Welcome to the DevoreRealtyGroup.com Blog

2018-11-13 08:33:28
Economists weigh in on the real estate market

Another Southern California home-price boom is cooling. Is a crash looming?

The Southern California housing market has been on a nearly seven-year tear, with prices in many communities reaching all-time highs.

But now, as mortgage rates rise, the boom appears to be fading. Sales are ping; inventory is swelling; more sellers are scaling back their ambitious asking prices.

The annals of postwar Southern California real estate history are full of boom-and-bust cycles, with periods of sharp price appreciation that suddenly skid to a halt. Whether those ups and downs offer any guidance — or hope — for today’s homeowners is a subject for debate.

Some of those who study the housing market predict annual price increases will slow. Others think values could dip. But there is general agreement that a meltdown is not in the offing, given a healthy economy and dearth of home building. The current slowdown, said Christopher Thornberg of Beacon Economics, “is a bump in the road.”

Of course, that’s what some said before the last two busts, in the early 1990s and mid- to late 2000s.

First the good news: There is little reason to believe a bubble anything like the one that popped in 2007 has formed or is forming now.

 

Last decade, the region was several years into a real estate upswing when prices accelerated. They increased at double-digit rates for six years, fueled by a wave of risky, even predatory, lending. Borrowed money could be used for an entire down payment. Lenders didn’t require proof of income. Low “teaser” rates lured homeowners, but socked them later with huge payments. In some cases, the loan principal that homeowners owed even grew, because their payments didn’t cover interest.

Homeowners soon missed payments and, when the home-equity train slowed, couldn’t refinance either. Defaults rose and the market went into a tailspin. John Burns, a longtime consultant for major home builders, said the housing downturn might have had a “soft landing” if it had remained there. But to stoke the mortgage furnace, bankers had carved up those risky loans and resold them to investors with credit ratings that often hid the potential for default. Risk spread through the financial system, unnoticed by many until it triggered the worst downturn since the Great Depression. Prices across the six-county region ultimately plunged 51%, according to CoreLogic.

This time around, the risk of a crash from overborrowing is minimal, if not nonexistent, experts said. Reforms after the financial crisis dramatically tightened lending standards. Today, even though lending has eased somewhat, borrowers are more likely to be able to afford their loans.

That’s borne out in the data:

  • Mortgage lending is relatively restrained. Last decade, total mortgage debt consistently grew by double digits. In the second quarter, those debts rose only 3.5% from the same period a year earlier, Federal Reserve data show.
  • Homeowners aren’t as squeezed. Total U.S. mortgage payments in the second quarter accounted for 4.2% of total disposable personal income, the lowest level in at least 38 years. The rate was in the 6% range for most of the mid-2000s bubble, and it hit 7% just before the crash.
  • Borrowers are less risky. The median credit score for those taking out a mortgage in the second quarter was 760, compared to a bubble-era low of 707.

“I don’t think we need to worry this time around about a bursting of a credit bubble,” said Stuart Gabriel, director of the Ziman Center for Real Estate at UCLA. “We can cross that factor off the list.”

A more conventional way for Southern California housing booms to end is through an economic recession. That’s what happened 30 years ago.

In the mid- to late 1980s, Southern California home prices had a remarkable run-up. Builders responded by opening vast tracts in the Inland Empire and Antelope Valley.

Concerns over affordability were growing when military cutbacks at the end of the Cold War hammered the region’s sizable aerospace industry. The housing market was already softening before the worst of the cuts. But job losses accelerated and a national recession arrived in the summer of 1990.

Because of its large concentration of aerospace and other military contractors, Southern California suffered more than the rest of the state and the country. By January 1994, L.A. County alone had lost nearly 550,000 jobs and the economy shifted away from manufacturing toward services.

Nationally, the early 1990s recession pushed home prices down slightly, on a year-over-year basis, for 14 months, according to the Case-Shiller index. In Los Angeles and Orange counties, prices fell each month for nearly six years.

“It was really a function of a structural shift in the way our economy operates,” said Jordan Levine, an economist with the California Assn. of Realtors. Today, the local economy is more diverse than in the early 1990s and can better weather a hit to one specific industry, experts said. And despite concerns over the trade war with China and a volatile stock market, economic indicators remain strong. In Los Angeles and Orange counties, unemployment is at 4.6% and 2.8%. In the Inland Empire, the jobless rate stands at 4.1%. Those areas have added a combined 100,000-plus jobs in the last year.

Thornberg of Beacon Economics cited economic strength and a shortage of housing in predicting that prices would keep rising, just at a slower pace.

In the first eight years of the 1980s, for example, developers in California added one new home for every three new residents, according to data from the state Department of Finance. So far this decade, that ratio is one new home for every five new residents.

Prices in L.A. County have grown an average of 11.4% each year since 2012, according to CoreLogic. That has left only 22% of L.A. County households able to afford the median-priced home in the third quarter, according to the California Assn. of Realtors — but that’s better than 9% during the bubble, when mortgage rates were around two percentage points higher. Price appreciation in the first six years of the 2000s averaged out to nearly 28%.

“Homes are not overpriced,” Thornberg said.

A recession would increase the odds of a home-price . Burns, the consultant, predicts low price appreciation next year, but he’s rethinking that forecast because he believes prices have indeed gotten out of whack with incomes. Values could fall slightly even without a recession, he said; if there is one, prices could fall “dramatically.”

A sizable number of economists do expect an economic downturn in 2020, as interest rates rise and stimulus from President Trump’s tax cuts and increased federal spending fade.

That doesn’t have to lead to a housing bust. During the recession of the early ’80s, home-price growth slowed in the state. Prices dipped in only one year, 1984, which was after the recovery began, and the was minor — only 0.1%, according to the California Assn. of Realtors. In L.A. County, other data show prices didn’t fall at all.

Bruce Norris, president of Norris Group, a real estate investment firm in Riverside, said it helped in the 1980s that the state was still attracting more people than it was losing; a decade later, the situation was reversed. He said there were also more foreclosure auctions statewide in the 1990s, which helped sink the market. Today, foreclosures seem less likely, given the tighter lending environment.

But if there’s one lesson from the history of Southern California housing busts, it’s that no one knows exactly when they are coming.

In the late 1980s, experts told the Los Angeles Times that the Southern California economy was probably diverse enough to weather military cuts. “There is no such thing as a slump [in manufacturing] due to the defense budget cuts,” a Wells Fargo economist told The Times in 1989. “I’d call it a pause or a temporary slowdown.”

And in the mid-2000s, while some experts sounded the alarm, others said the market was just slowing down, not crashing. Federal Reserve Chairman Ben Bernanke, in testimony before a House committee in February 2006, said: “So we expect the housing market to cool, but not to change very sharply.”

“Oftentimes, recessions come from shocks we didn’t clearly see in front of us,” said Gabriel of UCLA.

-- Andrew Khouri, LA Times

 
Blog Archive
2018-11-13 08:33:28
Economists weigh in on the real estate market

2018-10-28 07:52:37
Why waiting to buy can hurt your retirement

2018-10-21 07:41:53
The number one reason for mortgage declines

2018-10-06 07:16:58
The holidays may decide the fate of the housing market

2018-09-01 08:26:06
What will affect home values?

2018-08-18 05:54:04
Housing tipping to buyer's market

2018-08-18 05:48:22
Why Prop 5 restores fairness to tax system

2018-07-17 07:01:00
Is a 'Generational Housing Bubble' Taking Shape?

2018-06-08 06:17:19
How high will home prices go?

2018-03-08 05:34:07
Are Homes More Affordable Than We Thought?

2018-01-11 19:28:02
What home sellers can expect in 2018

2017-12-29 20:54:32
Most say tax law will change their plans to buy a home

2017-12-27 13:58:35
SD home prices rising at third-highest rate in nation

2017-12-22 08:07:11
5 Changes Under the New Tax Law

2017-12-15 06:41:40
No Housing Bubble...Yet

2017-11-03 06:56:40
San Diego home price increases outpace nation

2017-10-13 06:39:37
Homebuyers rush to riskier mortgages

2017-09-29 06:25:25
Why It's a Better Time for Buyers on a Budget to Purchase a Home

2017-09-03 11:28:07
My newfound purpose

2017-07-09 12:31:06
Is it time to sell, San Diego?

2017-07-04 07:59:54
The American Dream

2017-04-21 06:42:10
Why are renters staying put?

2017-04-20 06:49:29
Homeowner Value Estimates vs. Appraisals

2017-04-09 07:26:48
San Diego 8th Hottest Real Estate Market

2017-04-03 13:29:11
8 Questions to Ask When Deciding to Rent or Buy

2017-03-31 17:41:05
San Diego rent prices vs. home prices

2017-03-24 13:33:28
Preparing Your Budget for Buying Your First Home

2017-03-24 10:02:40
San Diego home prices dip in February

2017-03-15 17:54:30
County Housing Patterns Shifting

2017-03-03 11:32:47
Where millennials want to live might surprise you

2017-02-27 13:41:52
Misleading Math Behind the Rent vs Buy Calculation

2017-02-24 10:38:59
Older Americans Face Challenges Aging in Place

2017-02-21 15:12:32
Moving Less in U.S.: American Dream Takes a Hit

2017-02-07 13:52:11
Millennials, Housing, and the American Dream

2017-02-01 11:50:46
20 Hottest Markets for U.S. Real Estate in January

2017-01-31 18:13:12
January, February Prime Months to Purchase a Home

2017-01-26 14:47:42
Home Buyer Challenges for 2017

2017-01-19 12:21:59
Nation's Priciest House: $250M

2017-01-13 14:17:03
Are local housing's price gains real?

2017-01-13 12:06:22
Housing Outlook 2017: Eight Predictions

2016-12-30 11:05:38
Trump Win Could Usher in Boom for U.S. Housing

2016-12-19 18:12:11
Is the Starter Home Coming Back?

2016-12-19 17:28:35
Interest rate increased, where will consumers feel

2016-12-19 16:47:51
Step Aside HAMP, There's a New Kid in Town

2016-12-08 17:45:40
Marketwatch Report November 2016

2016-12-08 17:10:21
FHA Loan Limits To Rise in 2017

2016-12-02 11:51:18
What Trump's Win Means for Southern CA Home Prices

2016-12-01 14:15:16
Median Home Price Surpasses $500,000

2016-11-28 11:22:51
Autonomous Cars Reshaping Residential Communities

2016-11-21 17:56:43
Is Home Equity Still a Retirement Failsafe?

2016-11-19 18:50:51
Is the ‘Trump Tantrum’ mortgage rate spike dri

2016-11-16 11:15:37
Millennials Aren't Settling In San Diego

2016-11-10 13:28:07
Trump victory- great divide among housing experts

2016-11-09 13:15:35
What does President Trump mean for the housing mar

2016-11-03 17:11:26
76% of Millennials Have Made Housing Compromises

2016-11-02 11:19:45
170K More Homes Needed in County By 2025

2016-11-01 16:09:32
Who needs location, location, location?

2016-11-01 10:45:08
Before you buy that home, avoid utility bill shock

2016-10-26 18:33:38
Why millennials are the future of real estate

2016-10-24 14:01:04
Surprising amount of first-timers buying homes

2016-10-17 16:05:07
Swanky new rental apartment could finally be yours

2016-10-13 11:32:21
Student loans & high rent weigh on homeownership

2016-10-06 15:58:51
C.A.R. 2017 California Housing Market Forecast

2016-09-30 17:54:25
These large metros are seeing the fastest growth

2016-09-26 18:20:00
10 ways to evaluate if a home will grow with you

2016-09-26 15:14:31
5 reasons home sellers are sitting on the fence

2016-09-23 18:17:52
Renovating Homeowners Embrace Smart Technology

2016-09-12 18:37:28
Gender disparity in mortgages

2016-09-09 12:14:46
9 Home-Buying Myths You Need to Stop Believing

2016-09-08 18:48:49
The best time in history to invest in real estate

2016-08-31 18:34:27
San Diego home price gains one of biggest in CA

2016-08-29 17:23:22
Post-Recession, homeowners vs. renters

2016-08-29 16:05:11
America's 20 Hottest Real Estate Markets in August

2016-08-25 18:14:25
The Power of Words When Selling a Home

2016-08-24 12:59:22
Negative equity rate keeps lowering for SD homes

2016-08-22 12:17:51
CA home sales and median price decrease in July

2016-08-19 17:24:01
Multigenerational Living is on the Rise

2016-08-19 11:48:50
American Dream is alive, but out of reach for many

2016-08-15 16:23:58
Quicken Loans: Homeowners overestimate home values

2016-08-15 11:17:21
Make Your Home More Appealing to Young Buyers

2016-07-27 11:29:37
San Diego County median home price up by 6.4%

2016-07-20 15:48:08
San Diego County home price reaches $495,000

2016-07-07 12:23:30
Forecast Projects Increase of 5.3% by May 2017

2016-06-29 12:49:11
Millions of Baby Boomers Prefer to Rent

2016-06-28 17:39:38
Would you pay $800,000 for a container house?

2016-06-27 17:35:01
San Diego's Real Estate Ranking June 2016

2016-06-27 11:51:49
Presidential elections & CA's housing market

2016-06-17 06:44:05
Student loan debt is hurting the housing market

2016-05-29 09:09:52
Are Millenials engaged in the American dream?

2015-11-13 11:06:07
Will the Fed Liftoff Be Delayed?

2015-09-02 06:33:40
Foreclosure rates decreasing in US, California, an

2015-09-02 06:10:12
Resale home prices keep climing in SD, elsewhere

2014-06-06 07:07:20
San Diego Foreclosure News

2014-02-28 09:45:46
Bryan & Allison's Real Estate Report - 2/28/14

2014-02-17 08:19:47
Bryan & Allison's Real Estate Report - 2/17/14

2014-02-02 17:06:01
Bryan & Allison's Real Estate Report - 2/2/14

2014-01-24 07:07:08
Bryan & Allison's Real Estate Report - 1/24/14

2013-12-31 11:39:35
Bryan & Allison's Real Estate Report - 12/31/13

2013-12-15 09:33:43
Bryan & Allison's Real Estate Report - 12/15/13

2013-12-03 06:23:37
Bryan & Allison's Real Estate Report - 12/3/13

2013-11-21 07:17:08
Bryan & Allison's Real Estate Report - 11/21/13

2013-11-10 07:54:37
Bryan & Allison's Real Estate Report - 11/12/13

2013-10-28 10:15:18
As heard on ESPN Radio AM1700 today!

2013-10-10 07:01:39
Bryan & Allison's Real Estate Report - 10/10/13

2013-09-22 15:01:35
Bryan & Allison's Real Estate Report - 9/23/13

2013-09-02 07:29:26
Bryan & Allison's Real Estate Report - 9/2/13

2013-08-18 07:28:19
Real Estate Report for 8/18/13

2013-08-04 04:40:25
Real Estate Report for 8/4/13

2013-07-27 08:17:54
Real Estate Report for 7/27/13

2013-07-18 07:21:24
Real Estate Report for 7/18/13

2013-06-30 09:28:27
Real Estate Report for 7/1/13

2013-06-12 08:10:43
Real Estate Report for 6/12/13

2013-05-30 07:56:40
Real Estate Report for 5/30/13

2013-05-21 07:32:44
Real Estate Report for 5/21/13

2013-05-07 06:54:02
Weekly Real Estate Report for 5/7/13

2013-04-29 07:20:11
Weekly Real Estate Report for 4/29/13

2013-04-19 07:39:32
Weekly Real Estate Report for 4/20/13

2013-03-06 22:23:40
Bryan & Allison Devore Recognized as Top Producing

2013-02-28 08:11:59
Get informed with these great articles

2013-02-10 18:31:25
Who to believe?

2013-01-24 07:39:37
The latest in real estate...quick and easy!

2013-01-10 08:25:50
A New Year - But What About The Old One?

2012-12-29 18:34:15
Real Estate Year In Review

2012-12-11 11:08:30
Bryan & Allison's Real Estate Tuesday Talk

2012-11-20 07:57:24
Prices and foreclosures...good news!

2012-11-07 18:49:11
Housing prices continue to rise, but...

2012-11-02 08:10:03
This week in real estate

2012-10-24 13:03:51
Some interesting news for a Wednesday

2012-10-21 09:21:54
Low inventory affecting state and nation

2012-10-20 12:37:31
What will the market look like next year?

2012-10-17 08:03:01
The real estate recovery is for real this time

2012-10-10 07:58:26
Foreclosure numbers continue their decline

2012-10-06 09:28:05
CoreLogic Report Shows Prices Continue Increasing

2012-09-29 08:33:58
Reports on Home Prices

2012-08-30 10:04:57
Finally...the media is paying attention!

2012-08-26 10:54:39
More positive news in the world of real estate

2012-08-21 21:00:15
Fast start to the week in the world of real estate

2012-08-18 10:22:23
This week in real estate

2012-08-14 09:06:11
Are appraisals coming in too low?

2012-08-10 07:40:56
So there you have it!

2012-08-09 17:43:03
Foreclosures in San Diego County are mixed

2012-08-08 07:52:08
Home sales up - and down

2012-08-07 08:55:12
If you are renting, should you buy?

2012-08-06 18:35:08
The debate on principal reduction livens

2012-08-06 18:31:21
Prepping for the summer wave of short sales

2012-08-01 08:27:08
More evidence that foreclosures are down

2012-07-31 18:04:45
What are you paying for your housing?

2012-07-31 15:53:45
Fewer homes for more competing buyers

2012-07-31 15:45:25
S&P/Case-Shiller Index shows prices increasing

2012-07-30 08:32:37
Take 1 minute to get caught up!

2012-07-30 08:18:04
A first in 5 years!

2012-07-30 08:05:49
More good news for the foreclosure market

2012-07-24 08:39:18
It's easy being green...but is it profitable?

2012-07-24 08:37:56
Obama Administration releases Housing Scorecard

2012-07-22 08:57:39
Do you have a home equity line?

2012-07-21 09:06:33
The sad truth about the foreclosure crisis

2012-07-18 08:09:16
Home prices in So. Cal. - more good news

2012-07-16 22:40:03
This month's HomeDex Report

2012-07-16 21:31:20
This month's TrendGraphix report for Carlsbad

2012-07-11 08:27:13
Prices up, sales up BIG

2012-07-10 07:30:27
Foreclosure numbers down BIG

2012-07-05 08:54:21
Another good reason to buy

2012-07-05 08:43:39
Another sign of an improving real estate market -

2012-07-03 10:04:32
Finally...real help for underwater homeowners

2012-06-29 07:39:28
This month's HomeDex Report

2012-06-29 07:37:06
More great news about the real estate market

2012-06-29 05:55:02
Why the housing recovery is taking longer than it

2012-06-27 08:20:17
Further insight into the low housing inventory

2012-06-24 08:31:42
Win a $20,000 home makeover!

2012-06-11 07:38:55
Is the market bottoming out? Let's ask!

2012-06-10 07:43:29
Obama Administration releases May Housing Scorecar

2012-06-10 07:24:24
Fighting lowball appraisals

2012-06-09 15:09:39
Foreclosure numbers showing continuing stabilizati

2012-06-07 18:43:22
Will short sale help be coming to an end?

2012-06-02 09:00:35
Foreclosed homeowners finding their way back to ho

2012-06-01 14:49:44
Sales of Foreclosure Homes Up in the Nation and St

2012-05-26 08:01:45
Mortgage delinquencies continue their decline

2012-05-26 08:00:49
Improving your credit score

2012-05-26 08:00:15
Even Time Magazine says now is the time to buy

2012-05-22 07:07:59
Home affordability at an all time high

2012-02-08 07:30:28
Stay Updated On The World of Real Estate

2012-02-03 07:42:24
Didn't get the modification you wanted? Now there

2012-02-03 06:35:30
Obama Administration Changes Refinancing Plan For

2012-01-28 09:44:30
Where should home builders be building?


Comment on this Article

Your Name:
Your Email:
Comments:
Verify:  Please enter the numbers shown to help eliminate spam.