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.
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 MCotter.com. Contact him at Mike@MCotter.com 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
Sq. Ft.: 1270
Lot Size: –
Property Type: Residential, Condominium
Style: Split-Level, Modern
Year Built: 2000
Status: ActiveThis listing is for sale and the sellers are accepting offers.
On Redfin: 10 days
BEAUTIFUL 2 BEDROOMS+ 2.5 BATHROOM TOWNHOUSE IN NORTHWOOD POINT, GATED COMMUNITY, FEW STEP UP TO LIVING ROOM, FEW STEP UP TO KITCHEN AND DINING ROOM AND FAMILY ROOM, TWO BEDROOM UPSTAIRS, TWO CAR ATTACHED GARAGE WITH DIRECT ACCESS FROM THE HOUSE, QUIET INTERIOR LOCATION, 2 MASTER SUITE, NICE HIGH CEILING IN LIVING ROOM, GRANITE COUNTERTOP IN KITCHEN, BREAKFAST COUNTER, VERY BRITE AND AIRY, WALKING DISTANCE TO AWARD WINNING SCHOOLS, ELEM. AND NORTHWOOOD HIGH, PARKS AND TRAILS, AMENISTSIES INCLUDE 2 SWIMMING POOLS, LIGHTED TENNIS COURT, GATED COMMUNITY OF COLLAGE,