CoreLogic: The House Price Boom Continues

I have to admit that the surge in house prices has surprised me.   In May of 2012 I said the risks in the housing market had changed dramatically and favored those who were willing to buy a house:

“the base case here for national real estate is that the risk/reward of buying a home has changed substantially and is no longer skewed to the bear case.”

But I did not expect the ensuing 12 months to be as bullish as they have been.  According to CoreLogic house prices are up 12.2% year over year.  This morning’s update from their Chief Economist was extremely bullish:

“It’s been more than severn years since the housing market last experienced the increases that we saw in May, with indications that the summer months will continue to see significant gains.  As we approach the half-way point of 2013, home prices continue to respond positively to the reduction in home inventory thus far.”.

And that’s been the big kicker here.  Demand has steadied and inventories have cratered.  Months of supply are at trough levels:



This is obviously a sign of better times.  But it could also be a sign of a return to the asset based booms that we’ve seen repeatedly in the last 20 years.  This sort of year over year change in house prices is fast approaching highly unusual levels which to me, means it’s becoming less sustainable.  It would be truly historic if we were able to reinflate a bubble so quickly after one had just burst.  Perhaps Fed policy is finally gaining some real traction?  Unfortunately, it works largely through the housing market and if the current trends continue then that means more consumer leverage, more Wall Street leverage and it will all be based on unsustainable asset price trends.  Sound familiar?



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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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  • Andrea Malagoli

    Home prices have gone up 12.2% at the same time when employment and wages have been stagnant to flat. And check mortgage applications:

    That alone is a sign that something is strange. Add to the mix the documented speculative activity, not to mention potential money laundering at the high end, and there is much to worry about the real estate market.

    We have another economy based on asset prices inflation.

  • fin

    It is very worrying in the city I live. Look around, this price recovery doesn’t smell good at all.

  • SS

    Amazing. Get ready for another bubble….

  • jswede

    I think it’s explained by the low-end distressed sales disappearing due to cash buying by funds. Take out the lowest data points and you have a 12% YoY.

    No doubt the index readings also create a propensity to buy, driving demand across the conforming mortgage universe, but I’d expect that to correct.

  • GLG34

    I think it’s income inequality gone mad. The stock market and house market go crazy because high income earners drive up prices and then it all crashes when they pull it out.

  • Malmo

    This isn’t your 2006 subprime/ARM/reset bubble. I don’t think it’s a bubble at all…yet.

  • csodak

    where is the shadow inventory…all moved off of the bankers balance sheet and onto speculators? If so the banks should be in a solid position to begin the money multiplier affect but I doubt it.

  • Steve

    Foreclosures and shadow inventory being held off the market, artificially keeping supply tight. Nothing to see here.

  • Cullen Roche

    I hear from local brokers in San Diego that a lot of it is still coming on the market in the coming months. I also see a lot of new building in this area….More than during the bubble which means that inventory figure could go parabolic at any point….

  • Tim

    I am going to go out on a limb here and say this house price rise is a bit different. The last one was built on low barriers to entry for a mortgage and 125% LTV loans. I have a dear friend who bought a $1,200,000 home with no money down on an option ARM loan. His credit score was in the low 600 range. Anyone who could fog a mirror could buy a home.

    Today, the rise has less to do with leverage, and more to do with hedge funds and other pools raising huge amounts of money to buy these properties for cash. Last year, I got calls weekly from wholesale reps trying to raise money for their Reg D offering to buy single family foreclosures. Because of this difference, I think you will see more of a muddle through eventually, not a crash in real estate, as this time, C quality buyers are not using bank loans to buy more house than they can afford under normal payment structures (no option ARM’s)

  • Malmo

    Good stuff. Muddle through from here sounds about right.

  • Steve W

    I know a couple of bankruptcy lawyers that believe there still plenty of shadow inventory in Florida.

    I realize there’s been some impressive price movements in California and NYC (and perhaps a few other spots), but I wonder if those “hot” markets are skewing the national averages. Florida has seen a nice bounce, but it seems to be leveling off.

  • Gubbmint cheese

    Don’t forget this is a favorite Wall Street trend right now –

    My sense is Wall Street firms are competing with each other to snap up key properties. Even Shiller pointed out that the rise in the CS index is not across the board, but instead in several key cities.

    Income levels for mid and lower income earners still has not recovered to the point where they can afford to buy homes. I think it is a mistake to suggest the distortion caused by a flood of investors suggests signs of a recovery.

    Sure its great, but it’s not the same as individuals buying a ‘home’ to live in.

    just my three cents.

  • Aar Bee

    It is crazy. I bought my first house in March 2012 for 500K…
    And one year after that exactly the same house with same floor plan on the next street sold for 650K. Unbelievable. It is another bubble.

  • Shorehaven

    Some of the increase in prices in the NYC area is from Chinese looking to move some of their money out of China. Some of them are buying properties sight on seen. Chinese brokers are setting up shop and dealing solely with Chinese buyers. Manhattan and the tonier suburbs are becoming their choice destinations.

  • John Daschbach

    I think the housing recovery is pretty normal. The cost to buy housing in most of the country is near historic lows. People who think this is a bubble are not thinking clearly.

    The median household income is $50k, the median house is up to about $200k. That’s a loan of $160k. Add in $3k for taxes and insurance. That is just under 25% of household income.

    The median house price would need to be $280k (with $3500 in taxes and insurance) for the mortgage+taxes+insurance to reach 33% of median household income (the classic mortgage qualification standard).

    Here in the Denver-Boulder corridor they are building lot’s of houses in the $400k – $900k range, but they don’t build them until the buyer signs a contract. You don’t see pure spec houses being built very often these days. But a $500k house (with taxes and insurance of $7k) with a standard down payment of 20% qualifies at the 33% level with a household income of $92k which is pretty low for an educated household.

    The data would suggest that the housing recovery may still have a ways to go simply based upon demand with standard historical loan qualifications.

  • Mark Caplan

    Not only house prices are surging. For the past few months, M.I.T.’s Billion Prices Project Daily Index has been rising strongly even while the government’s CPI has been quiescent. The bond market seems to be taking its cue from these alternative measures of inflation.

  • Cowpoke

    You would be wise if you sell now and book the profit.

  • Karl

    These prices are very “top 3%ish”. I believe there is a recovery in the top 10% or so of Americans who generally are exposed to Bernanke’s wealth effect, and whose unemployment rate is relatively low versus the general population. Many of the purchases elsewhere are all cash investors and “financial asset” purchases by Wall Street. Blackrock is now the largest owner of housing stock in the nation. It makes for an interesting future as I see the “normal folk” being crowded out by institutions. With their increasing student debt and late 1970s (adjusted for inflation) wages I expect the bottom 60%+ to be permanent renters in our glorious system where the Fed caters to the top rung at any and all crisis.

    If you own capital this is a glorious portion of capitalism – if you are labor… well ….

  • roger ingalls

    Does anyone know how to track vacant housing? That is a stat that I would be most interested in, both locally and nationally, and on a monthyl updated basis. There’s a lot of talk about shadow inventory, but I’m not sure we have a consistent measurement of existing unused housing (new build housing is not a very good tracker). Just wondering.

    Also, I would argue that those folks that have saved up 3.5% down payment and make $15/hr + are able to get back in the housing game, if they want to. Not sure what percentage of the population that is, but it’s got to be more than the top 5%.

  • John Daschbach

    No, they are not upper 3%. The 2011 household income quantile limits were $62k at the 60th percentile and $102k at the 80th percentile. Since a $500k house is accessible at $92k household income, it’s more than 20% of households.

    The median house is accessible (if you have the down payment and job history) at an income of $35k. The top of the 2nd quintile (40th percentile) is $39k. So more than 60% of households can afford the median house

  • RB

    Housing Starts nationwide don’t seem to be jibing with that, and perhaps starts lagging demand is the reason for the price spike.

  • Jim

    There’s nothing like a bump higher in mortgage interest rates to get prospective homeowners off the proverbial fence. I believe that has accounted for at least part of the increased demand and accompanying increase in home prices over the past year. Also, many banks that have been sitting on bad loans from 4-5 years ago are hiring real estate professionals to help create artificial supply shortages in an effort to convince the borrowing public that shadow inventory is much less than it appears. I don’t buy any of it. We are still deleveraging public and private debt, big-time.

  • rwperu34

    OK Cullen, there are two things that make absolutely no sense to me that seem to be recurrent themes on this site;

    1) You constantly talk about the boom/bust cycle we’ve seen repeatedly the last twenty years. I think what you mean to say is we’re continuing to see the boom/bust cycle that we’ve seen since the beginning of time and will continue to see for the rest of eternity. To give you an idea of how absurd singling out the last 20 years is, 20 years ago was 1993. Think about that for a second. Think about how things were in 1993 when the boom started and think about how they were in 1999 when the bubble popped.

    2)You seem to like to infer that current Fed policy is creating unsustainable asset price growth, yet fail to reference how past Fed policy forced asset prices to unsustainable on the low side. If you want 12% growth in home prices for the rest of eternity, that is easily attainable. Of course you’ll have to deal with inflation, but that’s a different matter. Under current Fed policy, assets are growing at this pace with below 2% inflation expectations. That’s right, the markets that are forcing these prices higher don’t even expect the Fed to be able to do their job and hit 2% inflation over the next five years!

  • El Viejo
  • El Viejo

    Do you have any stats on that?

    I do agree that there is a propensity to “manually” control things when they go haywire. Kinda like taking the wheel away from a drunk. As a control system programmer I’ve seen it many times. There are systems that simply do not control well with classic control mechanisms such as the PID loop control algorithym. One book on Fuzzy Logic mentioned a process in Europe for the manufacture of Cement. They had to hire a person to control the process with something like a joy stick. Another example was the manufacture of weapons grade material during WWII. They hired a bunch of women who sat with their hands on the control knobs and watched a dial.
    Unfortunately, the economic system here that we are trying to control is also being manipulated for profits and there are more and more tools coming online to assist in that regard. Sounds like a recipe for disaster to me.

  • LJ

    Yeah, I don’t buy it either … intellectually. But, I have been renting since 2008 and want to buy a house now. And the market where I am is CRAZY! I bought in 2002 in NY and thought that was bad. I was always losing to cash buyers paying 10%+ over list. Best and final offer due within 24 hours of listing. Well. Now I’m in NC and it’s not that, but I just got outbid on a cash offer (mine) on a house with a lot of problems (including substantial unpermitted improvements, termite damage, and a LOT of back taxes due on the unpermitted work). By a buyer who needed a mortgage no less. So apparently the punch bowl is quite bubbly these days.

  • Dennis

    I think your YoY % chart makes this “bubble” way exaggerated. The actually change in average sales price over time of the “low” ($50,000-$0.5 million), “medium” ($0.5 million to $1 million), “high” (>$1 million) homes, would give us a better idea if we actually are heading toward some sort of bubble.