“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.
Buzz: Southern California’s median home price increased for six straight months before falling in August from July. That six-month “winning streak” is fairly noteworthy because there have only been three longer streaks since 1988.
Source: My trusty spreadsheet analyzed DQNews’ monthly median home price data — based on closed transactions — for six Southern California counties.
The Trend
Let’s first note that watching month-to-month changes isn’t a great comparison for a long-term analysis. That’s because since 1988, prices have risen during just 53% of the 392 months, so any single month’s price swing could be loosely viewed as a coin toss.
That stated, the six-county median fell $1,000 in August to $680,000 following a six-month upswing from January’s $595,000 — a 14% jump. By the way, all of those six 2021 increases created new record highs for this price benchmark.
So when did we have longer winning streaks? (My apologies to house hunters who I know don’t see long upswings as “winning.”)
Longest streak? Eight months ending in September 2012, in the early days of the rebound from the Great Recession. Prices rose 21% in the period.
Next longest? Two seven-month streaks were both in the big-bubble period, ending August 2003, a 21% gain; and through August 2005, a 13% gain.
There have been two other six-month upswings like 2021’s streak. One ending in July 1988, a rise of 12% near the end of the late 1980s bubble; and another ending in July 2017, which saw a 10% rise.
The Dissection
Simply put, such extended upswings happen slightly more than 1% of the time — so they’re a true rarity.
Uniqueness aside, what do these streaks tell us?
Let’s look what happened after these five previous streaks ended, noting that prices have averaged an annualized gain of 5.2% since 1988.
12 months later: Prices rose after all five long streaks, averaging well above-par 12.4% gains.
The second year: Again, five gains — with a moderated 6.7% average increase.
Third year: One drop — following the 2005 streak — with the five averaging a 2.4% loss.
Fourth year: Two drops — 2005 and 1988 — with the five averaging a sub-par 1% gain.
How bubbly?
On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … ONE BUBBLE!
Since 1988, these winning steaks in the short run have been signs of upward pricing momentum. But I gave them a one-bubble “low risk” grade because we did see long streaks of monthly gains early in the formation of the bubbles of the late 1980s and the mid-2000s.
Plus, this history also reminds us that gains cannot last forever — noting the eroding average gains, and even a decline, following previous long upswings.
August’s end to the most recent winning streak suggests a brewing peak for local housing’s rate of appreciation.
Jonathan Lansner is business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
Source: Orange County Register
Be First to Comment