California Real Estate Expert Predicts 20% Price Increase in 2013

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California Real Estate Expert Predicts 20% Price Increase in 2013

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Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes

California real estate investor Bruce Norris has predicted a 20% price increase in California residential real estate for 2013. This is a huge percentage increase, and many people are shocked by Norris’s prediction. But with so much price “momentum” in the California real estate market fueled by low interest rates, this would come as no surprise if it did turn out to be an accurate prediction.

Many of our repeat real estate investors that we do hard money loans for in California have been slowed down this year with regard to acquisitions. They are still getting the same number of properties under contract, but fewer and fewer of them are actually closing. The competition is fierce in California for residential real estate and the good deals are harder and harder to find. With hedge funds buying up everything in sight in California, this had added to the competition in a serious way.

Do you think Norris’s prediction of a 20% increase in prices in California is going to ring true? Or do you think it’s off base? Please share your opinion.

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Will BarnardPro Member
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Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
13y

Lets be clear here, Mr Norris's 2013 & 2014 predictions are not across the entire board of RE in CA. What he is talking about are homes within the FHA loan limits and his specific area of expertise is Southern CA (and more specifically, Riverside County (Inland Empire, etc.)
We are already seeing these price increases so it is happening before our eyes and you can not argue with facts.

Going forward, yes, interest rate increases could hinder such gains, however, the Fed just made it clear that rates would stay low until 2015. There are many factors driving these specific markets in CA, record low inventory levels are one, the fact that it is cheaper to buy than rent is another, that those who completed short sales 3 years ago will now (in 2013) be qualified for FHA loans, the affordability of the homes combined with the low interest rates make buying the better choice, and I am sure there are more factors I am missing.

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  • Joshua D.Pro Member
    BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes
    13y

    Corey - We had a debate about this a few weeks ago as well:
    Bruce Says It Is 2004 Again...

    In case you missed any of that one, I thought I'd share.

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  • Marc Bodinger
    New York City, NY · Member since 2012 · 253 posts · 7 votes
    13y

    Does it say which specific markets in California will perform better than others? Is this about real estate in general or is it broken up by residential and commercial?

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  • Joel OwensBusiness Member
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    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    Corey I don't know why going up 20% is news for anyone.

    If you look at the United States as a whole there are speculation states.

    Cali, New York, etc. where they are the first to inflate and the first to deflate in a cycle. Cash flow for rentals etc. is not the main driver in these urban core areas.

    Many buy for appreciation only and as long as it breaks even and they get tax benefits they are happy. A bunch of other areas in the country did not have these wild swings in value. Where Cali and other speculative markets look like a roller coaster on a graph other markets when they had a swing were not as prominent.

    I definitely think California will increase a bunch in 2013 but that doesn't mean a speculative state marks a rebound for the whole country. I see moderate appreciation in other states but great cash flow and movement on developing land again. Still many defaulted assets to work through between now and 2018.

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  • Luis Castillo
    Real Estate Investor · Whittier, CA · Member since 2012 · 92 posts · 19 votes
    13y

    Hi Corey, I was born and raised in CA and have invested there since 1979. I have seen many times where appreciation has been high and fast. Because of the shortage of inventory combined with low interest rates, it's very possible that we could hit that kind of appreciation. However, I think that it may be temporary. Any increase in inventory or rise in interest rates would probably stall or reverse any appreciation. It's funny because if the spike in prices does hit 20 percent it might actually help a lot of owners who are upside down list their properties for sale and increase inventory which in turn could cause prices to go down. Or It could actually start a buying frenzy and get all the sheep off the sidelines.
    In summary, can it happen? Yes. Will it happen? I wouldn't bet against someone with Bruce's experience, so I would have to say yes.

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    Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
    13y

    Thanks Luis Castillo

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  • Xing Zhu
    Durham, NC · Member since 2012 · 498 posts · 48 votes
    13y

    Not far off the mark! There is just too much money still sitting on the sideline. The fact that international money printing machines are all running in turbo mode has engendered an enormous concern amongst fund managers, especially the fixed income type ( in August, a Wells Fargo bond fund manager said to me that he was so afraid of QEs.)

    Hedge funds have their own pricing models(far more sophisticated than traditional appraisals). These models are dynamic rather than static. They take full consideration of the strong positive feed back nature of the real estate market and chase the momentum without fear, the same way they have done to the stock market.

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  • Kevin Yeats
    Lender · Fort Pierce, FL · Member since 2009 · 825 posts · 486 votes
    13y

    Will somebody monitor Mr. Norris to see if he sells any California real estate before the end of 2013?

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y

    Lets be clear here, Mr Norris's 2013 & 2014 predictions are not across the entire board of RE in CA. What he is talking about are homes within the FHA loan limits and his specific area of expertise is Southern CA (and more specifically, Riverside County (Inland Empire, etc.)
    We are already seeing these price increases so it is happening before our eyes and you can not argue with facts.

    Going forward, yes, interest rate increases could hinder such gains, however, the Fed just made it clear that rates would stay low until 2015. There are many factors driving these specific markets in CA, record low inventory levels are one, the fact that it is cheaper to buy than rent is another, that those who completed short sales 3 years ago will now (in 2013) be qualified for FHA loans, the affordability of the homes combined with the low interest rates make buying the better choice, and I am sure there are more factors I am missing.

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    Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
    13y

    I know that's your turf Will Barnard ! Thanks for your comment.

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  • Marc Bodinger
    New York City, NY · Member since 2012 · 253 posts · 7 votes
    13y

    Is there a lot of inventory available in CA? Speaking of hedge funds and private equity, I have read that they have been on a shopping spree with buying portfolios of properties and rehabbing them to rent or sell depending on the specifics.

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y
    Originally posted by Marc Bodinger:
    Is there a lot of inventory available in CA? Speaking of hedge funds and private equity, I have read that they have been on a shopping spree with buying portfolios of properties and rehabbing them to rent or sell depending on the specifics.
    Marc, I and others all stated in this thread that invesntory levels were very low, in fact, record lows, so no, we do not have a lot of inventory, hence price increases (supply and demand). Yes, hedge funds are buying up properties which is another reason for the high demand and even lower inventory levels.
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  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    13y

    Ditto what Will Barnard said above for the northern part of Cali as well.

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  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    13y

    What are his weather predictions for the next year? I suspect that they'll be about as accurate as his (or anyone's) real estate predictions.

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  • Luis Castillo
    Real Estate Investor · Whittier, CA · Member since 2012 · 92 posts · 19 votes
    13y

    Hey Will how many Feds do you know that keep their word for two years. It only takes a bump of 2 points to stall a good market.

    Bryan, after 30 years in the business I learned never listen to people who guarantee what's going to happen in the market. However, you have to look at the facts, take everything into consideration and take a stand. Otherwise you'll just stay on the sidelines and watch the game. Not my style.

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  • Will BarnardPro Member
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    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y
    Originally posted by Bryan Hancock:
    What are his weather predictions for the next year? I suspect that they'll be about as accurate as his (or anyone's) real estate predictions.
    Not true at all in this case. While I would agree if this came from other sources, I will back what Bruce has stated as he is much smarter and wiser than I and he can kick 99.9% of all but in the study of graphs, charts, and data. Predicting what is to come in RE is much easier than predicting weather. RE follows patterns and has signs. It is also a much slower moving item than in comparison to weather.

    Luis, you make a good point regarding politicians, however, keep in mind that they have more self interests than anyone (in my opinion) and if you know what they are, you can certainly see what is coming. Everything that government does is done to create a reaction. For example, providing a tax credit for your child is to generate the reaction of people having kids so that they become tax paying citizens. That gets the governments tax credit payment to you back with tons more. This may be a poor example, but an example none the less.

    When Bruce talks, I listen. Ignore him at your own peril.

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  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    13y

    I don't care who it is. It could be the smartest person on the planet and they have NO IDEA what is going to happen to a whole market of real estate for a given year. Nobody can predict:

    1. Interest rates
    2. Macroeconomic risks (war, drought, etc.)
    3. Inflation

    etc. There are many items that are by definition systemic risks that cannot be known in advance.

    Rumsfeld:

    [T]here are known knowns; there are things we know that we know. There are known unknowns; that is to say there are things that, we now know we don't know. But there are also unknown unknowns – there are things we do not know we don't know.
    —United States Secretary of Defense, Donald Rumsfeld

    There are simply too many unknown unknowns for anyone to comment with any reasonable level of certainty about what will happen to a real estate market in a given calendar year; no matter who they are.

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  • Tiger M.
    property manager · Las Vegas, NV · Member since 2012 · 502 posts · 171 votes
    13y

    Gents,
    How can you not see the plans of the fellers in shark skinned suits? They certainly aren't hiding their actions. You have Billion dollar VC funds moving into residential real estate which has previously been treated like a joke. Inventory is being stockpiled reducing inventory to main street buyers. Interest rates are artificially being held low. Does anyone really think these huge funds plan to spend billions without justification and a well laid plan? I am just a simple spud grown in Idaho, but can observe and follow big money as easy as anyone else. These big funds have a well planned exit strategy. I met Catherine Austin Fitts, http://solari.com/about-us/resume/ link to her resume, who was a previous Assistant Secretary of HUD and she disclosed this is the same bubble that was purposefully created in 1998 all over again. Just remain aware this one will eventually crash again. So plan your steps on solid ground.

    1Reply
  • Marc Bodinger
    New York City, NY · Member since 2012 · 253 posts · 7 votes
    13y

    Thanks for clarifying Will Barnard. How many properties are considered "shadow" inventory that are close to hitting the market?

    Great link Tiger M. I agree there is another bubble forming but I think with the low rates the "smart" money will be holding on these investments because they need cash flow plus they won't be able to sell properties for the gains and ease as in the mid 2000s. When lending is more available then it might be off to the races again.

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y

    Bryan Hancock Typically, I am on the same page with you, however, in this case, i will have to disagree. Sure there are things we don't know and things we can't see. There are also things we know from looking at history and things we can forsee.
    You mentioned 1. interest rates - again, we can see that for at least the next year or two and as such, predicting what will happen in RE for the next 12 months in not far fetched for someone with experience and knowledge.
    2. Macroeconomics (war, drought, etc.) First off, we are already in a war and it is not having any bearing on CA RE at the moment. Drought - can't predict it, but if it does happen, it can not start until Summer 2013 and any fallout from that would likely not hit the RE market until 2014. You missed the important one - Earthquakes - this is, in my opinion, the ONLY Macroeco item that could devistate a RE market. With that siad, if you sit on the fence with that fear, you will never invest so in my mind, it is something to not worry about as it is out of anyone's conbtrol. Plus, you can protect yourself somewhat from such an occurance with added insurance policies and/or the ability to hold on for several years to ride it out. Back in 1994, the Northridge quake sent people running for a new State to live in in fear of the shaking. The RE market took a hit and you could pick up vacant properties for next to nothing. Several years later, we ran into one of the biggest and fastest RE increases ever and anyone holding those properties were rewarded.
    3. Inflation - Correct, we can not predict exactly when it will come and how much, however, it is not an overnight or even over a quarter large swing. As such, predicting RE over the next year is not affected enough by any inflation swings to result in a changing prediction based on what could happen with inflation.

    Therefore, I stand by my opinion that Briuce does have the ability to predict what is coming for 2013 and i will be using that info to my benefit as will thousands of others here.

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  • Account Closed
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    Lender · Salt Lake City, UT · Member since 2012 · 714 posts · 169 votes
    13y

    Not to mention, Bruce Norris is talking CA only. His prediction is only for the CA market, not the ENTIRE U.S. Market.

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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y
    Originally posted by Corey Dutton:
    Not to mention, Bruce Norris is talking CA only. His prediction is only for the CA market, not the ENTIRE U.S. Market.
    Exactly.
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  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    13y
    Originally posted by Corey Dutton:
    Not to mention, Bruce Norris is talking CA only. His prediction is only for the CA market, not the ENTIRE U.S. Market.
    Exactly. Though I believe it will spill over to other markets like Vegas (already happening, AZ - already happening, and I am sure others.
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  • Gene HackerPro Member
    Flipper/Rehabber · Lake Isabella, CA · Member since 2011 · 969 posts · 488 votes
    13y

    Bruce Norris is one to listen to for sure. A buddy of mine turned me onto him during the bubble run up and even though I was in denial, the data he presented convinced me to look into it farther. With a bit more studying I was convinced he was right. That move saved me big time.

    His level of research and data is unparalleled, and I truly feel he dose not have an agenda like most economists (using stats as a drunk uses a lamp post for support rather than illumination) but is really just trying to be accurate.

    There are only a dozen or so economists/forecasters that I trust and Bruce Norris is on the top of that list.

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  • Aaron Mazzrillo
    Investor · Riverside, CA · Member since 2011 · 2k+ posts · 3k+ votes
    13y

    I agree with Will Barnard and the other Pro-Bruce investors. If you live in another state, you don't need to comment. His predictions are California specific and have been very accurate for many, many years making untold numbers of investors very wealthy. If you live in another state, good luck to you and what is going on in your market. If you live in CA and you don't listen to Bruce, you may need luck to be successful.

    "Only when the tide goes out do you discover who's been swimming naked. "
    ~Warren Buffet.

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  • Bryan Hancock
    Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
    13y

    Fair enough. Everyone is free to do as they wish. That is what makes for a market and a free country.

    I think Bruce's crystal ball may be more well-polished than others have, but claiming he can predict what will happen to macro markets (California, sub-markets, etc.) with any reasonable degree of certainty is dubious at best to me. Forecasting results with large components of systemic risk is gambling at best.

    Claiming that someone needs to be a local resident to comment on this is also ridiculous. That is like claiming that someone needs to work at Apple to comment on which direction the stock will move.

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