DIGS is the premiere luxury real estate lifestyle magazine serving the most affluent neighborhoods in the South Bay and Westside of Los Angeles, California.
Issue link: https://www.southbaydiggs.com/i/1136017
Bruce Norris is generally regarded as one of the best California residential real estate forecasters. Not only is he self-taught in real estate economics and data, but he is also a real estate investor himself. He is a great source because he depends on his own predictions to correctly make decisions for his business. For further background, check out a previous blog post I wrote on Bruce Norris predictions here. Bruce Norris Event I attended Bruce's event, "California Real Estate: On Borrowed Time" in Riverside. Upon arrival we received a 250-page book with hundreds of different charts, illustrating that he really does his homework. These charts provided data on vari- ous topics such as construction, demographics, migration, interest rates, national debt, and employment, just to name a few. Bruce went through every chart with us in detail to explain how he made his conclusions. He even withholds the most important chapters to make sure you stay until the end (eight hours later)…my back still hurts! But I will tell you, hearing his insight in detail is worth it. Affordability The main takeaway from the event was about California affordability. Statistics show historically if a great number of residents can afford homes, prices will go up. However, if a great number of residents cannot afford homes, prices tend to go down. Pretty simple, right? Check out this affordability chart… As you can see, there is a trend showing when affordability gets low (17 percent) then California real estate reacts poorly. Every time California hits 17 percent or lower, sales decline soon after. Let's take a look… • Sales declined from 377,664 to 189,345 from 1980 to 1982 • Sales declined from 435,521 to 300,020 from 1989 to 1991 • Sales declined from 576,240 to 292,420 from 2005 to 2007 As you can see, prices either went flat or had a decline. • Median price in CA went from $99,600 in 1980 to $111,800 in 1982 • Median price in CA went from $196,000 in 1989 to $177,000 in 1996 • Median price in CA went from $580,000 in 2006 to $280,000 in 2009 At equilibrium, Bruce believes the California market tops out when we reach 17 percent on the affordability chart. During the time of the Great Recession, it was different due to very easy money. In 2005, we hit 17 percent, but loose lending allowed the market to run to a crazy 12 percent affordability level in 2006 before it crashed. This time around, Bruce feels that due to strict lending and other factors never seen before (i.e. rising health insurance, expensive child care, and stu- dent debt) California will not get to 17 percent, but instead, reach its peak earlier than normal. How to Predict Bruce disclosed to us exactly what number he believes is "the new 17 percent." We are much closer to it than most expect. I know some would like to know that number, but at this time I am going to be a major buzzkill and withhold the information for exclusive use of our Man- hattan Pacific agents and clients. What I can tell you is, it will not be close to the crash like 2008-2012, but there will be a price correction in the near future. Affordability went down to 17% in 1980 Affordability went down to 17% in 1989 Affordability went down to 17% in 2005 and to 11% in 2006 Source: California Association of Realtors via The Norris Group Source: California Association of Realtors via The Norris Group Is California Real Estate on Borrowed Time? Bruce Norris Answers Richard Haynes Broker/Owner, Manhattan Pacific Realty 310.379.1724 richard@manhattanpacific.com DRE: 01779425 With regards to how that affected prices, look at the California Median Price versus California Affordability chart… by Richard Haynes The above excerpt is from Richard's weekly South Bay real estate blog on January 31, 2019. To continue reading the blog and to subscribe visit www.manhattanpacificrealty.com/blog Advertisement