Broker: Sorry to burst your bubble

by Justin da Rosa24 Aug 2015
Forget talks of a bubble in one market, argues one industry professional who can count a major economist in his corner.

Is LA in another real estate bubble? That’s the question recently asked by the Los Angeles Times, and now one industry player is offering fellow originators his answer.

“We’re seeing price reduction and pullbacks in the number of multiple offers, but there are some people out there who are still pushing prices (up),” Mario Pineda, senior loan officer with Banc Home Loans told Mortgage Professional America. “It’s a healthy market; we’ve seen a 3-5% price pullback and that’s no big deal at all because we have had some decent appreciation.”

And in a recent Op-Ed for the LA Times, William Yu, economist at the UCLA Anderson School of Management, attempted to lay the bubble discussion to rest. At least for now.

“As home prices rise ever higher in Los Angeles, some are beginning to wonder if the region is in another housing bubble, one that's ready to burst,” Yu writes. “Real estate blogs add to the hysteria by pointing to the most ridiculous listings, the million-dollar bungalows in need of a complete renovation, the $3-million teardowns.

“But the data suggest that the market is not, in fact, on the brink of collapse.”

That data is the house price index from the Federal Housing Finance Agency for Los Angeles that suggest LA’s price cycles last 12 years on average. And Yu has identified that the city has experienced four different cycles of back-and-forth bull and bear markets.
According to Yu, the city is currently in a bull market, where prices have increased 27% over 11 quarters.

“If history is any guide, the L.A. housing price cycle seems to last about 12 years on average, of which seven years is spent in the bull market with at least 65% real price appreciation, and five years is spent in the bear market,” Yu writes. “We are three years into the housing recovery that started in 2012, with 27% appreciation so far.

“On average, there will be four more years or 38% more price growth before we reach the turning point.”

For his part, Pineda, who works in the Orange County marketplace, says the market isn’t getting out of hand, despite recent reports decrying rising home prices in the city.

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