The Southern California Real Estate Bubble?

While new home sale prices are declining throughout the Nation, new home prices in Southern California continue to rise. Likewise, as the sales of new homes continue to lag across the Country, even in the West, it is less of a problem in Southern California, where "sales of new single-family houses and condominiums saw their strongest February since 1988, according to statistics compiled by real estate research firm DataQuick Information Systems. Last month, sales rose 9.5% to 4,980 from January's 4,550, and were up 19% from the year before." (LATimes)

Moreover, while the surplus of homes is building across the nation and in Southern California, the surplus is much lower from Ventura County down to Mexico. Thanks in large part to strict building standards in Southern California, there just hasn't been the same level of new housing development in the area, which makes Southern California real estate that much more valuable.

Recently I reported that even UCLA isn't predicting much of a crash in the So Cal real estate bubble. Essentially, they predict less appreciation in home prices for the next couple of years, but no real price declines.

While the easy money has probably been made in the Southern California real estate market, the market still appears very strong. Sure prices might flatten for a few years, but with the population growth expected throughout the area, the value of Southern California real estate will eventually continue to push upward if new home building continues to be limited.

Sure waiting a few years might bring a small recorrection in the price of homes in some areas of Southern California, but will that be enough to make up for several years of paying rent? Additionally, even a small drop in home prices might not mean anything if interest rates on mortgages keep rising.

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Housing sales to drop 27% in 2006

A new UCLA report states that housing sales will drop 27% in Southern California in 2006 and that home appreciation will slow to 6% by the end of the year, flattening by 2007. The report doesn't not; however, predict any serious declines in home prices in the near future, just a lack of appreciation. (more)

High prices to stay in California?

Ten years ago the Los Angeles real estate market had flatlined. Now, average home prices for Southern California are almost $300,000 more than the national average. Those believing the real estate bubble cannot last have long predicted a burst of the ever growing home price bubble, but are they right?

The overall outlook for long term mortgage rates is higher, but it will almost certainly stay below 8%. In fact, the general consensus seems to be around 7%. This should keep enough home buyers in the game, however, the rates won't be low enough to provide the kind of action that leads to double digit gains in home appreciation.

Still, that doesn't mean home prices are going to tank.

A new study, "titled "Homeownership in California," makes the case that the state's 57 percent homeownership rate -- the second lowest behind New York -- lags far behind the national average of nearly 70 percent because a patchwork of environmental policies and legal decisions has choked off new home building and thereby pushed home prices $300,000 above the national average." (more)

In reality, as the population in California booms in the next decades, California will have no choice but to grow up, rather than spreading suburban sprawl even further. This makes the value of land and homes a precious asset.

While there is a very good chance the the Southern California real estate market will pull back a little, don't expect it to pull back too much.

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Fewer and fewer home buyers?

Are there becoming fewer and fewer home buyers in Southern California?

It appears so.

According to the Mortgage Banker's Association, applications for mortgages dropped 1.6 percent this week versus last week. Compared to last year at this time; however, mortgage applications are down a whopping 13.8%. Yet, the 30-year fixed mortgage rate went from 6.42 to 6.31%.

While it might take some time, this lack of buyers and rising surplus of homes in the Los Angeles real estate market will have to push prices downward - at least if sellers want to attract any home buyers.

Of course, maybe mortgage rates will drop low enough to spark one more run.

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Selling? Best ways to enhance the value of your home

Are you contemplating a sale of your home? Do you want to increase the value of your home before putting it on the market? According to real estate agents there are a number of home improvements than can really increase the value of your home.

As always kitchens are one of the biggest home improvements and one of the easiest improvements is recessed lighting. If you can afford it, go for quality appliances and some nice solid-wood cabinets. Typically, you can recover over 98% of the costs of your kitchen improvements.

Bathrooms are the other great home improvement. White is the best color in the bathroom, and bathroom improvements can return over 86% of your investment on average.

If you can't really afford to spend much on your home, invest in some fresh paint.

For more home improvement tips, click here.

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Southern California home prices hit record high

The median price of Southern California homes reached $480,000, up from $469,000 - even though overall home sales activity decreased.

Still, the number of homes sold last month was the lowest in five years, some 7% lower than a year ago. More alarming, there are 60% more homes available for sale this year than compared to last year, which equals about a 20 week supply of homes in Los Angeles and Orange Counties.

Nonetheless, sellers are not yet lowering prices, but more buyers seem to be waiting for better deals. (More from the LATimes)

As mortgages go up will you be able to afford to buy?

With mortgage rates at their highest levels in a few years and only rising, one must wonder what effect this has on the affordability of homes. Will rising rates knock you out of the real estate market?

According to a CNN article, "Rates have a direct affect on affordability. For example, a jump in interest rates from 6 percent to 7 percent on a 30-year loan adds about 10 percent to a monthly mortgage bill. A homeowner who financed a loan of $200,000 at 6 percent would pay about $1,200 a month. At 7 percent, the bill would come to $1,330."

As mortgage rates go up, buying power goes down. Do you need a mortgage broker before rates go too high?

While some might hope that rising rates will also deflate home prices in the hot Southern California market, it could take months or even years of high rates and a soft market before sellers give in to price reductions. Some markets might never see price reductions.

CNBC's Realty Check: Housing sector is cooling

I just finished watching Realty Check on CNBC. The housing sector is cooling, as if you didn't know. Existing home sales are down 5.7%, while new home sales are down 7.7%. The median price of homes is projected to only rise 5.8% this year, versus just over 12% last year. With interest rates projected to rise to at least 7.0 this year, home buyers will have less buying power. Eventually, it seems, this would have to push home prices lower.

Is the Southern California real estate bubble ready to pop?

Some air might come out, but don't expect a loud pop anytime soon

Mortgage rates have hit their highest levels in more than two and a half years, and many analysts are predicting that rates could hit 7.0 before the end of year.

Still, higher mortgage rates are having little effect on housing prices. Even as the supply of houses increases, the prices of homes are still going higher.

So, when will prices drop? When will the Southern California real estate bubble burst?

Perhaps never, according to many followers of the real estate market. Price appreciation is cooling, but it is not leading to price depreciation. Stabilization of prices, it seems, is the key buzzword in home values these days.

While foreclosures were up some 45% across the Nation over a year ago in January, Southern California foreclosures were below the national average (more). So, if you were waiting to buy a cheap house from a foreclosure, you're probably going to be waiting much longer. Even if you find a foreclosure don't expect it to be cheap.

Moreover, while the backlog of unsold homes is increasing, this problem is particularly a problem at the high end, especially in homes costing more than $1 million dollars. Average priced homes are still pretty hot in most areas of Southern California.

Ultimately, experts claim that the costs of building materials and land has risen so much that we're probably looking at the new prices of homes. What's going to change most is yearly appreciation.

So, by this summer's selling season, homes will probably list a lot closer to what they did last summer, rather than 15 or 20% higher. At least that's the price at which they'll have the best chance of selling.