“I look to single-family housing as a bellwether for the general economy. Here in Orange County, single-family supply has shrunk considerably, which has led to an increase in demand. This points to increased competition and positive growth for the local economy. Single-family housing has an important psychological impact on the rest of the economy. When it points to positive growth, we will see the same for the rest of the economy.”

–Rand Sperry, CEO Sperry commercial real estate franchisor in Irvine (Jonathan Lansner and Jeff Collins, “For 2013, 13 less obvious keys to market,” The Orange County Register)

So what is happening with the single-family home in the Irvine real estate market? As shown a recent Altos Research graph for Irvine’s single-family housing market, the single-family housing market is on the upswing in Irvine (as well as in most of Orange County). Note the sharp upswing in this recent Altos Market Action Index (MAI) graph for Irvine. So it’s all good, right? According to Joel Kotkin, Distinguished Presidential Fellow in Urban Futures at Chapman University, not necessarily:

“Just six years since the last housing bubble, California is blowing up another. This may seem like good news to homeowners and speculators alike but it could further accelerate the demise of the state’s middle class and push more businesses out of the state.”

–Joel Kotkin (“Here we go again? Reinflating California housing values good for owners and governments, bad for middle, working classes, whose incomes haven’t kept up.” The Orange County Register)

Here are some points that Kotkin uses to back up his claim:

• Last year In Southern California, housing sales increased 14 percent and the median price increased 16 percent. However, housing construction has not increased substantially. Therefore, inventory is not being replenished.
• “[M]any of the homebuyers are not families seeking residences, but flippers, Wall Street types and foreign investors. A remarkable one-in-three Southern California home purchasers paid with cash, up from 27 percent from last year.”
• Kotkin refers to the American Community Survey that states, when compared to 2007-11, California incomes are down $2,600 per household. Since middle-class incomes are not keeping up with the increased prices, rising housing prices are not linked to household income.

Kotkin continues his commentary by giving his solutions to the problem. Room for discussion on these solutions exists. But before we get to that, what do you think about his basic premise? Is this upswing in housing sales and prices a good thing? Or is it profiting a select few while putting the middle class at a disadvantage? Are we heading for another bubble?

*The Altos Research Market Action Index measures the strength of a housing market.