Oct082012

Despite rising prices, Orange County still more than 20% undervalued

Each month I publish the OCHN Market Newsletter. It provides the most detailed and accurate view of the housing market available without the realtor spin. I believe potential homebuyers should have the best information possible to make reasonable and rational decisions regarding the purchase of a home. Despite how bearish I have been, my strictly mechanical reports have been issuing strong buy signals since last fall. Now that house prices have turned positive, rents are still going up, interest rates are trending down, affordability is at record highs, and houses are undervalued by historic norms, the report is very bullish. And as I noted recently, I am turning bullish too.

Notice the downside overshoot in the chart below. It may be artificially induced by low interest rates, but it is a real phenomenon all the same. Anyone buying today is getting a bargain relative to the long-term cost of ownership in Orange County. And as I noted in an earlier post, the monthly cost of home ownership down over 50% from 2006.

The monthly report focuses on the valuation of cities and certain zip codes relative to historic norms. Although many cities are still priced well above rental parity, they are undervalued compared to the last period of price stability from 1993 to 1999.

This has sent my ratings solidly into the green.

And as I demonstrated in a post in early September, these ratings are seldom green. (please see OC housing market ratings and historic city values.)

Anyone using the OCHN rating system would have avoided buying when they were likely to end up underwater. The system even warned about buying in 2009 when everyone else was calling the bottom. Since interest rates have declined along with prices and rents have gone up, affordability is at record highs, and the OCHN rating system is issuing a strong buy signal. The last such strong buy signal was in 1998, the bottom of the last housing bust.

Anyone remember Dennis Miller?

Do any of you remember Dennis Miller? Perhaps some of you still listen to his radio show. Dennis Miller became famous as a liberal who would go on acerbic rants. I used to enjoy watching his show back in the day. Then suddenly, and without much warning, he turned conservative. It was very jarring to his audience, and he has faded from view every since. Am I the next Dennis Miller?

I became known as a housing bear. I like to think I am an impartial market observer who was bearish when the conditions were bearish; however, I’m sure many don’t see me that way. Many of you may come here to get a dose of bearish market news, and my recent change of opinion may be jarring to you. For as much as I would like to please all my readers, I must be true to who I am and my view of the housing market. Although I still see many reasons to be concerned about the future of our housing market — and I will continue to write cautionary posts — I see more reasons to buy than I see reasons to wait. As I always have, I will continue to call ’em like I see ’em.

Perhaps I am just late to the party. I spent most of the summer criticizing the chorus of bottom callers. Perhaps I was wrong. It took Bernanke’s promise of unlimited housing stimulus to finally convert me. Perhaps it is my cautious nature, but seeing the bottom in the rear-view mirror and having sufficient reason to believe it will endure finally won me over.

I don’t know how this will effect my blog posts. Only time will tell. I will continue to focus on housing and post my interpretations of the most recent housing news and the occasional in-depth analysis post. We’ve entered a new era. The bust is over, and the recovery has begun.


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