Is another housing bubble like the one that hobbled the American economy in when it burst in 2008-2009 looming on the horizon for Southern California?
We’re hearing this question frequently these days, as various media outlets, bloggers and industry experts have begun to use this phrase more frequently over the summer. Although not everybody is in total agreement, some of the most well-respected experts are pretty sure we’re not heading down the same path toward disaster.
What Is Driving Concerns About a Housing Bubble?
In Southern California, we’ve seen a fairly consistent — and fairly aggressive — increase in home prices over the past few years. In fact, it doesn’t look like that trend will reverse any time in the foreseeable future.
This factor seems to be the primary fuel for the speculation that we’re facing a bubble crisis. But if you look more closely at what caused the problems we experienced in the latter half of the 2000s, the problem then was twofold: skyrocketing home prices and skyrocketing debt.
In this housing risk analysis report by J.P. Morgan, we can see that debt is not rising in proportion with housing values this time around. So although prices continue their march upward, that alone shouldn’t be enough to cause a potential economic crisis.
California Housing Prices Vary Based on Location
The San Francisco Bay Area has long been known to have some of the highest home values in the country, second only to Manhattan. Some parts of this area, such as San Mateo, have seen some reduction in values. However, overall, the values continue to rise.
Some of the biggest and fastest price gains in our state have been in the Central Coast area. In fact, values have risen so sharply and so quickly there that we could see some price correction soon. However, price correction — when values temporarily stop escalating or actually decline for a time — is almost always temporary and generally viewed as being good for the overall market.
To put this in perspective, however, we must consider the supply of available homes along with price.
Supply & Demand and the Threat of a Housing Bubble
Prices increase as supply decreases. This basic economic tenet tells us that scarcity typically drives up the price of any commodity, and real estate is no exception. For example, if home buyers in Yorba Linda have many listings to choose from, sellers are more likely to negotiate or lower their listing price to attract more potential buyers. As the choices become fewer, sellers can stand firm in their asking price and let multiple buyers compete for their home.
Over the summer, California’s “days on market” statistic (which indicates how long, on average, it took for homes to sell) has dropped to some of its lowest numbers ever. So even though our prices are still increasing, we have plenty of demand — just as things should be in a healthy market.
Although we’re not economists and we’re not qualified to give financial advice, the experienced Realtors® of the Edie Israel Team have spent many years working in the Yorba Linda area and the Southern California market. We have seen ups and downs in the market, but through it all, we continue to help our clients achieve their real estate goals. Contact us today to learn more about how we can help you with buying or selling a home in Yorba Linda.