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Is a new housing bubble on the way? Comment on this post ↓
May 8th, 2013 by Warren Swil

Home prices in Los Angeles are soaring again

This graph of home prices in the Los Angeles area from the Department of Numbers is a little disconcerting. Look what has happened to it since the start of the year. Click image to visit the site.

HOW SHORT our memories are!
It is barely six years since the biggest housing bubble in American history came crashing down, bringing the economy to its knees.
In recent weeks, if one is following the real estate market closely, it is beginning to seem like déjà vu.
For three years during the downturn, I was shopping for a home in Pasadena, CA. I attended hundreds of open houses, spending dozens of weekends doing nothing else.
AS PRICES in the greater Los Angeles area declined about 30 percent from their peak, the prospect of purchasing a home at a very attractive price became more and more enticing.
During this entire time, I followed closely the work of Bill McBride, blogger extraordinaire at Calculated Risk.
He was the first to call the real estate crash. And, the rebound. His knowledge is deep, his posts insightful, his prescience remarkable.
Therefore, when I found a short sale on the market in February 2012,

Bill McBride’s post from this morning on home prices. Click the image to visit the Calculated Risk site.

I pounced. My offer was accepted in 48 hours, and it took just two months for the bank to approve.
The deal closed on June 1, 2012.
Little did I know at the time that February 2012 would mark the low point in the crash. McBride called it first, but the rebound in prices has been in the headlines for only the past couple of months.
It is only with hindsight I can see my timing was flawless.
Providing additional evidence is the Department of Numbers
maintained by Ben Engebreth. The site describes itself as “a repository for real-time social, economic and financial data relevant to the broad public. We take data from government, agency and web sources and provide simple, contextual analysis at multiple geographic levels (e.g. national, state and metro).”
I’ve had it bookmarked for years, possibly since its pre-crash inception.

Los Angeles area home prices as reported by Ben Engebreth at The Department of numbers. Click image to visit site.

Every Monday, Engbreth updates the data on inventory and prices, apparently based on current listings. I follow the median price closely, but the 25th percentile and 75th are useful, also. (Interesting to see what the members of the One Percent are paying for their homes, if nothing else.)
A glance at his recent data on prices in the Los Angeles area is stunning. The graph has gone almost parabolic.
The median asking price has gone up 37 percent in the past year. Of course, the reason is clear: supply and demand. Inventory is down 46 percent in the same period.

IS THERE a new real estate frenzy building?
Zillow claims my home is worth 14 percent more than I paid for it. In less than a year! That is an increase of $65,000.
With the Federal Reserve pumping $85 billion a month into the bond markets, mortgage interest rates are still at historic lows. Those with the down-payment (20 percent is now the norm, unlike the no-doc, no-job, no-common-sense loans made in 2005) who can find a home for sale are making multiple offers way above asking prices. Well, in certain areas of Southern California, at any rate.
How long can this continue?
Did we not learn any lessons last time?
If it weren’t so exciting for one who bought at the bottom, I’d be a little worried. Aren’t you?



2 Responses  
  • Lookyloo writes:
    May 8th, 2013

    I’ve bid on three houses in Los Angeles in the last month, and was out bid each time.
    It is crazy out there right now.

  • Martin Trailer writes:
    May 10th, 2013

    The real estate run up, I think, still has some hot air in it based on history and the bubble right now is inflating again.
    A buddy who is a big stock broker told me the other day that, according to Jamie Dimon (JP Morgan Chase CEO who’s pay was cut in January by more than half, to $11.5 million from $23 million) the banks now think housing has floored and will begin to rise again.
    As usual, they are a bit behind the curve. The housing market clearly bottomed in February 2012, as indicated in your post.
    With the Fed pumping $85 billion a month into the market and artificially lowering rates, I agree: the housing market HAS bottomed.
    But then, what will happen when the pump stops and rates rise? What will inflate the housing market? Hype? Perception? Need or momentum?
    Based on your research, yes housing will go up since demand continues to increase, but the negative is what will happen to RE prices when interest rates rise, which is inevitable.


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