Toro's Running of the Bulls Market Blog

Canadian Housing Bubble, er "Market" Update

In our never-ending quest to profit from the works of others, we here at Running of the Bulls present to you two papers on the Canadian housing market, which is a bubble, or kinda bubble-like, at least in some places.

First off is an update from Alexandre Pestov (HT ZeroHedge) who updated his original paper we highlighted a few months ago.  An abridged version follows.

Canadian home prices in May 2010 (Exhibit 1.1) were up 13.6 percent from a year earlier, according to the Teranet - National Bank National Composite House Price Index™. The 12-month gain was strongly influenced by Vancouver, up 17.1 percent, and Toronto, up 16.0 percent. In the other four markets surveyed, the 12-month rise ranged from 5.6 percent in Halifax to 11.4 percent in Ottawa. In Calgary it was 7.8 percent and in Montreal 8.5 percent.

During the 10-year span between May 2000 and May 2010, housing prices increased 96 percent nationwide, 118 percent in Calgary, 116 percent in Montreal, 69 percent in Toronto and 126 percent in Vancouver. Doubling of housing prices over the 10-year period coincided with the all-time highs in nominal terms in the three major cities except Calgary where prices remain 8.6 percent below their stratospheric highs set in August 2007. Year-over-year and from May to June 2010, nominal home prices edged higher in all key markets without any surprises.

Home prices should rise at the nominal rate of GDP, plus or minus variations in local markets.  Home prices are also affected by other factors, such as mortgage costs.  Doubling of home prices in 10 years implies a compound rate of 7% per year, above the long-term trend in nominal growth.

The significant decline in sales year-over-year was observed uniformly across Canada ... The new mortgage regulations and exhaustion of an adrenaline boost from the HST scare in British Columbia and Ontario inflated sales volumes in the months preceding June 2010, and led to very disappointing, albeit predictable, results in June.

In June, volume from a year ago fell 40% in Calgary, 19% in Montreal, 23% in Toronto and 30% in Vancouver.

It is an old adage in trading that a market rising on declining volume is a market not to be trusted.  It is a hallmark of a market top.  That does not mean that the Canadian housing market is topping, but it is a sign that it may be.  The exact same thing happened in America at the top of the US housing bubble when prices continued to rise even though volume fell off a cliff.

Commencing 2007, the new dwelling starts, completions and units under construction experienced a sizable correction. Despite these changes, the number of units set to be constructed in 2010 now exceeds the long-term average, indicating a continuous oversupply of homes. The sharp reduction in number of new starts and completions was softened by the 2000-2007 swelling of dwellings under construction. The number of units remaining in the pipeline will fuel additional supply of homes released into the market and in spite of the declining dwelling starts the overbuilding is expected to continue for into foreseeable future.

Supply is increasing whle demand is decreasing.

In one of my first Econ 101 classes, I learned about the elasticity of supply over the short and long run.  Elasticity of supply means how supply changes based on the change in pricing.  My professor used housing as an example.  In the short run, housing is very inelastic, i.e. small changes in demand for housing has a disproportionate affect on pricing since homes cannot be built in a day or two.  It takes a while to build a house.  Over the long-run, however, the supply of housing is very elastic. As home prices rise, builders respond by building more homes.  There is a lagged response but the supply gets built. This is what can make homes a bad investment.  Demand for housing can change dramatically while supply is being brought onto the market, exacerbating negative shifts in pricing.

Not only is home supply rising, so are vacancy rates.  Apartments add to the supply of housing.  When vacancies rise, supply has risen faster than demand.

Affordability has improved but it is still expensive to buy a house.

It is more affordable to buy a house now compared to the 1990s only because mortgage rates are so low.

Carrying costs continue to rise.

Any increase in interest rates will have a dramatic affect on the affordability of homes.

That is because incomes have not kept up with home prices.

On annual basis, Demographia compiles a report to cover price-to-income ratios in 270-plus markets in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States. The Demographia International Housing Affordability Survey employs median house price divided by gross annual median household income in each market to rate housing affordability values. Demographia uses the following scale to rate housing affordability:

• Severely Unaffordable 5.1 & Over
• Seriously Unaffordable 4.1 to 5.0
• Moderately Unaffordable 3.1 to 4.0
• Affordable 3.0 or Less

The scale calibration is derived from historical values observed over a period of time. According to Demographia, the Median Multiple has been remarkably similar among the nations surveyed, with median house prices being generally 3.0 or less times median household incomes. In late 2009, Calgary and Montreal were rated ―seriously unaffordable‖, scoring 4.6 and 4.9 respectively. Toronto made it to the ―severely unaffordable‖ hall of fame with a score of 5.2. Vancouver ranked the most unaffordable city amongst the 272 markets surveyed with a price-to-income ratio of 9.3 (Exhibit 4.1).

And the price of a home relative to rental income in Canada is amongst the highest in the developed world.  Not good.

Pestov compares Vancouver real estate to the Nasdaq

Though I think the two markets are not entirely analogous  - the Naz fell 80% top to bottom after the bubble collapsed, a decline that would shock me if it occurred in Vancouver real estate - I sympathize.  Some argue that such comparisons are facetious but I think they are a good representation of human psychology.

Pestov concludes that a crash in Canadian real estate is not necessarily pre-ordained, and I agree with that.  Prices can instead stagnate for many years.  However, the risks of a crash are high, particularly given the enormous problems and imbalances in the global economy, from which Canada is not immune.

Pestov does good work.  Take some time and read the whole paper.

A recent paper from the IMF differs somewhat.  The conclusions tend to be more sanguine.

Canadian house prices have increased significantly between 2003 and early 2008, with a marked downward trend since mid-2008, especially in the resource-rich western provinces. This paper estimates the evolution of equilibrium real home prices during this period in key provinces and finds that, following recent declines, home prices are now generally close to equilibrium throughout Canada. However, house prices in Alberta and British Columbia remain around 8 percent overvalued at the end of the sample (second quarter of 2009). Despite the limitations of econometric estimates of house-price dynamics, the measured small degree of overvaluation suggests that the Canadian housing market is essentially at equilibrium.

Frankly, I do not put stock in their conclusions.  The paper uses an equilibrium model.  Here are the assumpitons of the model.

The error-correction model postulates that the growth rate of real houses is explained by a combination of the following factors (depending on the province considered) ... :

• Past growth rates of real house prices. For most provinces, we find that the current growth rate is positively correlated with the past growth rate.
  
• Reversion to fundamentals implied by the long-run equation. We find that for most provinces (with the exception of Quebec and British Columbia, which is not statistically significant), the growth rate of house prices shows long-run reversion to the equilibrium prices derived from the model, implying that prices would tend to fall when they are out of line with fundamentals.
  
• Economic fundamentals. For all provinces (except Quebec which is statistically insignificant), we find that the growth rate of house prices is positively affected by (per capita) real income growth, which increases households’ purchasing power and borrowing capacity. The growth rate of house prices is positively affected by mortgage credit growth (higher rates indicate that households are less credit rationed) in the case of Alberta. Population growth (as a proxy for the growth rate of households) positively affects house prices only in Saskatchewan.

In other words, their model of current home prices is at least partly based on past home prices.

In 2006, Fed chairman Ben Bernanke testified in front of Congress that he didn't think housing prices were overpriced. He doubted that home prices would fall much since home prices had not fallen for 60 years.  As we now know, that reasoning was an enormous logical fallacy.

Given that home prices are nine times income in Vancouver, the highest in the English-speaking world, it is hard to believe that home prices in Vancouver are only 8% over-valued.  Investors should ignore this paper.

 

Still Cheaper to Rent

At least in some cities.

From The Financial Times.

 

 

The good news is that one of America's nuttiest markets during the Housing Bubble, Miami, is now back to trend.

By our estimation, US land is among the most attractive investments in the world.  Any appreciable inflation, asset or otherwise, will benefit land prices.  However, it is still cheaper to rent than to buy, at least in elevated markets such as New York and LA.

Land Prices are Bottoming

From The Wall Street Journal

Foreclosures and depressed prices are still hammering the Phoenix housing market. Yet home builder PulteGroup Inc. this month had to fight off six other bidders to win land in the suburb of Gilbert.

In Arizona and across the U.S., home builders are battling to acquire land lots in preparation for ramping up home construction. While volume is tough to track, analysts report that land deals have been rising rapidly in recent months, causing land prices in some of the nation's weakest housing markets to rise for the first time since 2006.

"There's been an absolute land rush," said Gregor Watson, a partner with McKinley Partners, a California-based real-estate fund that works with builders.

That marks a big shift from the downturn, when builders halted development and liquidated land for pennies on the dollar. Now the companies are spending millions of dollars to boost their land supply, optimistic that sales will pick up once the employment picture improves. But the push is creating some concerns about whether builders could be overreaching. ...

Nationally, finished-lot prices, which saw low-single digit increases in the first quarter, are up nearly 20% from the trough, largely considered early 2009, according to a land survey released this week by housing-research firm Zelman & Associates. Lot prices in Phoenix and Southern California's Inland Empire have soared more than 60%. Sacramento, Orlando and Los Angeles are up between 30% and 40%.

Nationally, the best-located lots are commanding double what they would have a year earlier, said Greg Vogel, chief executive of Land Advisors Organization, a national land brokerage firm based in Scottsdale, Ariz.

"We're talking about a significant turn here," said Jim McNeil, chairman of law firm Akerman Senterfitt's national residential development practice that represents several public and private builders. "The builders think this thing has turned and they're making sizeable investments in both finished lots and raw land."

Follow the Nuttiness of Vancouver Real Estate

We have been talking about the nuttiness of Canada's real estate for some time, most recently here. 

There is nowhere more nutty than Vancouver, and it is demonstrating the classic signs of a bubble, including frantic panic buying.  

You can read all about real life experiences at Vancouver Real Estate Anecdote Archive.  (HT Paul Kedrosky)

Vancouver, CrackShack or Mansion?

With the average price of a house in Vancouver over $1 million these days, its difficult to know if you are buying a crackshack or a mansion?

Cluelessness at the Very Top of Government

From Michael Burry, who ran Scion Capital and successfully foresaw the collapse of the housing bubble, in  The New York Times.

I have often wondered why nobody in Washington showed any interest in hearing exactly how I arrived at my conclusions that the housing bubble would burst when it did and that it could cripple the big financial institutions. A week ago I learned the answer when Al Hunt of Bloomberg Television, who had read Michael Lewis’s book, “The Big Short,” which includes the story of my predictions, asked Mr. Greenspan directly. The former Fed chairman responded that my insights had been a “statistical illusion.” Perhaps, he suggested, I was just a supremely lucky flipper of coins.

Mr. Greenspan said that he sat through innumerable meetings at the Fed with crack economists, and not one of them warned of the problems that were to come. By Mr. Greenspan’s logic, anyone who might have foreseen the housing bubble would have been invited into the ivory tower, so if all those who were there did not hear it, then no one could have said it.

As a nation, we cannot afford to live with Mr. Greenspan’s way of thinking. The truth is, he should have seen what was coming and offered a sober, apolitical warning. Everyone would have listened; when he talked about the economy, the world hung on every single word.

Unfortunately, he did not give good advice. In February 2004, a few months before the Fed formally ended a remarkable streak of interest-rate cuts, Mr. Greenspan told Americans that they would be missing out if they failed to take advantage of cost-saving adjustable-rate mortgages. And he suggested to the banks that “American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage.”

Within a year lenders made interest-only adjustable-rate mortgages readily available to subprime borrowers. And within 18 months lenders offered subprime borrowers so-called pay-option adjustable-rate mortgages, which allowed borrowers to make partial monthly payments and have the remainder added to the loan balance (much like payments on a credit card).

Observing these trends in April 2005, Mr. Greenspan trumpeted the expansion of the subprime mortgage market. “Where once more-marginal applicants would simply have been denied credit,” he said, “lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately.”

Yet the tide was about to turn. By December 2005, subprime mortgages that had been issued just six months earlier were already showing atypically high delinquency rates. (It’s worth noting that even though most of these mortgages had a low two-year teaser rate, the borrowers still had early difficulty making payments.)

The market for subprime mortgages and the derivatives thereof would not begin its spectacular collapse until roughly two years after Mr. Greenspan’s speech. But the signs were all there in 2005, when a bursting of the bubble would have had far less dire consequences, and when the government could have acted to minimize the fallout.

Instead, our leaders in Washington either willfully or ignorantly aided and abetted the bubble. And even when the full extent of the financial crisis became painfully clear early in 2007, the Federal Reserve chairman, the Treasury secretary, the president and senior members of Congress repeatedly underestimated the severity of the problem, ultimately leaving themselves with only one policy tool — the epic and unfair taxpayer-financed bailouts. Now, in exchange for that extra year or two of consumer bliss we all enjoyed, our children and our children’s children will suffer terrible financial consequences.

And today, the people who run the Fed have no idea, or appear to have no idea, that they are recreating the the conditions for yet another asset bubble.

Find that bubble, ride it for all its worth, then short the hell out of it when it breaks, as it inevitably will.

Then, in five or ten years, listen to Bernanke et. al. explain that no one could have seen the bubble coming.  Count your money and amaze at the intellectual bankruptcy of those who are clueless.

Long US Land

In November, I closed on a piece of land.  The property is beautiful and quiet, albeit a bit small.  It is in a small subdivision with 10 other properties.  Four properties have been built.  I have no deadline to build.  There is a swimming pool in the common area and the small subdivision road is made of cobblestone.  It is two blocks from a very trendy area where everyone wants to be.

And it is a minute’s walk to a beautiful beach.  There is no main thoroughfare obstructing beach access.  It is wonderful.  I could not be happier.

For the last four years, I have been making a trip to a resort area in hopes of finding a dirt-cheap bargain after the inevitable real estate bubble crash.  I was originally hoping to find a condo but last summer, I changed my mind and started looking at land instead.  Land prices had completely collapsed.  Condo prices, on the other hand, had merely imploded. 

Ten years ago, this was a relatively unknown but naturally gorgeous part of the world, if perhaps a little kitschy.  At the beginning of the decade, I think there were seven or nine condo complexes built along the beach in entire the county. 

Then, things got crazy. 

Nearly 30 condo complexes were built in a few years.  Literally thousands of condo units flooded a market that had a small local population.  There was construction everywhere. Upscale replaced kitsch. 

Prices exploded.  In 2005, my wife and I stopped into a two-story house built in the 1980s on the beach but on the wrong side of the highway.  The owners were selling the second floor.  Asking price?  $2 million.  The house probably went for $100,000 a generation ago.

Virtually none of the units in the newly-built condos were owned by locals.  Less than 2% had applied for the tax emption eligible for primary residences.  There was no rise in the number of children registered for school.  Everything was owned by non-residents.  Many bought several units financed with subprime, Alt-A and assorted “liar” loans.  This place was the poster child for excesses during the Housing Bubble.

For those with an understanding of history and value, what was about to happen was clear as day.  And it did.  The market crashed. Foreclosures skyrocketed. 

I would guess that the entire beachfront is now worth much less than the debt that underwrote it.  Most properties are upside down.  Banks are the largest property owners and are ridding their inventories at firesale prices.  It is a great time to be a scavenger.

When I discovered the subdivision, there were two identical properties for sale. Both properties were owned by banks.  One bank had owned its property for over two years, the other bank owned its property for less than two months.

Believing that the bank which held its property for two years would be a more motivated seller, I made an offer.  I was shocked at the response – “No deal.”  They weren’t willing to budge.  They thought prices had fallen far enough.  A property had changed hands at the same asking price a month earlier but that property was a third larger in size and was arguably better situated.

I thought the bank was being unreasonable.  I told the bank that on a per square foot basis, they were overpricing the property.  “Sorry” came the response.  They weren’t selling.

So I made the same bid on the property owned by the other bank. This bank was far more motivated to sell and we quickly reached a deal.  It is actually a better property than the one I originally bid on since it is closer to the beach.

The subdivision was originally purchased by very clever real estate developers.  They bought the land when it was covered in brush, cleared it away, paved it, built a swimming pool, and carved out 10 properties.  In 2005, they started selling, listing each property for $679,000.  Eight sold quickly.  A year later, one of the properties was flipped for $885,000. 

But then, the market froze. 

People mark 2008 as the beginning of the credit crisis, but that is wrong.  In one resort area near where I live, transactions literally stopped dead in the fall of 2006.  A few months earlier, titles were being flipped before closing.  The suddenly, bids completely evaporated.  The bubble had peaked.

The real estate developers – being clever – understood what was happening, and in 2007, dumped their last two properties for $100,000 each. 

The bank that wouldn’t budge originally listed the property for $500,000.  They lowered it to $330,000. Then to $250,000. Then to $125,000. Finally, they lowered it to $90,000, which was the listing price when I found it. 

I bought my property for $70,000.  Three years earlier, a similar property in the subdivision changed hands for $885,000.  My purchase represented a 92% decline from the peak.

I ask the reader this – where in the world can you find assets down 90% that will benefit from the massive inflation the world’s central banks are creating? 

Stocks have soared, bonds have soared, commodities have soared but real estate just sits.

Yes, there are structural problems in real estate.  There is way too much of it.  There is too much real estate debt.  And that is why real estate has lagged.

But the Fed’s actions to Save the World are highly inflationary, not necessarily inflationary in terms of consumer and producer prices paid, but in terms of asset prices.  We live in an asset-driven economy, where asset prices are the primary benefactor of easy money.

The dogma of modern central bankers has been to focus on the general level of prices paid in the economy for goods and services, not the level of asset prices (unless asset prices fall too low and imperil the system).  As long as consumer prices are not rising (or falling) much, the amount of money created is a minor focus, if any at all. 

The opening of China and the commercialization of the Internet were both powerful deflationary forces.  Prices should have fallen over the past 15 years, or at least not risen as much.  In a quest for price stability, excessive liquidity was created in the system, which found its way first mainly into stocks, then into residential real estate, but also elsewhere – bonds, commodities, real estate, art, wines, sports teams, you name it. 

This cycle has not changed.  To offset deflation, the Fed’s balance sheet has exploded, and liquidity from the largest fiscal and monetary stimulus ever is flooding primarily into asset markets.

Most asset prices have soared.  Stocks have exploded.  Bonds are way up.  Commodities have more than doubled and gold hit an all-time high.  Yet real estate just sits there.

It won’t for long.  When I closed, I had to wire funds for purchase at a local bank. I asked the banker how the real estate market was doing.  She told me that at the lower end, houses that were listed on Monday were under contract by Friday.  Prices had fallen far enough and now people were buying again.

I may buy more land.  When I went out to my new property a few weeks ago, I had planned to look at a few more listings my broker had sent me.  But they have since been sold.  I was hoping that the first property on which I bid would still be available so I could convince the bank of the error of their ways and they would sell to me at my purchase price.  But that is not going to happen.  Last month, the bank sold the property for $74,900.

I am long US land.

 

The Canadian Housing Bubble

Since the beginning of this blog, we here at Running of the Bulls have spent considerable time detailing the wackiness of the Canadian Housing Bubble, which you can read here, here, here, here, here,and here.  The Running of the Bulls thesis for why the Canadian Housing Bubble has not popped in a similar manner as the American Housing Bubble is here.

Alexandre Pestov has written an excellent paper entitled The Elusive Canadian Housing Bubble.  Pestov is an MBA candidate at the Schulich School of Business at York University. (Toronto's second best MBA program!)  The following are exerts from Pestov's paper.  (HT to Zero Hedge.)

First, Canadian mortgage rates are at six-decade lows.

Those arguing that home prices are not a bubble say that housing is not particularly unaffordable.

The problem with this argument, as Pestov rightly points out, is that interest rates are at multi-generational lows.  In Canada, all mortgages are fixed only for a specific period of time, i.e. 5 years.  Interest rates reset thereafter.  When interest rates normalize, homes will become even more unaffordable.

Citing a report on the Canadian housing market by RBC, the paper notes

• An average Vancouver household (that is a family of usually two income earners, not a single person) spends over 70 cents of every pre-tax dollar they earn on house ownership costs. Deduct unavoidable taxes, and this amount would rise to nearly 100 percent of an average household income in Vancouver
• An average Toronto and Montreal household spends over 57 and 47 of their pre-tax income on house ownership costs, or nearly 80 and 70 percent of their after-tax income respectively

Home price increases have far outstripped rising incomes.

Over the last 13 years, house prices in Toronto, Montreal, Vancouver and Calgary rose 5-10 times quicker than incomes in these cities. Incomes simply did not keep up with the rising home prices. Housing affordability (or un-affordability would be a better term in case of Canada) is significantly above its long-term average now. While it is lower than that at the peak-bubble in 1990, it is expected to skyrocket into the stratosphere once the bank rates rise and the mortgage rates follow. Despite the historically low mortgage rates, housing affordability in Vancouver is close to being the worst on record (the actual record was set less than two years ago). Once bank and mortgage rates gravitate towards their long-term average, housing affordability in Vancouver will approach 100 percent. In other words, an income-earning family in Vancouver would have to spend every penny they earn on housing costs. This is in addition to learning tax evasion methods, as this 100 percent would be of their pre-tax income. While not as dire as it is in Vancouver, housing affordability of Toronto, Calgary and Montreal will deteriorate and likely exceed levels seen during the last real-estate bubble.

 By international comparisons, home prices in Canada are very high.

The annual Demographia International Housing Affordability Survey reveals surprising results. Predictably, during the peak of the US housing boom the affordability measurement in cities including Los Angeles, San Diego, Honolulu, and San Francisco reached double-digit levels. In retrospect, it is hard to comprehend the rational and thinking process of buyers snatching houses they wouldn't be able to pay off during their lifetime. Vancouver didn't trail far behind, staying solidly in the “severely unaffordable” category and surpassing both London, UK and New York, NY by mid-2006. During that time, Calgary and Montreal gradually rose from “moderately unaffordable” levels to “seriously unaffordable”. Toronto, being excessively pricey already, stayed within the “seriously unaffordable” band.

Once the bubble burst and home prices plunged, the affordability improved in the most overpriced cities in the US and UK. But not in Canada. Instead, the housing affordability average in Canada moved closer to the upper boundary of the “moderately unaffordable” band. Instead, the mean house price in Canada became less affordable than that of the US. During the crisis, Montreal and Calgary edged dangerously close to crossing the “severely unaffordable” line, while in 2009 Toronto finally managed to turn itself into a “severely unaffordable” city. And Vancouver outshined them all.

In 2009, Vancouver became the most unaffordable city among 272 markets. Presently, Vancouver is less affordable than London, UK, Los Angeles, CA, Miami, FL, New York, NY, Sydney, AU or any other city in Australia, Canada, Ireland, New Zealand, the United Kingdom and the United States. ...

On the median multiple ratio measurement, Vancouver (9.3), Toronto (5.2), Montreal (4.9), and Calgary (4.6) hover substantially above the “normal” 3.0 level. Based on this valuation, Toronto is considered a “severely unaffordable” city, while Montreal and Calgary lie on the border between being “seriously unaffordable” and “severely unaffordable”.

By other valuation measures, such as price-to-rent and price-to-income, homes in Canada  are expensive.

Since the financial crisis began, mortgage credit in Canada has expanded primarily through the government.  CMHC MBS securities have doubled since 2007 whereas private credit has barely budged.

Nearly 90 of mortgages issued between 2007 and 2009 were securitised. By the end of 2007, there were $138 billion in MBS that is guaranteed by CMHC, which covers approximately 17 per cent of all outstanding mortgages. By July 2009, that figure rose to $290 billion. CMHC's stated goal was to guarantee $340 billion by the end of this year and is on track to reach $500 billion by the end of 2010, which would be would be equal to 1/3 of the Canadian GDP. In fact, between 2008 and 2010 CMHC‟s issuance of MBSs will likely exceed the combined total issued by CMHC in its 62-year long history prior to 2008.

The volume of home sales has exploded.  This is typical of highly speculative activity.

Furthermore, the data series shows that sales more than doubled from 1980 to 1997, and then nearly doubled again by 2007. At the same time, the population of Metro Toronto increased just 13 percent from 1980 to 1997, and approximately 20 percent between 1980 and 2007 (Statistics Canada; Toronto.ca). In 1980 home sales stood at 12.8 per 1,000 citizens of Toronto. In 1996 this number increased to 25.0, and by 2007 they reached 37.6.

Debt held by Canadians is at an all-time high.

 

Including, predictability, mortgage debt.

Mortgage debt has fueled an explosion in residential construction.

The Canadian Housing Bubble can go on for awhile.  As long as interest rates are low, the yield curve is steep, China's stimulus is working its way through commodity markets, and the world avoids a serious sovereign debt crisis, the Canadian economy should be okay.

But the laws of economics have not been suspended for Canada, no matter how wonderful the country may be.  The Canadian Housing Bubble will end no differently than past housing bubbles.

California Home Prices Up 11%

From The Wall Street Journal.

The California housing market is showing more signs of stabilization—at least for now—as sales of bank-owned and bargain-basement homes in inland areas partially give way to sales of costlier homes toward the coast, according to a new report.

California's median home price rose 11.2% in February from February 2009, although home sales in the state slipped for the second consecutive month compared with a year earlier, according to a report released Thursday by MDA DataQuick, a La Jolla, Calif., housing-data provider.

The median home price increased to $249,000 in February from $224,000 a year earlier, DataQuick said. The median price rose 0.8% from January 2010. Home sales in the state fell 3.8% in February from a year earlier to 28,111 sales, but were up 0.9% from January 2010, DataQuick said.

The San Francisco Bay Area's median home price rose 20% from February 2009 to $354,000, while home sales fell from year-earlier levels for the second straight month. In Southern California, the median home price rose 10% to $275,000, led by a 13% rise in San Diego, while the number of home sales rose from year-earlier levels for the 20th consecutive month.

The increase in the statewide median price—the biggest year-over-year jump since March 2006—partially reflected a shift in the types of homes being sold in the state, as fewer foreclosures and stiff competition for bargains ate up inventory at the market's lower end, said DataQuick analyst Andrew LePage. "There has been a shift in what's selling and what's not selling," Mr. LePage said. "The high end has woken up, whereas it was comatose a year ago."

California Housing Inventory Hits 5-Year Low

From the WSJ.

California's inventory of unsold, previously owned homes shrank to a five-year low in December, in another sign that the state may be coming out of its worst housing slump in decades.

The supply of unsold single-family homes dropped to 3.8 months from 5.6 months a year ago and 16.6 months in January 2008, when inventories were at a peak, according to estimates released Friday by the California Association of Realtors. The inventory levels are now at their lowest level since 2005, resulting in frenzied sales with multiple offers in some cities.

Running of the Bulls believes that the housing bottom is in nationally, although some states and cities have further to go on the downside.  However, other areas are showing classical signs of a bottom.  This is one as states that lead us into this mess are the ones first coming out.