2015-2020 Southern California Real Estate Predictions, anybody?

Private Lending & Conventional Mortgage Advice 33 Replies

http://www.latimes.com/business/realestate/la-fi-h...

LA area home prices continue to rise (heck, so does inflation!), and less people are buying them. 

The above article cites "inventory constraints, credit hurdles and reduced affordability". Sure, the articles a bit early for the season as now we're almost already in summer, but doubt it has picked up in sales, but just more somewhat overpriced inventory piling up as most residents - who rent - likely give up even bothering to try to save up a down payment or qualify for a mortgage.

People who are who are looking to uprade their housing situation after the proverbial spring cleaning and tax return season, are likely only moving into a either a more spacious or a more affordable rental in this economy and inflation, if they can find one with the rental market saturated and owners expective prices above comparable market values.

Definitely there's a new surge in foreclosures in the area thanks to the Homeowners Bill of Rights being passed last year which prolongs but doesnt relieve/stop the inevitable foreclosure process where a significant % of homeowners give up making ends meet and ultimately lose their home no matter how long it dragged on. 

Investors actually able to finance these foreclosures should feel like in the candy store with the resultant surge in (short sales and) foreclosures, given regular sales being so increasingly 'greedily' priced (or maybe its more the inflation of the US dollar). Likewise, landlords already wealthy and looking to add another multifamily gold mine to their portfolio, are more and more willing to pay a million bucks for a fixer in a transient neighborhood (ie, Compton, Bellflower, Long Beach) just cuz it has 3-4 units.

As for economic recovery, imo, that was so last year =( 

http://www.usnews.com/news/business/articles/2015/...

To what end? Any predictions as to what will happen in the next 5 years to the socal housing market?

I'm leaning towards most homeowners realizing the dollar is just practically worthless these days compared to even just 5 years back, so each year the price in lousy US dollars they would part with for their pride and joy and American dream is incrementally more, even if it means their houses and others' more and more pile up and sit on the market teasing agents who fail to bring an acceptable offer; and causing foreclosures, short sales, and distressed sales to sell at practically regular sale market value as compared to the overpriced inventory. 

nobody?

I can't see prices continuing to rise.  Nationally, there's a big issue right now with appreciation out pacing the rise in income.  This can only go on for so long before things become unaffordable, especially in large metros like LA, San Francisco, New York.  In California, the 3% down thing is back, which is helping to push up prices more.  

There's not a doubt in my mind the market is setting up for a big crash similar to 08-09.  We're planning on waiting the market out, and learning learning learning until the next crash, then hopefully swoop in and buy a couple of properties for very little.

There are many factors that affect price appreciation, especially depending on where you're looking in LA.  Too many industries/job sectors to analyze without a lot of work.  We are sticking to the financial rules for buy and hold outlined here on BP and other places.  Until we see a deal that works, we're on the sidelines.

Originally posted by @Russ Beck :

I can't see prices continuing to rise. 

...

There's not a doubt in my mind the market is setting up for a big crash similar to 08-09.  We're planning on waiting the market out, and learning learning learning until the next crash, then hopefully swoop in and buy a couple of properties for very little.

....

We are sticking to the financial rules for buy and hold outlined here on BP and other places.  Until we see a deal that works, we're on the sidelines.

Awesome insight, Russ! Whilst I see prices just continuing to rise to due to ongoing worthlessness of the US dollar (compared to some asian currencies being imported by the heaps to the area), u see beyond that - that they will eventually hit the ceiling and CRASH like they did some 7-8 yrs agp.

So yeah, ok, perhaps another crash WITHIN the next 5 years? Then no wonder the inventory is building up already. 

Originally posted by Account Closed:

http://www.latimes.com/business/realestate/la-fi-h...

LA area home prices continue to rise (heck, so does inflation!), and less people are buying them. 

The above article cites "inventory constraints, credit hurdles and reduced affordability". Sure, the articles a bit early for the season as now we're almost already in summer, but doubt it has picked up in sales, but just more somewhat overpriced inventory piling up as most residents - who rent - likely give up even bothering to try to save up a down payment or qualify for a mortgage.

People who are who are looking to uprade their housing situation after the proverbial spring cleaning and tax return season, are likely only moving into a either a more spacious or a more affordable rental in this economy and inflation, if they can find one with the rental market saturated and owners expective prices above comparable market values.

Definitely there's a new surge in foreclosures in the area thanks to the Homeowners Bill of Rights being passed last year which prolongs but doesnt relieve/stop the inevitable foreclosure process where a significant % of homeowners give up making ends meet and ultimately lose their home no matter how long it dragged on. 

Investors actually able to finance these foreclosures should feel like in the candy store with the resultant surge in (short sales and) foreclosures, given regular sales being so increasingly 'greedily' priced (or maybe its more the inflation of the US dollar). Likewise, landlords already wealthy and looking to add another multifamily gold mine to their portfolio, are more and more willing to pay a million bucks for a fixer in a transient neighborhood (ie, Compton, Bellflower, Long Beach) just cuz it has 3-4 units.

As for economic recovery, imo, that was so last year =( 

http://www.usnews.com/news/business/articles/2015/...

To what end? Any predictions as to what will happen in the next 5 years to the socal housing market?

I'm leaning towards most homeowners realizing the dollar is just practically worthless these days compared to even just 5 years back, so each year the price in lousy US dollars they would part with for their pride and joy and American dream is incrementally more, even if it means their houses and others' more and more pile up and sit on the market teasing agents who fail to bring an acceptable offer; and causing foreclosures, short sales, and distressed sales to sell at practically regular sale market value as compared to the overpriced inventory. 

 "Dollar is just practically worthless these days" really Neil? Wasn't so worthless to me the other week in Japan :) (=120 yen!)

@Account Closed My investing market, Bakersfield, CA can't seem to put inventory up fast enough.  That's what's pushing up prices here.  Simple supply and demand, but we will hit the ceiling soon enough.  @Andrey Y. I think Neil is talking about the devaluation of the dollar due to the US Federal reserve printing trillions of dollars.  If you compare the 1950's with today, the dollar has lost about 98% of it's purchasing power in dollar denominated assets.  You're good fortune with the Yen is because the Bank of Japan is going for broke with their money printing, what central banks call Quantitative Easing.  Japan has horrific structural problems in their economy.  However, they are about 10-15 years ahead of us with their policies, and we are unfortunately on the same path.  But yes, since they've printed gobs of Yen, and we have a very strong dollar internationally right now, it's good for exchanging currency.  Even with the EU right now, which the dollar is almost at parity with the Euro.  Bad for the EU, but good for us.  Unless, of course you export things from the US.  Strong dollar makes your exports more expensive and harder for foreign buyers to purchase.

Sorry for digressing/hijacking the forum.  Anyway, Prices in CA are insane anyway especially in the large metros.  @Neil G.  keep in mind it's always about supply & demand, but demand is a composite of people's ability to afford the mortgage payment and how scrupulous or un-scrupulous the banks get with their lending practices, i.e. the lending practices before the last crash.  Do I expect a crash in the next 5 years?  Yes, I see it coming toward the end of this year or early next.  Just my thoughts.  Happy investing both of you, @Neil G. @Andrey Y.

So far 2015 is coming out of the gates stronger than 2014.  Orange County just had the highest sales for a March in nine years, according to Data Quick, and that was with a decline in new construction.  So resale inventory is really flying off the shelf at the moment.

There are a few things putting the wind behind the housing market sails:

-Easing mortgage standards (3% conventional loans)

-Millenials are finally getting hired and getting into a position to buy.  In the meantime, they are pushing rents higher which raises the value of ownership.

-Boomerang buyers that were foreclosed/short sold are reaching the end of their 3 year wait to purchase again.  (Used to be 7 years, but lending standards have eased).

-Rates are lower now than this same time last year.

So unless the Fed decides to put an end to all of this, they will continue printing money and driving the market higher.  I expect for another couple years.  We haven't reached the level of unaffordability of the prior cycles yet.

I'd expect the next downturn to begin in 2018, maybe 2019.  SoCal averages a downturn about every 11 years, so that would put us eleven years out from the prior peak in 2007.

If there was a widely held consensus, I would be worried and go the other way.  Glad to see opinions all over the map.  Even with history rhyming (rather than repeating), no one really has any idea how long this unusually slow expansion will last.  I am not pegging any certain year, but watching for huge increases like we saw Spring 2013.  One more of those and I am out.  Otherwise, I think the growth path we are on is largely sustainable nationwide.  That doesn't mean we won't see localized corrections.    

People tend to spend the same % of their money on a house within a metro over time, so housing prices are set by a) interest rates and b) the economy. In the Bay, prices are higher than they were before the crash, adjusting for inflation. That's almost definitely because of the sustained tech boom that never really went away. LA-area still has a ways to go, because the economy is in such bad shape (third worst of all major metros). If the economy improves, I imagine house prices will rise a bit.

Of course, this is all contingent upon interest rates staying low. The Fed's likely to raise rates sometime this year, so those two factors might muddle each other up, with the result that housing prices stagnate. If you're interested in following someone who's got a great track record of predicting the SoCal housing market, check out the Calculated Risk blog.

Predictions can be fun but no one know what will or could happen. There are just too many variables (and black swans).  I personally just follow the data and make adjustments based on what the data is telling me.  This approach pretty much limits me to short and mid term plans and I leave the long term plan much more open.  California is a boom/bust state so timing is a critical aspect of the my strategy.

@Gene Hacker excellent point and excellent strategy!  Thanks for both of those.

Real Estate is and always has been about supply and demand. Southern California has so many things that drive demand. We have year round perfect weather, which draws people from around the world. Add to that the allure of California, great economy in so cal, the ocean, amusement parks, medical centers, high tech, manufacturing, entertainment, recreation, sports teams, universities, etc., and it all creates a strong demand for housing and commercial space. 

Of course there are various sub markets that are affected by different local economies etc. but overall I see southern California remaining strong. 

Medium house plansKaren Margrave, Parlay Investments | [email protected] | http://www.parlayinvestments.com | CA Contractor # 680782

Perhaps a plateau vs crash is more likely. Single digit appreciation could be more normal vs any huge gains now. In the past there were many years SoCal progressed as the rest of the nation was stagnant. This might be a time for that to happen again. In areas where demand is very high I don't see any chance of crash in the next 5 years outside of another GFC of some kind.

@Russ Beck

 Do you suspect a similar crash in Hawaii as well, ie. end of this year or next? I would be very surprised if it happend that early.

Originally posted by @Matt R. :

Perhaps a plateau vs crash is more likely. Single digit appreciation could be more normal vs any huge gains now. In the past there were many years SoCal progressed as the rest of the nation was stagnant. This might be a time for that to happen again. In areas where demand is very high I don't see any chance of crash in the next 5 years outside of another GFC of some kind.

I remember in 2003-04 people felt similarly confident.  It didn't end well.  When is the last time home prices plateaued in California?  Has it ever happened?  It's either going up or it's going down.  Very rarely do home prices stay flat for more than a year or two.

I would call prices close to flat for a year or two plateau ing....

03 04 had loans going that don't exist today. Many hot areas average down payments are 25% to 30%+. This cycle seems fundamentally different than the previous cycle. In some cases prices are still under almost 10 year ago peaks.  They really have not built much since GFC. There is a lack of inventory in the hot spots. 10 to 20 offers are still common and with some of these all cash still. I don't see anything close to last cycle with tell tale signs that a possible bust is on the horizon. Given this is not Bakersfield or IE I am talking. I am talking about the more exclusive infill areas where there is no land left to work with. 

@Brent Seehusen

Updated over 2 years ago

Some LA areas are in a plateau stage currently. That is one year over year low single digit appreciation median sold prices. This might be in place til next major cycle vs crashing is my take. These are stable healthy real estate areas not the outliers.

Updated over 2 years ago

I think our longest recent plateau stretch was in the 80s, then mid 60s thru mid 70s.

I'm witnessing buyers over paying for homes they cannot afford; qualifying for a loan is not as difficult.

In addition, I see many "investors" overpaying for multi-units that, even with a significant down payment, they'll have a challenge maintaining. Unless, they plan on pumping  money into the investment.

Prices, are about, where they were before the recession - give or take a little. 

There are a few deals out there, but the margins are slim.

In my opinion, I expect a crash in 2019 - 2020.

@David G

No doubt the LA area multis are redic in most cases. I would expect some of these are future condo plays with total redevelopment. Meanwhile rents are up 10% yoy and many may be counting on that to continue regardless. I can totally understand selling now or sidelining. Obviously it can never always be the best time to buy or sell. 

I think that no matter where you are, it's important for you to know your local market (or the market where you invest) understand what drives the economy, and vulnerabilities. There are micro economies in all large areas, and varying things affect those markets. California is a huge state, but southern California is a huge area in itself. 

Medium house plansKaren Margrave, Parlay Investments | [email protected] | http://www.parlayinvestments.com | CA Contractor # 680782

Originally posted by @Matt R. :

@David G

No doubt the LA area multis are redic in most cases. I would expect some of these are future condo plays with total redevelopment. Meanwhile rents are up 10% yoy and many may be counting on that to continue regardless. I can totally understand selling now or sidelining. Obviously it can never always be the best time to buy or sell. 

 +1

Rents are up, at least 10%.  The rental market is extremely hot!

It's definitely a situation in SoCal right now. 

If you'd asked me this question in 2010, I would have said that we'll never see the funny money, I mean loan products, we saw 2003-2008.  In my tiny mind, I thought loan products, loan securitizations and their resales were responsible for a lot of crazy appreciation.  While I'm pretty sure we won't see those easy lender funds again, we now have something else I didn't see coming.....cash from everyone and everywhere in the world to get into CA RE.  I didn't see that coming either.  

Back in 2006, the lady who handled my tile/granite said she was making a killing converting 4 unit apartment buildings up in Big Bear into condos. The more experience investors at the lunch meetings kept talking about a major correction coming soon. Just the other day, upon learning what I do for a living, a waiter told me Bakersfield is a hot market to be investing these days. When people with no business in real estate start passing around advice, sounds to me like history will indeed soon repeat itself. 

California is pretty consistent with its 7 year cycles. A hot market makes everyone look like a genius. The proverbial high tide floating all boats, but as Warren Buffett once said, "Only when the tide goes out do you discover who's been swimming naked."

Aaron Mazzrillo, Advanced Home Sales, Inc. | http://www.aaronthehousebuyer.com | Podcast Guest on Show #37

Account Closed 

No predictions here. But I do work with a few rehabbers who are doing a hand full of flips per year. They are looking at a 3 to 4 year window for maximum profits.

 The interest rates are so low and the loans are good now so I agree with a plateau rather than a crash. At least I would hope for that.

yep hopefully not a crash. but some folks here are saying the 7 year cycle thing might mean another crash rather soon.

anyways, 10% increase in rents sounds awesome for however long lasts