Originally posted by @Account Closed:
@Juan Diaz,
I don't think I'm asking you to give anything away. I'm just asking for some PAST confirmations to verify if this economist is legit. The reason I ask if he invests in real estate to gauge his involvement in the housing market as RE is local. Is there a reason why we should listen to this economist over Bruce Norris, who not only considered the oracle of RE for CA, but he practices it day in and day out? To me Bruce likely has an edge over this economist wouldn't you say?
If you could confirm that he really called the bottom in April 2010, it gives him credibility rather than giving away any secrets. As far as I know, Bruce put together an "All In or Fold" seminar in 2011, and told his investors to go all in while Bill McBride of Calculated Risk called the bottom of the housing market in Feb 2012. Robert Shiller has been bearish the entire time. This is the first time I've heard someone called the bottom of the housing market before Bruce and Bill.
Hi Minh,
I gave the past confirmation of calling the top. I don't know if he called the bottom. Also of note, you gave the "bottom" as being April of 2010, and then gave examples of people you respect calling the bottom 1-2 years later. (Note: here's what I found from Senor Google:
http://www.sandiegoreader.com/weblogs/financial-crime-politics/2009/sep/25/sd-home-prices-at-bottom-says-forbes-guru-robert-c/#). Allow me to do a mini-segue on probability:
This is the reality of people who "call" the housing market, or any market for that matter. Norris & McBride are calling it after the market has already started to turn. And that's great! Why is that? Because a monkey on a typewriter has just as much likelihood to call the moment when the market turns as an expert on the area. Macroeconomics are so complex, that something like a coup in Turkey can unsettle markets and send house prices down slightly. There's no way to predict everything, which is why trusted investors like McBride and Norris only call things after the market has started to turn. They are well aware of this fact. Asking for someone to have correctly called the specific time the market turned is like only taking the word of someone who went to Vegas, played Hold 'Em once, and got a Royal Flush. Statistically speaking, that Royal Flush-winner is more likely to be someone unskilled than a professional gambler who plays the odds and loses 40% of the time.
So now that we got that mini-segue about probability out of the way, I will agree that you're right to have skepticism. We're human beings with our own brains to use to examine the case that Campbell makes. Campbell's case is pretty simplistic, that the Bay Area has essentially outpaced the recovery of the US by a ridiculous amount (4x the national average I think? Unsure exactly). On its own merits, Campbell's arguments are insufficient. It occludes what's actually happening in the housing market, but it's easy enough to understand. For instance, I put up a post that dives into some of the deeper factors, and no one responds to it. Posts like these, people do.
The long and the short of it is, even within this investing environment, a small set of factors accounts for somewhere around 70-90% of the median price of US home markets: median household income, rental vacancy rate, population growth over the last 50 years, and physical obstruction (green belts, oceans, mountains, can be natural or manmade). Metros with no growth, high vacancy rates, no physical obstructions to expansion and low median household incomes all have pretty low house prices. Markets with high prices have the factors the other way around.
You can draw up relationships between how obstructed metros are, vacancy rate, etc, and graph the numbers. When you graph the numbers, most US markets behave similarly in response to these variables. These variables account for something like 70-90% of the median house price, per my calculations. Even using next-level analysis like this, the Bay Area jumps off the charts. The Bay Area is so physically obstructed, median incomes are so high, and rental vacancies so low, that it does not appear to be remotely close to the trend line established elsewhere throughout the United States. You know what they call an asset that is significantly above the price its fundamentals would show? A bubble. So that's my take on why the Bay Area is due for a correction at some point in time, and you're free to crunch the numbers on your own.
