California’s housing prices have rebounded over the last year. Why? Barry Ritholz, an astute observer, lists the artificial conditions that have caused this.
The Federal Reserve system has prompted an enormous amount of money in order to purchase Fannie Mae and Freddie Mac bonds. This initially had the effect of lowering mortgage rates, but in recent months, this has reversed. Rates have gone back up. This is going to create trouble for the housing recovery. This is the famous operation twist.
He lists several indicators of the coming decline. There has been reduced sales volume. This took place in February. Month-to-month sales declined. So did the year-to-year decline in February. This is the first time this had happened in two years. This is the largest year-to-year decline in sales since 2010.
Basically, California home sales have been flat over the past five years. He calls it bouncing along the bottom. The consensus does not accept this as relevant.
If you do not count the distressed sales, home sales are down 57% from 2005.
He thinks investment purchases by large venture capitalist firms are burning out. These firms often commit to buy up thousands of homes at a time. That is not going to continue. While he does not mention it, one reason is management. Who is going to manage all these properties? These are landlord investors, as Ritholz calls them, but they are not skilled landlords. His conclusion:
Unless rates drop below the level of last year, households get a huge tailwind of income or lower taxes/expenses, new-era investors get comfortable with sub 3% rental cap rates, or we get a swift wave of immigration from those will pockets full of cash then the next step for CA median house prices is retracement.