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California Craziness: Record Housing Price Increases Hit The Golden State

by Steve Cook on October 17, 2012 · 3 comments

  
california price increases

The cities and the numbers leap off the page.  Of the top ten markets where year-over−year list prices increased the most last month in Realtor.com’s database ─ which is based on about 1.5 million listings from 900 MLSs ─ six are in California:  Santa Barbara-Santa Maria-Lompoc; San Francisco; San Jose; Sacramento; Oakland; and Riverside-San Bernardino.

Not exactly a coincidence, but impossible to explain on purely economic terms.  It would be difficult, for example, to find two markets that are more dissimilar than posh Santa Barbara and gritty Oakland.

Nor are we talking small potatoes.  Year-over-year increases range from 32 percent in Santa Barbara to 12.56 percent in Riverside.  That’s 41 to 10 times the national median.

Last year we noticed a similar event when one state, in this case Florida, dominated the price increases.  We called it the “Florida Phenomenon” which we defined by the perfect storm of economic forces that came together to put prices on fast track:  price points that produced once-in-a-lifetime bargains in attractive resort destinations, large scale investor participation (both foreign and domestic), shrinking inventories due to shell-shocked sellers and high levels of negative equity.  There was another factor that lit the powder keg:  foreclosure processing virtually came to a halt in the wake of Robogate and a sea of litigation in the state that has yet to be sorted out. With the foreclosure spigot turn off, at least temporarily, prices for lower tiered properties zoomed.

(By way of disclosure, I am a contractor to Move, Inc. and I help to develop, interpret and publicize data from Realtor.com.)

Is something similar going on in California?

 
When the pattern became clear in the August data, it was easy to assume the Florida Phenomenon had simply moved west.  There certainly were similarities.  California, with its high housing prices, has virtually the same number of underwater homeowners as Florida, about 2 million.  It also has as large number of investors, though mostly domestic, not foreign.  Residential real estate investing as we know it today has its roots in the California-centered subprime crash of 2006 that ignited the national housing crash.  Like Florida, California markets suffered peak-to-trough ratios well over 50 percent.

Yet Florida’s markets enjoy many similarities that don’t match up to California’s situation:  large market share of resort and retirement housing, foreign investors, similar local economies.

However, there is one event both states have in common: dramatic draw downs in foreclosures resulting artificially from legislation or litigation. ForeclosureRadar reports September Notice of Defaults in California were down 20.7 percent from the prior month, and down 48.1 percent compared to last year.

“There has been speculation that the banks would rush to clear inventory before the CA Homeowner Bill of Rights takes effect in January 2013, causing an increase in the number of foreclosures. Clearly this is not the case as we continue to see the number of Foreclosure Starts decline. Notice of Trustee Sales remains basically flat, up 1.9 percent from the prior month,” reports ForeclosureRadar’s Susan Sierota.

California investors are more than accustomed to a long history of political intervention in the foreclosure marketplace in the form of moratoria, freezes and other games.  If in fact the September NOD freeze is an early wake-up call illustrating how the new law will affect the marketplace, in the new year investors may find themselves hunkering down once again to survive for a double whammy:  soaring prices and a trickle of supply.

Photo: the_tahoe_guy

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{ 3 comments… read them below or add one }

Dale Osborn October 17, 2012 at 2:18 pm

And then we will have the Arizona Phenomenon and the Las Vegas Explosion. People do not want to believe the prices have went down and the frenzies will drive them back up again. This gets other hopes up of a recovery and more jump into the fray until things go haywire again and every one will try to jump out at the same time causing a worsening situation. The herd mentality of jumping around from one hot market to another is like the Gold Rush Days. Every one wants to get rich quick!

Dale

Reply

Paul Francis October 17, 2012 at 2:59 pm

And then you have the October Corelogic Marketpulse report with August numbers for the % of Home Loans seriously delinquent 90+ days late:

AZ = 5.2%
CA = 5.7%
NV = 11.8%
FL = 16.2%

At the foreclosure peak, CA was at about 12% of all home loans 90+ days late so there is some credibility for the CA numbers being sustainable as long as interest rates remain low.

Of course, the actual median sale prices are far more important then what median list prices are.

Reply

Josh Stevens October 18, 2012 at 10:09 am

Thats great news for us on the southern Oregon coast! A large part of our market was Californians selling down there and buying a comparable property on the coast here with cash left over for retirement.

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