“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.
Buzz: California’s housing market in January had its largest twin surge in sales and pricing in 17 years.
Source: The California Association Realtors tracks closed sales and prices of existing single-family homes across the state.
Homebuyers gobbled up houses at an 484,730 annual pace in January — up 22.5% in a year, the third consecutive gain above 20%.
The statewide median price paid was $699,890, up 21.7% in a year and the biggest gain since February 2014.
If that’s not overheated to you, consider this: The last time sales and prices jumped more than 20% in the same month it was August 2003.
The housing fervor was created by a trifecta of pandemic forces: Low interest rates, house hunters seeking more living space and few owners interested in selling.
And “FOMO” momentum — that’s the “fear of missing out” on a trend — created bidding wars, pushing prices upward.
Note what my trusty spreadsheet tells me about big California homebuying upswings …
Since 1990, sales jumps above 20% over a year have occurred in 9% of the months. Price surges above 20% were found in 11% of the months.
And the 20/20 club — both benchmarks popping 20% or more — happened five times in three decades: All in the 2002-03 period. That’s 1% frequency.
“With the COVID-19 vaccine continuing to roll out, another fiscal stimulus relief package likely on the way and historically low interest rates, the housing market will continue to thrive,” says Jordan Levine, the association’s chief economist.
“The market outlook is stronger than previously projected as buyer demand continues to outstrip supply, but we do expect the current robust market growth to decelerate later this year as the housing shortage intensifies,” he said.
On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … FIVE BUBBLES!
This pace seems unsustainable. Well, unless cheap money lasts forever and the eradication of the pandemic keeps folks in a panic-buying mode.
Note: Bubbles don’t have to burst. Overvaluations can be part of a market for extended periods. Think back to 2002-03 — the last only other 20/20 upswings in California. I’d argue that housing momentum ballooned into a euphoria that set the stage for stupid lending. When those loans imploded, the market burst into the Great Recession.
Source: Orange County Register