SoCal: Sellers Market with No Downturn Insight

[David Avetisyan]

Having been a SoCal multi units investor in the valley for sometime, I have seen both the highs and the lows associated with the market. And right now, I feel a bubble rapidly developing, as almost everything from, single family residents to multi units that hit the market, are entering escrow within 30-60 days, and closing at numbers that make no sense.

Even previous expired listings, re-entering the market, and selling for above asking prices.

Something has got to give, and hopefully soon. It's reminding of the previous inflated market where investing in SoCal real estate didn't make sense. 

Thoughts? Opinions? Collapse? I'm hoping this bullish run comes to a screeching halt,  as I don't plan on investing out of state, and I don't plan on purchasing properties with no cash flow. 

[Brent Seehusen]

California has had a real estate downturn every 11 years or so since WWII.  Right now, we are nine years out from the prior peak so I would expect 3-4 years before the next downturn at most.  My suspicion is that due to the unique nature of the recent crisis that the housing market will stay bullish longer than average.  The reason I think this is that lending standards are loosening much more slowly than they have during prior recoveries. We are just now starting to enter what you might call a "normal" lending environment.

Bruce Norris has the best track record I know of when it comes to predicting downturns and the metric he uses is the CAR affordability index.  When that reaches 17, meaning only 17% of Californians can afford a median priced home, that has generally signaled the peak of the market.  It's predicted the last three downturns:

Notice the numbers for 1980, 1989, and 2005.  These years are just prior to 5-6 year downturns.

Currently, the CAR affordability index shows 31% affordability which means this market still has legs, if the historical pattern holds.  

C.A.R. - Housing Affordability Index