San Diego Housing Bubble News and Analysis

Case is a guy I respect so I listened to his entire interview. I agree with him that the housing market is normal with four exceptions that he pointed out, Florida, Arizona, Nevada and California. He also said California "was an entirely different kettle of fish."

As he said, in those four places, people are going to get hurt, but other than those four places, the other 46 states will be fine. Of course he had one caveat, if the recession deepens, this may change.

So what do think of what Case thinks? He's right, if you want to buy a house in Texas or Iowa or Colorado, the worst in behind you, the housing starts are low and the inventory will be worked off.

I don't know about that....I was just back in the Chicago area this month for a few weeks and all I saw was for sale signs everywhere...
I've never seen it like that with that much inventory in the nice suburban areas. I think it's just to general to state that housing will be normal across the board except in the real bubbly states...it really depends on supply/demand in each micro area!

You may be right Cash, but I have to give Case a little benefit of the doubt. I think he is looking at greater metro markets as opposed to micro markets. He is also studying data as opposed to your field visit, so you have a slight advantage in that specific micromarket. He and Schiller have always been fundamentalists, they look a the fundamentals of income and price. Roubini and Schiff have had much more dramatic views but Case/Schiller are a little more moderate yet they called the bubble and have spent their careers tracking it in broad terms.

The point of my support and comment was that karl may see normalcy but he doesn't see it where we live,so the headline is misleading. If someone thinks things will be fine unless you live in California, then what should we Californians take from that.....that we are not fine, were heading there in a handbasket, that's what i took from his interview.

The guy seems too reasonable to ignore.

The key word here is "normal". As in a "normal" economy? I've closely analyzed the last 2 real estate cycles in CA over the last 25 years and the greatest contributing factor is the level of unemployment. I think this holds true for the entire nation. Whether one looks at Dallas, Chicago, Detroit or LA. At about 6.5% and up, the real estate market starts to really tank and doesnt come back until the number goes below 6%. One can certainly argue that states like TX did not see a bubble like much of CA, but that doesnt mean that they are immune from a down-turn due to growing unemployment. In CA we're seeing a bubble (Liar loans) collapse followed by a recession. So we've got a double whammy going on that will cause it to drag out for a while. But other parts of the country arent off the hook just because they didnt have a bubble in their market.

Peter, that is a really good point. What you are saying is that in "normal housing market", the home value must align with income and rent and that the unemployment should be less than 6.5% in regardless of region or states. So, if the economy is in a recession, the umemployment rate will increases, wages will be stagnant and rent will be less which put pressure on home value. Did I get that right?

Both Bruce Norris and Carlos Royal studied this pretty closely and came to this same conclusion regarding trends in real estate prices. As unemployment rises over ~6.5% real estate prices start to get very soft. Who takes on a 30 year commitment when they're afraid of losing their job? Especially when it's a lot higher than their rent? There was a point in the 1980's where CA real estate was going through the roof and the mortgage interest rate was ~12%, but unemployment was under 5%. Of course, many factors contribute, but by far the most powerful looking factor seems to be unemployment.

Seems to me that most major cities have built a glut of high-rise condos

These condos are still being built - will there be buyers for them?

Perhaps we should say 'normal markets' as long as you aren't on either coast or talking about condos

http://realestate.msn.com/buying/article...
The great American condo glut
The number of available condos is at an all-time high -- and there aren't enough buyers to snatch them up. ...

http://seekingalpha.com/article/49594-ev...
Every Reason to Panic over Portland Condo Glut
The city has a condo glut, and thousands more are rising out of the ground. In the past six years, developers built 4042 downtown condos, ...

http://blog.lucidrealty.com/2008/05/18/t...
The Chicago Condo Glut
In the South Loop area alone the MLS currently has 1,116 condominiums on the market, 390 of which are over $500,000 with $400+/month assessments plus taxes.

Most housing is purchased with other peoples' money. In this respect, it is a bit different than normal supply and demand, since there are three "people in the equation" (buyer, seller, lender). Inventories must go down, but lending must also return to "normal" for sales to pick up.

One thing I have been looking for is a good indicator of how willing lenders are to lend. I think the best indicator is the spread between what the FED charges for lending and what banks charge borrowers (this is increasing). Mortgage apps only show how much buyers WANT to buy.