Let’s just get this part out of the way first: I am a skeptic. I think the best method is to question everything, accept nothing and eventually you start to see how the world works. Accepting the mainstream and normal views on most things in life is a surefire way to live a mediocre and stunted life. I don’t want to get dramatic and say “Trust no one” like Glenn Close as Patty Hewes, but you know, it ain’t half-bad advice! Which is a long-winded way of getting to my point about misleading articles in the news.
This article was written by Graham Wood this morning on AOL.com. AOL is great at SEO so it’s the first result when you search for “California Real Estate Prices”. It’s true, prices in LA-OC have increased for the past eight months, but this article takes the cake for bad reporting. The author decided to consult the president of Realtor.com and Chief Economist at Trulia, two huge real estate sites that would obviously benefit from increased interest in real estate. There was zero mention of the real factors driving up the prices in this market, but only some stupid optimism (stole that phrase from Punch Debt) about “solid job growth” (no numbers provided) in “California’s coastal areas” (when really, California’s coast is three very distinct regions, only two of which are economic engines). To get the real story, read this excellent piece or just read the comments on the AOL article:
Comment 1: Greg Martin – March 28th 2013 @ 12:01PM
Of course the bubble is being reinflated! No mention of mortgage rates being at all time lows, or that 30 percent of the purchases are for cash and 1 out of 10 are from China in the SF Bay Area. Or perhaps you might mention that an entirely new way of doing business is being developed, with new companies purchasing hundreds of houses flipping and renting them, no more mom and pop rentals, just the Walmartization of the rental and speculative housing markets. So now BIG money has a way of moving relatively quickly into this market. Or you might mention that the months of inventory on the market is extremely low or even think philosophically that when prices “gap” down as they have that they will gap up as well. The holders of property wishing to recover their initial investment before selling or the fact that they can’t sell or refinance but if prices gap up they will be able to. I live in Santa Cruz and a short sale for a 2 BR / 1 BA on the market listed for $498K just sold for $640K. It was sold the new way, get your bid in by a certain date. It got 22 bids.
Comment 2: slolive – March 28th 2013 @ 4:32PM
Fannie Mae/Freddie sold off & continues to sell off some of their REOs in bulk to multi-million dollar investors. This does a couple things. Takes away affordable housing for qualified first time or regular income buyers or even small neighborhood investor types. 2nd artificially reduced the inventory as the investor can’t sell for 3 years and has to rent them out. (Fannie didn’t want to be embarrassed when they sold off at bulk prices and the investor flipped them so they figure after 3 years the public will forget.) Turning housing into corporate rental stock is lame when there are plenty of buyers. Ironic after all the mumbo jumbo talk about breaks for the rich instead of the little guys/gals that was going around a few months ago.
Basic housing economics is that if there are less transactions there are less economic benefits. Transactions to regular buyers or small investors come with higher local economic benefits of people going to Home Depot to buy extra pride of ownership supplies and hiring contractors to fix things up. The neighborhood suffers because they have corporate rentals instead of home owners with a vested interest in their neighborhood. You have higher prices but less economic benefit. It is less of a recovery than a commodity boom. Using 2005-06 prices as a benchmark if folly. That was a bubble with whacky loans.
In summary, reading from a variety of sources and taking in the comments can help you get a much more realistic picture of an issue rather than reading whatever light fluff piece was posted to get some search engine traffic. I don’t fully understand what’s going on with this market but I know better than to just take the word of someone heavily biased towards one point of view. Plus, it’s a good bet to avoid AOL and USA Today as a rule of thumb. Do you have any news sources that you know better than to take their word for? Besides the obvious candidates like Fox News and MSNBC?