Bubble, Bubble — Is That the Sound of the post-Bubble Bubble beginning to Pop?

This one is serious, folks, so pay attention. As we noted in this blog from time to time, the California housing market has been goosed upward recently by big-buck folks buying up distressed homes cheaply en masse in order to rent them out, and make a buck that way, as well as score some capital gains as the California housing market recovers.

According to today’s L.A. Times — front page, no less — it looks like that gravy train is slowing to a halt. Tim Logan, Investors Curb Home Buying, L.A. Times, March 29, 2014, at p. A1. “Companies are dialing back their purchases of houses to rent out, a signal prices hit a ceiling in SoCal.” The peak  in the numbers of such sales was reached in 2013, when it hit 613 homes being bought by the 20 largest single-family home buyers. This year it came down to 96. Sounds like a peak in numbers has indeed been reached.

But this isn’t all. Markets have this habit whereby they rarely stand still — they either move up or down. And given these figures and the economy generally, we don’t see how home prices can keep going up. Other than the big-boy cash home buyers, we don’t see how Mom-and-Pop homebuyers — the kind of folks who want a nice roof over their heads — can pay more than the current median prices of $385,000. And the other thing about big-buck professional homebuyers, is that they are not likely to sit there and watch the market value of their investments go down — they’ll bail when the market turns hinky and do their best to sell and collect whatever gain they managed to accumulate — and move on to other investments.

Still, some of big-time buyers are still at it. The L.A. Times reports that Starwood Waypoint Residential Trust is still buying homes in Southern California, and just popped $144 million on “a portfolio of 707 homes, ” which according to our calculator comes to $203,000 per home. We should also note that should you be able to find a $200-grand home around here, you wouldn’t want to live in it. So those $200-grand bargains must be in highly disfavored parts of the state.

So stay tuned, and see how it turns out. Being a congenital pessimist we have a hunch that this isn’t going to end well.

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