Tuesday, June 21, 2016

CoreLogic: Orange County home prices above Bubble Peak

by Bill McBride on 6/21/2016 04:23:00 PM

From Andrew Khouri at the LA Times: Orange County home prices rise above their 2007 bubble-era peak

Median home prices in Orange County rose in May to surpass their bubble-era peak in 2007, making the county the first in Southern California where that has happened, according to a new report.
...
May's median in Los Angeles County — $525,000 — is still 4.5% below the county’s bubble-era peak of $550,000. Riverside County is 23.6% below, San Bernardino County 25% below, San Diego County 5.3% below and Ventura County 17.9% below.
This brings up a few important points ...

1. This is the median price - not a repeat sales index - and the median price can be impacted by the mix of homes sold (not as useful as a repeat sales index).

2. As Khouri notes in the article, these are nominal prices. When adjusted for inflation (real prices), prices are still 13% below the bubble peak.

3.  This is not a bubble.  A bubble requires both excess appreciation and speculation, and there is a little evidence of speculation - these are qualified buyers who will not default if prices decline (unlike many buyers during the bubble).

4. Note that the central / coastal areas are closer to the previous peak than the outlying areas.  This is the typical pattern; the price increases start in the central / coastal areas, and then move inland as the cycle matures.  Plus the inland areas saw the most speculation during the bubble - especially using subprime loans - and it will take longer for prices to reach a new peak.