Recently the Wall Street Journal, Business Insider as well
as other business websites have speculated on whether another housing bubble is
forming. The reason for this fear is the sudden rise in prices in many real
estate markets. The Los Angeles Times reported that median home prices nationwide
have risen 11.6% over last year. In our own local market, median home prices in
Burbank rose 16%
from 411k to over 477k from February of last year compared to February this
So, are we headed for another crash?
Most prognosticators are saying probably not. The specifics
of this market are different. The major differences involve a very low
inventory. In Burbank,
the total available listings last February was 259. That is compared to 125 in February
of this year. The number of active listings has been hovering between 50 and 60
for some time now.
In the previous market bubble, there were lots of
contractors building as fast as they could. Right now, the contractors that
survived are busy but not in the same way. Most agents will tell you that while
construction activity is picking up, it is not even close to where it was. And
it will take time for construction companies to grow and expand or new ones to
However, there is cause for caution.
In the previous market the rise in prices was mainly speculation
by consumers. People thought of their homes, not as a long term investment as
much as they thought of it as a short term commodity to be bought and sold for
a quick profit. With so many people being burned in the last market, most
consumers are more cautious.
But the place to look may be equity firms and institutional investors.
Blackstone Group, a private equity firm, has put 3.5 billion in the purchase of
homes. It has also sought additional capital to the tune of 2.1 billion to
further their purchases. Colony Capital is putting 2.2 billion into the housing
At some point, these companies will cash in on their
investments. The only question is, when. When they achieve 10% profit, 20%, 30%
or more? At some point they will sell. When that happens, much will depend on
how many of these firms unload their investments. Interest rates too will play
a role. And, not to be overlooked, banks are still sitting on some inventory.
So, is it housing bubble II? We very well may be at the
beginning of another run up. But, if and when it will pop is the larger
mystery. Time will tell. In the mean time, sellers can be happy that their
equity is starting to go up. If sellers have been waiting to put their home on the market, now may be the time. Buyers need to understand that we are seeing
multiple offers on almost every listing. So, they will need to be aggressive.
Otherwise they will miss out.
Please call or send an email if you need help with any of your real estate needs.
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