The OC Register Says California had no real estate bubble

The Orange County Register actually released a news story boldly stating that California had no real estate bubble. Brace yourselves for a kool aid overdose.

Irvine Home Address … 2110 TIMBERWOOD Irvine, CA 92620

Resale Home Price …… $405,000

as you peel back the skin from an orange

remember how you got all this

well all this

well it's never ever coming true

theres nothing you can do to change it

you don't have to do the crime

to do the time

its just guilt by association

Louis XIV — Guilt By Association

Really biased and misleading crap is common on realtor blogs, which is why nobody reads them. When realtors are allowed to post their bluster as news on the OC Register, many people take it as information rather than indoctrination. It soils the OC Register when they permit this.

Published: March 7, 2011

Updated: 5:25 p.m.

California had no real estate bubble


Nearly everyone accepts as fact the perception that California real estate prices “skyrocketed” into the stratosphere from the mid-1990s to the mid-2000s, creating a “bubble.” But historical data easily disproves this.

This guy has an interesting way of setting up his argument. He makes a bold and easily disprovable statement as if it were fact, and he proceeds to base his diatribe on this ridiculous statement.

There is also widespread belief that rapid growth in home prices must inevitably lead to rapid decline. The “bubble” must eventually “burst.” What goes up must come down. But this is also demonstrably not true – at least in California.

People tend to take these two notions for granted because they forget the facts of history, they mistake the current dramatic real estate correction as typical, and these misconceptions have not been well-investigated by the news media.

California home prices did not spiral out of control from 1996 to 2007. And rapid appreciation in home prices does not automatically lead to rapid depreciation. Let's examine history.

In 1970, according to data published by the California Association of Realtors, California's single-family home median price was $24,640. By 1983, the median had climbed to $114,370. This was a very rapid almost fivefold increase in market value in 13 years. The actual annual appreciation rate over that period was 12.5 percent. The inflationary '70s were very good for real estate prices. But I don't remember at the time any talk of impending doom for the housing market – that what goes up must come down, that this bubble had to burst.

Of course, 1970s inflation hit interest rates, too, and by 1983, mortgage rates were above 18 percent. The market slowed for one year only – California home prices went flat in 1984.

But no inevitable massive “correction” occurred after this rapid run-up. In fact, from 1984 to 1991, the home median price rose still higher, from $114,260 to $200,600. The annual appreciation rate was 8.4 percent.

Finally, after 21 years of price appreciation, a strong recession hit California and the housing market steadily corrected between 1991 and 1996. Military bases and aerospace companies closed. The home median price slowly declined from $200,660 to $177,270 – an annual depreciation rate of 2.4 percent. This was a tough time for those with slim equity. But most California homeowners muddled through. No one can claim that this was a burst bubble, but simply a gradual and expected adjustment after at least a generation of great times. The clouds lasted five years.

Let's pause here. People who take for granted the idea that home prices then skyrocketed after 1996 have little understanding of California's housing history.

It's true that California's home market took off again. And this time, the good times lasted 11 years. But this was no bubble that was destined to burst.

The facts: Climbing from a median price of $177,270 in 1996 to $560,270 in 2007, the annual appreciation rate for this 11-year growth period came in at a good but unspectacular 11 percent. I say unspectacular because the previous growth period from 1970 to 1983 was stronger at 12.5 percent annually and lasted two years longer.

This guy has based his entire reality on the two anomalous periods where kool aid intoxication took over. He genuinely believes house prices can go up faster than wages and faster than inflation. The magic appreciation fairies must sprinkle it like pixie dust.

In fact, an argument can be made that, had the appreciation rally starting in 1996 been more “typical” of those in the past 40 years, the home median price wouldn't have stopped at $560,270 in 2007 but would have risen an additional $100,000 or $200,000 before fizzling out.

Trees really do grow to the sky, right?

At any rate, the current correction began in 2007, with California's home median price dropping from $560,270 to $274,960 in 2009. I estimate 2010's median price will come in at a flat $275,000. Should that estimate hold, the correction we're ending just now will have brought an annual depreciation rate of about 21 percent. That's pretty severe in historical terms.

So why did the most recent 11-year rally fail to achieve expected heights, and more importantly, why has the subsequent correction been so severe?

Because it was a massive housing bubble that never should have been allowed to push so high to begin with. The fact is that the severe correction isn't complete yet, and when it is finally done, don't expect rapid appreciation any time soon.

Perhaps more than just real estate issues were involved in the truncated rally and subsequent market correction. Esoteric AAA-rated mortgage derivatives and credit default swaps may have set the stage for an extraordinary ruination of the real estate market.

According to The New York Times, commenting on conclusions issued by the Federal Financial Crisis Inquiry Commission, “The 2008 financial crisis was an 'avoidable' disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street.”

Contact the writer: Mike Cotter has been a California real estate broker since 1981 and is currently a Realtor and broker-associate with Century 21 OMA, 229 Avenida Del Mar, San Clemente. His website is Contact him at or 949-322-6009.

Mr. Cotter worked hard writing that piece, and he deserves attribution, so his contact information is presented here as a courtesy. Please don't call or email him with inflammatory comments. If you like that perspective on the market from a broker, please go work with him. Reality is not for you. Mr. Cotter may stop by and defend himself in the astute observations. Wouldn't that be fun?

Why the OC Register print this kind of garbage? I found this in my Google news feed, so this is being passed off as news — an unbiased representation of fact. Is this the version of reality we are to embrace? Should trees grow to the sky?

The slow death of the OC Register has been painful to watch, and each time they run a realtor puff piece as news, they take their credibility down one more notch. I know they want content, and I wouldn't be surprised if this guy either paid for the content or advertises a lot with them. It can't be good for the OC Register when readers have to be mindful of bullshit.

It's supposed to go up more than 10% a year

The speculator who bought today's featured property is trying to get her money back out. Six years after the peak, and we are still grinding along the bottom making new lows. Rather than going up 10% a year as the realtor above suggested, this woman has owned for two years, and she isn't going to sell for enough to cover the commission.

The bubble owner paid $375,000 in 2003, and in 2005 refinanced with an Option ARM with a 1% teaser rate. After $145,000 in mortgage equity withdrawal, the property had $480,000 in debt and went into foreclosure.

A flipper bought the property at auction on 4/14/2009 for $341,200 and resells it a month later for $399,000. That was a great flip.

The current buyer paid $399,000. As far as I can tell, she paid all cash. She is taking a haircut.

Irvine Home Address … 2110 TIMBERWOOD Irvine, CA 92620

Resale Home Price … $405,000

Home Purchase Price … $399,000

Home Purchase Date …. 5/14/09

Net Gain (Loss) ………. $(18,300)

Percent Change ………. -4.6%

Annual Appreciation … 0.8%

Cost of Ownership


$405,000 ………. Asking Price

$14,175 ………. 3.5% Down FHA Financing

4.85% …………… Mortgage Interest Rate

$390,825 ………. 30-Year Mortgage

$82,433 ………. Income Requirement

$2,062 ………. Monthly Mortgage Payment

$351 ………. Property Tax

$111 ………. Special Taxes and Levies (Mello Roos)

$68 ………. Homeowners Insurance

$302 ………. Homeowners Association Fees


$2,894 ………. Monthly Cash Outlays

-$338 ………. Tax Savings (% of Interest and Property Tax)

-$483 ………. Equity Hidden in Payment

$26 ………. Lost Income to Down Payment (net of taxes)

$5063 ………. Maintenance and Replacement Reserves


$7,162 ………. Monthly Cost of Ownership

Cash Acquisition Demands


$4,050 ………. Furnishing and Move In @1%

$4,050 ………. Closing Costs @1%

$3,908 ………… Interest Points @1% of Loan

$14,175 ………. Down Payment


$26,183 ………. Total Cash Costs

$109,700 ………… Emergency Cash Reserves


$135,883 ………. Total Savings Needed

Property Details for 2110 TIMBERWOOD Irvine, CA 92620


Beds: 2

Baths: 3

Sq. Ft.: 1270


Lot Size: –

Property Type: Residential, Condominium

Style: Split-Level, Modern

Year Built: 2000

Community: Northwood

County: Orange

MLS#: S648735

Source: SoCalMLS

Status: ActiveThis listing is for sale and the sellers are accepting offers.

On Redfin: 10 days



34 thoughts on “The OC Register Says California had no real estate bubble

  1. winstongator

    If Cotter thinks that the 1970-83 period is the same as the 1996-2007 period, he either does not comprehend inflation adjustment, or is not good at math. If you just took 1970 prices and adjusted for inflation, you’d be at $63,251, then to the actual $114,370, your inflation-adjusted increase is 4.7%. Compare to the other period’s 8.3% after-inflation increase – nearly double. That is the opposite of the 12.5% to 11% data he presented.

    In other words, looking at the data the way that every economist, and every sensible financial advisor, adjusting for inflation, the data he presents as saying ‘the price rise of 1970-1983 was sharper than the 1996-2007 rise’ is false. His whole article is based on ignoring inflation, which no reasonable financial commentator does. That’s it.

      1. winstongator

        I missed his job & affiliation.

        Do we allow financial planners/advisors to make claims like this? Granted, a lot of mutual funds do not inflation adjust their numbers, but in terms of ‘planning’ you have to account for it. A home is the biggest investment for many people, especially if you’re at a 30+ DTI (most of CA).

        At a refinance closing, I noticed a document outlining why we were refi’ing – changing loan length & consolidating. I thought, and then asked the closing attorney how often he saw really bad loans, and what he would say. He said he saw quite a bit of questionable loans (we are in NC not FL), and a few where he would speak up to say that someone might want to really look closely at the terms and conditions of the loan. A closing attorney is not an agent of the buyer. People need unbiased, impartial advice on financial transactions. At $50-100/hr, 2 hrs, the cost impact on nearly all loans or transactions would be minimal. Maybe require it for GSE loans. You get a deal where the realtor says you can afford it, but the impartial adviser says you can’t. Would that help?

        1. Walter

          I get the feeling all the big RE brokerages would hire or put on retainer lawyers to “assist” their clients. How many will strike out and find their own high quality counsel?

          1. winstongator

            I would like to see a requirement for a third-party consultation before a GSE loan gets funded. If the bank is going to sell it to a GSE, it has to go to a third-party advisor. You submit a request and you get a name to go to – no choices. They re-did their appraisal system because that was corrupted too.

          2. jb

            “Do we allow financial planners/advisors to make claims like this?”

            I’m reading the book “Capital Offense” and this is what it had to say about fiduciary responsibility.

            Goldman’s CEO, Lloyd Blankfein: “Goldman was a market maker, and that absolved the firm of any fiduciary responsibility for the deals it set up for its clients.” Carl Levin asked him (at the hearing) to concede that Goldman was morally wrong to bet on the sly against securities that it had touted as solid investments to its clients. “No,” Blankfein demurred, “that wasn’t how the financial system worked anymore. There’s been a change in the sociology of the business in the last ten to fifteen years, “ Blankfein explained patiently. “Somewhere along the line, the big clients stopped asking investment banks for good advice and started to seek them out only to set up deals for them.”

            And after that Jedi Mind Trick, nobody wound up in prison. *Poof* Realtors, investment bankers, mortgage brokers..all cut from the same no-accountability cloth.

        2. Perspective

          South Carolina requires borrowers obtain counsel, but I don’t know if financial counseling is part of the attorney’s duties. Do you know winstongator?

          1. winstongator

            No idea. NC definitely doesn’t require financial counseling as part of the attorney’s duties, and I don’t even know if an attorney is required.

          2. Perspective

            My general understanding is that a licensed attorney must perform or supervise tasks related to the closing and the borrower must have the opportunity to select the attorney (in a mortgage loan of a 1-4 unit residential owner-occupied dwelling).

            I wonder if a SC closing attorney may limit the scope of his/her representation to the issues related to closing docs? i.e. Does a SC attorney present at the closing being paid by the borrower (from proceeds related to the mortgage) have a duty to counsel his/her client on whether or not the loan itself is a “good idea”?

            “…Our supreme court traditionally has recognized several functions that must be performed or supervised by an attorney: (1) title search; (2) document preparation; (3) loan closing; (4) recording instruments; and (5) disbursement of loan proceeds…”

  2. Serenity Now

    I think you’ve got a typo under the “maintenance and replacement reserves” above….. $5063/month seems kinda steep

  3. Dave Kinkade

    Heck, even a broken clock is right twice a day…allow him to cling to his ‘reality’ ’cause you never know….it could happen

  4. JK

    Newspapers are struggling these days. If real estate companies/brokers are the ones buying ads then why do you think they have these op-ed pieces instead of real news. It’s the OC, of course!

  5. christian

    The real question is why has cash flow value and fundamental value diverged from each other in the last ten years?

    1. Planet Reality

      There absolutely was a debt bubble.

      But there is something else hidden in the weeds for areas like Irvine, that goes beyond the debt

      1. bigmoneysalsa

        Irvine is different. It’s just an amazing coincidence that the fundamental value of Irvine real estate increased at an unprecidented rate at the same time the rest of the country was experiencing a “debt bubble”.

  6. Will

    By golly, if it’s in the Orange County Register, that paragon of journalistic objectivity, then it is for certain absolute truth. Who are we to question it?

  7. thrifty

    Over decades home price increases are pretty much in line with inflation. If you accept the bubble started in 2000, then home prices should now be about 30% higher.
    In 2000 median home price in south Orange county was about $160/sq ft. It’s now just under $300/sq ft. AFTER falling from just over $400/sq ft in 2006.
    Even after the fall, the price is 100% higher than in 2000, over 3 times the rate of inflation over the same period.
    Right, Mr. Collier, we are definitely no longer in a bubble.

  8. lee in irvine

    Note to Ken Brusic (Editor) of The Register.

    Ok … OC Register, whatever you say … “there was no real estate bubble”. I don’t feel the need to be right anymore … history speaks for itself, and your newspaper just lost more credibility.

  9. Vincenzo

    There is an article in OC register that explains anomalies.

    “Irvine gained thousands of white and Hispanic residents, the census showed, but it was the Asian population that pushed it into third place among Orange County cities. That population nearly doubled between 2000 and 2010, to nearly 83,000 in a city of about 212,000.”

    Irvine is already 40% Asian, and this proportion has been growing steadily.
    The Chinese have billions of dollars that they don’t know where to spend. So, they buy houses, factories, oil, gold, etc.

    Look at this Irvine realtor’s website: It has the second language, and it’s Chinese. He knows who has mad money.

    1. Chris

      “It has the second language, and it’s Chinese.”

      We need to report this to the right authority. The stinking website obviously forgot that Spanish is the 2nd language in CA.


  10. Soylent Green Is People

    I’ve just awoken from a brief IHB induced diabetic coma to ask one question: Do you know anyone under the age of 30 who pays for a newspaper subscription today?

    My .02c

    Soylent Green Is People.

  11. alan

    CA census data posted today… per LA Times… CA would have lost population of not for the influx of Latinos… Check that.. “would have lost population” from 2000 to 2010. Homes only go up when you have increasing population and jobs. With the middle class bailing and job growth stagnant to negative, CA is in for a long slow burn.

    1. Vincenzo

      2 million lazy whites have moved out, 2 million hard-working Asians have moved in.

      1. IrvineRenter

        The lazy whites didn’t move out. They are squatting in coastal properties so they aren’t counted.

  12. kunal

    I don’t get it !

    He (MIKE COTTER) has presented data in his article which which define a bubble. Price go up, rapidly, price come down, rapidly.

    Is he just arguing semantics? Or just suggesting that bubbles are normal in the market place and we should just expect it to happen ever so often and there is nothing we can do about it?

    Me thinks he needs to understand how inflation works, and what wages going up or down mean.

    Maybe the OC Register will pay for him to get an economics degree from UC Irvine !

  13. Al Falfa

    “When realtors are allowed to post their bluster as news on the OC Register, many people take it as information rather than indoctrination. It soils the OC Register when they permit this.”

    Fact: Realtors practically OWN the OC Register and are its primary revenue source, thanks to the mega-bucks they spend on advertising therein.

    This is why the OC Register is already so SOILED that it STINKS even more than a diarrheic three year old’s diaper on a hot, humid summer’s day

  14. MortgagesByMark

    This realtor isn’t taking into account affordability.

    I did a hypothetical debt-to-income ratio analysis a few months ago to see just how unaffordable homes were at the peak. At the top of the market in 2006, a median income purchasing a median-priced home in SoCal using 20% down and a 30-year fixed mortgage would have had a 70% debt-to-income ratio even if they had no other debts.

    The bottom line is that if prices reach the point where nobody can buy anymore, you have to have a correction. I don’t know how this realtor can say with a straight face that a correction in the last boom was not inevitable.

Comments are closed.