Friday, May 2, 2014

LA IS BUBBLICIOUS!

The once in a lifetime mentality, fueled by a shortage of for-sale homes, is driving the Los Angeles area from recovery to frenzy, according to real estate agents, brokers, like my son, and experts. A report released recently by the real estate data and brokerage firm Redfin.com called Los Angeles of one the "bubbliest" housing markets in the U.S., second only to Washington, D.C.

The Redfin report comes as others have begun to raise concerns that housing might be approaching speculative territory. Professors Karl Case and Robert Schiller - creators of the widely followed home price index - have cautioned about fast rising home prices in recent months. Economists have also attributed much of the housing surge to investors' couple with the fact that banks are very slowly releasing REOs to maintain control of prices.

Many investors are buying homes to quickly sell again at a profit. Fixing and flipping is a robust business once again. We're going straight from Armageddon to speculation with no stops in between. That seems to be how the American economy works now, we just go from one bubble to the next and back again.

But there is a distinct difference between the home price run-up of the last decade and the current upswing. During the previous boom, listings abounded and sales soared. Now, rising prices are driven by a shortage of supply. And although underwriting standards may be relaxing, they remain tight when compared to when lenders did loans on stated income with no verification and issued enough subprime loans to crash the U.S. economy.

This is not a bubble by any stretch of the imagination. If you can't borrow, you can't speculate - that is the primary thing that will prevent this from happening.

What are your thoughts? Let me know.


Re-posted from our newsletter originally sent on 6/13/2013