Is This a Housing Bubble?

In March, the median single family home price in California set a record and reached over $760,000. And just one month later, in April, home price in California jumped again and set another new record at $813,980. The average price per square foot was set at $383. The housing inventory, extremely scarce, can run out in a little over one and half months. Single family home stays on the market, averagely for short seven days.

When we experience these leaps in prices and that homes fly off the shelves, it is hard not to think whether the housing market is in a bubble regardless what the current economic outlook is like. I have always talked about how supply/demand determines the market price. Let's also take a look at other fundamentals and how it supports (or not) the California housing market.

Interest rate used to be 10% and higher. Nowadays, 3% might sound shockingly high. Low rates significantly reduced the monthly housing payment burden, because it costs so much less to borrow money. According to an article by California Association of Realtors, California home price is still 10% below 2006 peak when converting prices to monthly mortgage payment. If you are curious, the average monthly payment according to the recent data that includes principle, interest, tax, and home insurance is around $3,280. Considering one third of it can qualify tax deduction when using the home as the primary residence, the monthly payment is effectively the same to the rent for a 2-bedroom home.

On the other hand, costs of services/goods and incomes in California have grown overtime. California Consumer Price Index has shown prices have increased by more than 120% since late 1980s. Taken income and inflation into consideration, mortgage payments are 33% below the all-time highs in 2007 and 10% below when they were at the end of 80s.

The competition is fierce for home buyers. I experienced myself with my clients that properties in Long Beach and nearby cities/South Bay receive 20 plus to 40 plus offers with offer prices $50,000 higher than the asking price as a norm and some offering $100,000 over asking. However, this time around, Buyers have more skin in the game and can afford to compete. Buyers are putting down more and have had consistent income that supports the amount of mortgage they can take on. The sizable down payment becomes home equity that homeowners can rely on. The equity growth does not solely depend on price-increase of the home.

All the news sounds incredible to homeowners who are considering selling. I have read quite a few articles that say sellers don't have to lift a finger and the home will sell itself. My experience on the ground tells a different story. The homes I mentioned above that receive a large amount of offers and eventually sell for top dollars are still the ones well priced and well presented. Feel free to reach out to me if you want to learn more about selling strategies and see how a few hundred dollars can net you $100,000 more.