokerage business has a number of favorable characteristics.  The business is not capital-intensive.  The business is scaleable.  Profitability increases as prices rise and as transaction volumes increase.  

There should be additional advantages to be had through economies of scale and through branding.

Combine a business with favorable economic characteristics, good management, AND a reasonable purchase price (very important), and you've got something which appeals to Buffett.

The person in charge of Berkshire-Hathaway's residential RE brokerage business is Ron Peltier, who has been working in the industry for decades:  

http://tcbmag.com/Honors-and-Events/Minnesota-Business-Hall-of-Fame/2013-Minnesota-Business-Hall-of-Fame/Ron-Peltier

Bloomberg wrote an article this January on Berkshire's involvement in this:

http://www.bloomberg.com/news/print/2014-01-07/berkshire-stakes-name-on-realty-business-buffett-barely-noticed.html

Interestingly, the biggest in the business - RE/MAX - is a public company as of late last year.  So there is a publicly traded pure play available for those who have the ability to analyze it.  











brycewheeler

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Reply with quote  #50 
Minh.  I agree the market is taking a little breather now and probably for this year. 

Looking at Kaihacker's great real estate cycle chart in his post of 6-27-14, I think in
northern coastal San Diego, we are still stalled in the early "Enthusiasm" phase. 
Prices continue to up but at a slower pace to be expected in a  more normalized market.
Instead of 12% to 20% annually like the past two years, this year will be more like 6%+,
slightly over normal per annum.  Pockets of the area seem to have periodic blips below
and over this rate of price increase but that what markets do; they are not always totally
consistent and steady for all price categories.

I just forced some turnover to sell 3 properties for tax reasons.  Am putting all new kitchens
in each.  Two are finished, listed, and in escrow.  These are lower priced starter properties
for the area.  The first two are "paired wall" homes (each is one-half of a duplex) but they
sell just like a regular home.  First one was an older, 3-2-2 with 1,064 sq.ft, sold in escrow for $310,000 but appraisal just came in low at $300,000.  Wouldn't normally quibble but the appraiser
didn't even look at the property and 4 of the 6 comps he used were miles out of the area
etc. so I immediately asked for a re-review which they will do tomorrow.  He used an
assistant to look at the property who I met, talked to, gave group of area comps, gave
cost summary and copies of my receipts etc.  I won't hold my breath but will know soon
how it comes out.  I made out a complete new package of my comps, costs, arguments etc.

Sale #2 was older, paired home also, a 4-2-1 1,452 Sq.ft. in a slightly less desireable area, maybe
a class c area.  First home was class C area also but slightly better.  In escrow at $288,000 and
appraisal came in at $290,000. 

Property #1 received 3 offers first few days, so a little negotiation and then to escrow.  Property
#2 received lots of inquires but only one offer after 8 or 9 days, so we negotiated a bit and went
right to escrow.

Property #3 is just being finished so will list in MLS next few days.  It is a regular, older 3-2-2 starter home and there are almost none for sale in the area so I expect a few if not lots of immediate offers.

Based on my experience so far for selling these low priced (low priced for this coastal area), I believe
the market is still quite strong.  Part of the reason for my relatively quick sales is probably the new
kitchens I put in with custom cabinets, mid-priced granite counters, all new stainless steel appliances,  new flooring, new can lighting etc.

New homes are no competition at all.  Some novices think that prices will fall because builders will increase the SUPPLY and thus DEMAND/pricing will fall.  Problem with that is new homes are now priced
much higher than comparable existing used homes.  Comparable new homes even for lower price level homes in this area are probably at least $80,000 to $100,000 higher than used homes.  In this area I don't see any new homes going up at the starter level, only some condos.  I think it will be years before
builders will be able to compete meaningfully with entry level homes.  Until then, Buyers have few options.

I see another 2 to 3 years at least of modest to strong price increases in the "Enthusiasm" category before we start to hit the "Greed" phase of the real estate cycle.

Bryce




abc

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Reply with quote  #51 
Excellent update Bryce, appreciate it.  I'm sure having your homes nicely updated helped a lot with the quick sale.
kaihacker

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Reply with quote  #52 
Listening to Norris' radio show today he thinks California's place in the the current cycle is mimicking 2001 & 2002 in the last cycle.  
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Gene Hacker

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abc

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Reply with quote  #53 
Quote:
Originally Posted by kaihacker
Listening to Norris' radio show today he thinks California's place in the the current cycle is mimicking 2001 & 2002 in the last cycle.  


I listened to that radio show too with Bruce interviewing Gary Watts.  Watts thinks we are in 2006/2007 and Bruce thinks we are mimicking 2001.  Bruce was surprised by where Watts thought we are.  Bruce said he thinks there is "shadow demand" out there from low down payment type buyers who couldn't get their offers accepted with all the cash buyers in 2012 and 2013 and also lot's of people that are still repairing credit from prior foreclosures and short sales that will get back in the market.  And then also the holy grail of charts still shows CA at a 32% affordability, which historically would mean a lot of room to run.  That was the first tidbit of market forecast info out of Bruce in a while.


larrywww

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Reply with quote  #54 

Yeah, I saw that too, Gene and abc.  I agree this was a really interesting interview and it is happening at a critical time.  The most important thing that I took away from the interview is that even Bruce tends to feel to some extent that his crystal ball may be broken, in some respects.  I know that when Bruce appeared at sdcia in May he did NOT have the normally chart heavy presentation, but talked about some real estate war stories.  The bottom line is that even Bruce said that he could not have predicted  the current market situation in 2014 and seems baffled by it, even if he did get 2012 to 2013 right..  And given that affordability does not appear to explain the current market, it appears he is looking for another “silver bullet” factor.  Though it does NOT appear that he discovered it during this interview, although various types of factors were discussed.

I feel that Gary Watts had some interesting things to say, especially in the 2nd interview with Bruce.  For some reason, Watts has not appeared on Bruce’s show since 2008.   


But I thought that it was a very interesting conversation for a number of reasons.  For one thing, although Bruce nailed it that housing rose in 2013, I think he also conceded that the following factors were NOT really critical in arriving at that conclusion (1) Affordability; (2) Employment/Unemployment.  And although he didn't mention it, I don't think migration was critical either. It was simply supply and demand---houses were being sold very quickly, supply was dropping, etc.

But this also highlights the debate between Bruce and Sean O'Toole in which Bruce clung to the idea that affordability would again be the critical factor again, while Sean was more cautious, but didn't really say he could tell what to do.  What Sean did say was that there are always "black swan" type events out there, waiting to confound our expectations, etc.

I agree that Bruce believes we are in the 2001 to 2002 market, with more affordability to burn through, so prices still have alot of room to rise.   But I also saw some uncertainty from Bruce about his prediction since Watts disagreed with him.  And I detected some genuine surprise when Watts expressed his very different views.

'Gary Watts had an almost diametrically opposed view.  Watts believes that price appreciation in OC may be 7% to 10%, depending on the level of inventory for 2014.  if the inventory in Orange County was 6000 houses then it would be 10%.  Or maybe more like 7% if the inventory rose to 7500.  But 2015 is when the wheels come off.  He predicted a 3% to 4% increase in 2015.

In terms of his past predictions, it does appear that Gary Watts got it somewhat right in predicting the rise in housing prices in 2013.  (CAR economists got it wrong, somewhere in 2 to 3% range).  Watts was more conservative, I think he estimates somewhere between 10 and 15%.  But another difference is while Bruce is in the Inland Empire, Watts home turf is Orange County, which is a very different market.  (I'm not sure what the real % was, but it sounds like it was considerably better than most economists.).

Anyway, according to Watts, the OC market is more like the way the market was in 2006 to 2007.  He predicted 2014 price rise of 7 to 10%.  And then 2015 the pricing would ony increase 3 to 4%.  So, according to Watts, we are near the end of the price rally.  So basically, right now the housing market in OC is about to flatline next year.  If Watts is correct, then it will be time to pull the ripcord from the OC market sometime later in 2014. 

I don't know who is right, but I think Gary Watts is very experienced, given that he has been in the real estate business since 1971 (A decade earlier, I believe, than Bruce).

Part of the problem, of course, is that Bruce and Gary Watts are in very different counties, which tend to go through different cycles at different times.  Orange county recovered first, and then the recovery tends to spread inland.  But by the same token, OC should crash first, with that spreading inland.  So, it is theoretically possible that both are really talking about very different markets since they are talking about markets in rather different stages, etc.  Although it is impossible to say we are in 2006/2007 and say this is NOT in conflict with Bruce, since these are clearly incomptable predictions with very, very different consequences.

 

Anyway, the critical part of  their conversation was as follows (This is from the summary on the Norris website):


“Bruce said when he is standing at the end of 2013 and looking at inventory and the charts, he would not have assumed we would have less sales and that the CAR projection of 440+ has turned into 350+. Bruce does not see a reason for this and does not know why we are down. Gary looked at this and said we are going to have slower sales, so Bruce wondered what chart said this was going to happen. Gary said the bigger chart is the cycle of real estate. Any time after a recession, anywhere from 18-24 months, you have booming sales. This is what was alluded to earlier. You had the hedge funds, and you have the investors come in and this really drove the pricing.

Unfortunately, it hurt the first-time homebuyer because he could not compete against those all-cash offers. At the end of 2013, the last quarter was the first time we had not had quarter-over-quarter sales gains. This tied right in with the real estate cycle of 18-24 months. In Orange County they ran 22 months. It ended after this. Since now a lot of the investors and institutional people are gone, it made sense that we would be having fewer buyers. When we started at the beginning of the year, our inventory was less than 5,000. Now we are up to 7,000. Gary told the audience that for 2014, he sees an appreciation rate around 7-10. We stayed right around 6,000, and if our inventory goes up to 7,500 then we may be on the lower side of the 7%. Bruce asked how many months of supply 7,000 homes equates, to which Gary said it is about 2 ½. This is not a threatening number and the reason why we will still have appreciation.

The second cycle only lasts about 12 months, so 2014 will be pretty good. You then get into the third cycle, and that only lasts about a year. You then get back into nominal appreciation where you are looking at 3-5%. Bruce said he definitely lands on a different set of charts, but he is fascinated by the process. Bruce asked Gary what year we are mimicking if you go back to anything between 2000 and 2006. He asked what year 2014 would be, to which Gary said it would probably be close to late 2006, early 2007. Bruce did not expect this and asked if we have used up this much price in 2014 since he is bumping his head on a top number, which means it is certain that in Orange County there is no more than 10 to 20% left before we top out.."  [I  slightly changed the last sentence in the summary, BTW, because I didn't feel it was sufficiently clear.]

- See more at: http://www.thenorrisgroup.com/blog/category/radio/#sthash.KIRoZuu8.dpuf


There is some discussion of other factors like demographics, unemployment, why first time homebuyers are at historic lows, why many first time buyers are renting instead off owning, affordability and more on market cycles, the potential impact of hedge funds exiting the market, the failure of building to recover (although in Orange County they may soon be starting to add alot of homes), the impact of recent FHA loan limit cutoffs on Inland Empire Housing, but no one factor that appears to be determinative.

I really think that Gary Watts has an interesting point of view and I would like to hear more from him.  I am disappointed Bruce has waited so long to interview him, but better later than never.  I am looking forward to his annual presentation in Orange County (though I admit I have never attended it before.)

I think the basic response Watts has to Bruce is that these are the time frames when Orange County real estate recovers from recessions and this is typically what happens to price during the deceleration phases, etc.  Whereas Bruce's counterargument is that affordability has been the critical factor in past downturns. 

Does anyone else have a different interpretation?
kaihacker

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Reply with quote  #55 
Looking up some house price charts online real quick it looks like the peak in terms of price for OC homes was in the second quarter of 2006 and was in full on free fall by late 2006, early 2007.  But Gary is not calling for "falling off a cliff", he is calling for appreciation of 7% to 10% for 2014 and 3% in 2015.
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Gene Hacker

Passive and active real estate investment opportunities.
http://RiverLakeRE.com riverlakere@gmail.com

Home Inspections in Bakersfield and all of kern county:
http://bakersfieldinspections.com
larrywww

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Reply with quote  #56 
I haven't looked at the charts for OC, so Thanks for doing that, Gene.  Given how unusual the last downturn was, it may be that these years form a bad analogy, etc.  Although the problem is that Bruce specifically asked Gary Watts to come up with a year that might be similar to our present market and this was his response.  You're right, I guess the numbers he mentions don't come close to the "crash and burn" scenario of those particular years, so it is misleading in that sense.  Crash and burn is generally how these cycles end and what happened during that time frame.  But you're right, he didn't say that.  But the real danger that a market timer really wants to avoid is when the inventory starts stacking up, making it difficult to exit the market.  It may be he thinks that price appreciation will level off, and maybe the market will be stagnant for a while.

I guess my general point was just to emphasize how dramatically different their visions were, and that if Gary Watts was in the timing game (as Bruce is), it sounds like he might advise pulling the plug alot sooner than Bruce.  It's not really fully formed scenario, so I don't know what he thinks is going to happen, assuming his predictions are taken at face value.  

I don't really claim to have the answer to these questions.  But to me the really interesting fact was Bruce's admission that even he seems to be struggling these days to make sense of the current market.  And that he is looking for another "Holy Grail" type factor like affordability that would explain what has happened recently.

In any case, I thought the interview made a very interesting contrast.  I wish there was a 3rd interview (there probably won't be) to shed light on these unresolved questions.  And I will be interested to hear what Bruce comes up with in December.

I now see that Gary Watts is going to give a presentation (along with CAR economist Larry Yun) at OCAR at the Irvine Marriott on 6/30/2014 starting at 9am.  (Unfortunately, the website says that the meeting is now full, so I don't think you can still attend.)  I hope someone can attend and let us know what he says.

My general feeling is that this is NOT a normal market and given all the government regulation and non-market forces, I don't think that affordability or other traditional factors are going to be outcome determinative until maybe the market recovers and normal market forces become determinative again.

I recognize that this kind of speculation is like a parlor game given that there seem to be fewer and fewer economic roadmaps here, and I am constantly amazed by the complexity of these questions.  I am also grateful to have some other economic analysis other than Bruce's to serve as a springboard for discussion, even if I don't buy it 100%.

Of course, I am grateful for Bruce putting on the internet this discussion.  But I also tend to believe that Bruce may have felt that once he had discovered affordability, all the intellectual heavy lifting was over, he could coast on that discovery for awhile.  And Watts agrees that affordability is an important factor.  He believes that the second most important factor is the employment rate.

Another interesting part of the discussion was Bruce asked Gary what he considered the most important factors.  Gary agreed that affordability was one critical factor.  But
he also mentioned 2 others:

He agrees with Bruce on the affordability because that affects everything. If you don’t get the entry-level buyers in, you are shutting down the food chain near the top. The wealthy can buy and don’t care about the economy. Another thing is the job market and the income growth that is occurring. If this is really small and the job market is not creating the jobs it needs, we have an issue. Housing and jobs is joined at the hip. This made 2013 a really difficult projection. We said that we would have a good price increase, but it was based on Bruce’s experience as a seller knowing every time he has something for sale it flies off the shelf. However, he could not look at a job chart and say we are back. This chart did not say this.

Once again, you are looking at something and seeing a different result. Normally construction improves, and that drives the job market, occupancy of commercial, and migration back to California. All those charts domino the way they are supposed to, and we get price increases. Here we are having price increases, and we have not fixed any of the normal charts. This is what is fun about projecting charts. It is a never-ending study as you are looking at it trying to see what you were thinking about or have not figured out yet. There is always something new and so many variables. We have the job market, demographics, and what the financial market did over the last three years. There are a number of people who refinanced to take their 30-year mortgage and take it down to a 10 or 15.

- See more at: http://www.thenorrisgroup.com/blog/category/radio/#sthash.BEBC2lC5.dpuf


However, the really odd thing about the uptick that occurred in 2013 was that it occurred WITHOUT fixing the basic economic problems that have existed since the downturn.  If you were looking at the unemployment picture, that problem isn't fixed, especially NOT in the Inland Empire, where Bruce believes will NOT be fixed until home construction rebounds.

The rationale for the uptick was solely lack of inventory, supply and demand. 

But in the interim, it generally means that predictions aren't exactly going to be easy.



abc

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Reply with quote  #57 
Also if I remember correctly, Watts was famously wrong in 2006/2007 where he did not think there would be a price crash coming.  As we all know Bruce nailed that one too. To me Bruce comes off as far more knowledgeable and data driven than Watts.  Bruce has the best record of anyone I know on forecasting, including a lot of famous economists.  He nailed it in 1997 with the CA comeback.  He nailed it in 2006 with the coming crash.  He was encouraging people to buy 2009-2011 when many were claiming prices would fall further and tons of "shadow inventory" was always "just around the corner".  He nailed the price rise in 2013 when people thought he was crazy to say prices would rise 20%+.  That is an amazing record.  I think a big advantage Bruce has over Ivory Tower types, is he is also "in the market" every day buying and selling hundreds of houses a year and making hundreds of hard money loans.  This gives him on the ground data and feel ivory tower types don't have.
larrywww

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Reply with quote  #58 
It's kind of a complicated presentation, but to my mind one of the most interesting segments of the interview was where they were discussing the critical factors (like affordability, etc):

He agrees with Bruce on the affordability because that affects everything. If you don’t get the entry-level buyers in, you are shutting down the food chain near the top. The wealthy can buy and don’t care about the economy. Another thing is the job market and the income growth that is occurring. If this is really small and the job market is not creating the jobs it needs, we have an issue. Housing and jobs is joined at the hip. This made 2013 a really difficult projection. We said that we would have a good price increase, but it was based on Bruce’s experience as a seller knowing every time he has something for sale it flies off the shelf. However, he could not look at a job chart and say we are back. This chart did not say this.

Once again, you are looking at something and seeing a different result. Normally construction improves, and that drives the job market, occupancy of commercial, and migration back to California. All those charts domino the way they are supposed to, and we get price increases. Here we are having price increases, and we have not fixed any of the normal charts. This is what is fun about projecting charts. It is a never-ending study as you are looking at it trying to see what you were thinking about or have not figured out yet. There is always something new and so many variables. We have the job market, demographics, and what the financial market did over the last three years. There are a number of people who refinanced to take their 30-year mortgage and take it down to a 10 or 15.

- See more at: http://www.thenorrisgroup.com/blog/category/radio/#sthash.BEBC2lC5.dpuf

He agrees with Bruce on the affordability because that affects everything. If you don’t get the entry-level buyers in, you are shutting down the food chain near the top. The wealthy can buy and don’t care about the economy. Another thing is the job market and the income growth that is occurring. If this is really small and the job market is not creating the jobs it needs, we have an issue. Housing and jobs is joined at the hip. This made 2013 a really difficult projection. We said that we would have a good price increase, but it was based on Bruce’s experience as a seller knowing every time he has something for sale it flies off the shelf. However, he could not look at a job chart and say we are back. This chart did not say this.

Once again, you are looking at something and seeing a different result. Normally construction improves, and that drives the job market, occupancy of commercial, and migration back to California. All those charts domino the way they are supposed to, and we get price increases. Here we are having price increases, and we have not fixed any of the normal charts. This is what is fun about projecting charts. It is a never-ending study as you are looking at it trying to see what you were thinking about or have not figured out yet. There is always something new and so many variables.

- See more at: http://www.thenorrisgroup.com/blog/category/radio/#sthash.BEBC2lC5.dpuf

 

He agrees with Bruce on the affordability because that affects everything. If you don’t get the entry-level buyers in, you are shutting down the food chain near the top. The wealthy can buy and don’t care about the economy. Another thing is the job market and the income growth that is occurring. If this is really small and the job market is not creating the jobs it needs, we have an issue. Housing and jobs is joined at the hip. This made 2013 a really difficult projection. We said that we would have a good price increase, but it was based on Bruce’s experience as a seller knowing every time he has something for sale it flies off the shelf. However, he could not look at a job chart and say we are back. This chart did not say this.

Once again, you are looking at something and seeing a different result. Normally construction improves, and that drives the job market, occupancy of commercial, and migration back to California. All those charts domino the way they are supposed to, and we get price increases. Here we are having price increases, and we have not fixed any of the normal charts. This is what is fun about projecting charts. It is a never-ending study as you are looking at it trying to see what you were thinking about or have not figured out yet. There is always something new and so many variables. We have the job market, demographics, and what the financial market did over the last three years. There are a number of people who refinanced to take their 30-year mortgage and take it down to a 10 or 15.

- See more at: http://www.thenorrisgroup.com/blog/category/radio/#sthash.BEBC2lC5.dpuf
Where Bruce says there were price increases in 2013 "but we have not fixed any of the normal charts", he is basically saying that he doesn't have a simple magic bullet like affordability that is going to predict everything and make it easy to predict when you need to exit the market.

So if it isn't affordability, what are the critical factors?  It's just not clear.




He agrees with Bruce on the affordability because that affects everything. If you don’t get the entry-level buyers in, you are shutting down the food chain near the top. The wealthy can buy and don’t care about the economy. Another thing is the job market and the income growth that is occurring. If this is really small and the job market is not creating the jobs it needs, we have an issue. Housing and jobs is joined at the hip. This made 2013 a really difficult projection. We said that we would have a good price increase, but it was based on Bruce’s experience as a seller knowing every time he has something for sale it flies off the shelf. However, he could not look at a job chart and say we are back. This chart did not say this.

Once again, you are looking at something and seeing a different result. Normally construction improves, and that drives the job market, occupancy of commercial, and migration back to California. All those charts domino the way they are supposed to, and we get price increases. Here we are having price increases, and we have not fixed any of the normal charts. This is what is fun about projecting charts. It is a never-ending study as you are looking at it trying to see what you were thinking about or have not figured out yet. There is always something new and so many variables. We have the job market, demographics, and what the financial market did over the last three years. There are a number of people who refinanced to take their 30-year mortgage and take it down to a 10 or 15.

- See more at: http://www.thenorrisgroup.com/blog/category/radio/#sthash.BEBC2lC5.dpuf
larrywww

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Reply with quote  #59 
ABC

I'm not attacking Bruce.  It's would be difficult for me to use the radio show as a springboard for discussion and then somehow attack him as clueless, etc.

In a funny way, I am quoting Bruce as attacking the old Bruce analysis, because as the above quotations make clear, even Bruce is a little unsure about how to make predictions when the market is being controlled by non market forces like the government, etc.   But even Bruce seems to say that his 2013 prediction (right on the money, I acknowledge) wasn't anything he received by looking at affordability or a number of the factors that normally control the housing market in California.

I am also deeply puzzled about where the economy is moving, so I am offering alot more questions than answers.

And I would argue that alot of the things that Bruce finds puzzling are things that I also find puzzling.  Like why hasn't construction recovered? etc.   And what Bruce says quoted above, all of the normal charts haven't recovered, so what is going on, etc?

And maybe you are right about Gary Watt, I haven't really analyzed his work or anything.  I didn't say he was smarter than Bruce, I just said I welcomed another perspective. This guy sort of came out of left field when I heard the latest Norris radio shows.  I didn't realize he had been analyzing the California economy for so many decades and I didn't even recall his previous interviews.    It impressed me that he got the 2013 recovery more right than CAR has done (although he was not as correct as Bruce was).    But you're wrong in one respect, he does buy, manage and even develop properties---but it's in Orange County (even South Orange county,  Mission Viejo, it sounds like).

I am listening to some of the old shows, and who knows?  Maybe I will be impressed, maybe not.  I agree with you, I doubt that he is better at market timing than Bruce.

But even Bruce is looking for new perspectives.

And I get the impression even Bruce is looking for different criteria that would explain present economic realities, and that is why I respect Bruce, etc.  So I am not concerned if you disagree with me, and I tend to think Bruce is equally open minded in his discussions, etc.




kaihacker

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Reply with quote  #60 
Larry, it didn't sound like you were attacking Bruce to me.  I found that interview one of the more interesting I have heard lately and the questions you raise in you posts are questions I have as well after listing to it.

ABC, that is interesting that Watts was wrong in 07/08.  I didn't know his track record but I was wondering about it.

It seems to me one of the biggest factors that just isn't totally clear to me has to do with lending standards and the availability of financing.  Low rates are one thing but the ability of potential buyers to qualify for the financing is also very important.  I understand that things were silly loose during the last bubble, but it seems they over corrected and now qualifying is harder than ever for much of the population.  And there are so many facets to issue, its hard to figure out exactly how this will play out.

__________________
Gene Hacker

Passive and active real estate investment opportunities.
http://RiverLakeRE.com riverlakere@gmail.com

Home Inspections in Bakersfield and all of kern county:
http://bakersfieldinspections.com
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