Wednesday, March 23, 2005

Some California Homes Up 80% In One Year

The California Association of Realtors has a release out today on sales and prices for February. I can save you the trip by telling you both were up. But the real story may be how crazy that market has become.

"Statewide, the 10 cities and communities with the greatest median home price increases in February 2005 compared with the same period a year ago were: Adelanto, 81.8 percent; Rohnert Park, 77 percent; Tehachapi, 70.1 percent; West Sacramento, 69.7 percent; Hesperia, 67.4 percent; Twentynine Palms, 64.2 percent; Union City, 63.8 percent; Menlo Park, 60 percent; Norco, 55.7 percent; San Bernardino, 54.5 percent." Holy housing bubbles Batman!

Not all the numbers are bullish, however. The amount of time a house takes to sell more than doubled from 1.8 months to 3.9 months. And actually such extremes are to be expected in a financial mania with parabolic blow-outs occurring just when you didn't think the market could go any higher.

6 Comments:

At 10:53 PM, Anonymous Dan said...

Ben,

So are saying places like Rhonert Park will drop 50% ?

If so, that will still be the price as of late 2003.

And that begs the question when did the bubble start?

Dan

 
At 7:39 AM, Anonymous Anonymous said...

http://www.maxfunds.com/archives/000397.php

 
At 7:49 AM, Anonymous Anonymous said...

"And that begs the question when did the bubble start?"

It started in 1996 with business investing in the Internet and Windows 95.

It continued in 1998-99 with the massive investment of businesses in the Y2K IT problem.

It built through 1999 with the dot com era and was accelerated when Greenspan dropped interest rates to 1% to keep the US economy from bottoming out thereafter.

It accelerated when Fannie May et al started letting people remortgage their houses to "get some equity out".

Now it is in a vicious cycle: people buy a house. It increases in value. They take out equity and spend the money. That increases the economic activity in the economy. Businesses make money. Banks can borrow more. Consumers get easier credit. This drives up housing demand and drives up the prices. This allows people to refinance and ...

The cycle is about to stop and it is going to be ugly. Interest rates are increasing. Inflation is going to erode either business profits or consumer purchasing (or both). Asia is going to slow down its purchase of US dollars because the economy starts slowing down. This will drive up the interest rates. Consumers in deep mortgage debt will be forced to sell their houses. Housing prices will fall. Refinancing will stop. Liquidity will drop. Spending will slow down...

 
At 8:10 AM, Blogger Ben Jones said...

If prices dropped 20 or 30% it would be enough to ruin the economy. I agree with anon. about the timing. Mid 90's or so. It is impossible to time a bubbles collapse, you just have to let it act out the pattern..Ben

 
At 10:06 AM, Anonymous Dan said...

Maybe we need a definition to what a "bubble" actually is.

If this so called bubble existed since 1995 but it will never deflate back to 1995 prices, then how can we say that it is truly a bubble that started then?

One thing for sure is that if you did not benefit from the bubbles in the past decade then you lost.

And isn't true for future bubbles as well? If you don't take part in them you'll be left behind. No?

Dan

 
At 10:46 AM, Blogger Ben Jones said...

Dan,
I doubt there is an economic definition of a bubble. We just have historical episodes that when looked back upon were financial manias. Kind of like the definition of a riot.

By starting in the mid 90's I mean that is when the Federal Reserve decided to let credit run rampant. The Asian currency crisis in 97, the Russian crisis in 98, Y2K in 99; all were responded to by massive cash creation. That much cash finds its way into speculation and you get manias. Mania result in malinvestment and that is always a negative.

Your point about participating in bubbles is interesting and if one gets out in time your ok. But I bet the Japanese wish their RE bubble had never occurred.

We are in uncharted territory but, yes prices could fall back to the early 90's. If that happens our houses may be priced in Pesos..Ben

 

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