The OC Register Says California had no real estate bubble

Really biased and misleading crap is common on realtor blogs, which is why nobody reads them. When realtors are allowed to post their bluster as news on the OC Register, many people take it as information rather than indoctrination. It soils the OC Register when they permit this.

Published: March 7, 2011
Updated: 5:25 p.m.

California had no real estate bubble

[email protected]

Nearly everyone accepts as fact the perception that California real estate prices “skyrocketed” into the stratosphere from the mid-1990s to the mid-2000s, creating a “bubble.” But historical data easily disproves this.


This guy has an interesting way of setting up his argument. He makes a bold and easily disprovable statement as if it were fact, and he proceeds to base his diatribe on this ridiculous statement.

There is also widespread belief that rapid growth in home prices must inevitably lead to rapid decline. The “bubble” must eventually “burst.” What goes up must come down. But this is also demonstrably not true – at least in California.

People tend to take these two notions for granted because they forget the facts of history, they mistake the current dramatic real estate correction as typical, and these misconceptions have not been well-investigated by the news media.

California home prices did not spiral out of control from 1996 to 2007. And rapid appreciation in home prices does not automatically lead to rapid depreciation. Let’s examine history.

In 1970, according to data published by the California Association of Realtors, California’s single-family home median price was $24,640. By 1983, the median had climbed to $114,370. This was a very rapid almost fivefold increase in market value in 13 years. The actual annual appreciation rate over that period was 12.5 percent. The inflationary ’70s were very good for real estate prices. But I don’t remember at the time any talk of impending doom for the housing market – that what goes up must come down, that this bubble had to burst.

Of course, 1970s inflation hit interest rates, too, and by 1983, mortgage rates were above 18 percent. The market slowed for one year only – California home prices went flat in 1984.

But no inevitable massive “correction” occurred after this rapid run-up. In fact, from 1984 to 1991, the home median price rose still higher, from $114,260 to $200,600. The annual appreciation rate was 8.4 percent.

Finally, after 21 years of price appreciation, a strong recession hit California and the housing market steadily corrected between 1991 and 1996. Military bases and aerospace companies closed. The home median price slowly declined from $200,660 to $177,270 – an annual depreciation rate of 2.4 percent. This was a tough time for those with slim equity. But most California homeowners muddled through. No one can claim that this was a burst bubble, but simply a gradual and expected adjustment after at least a generation of great times. The clouds lasted five years.

Let’s pause here. People who take for granted the idea that home prices then skyrocketed after 1996 have little understanding of California’s housing history.

It’s true that California’s home market took off again. And this time, the good times lasted 11 years. But this was no bubble that was destined to burst.

The facts: Climbing from a median price of $177,270 in 1996 to $560,270 in 2007, the annual appreciation rate for this 11-year growth period came in at a good but unspectacular 11 percent. I say unspectacular because the previous growth period from 1970 to 1983 was stronger at 12.5 percent annually and lasted two years longer.

This guy has based his entire reality on the two anomalous periods where kool aid intoxication took over. He genuinely believes house prices can go up faster than wages and faster than inflation. The magic appreciation fairies must sprinkle it like pixie dust.

In fact, an argument can be made that, had the appreciation rally starting in 1996 been more “typical” of those in the past 40 years, the home median price wouldn’t have stopped at $560,270 in 2007 but would have risen an additional $100,000 or $200,000 before fizzling out.

Trees really do grow to the sky, right?

At any rate, the current correction began in 2007, with California’s home median price dropping from $560,270 to $274,960 in 2009. I estimate 2010’s median price will come in at a flat $275,000. Should that estimate hold, the correction we’re ending just now will have brought an annual depreciation rate of about 21 percent. That’s pretty severe in historical terms.

So why did the most recent 11-year rally fail to achieve expected heights, and more importantly, why has the subsequent correction been so severe?

Because it was a massive housing bubble that never should have been allowed to push so high to begin with. The fact is that the severe correction isn’t complete yet, and when it is finally done, don’t expect rapid appreciation any time soon.

Perhaps more than just real estate issues were involved in the truncated rally and subsequent market correction. Esoteric AAA-rated mortgage derivatives and credit default swaps may have set the stage for an extraordinary ruination of the real estate market.

According to The New York Times, commenting on conclusions issued by the Federal Financial Crisis Inquiry Commission, “The 2008 financial crisis was an ‘avoidable’ disaster caused by widespread failures in government regulation, corporate mismanagement and heedless risk-taking by Wall Street.”

Contact the writer: Mike Cotter has been a California real estate broker since 1981 and is currently a Realtor and broker-associate with Century 21 OMA, 229 Avenida Del Mar, San Clemente. His website is Contact him at [email protected] or 949-322-6009.

Mr. Cotter worked hard writing that piece, and he deserves attribution, so his contact information is presented here as a courtesy. Please don’t call or email him with inflammatory comments. If you like that perspective on the market from a broker, please go work with him. Reality is not for you. Mr. Cotter may stop by and defend himself in the astute observations. Wouldn’t that be fun?

Why the OC Register print this kind of garbage? I found this in my Google news feed, so this is being passed off as news — an unbiased representation of fact. Is this the version of reality we are to embrace? Should trees grow to the sky?


The slow death of the OC Register has been painful to watch, and each time they run a realtor puff piece as news, they take their credibility down one more notch. I know they want content, and I wouldn’t be surprised if this guy either paid for the content or advertises a lot with them. It can’t be good for the OC Register when readers have to be mindful of bullshit.