Are We In A Real Estate Bubble?

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kadibex1
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Are We In A Real Estate Bubble?

Post by kadibex1 » Wed Nov 07, 2018 3:40 pm

Are we in another real estate bubble? When i look at the data, the rise in real estate prices appear to be more organic and slower and not as dramatic say last decade. It's the good ole supply and demand. Yet I was at a real estate work shop recently and the brokers hosting it talked about how easy it is to get a zero % down payment for 1st time home buyers even with questionable credit. Which is a red flag (History repeating itself?) and I think is 1 of the reasons for the last real estate? What do you think?

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Re: Are We In A Real Estate Bubble?

Post by Thegame14 » Wed Nov 07, 2018 3:51 pm

yes, sell.....

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Re: Are We In A Real Estate Bubble?

Post by White Coat Investor » Wed Nov 07, 2018 4:21 pm

If it was a bubble, we're already over the top. Prices are dropping and sales are slowing in Salt Lake and Reno, at least based on my experience talking to a limited number of buyers and sellers. Rising interest rates are part of it, flattened incomes are another part.
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Re: Are We In A Real Estate Bubble?

Post by clar0097 » Wed Nov 07, 2018 4:23 pm

Not sure if it's a bubble, but the housing market has been softening over the last 4-5 months. I'm not convinced that prices are going to reduce significantly, but I can see things plateauing for awhile.

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greg24
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Re: Are We In A Real Estate Bubble?

Post by greg24 » Wed Nov 07, 2018 4:27 pm

Real estate is local. No bubble where I am. YMMV.

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Re: Are We In A Real Estate Bubble?

Post by SchruteB&B » Wed Nov 07, 2018 4:43 pm

greg24 wrote:
Wed Nov 07, 2018 4:27 pm
Real estate is local. No bubble where I am. YMMV.
This. Good grief we would be lucky to get 80% of what we paid for our house 19 years ago.

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Re: Are We In A Real Estate Bubble?

Post by ruralavalon » Wed Nov 07, 2018 4:59 pm

greg24 wrote:
Wed Nov 07, 2018 4:27 pm
Real estate is local. No bubble where I am. YMMV.
No bubble here either.
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Re: Are We In A Real Estate Bubble?

Post by Grt2bOutdoors » Wed Nov 07, 2018 10:52 pm

White Coat Investor wrote:
Wed Nov 07, 2018 4:21 pm
If it was a bubble, we're already over the top. Prices are dropping and sales are slowing in Salt Lake and Reno, at least based on my experience talking to a limited number of buyers and sellers. Rising interest rates are part of it, flattened incomes are another part.
An interesting source of data for each region of the country is the Federal Reserve Beige Book. At the least it may corroborate/dispute what you’ve heard, but it will also provide a clearer picture into the cost of financing.

We read recently on the forum that Chicago is similar. Saw in paper the other day, Dallas market is slowing down - blaming it on “higher rates”. Ironic since rate I paid (different geographic region) over 10 years ago was at least a point higher than that currently offered and prices were higher then.
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Re: Are We In A Real Estate Bubble?

Post by Grt2bOutdoors » Wed Nov 07, 2018 10:56 pm

ruralavalon wrote:
Wed Nov 07, 2018 4:59 pm
greg24 wrote:
Wed Nov 07, 2018 4:27 pm
Real estate is local. No bubble where I am. YMMV.
No bubble here either.
The bubble in Manhattan is deflating, some parts of outer boroughs are in bubble mode but the air is going to get taken out - the selling prices are far above agency conforming standards leaving them to either put more down and pay more for private label financing. The party isn’t going on forever. The burbs, depending which towns don’t have that feverish pitch we saw back in ‘06-07.
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2015
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Re: Are We In A Real Estate Bubble?

Post by 2015 » Wed Nov 07, 2018 11:34 pm

Maybe not a "bubble" per se, but prices have been cooling in some major markets all year. Redfin CEO talked about this on some type of earnings call this past summer. I can't believe I accidentally "timed" the SoCal market by buying cheap years ago and selling quite dear just this year. Another example of the influence of luck in human affairs. Of course, my efforts influenced the outcome, as I believe our efforts is all we can focus on the game of luck.

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Re: Are We In A Real Estate Bubble?

Post by JoMoney » Thu Nov 08, 2018 1:51 am

I think, as others have said, that real estate is location specific. Interest rates appear to be rising, which means higher mortgages will be less affordable. There is data/news articles showing the market softening in several major markets. Anecdotally, I've heard the markets are still pretty strong in regions that are reported as seeing an influx of former Californians.

I noted an interview with Warren Buffet a couple weeks back, discussing the current levels of the stock market as saying:
Uh.. and, it's not my field of specialty but actually generally stocks ... businesses ... stocks are businesses, 30 trillion worth of them... and they look cheaper than generally real estate
https://youtu.be/9kke_CGNpFE?t=56
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Valuethinker
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Re: Are We In A Real Estate Bubble?

Post by Valuethinker » Thu Nov 08, 2018 3:54 am

kadibex1 wrote:
Wed Nov 07, 2018 3:40 pm
Are we in another real estate bubble? When i look at the data, the rise in real estate prices appear to be more organic and slower and not as dramatic say last decade. It's the good ole supply and demand. Yet I was at a real estate work shop recently and the brokers hosting it talked about how easy it is to get a zero % down payment for 1st time home buyers even with questionable credit. Which is a red flag (History repeating itself?) and I think is 1 of the reasons for the last real estate? What do you think?
interesting that the banking regulators are allowing that? I wonder what the loophole is?

To create that mortgage, a bank has to agree to lend it. It will then be securitized (packaged and sold off as a bond). Banks are in the shipping not storage business, in the jargon.

But whilst it sits on the bank's balance sheet it is a pretty risky thing, and the regulators, post crash, have been very interested in precisely that.

What I think is generally happening is that US mortgage rates are rising, and that is taking the steam out of some overheated markets.

It's not a crash, nor likely to be a crash -- barring some unforeseen event (another war, economic crisis etc.). But markets will struggle for a while in the face of rising interest rates.

As always with real estate markets it takes a while for sellers to adjust to the fact that their property is "worth" less on paper than it was. The market is sticky downwards. Until you get forced/ distressed sellers it won't actually fall back by a lot.

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Re: Are We In A Real Estate Bubble?

Post by Zedon » Thu Nov 08, 2018 4:30 am

If I had an extra house I would sell, we are not in a bubble but we are set up to build one. As loans get more expensive and it gets easier to get them, less capable people will begin to carry debt they won't be able to handle in the next recession.

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Re: Are We In A Real Estate Bubble?

Post by boglerdude » Thu Nov 08, 2018 6:37 am

> interesting that the banking regulators are allowing that? I wonder what the loophole is?

What were the loopholes in ~2006?

Mr. Jelly
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Re: Are We In A Real Estate Bubble?

Post by Mr. Jelly » Thu Nov 08, 2018 6:40 am

It's a debt bubble that you are seeing. What you are seeing is a red herring. The housing expense and the rising costs are part of it. The fact that someone can get a loan that they shouldn't is also part of it.

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jadd806
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Re: Are We In A Real Estate Bubble?

Post by jadd806 » Thu Nov 08, 2018 7:52 am

Probably.

Totally anecdotal, but every single first time buyer I know is 2-3 missed paychecks away from complete financial ruin. Somehow they are getting mortgages with 0% down, at 6-7% interest. I know several millennials who have gotten mortgages for 5x their income by juicing their paychecks with overtime for however many paychecks the lender wants to see, so they can qualify for a way bigger loan than they would otherwise.

When I ask them if they think of their primary residence as an investment, they universally say yes and most expect it to appreciate at 5% or more per year. Lol.

Is this historically how it works, or are first time buyers stretched thinner than they've ever been? We're still renting because the price:rent ratio in our area is ~20. I simply can't commit to such a huge financial decision after realizing how many first time buyers that I've met are completely delusional. I always think to myself: these people are forming the basis of the housing "recovery"?

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Re: Are We In A Real Estate Bubble?

Post by bottlecap » Thu Nov 08, 2018 7:55 am

Yes, we probably are. But there's not much you can do about it. And to what extent is difficult to gauge.

It is a truism that real estate prices are local, but that doesn’t mean that prices across the country can’t still be in a bubble, like in 2008.

JT

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Re: Are We In A Real Estate Bubble?

Post by nisiprius » Thu Nov 08, 2018 8:00 am

Nobody's talking that way around where I live. It doesn't feel at all like 2005-6. I see acquaintances posting on Facebook saying "I can't believe what homes are being listed for, it's crazy, what do young people do, can you believe they want $500,000 for this?" I haven't heard anybody gloating about how much their own house has appreciated. I haven't heard about anybody flipping houses.

Our town, which used to be predominantly single-family (and a fair number of two-family) houses, is experiencing a spate of new apartment buildings and some people are complaining bitterly about it, while others are saying "What do you expect? Young people have to live somewhere and they've been priced out of the market for houses."
Last edited by nisiprius on Thu Nov 08, 2018 8:04 am, edited 2 times in total.
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Re: Are We In A Real Estate Bubble?

Post by gd » Thu Nov 08, 2018 8:02 am

You might consider explaining your goals in attending a real estate workshop hosted by brokers.

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Re: Are We In A Real Estate Bubble?

Post by nisiprius » Thu Nov 08, 2018 8:06 am

gd wrote:
Thu Nov 08, 2018 8:02 am
You might consider explaining your goals in attending a real estate workshop hosted by brokers.
Indeed. Could the brokers be telling attendees what they think attendees want to hear? Was this a workshop on how to make money in real estate, and did the appeal of the idea depend on assuring participants that houses are easy to sell?
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Re: Are We In A Real Estate Bubble?

Post by Valuethinker » Thu Nov 08, 2018 8:30 am

nisiprius wrote:
Thu Nov 08, 2018 8:06 am
gd wrote:
Thu Nov 08, 2018 8:02 am
You might consider explaining your goals in attending a real estate workshop hosted by brokers.
Indeed. Could the brokers be telling attendees what they think attendees want to hear? Was this a workshop on how to make money in real estate, and did the appeal of the idea depend on assuring participants that houses are easy to sell?
The old line about politics "imagine the candidate saying the opposite, and see if it makes any sense".

Ever heard a candidate say they are NOT for a strong national defence, a quality healthcare system? (as opposed to I am FOR a strong national defence, but will cut entitlement spending to pay for it).

So when they say they ARE for it, it's not a sentence that conveys information.

A real estate broker forum where they say "houses are going down and you should not buy" seems unlikely.
Last edited by Valuethinker on Thu Nov 08, 2018 9:02 am, edited 1 time in total.

quantAndHold
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Re: Are We In A Real Estate Bubble?

Post by quantAndHold » Thu Nov 08, 2018 8:44 am

jadd806 wrote:
Thu Nov 08, 2018 7:52 am
Probably.

Totally anecdotal, but every single first time buyer I know is 2-3 missed paychecks away from complete financial ruin. Somehow they are getting mortgages with 0% down, at 6-7% interest. I know several millennials who have gotten mortgages for 5x their income by juicing their paychecks with overtime for however many paychecks the lender wants to see, so they can qualify for a way bigger loan than they would otherwise.

When I ask them if they think of their primary residence as an investment, they universally say yes and most expect it to appreciate at 5% or more per year. Lol.

Is this historically how it works, or are first time buyers stretched thinner than they've ever been? We're still renting because the price:rent ratio in our area is ~20. I simply can't commit to such a huge financial decision after realizing how many first time buyers that I've met are completely delusional. I always think to myself: these people are forming the basis of the housing "recovery"?
In HCOL markets, this is always how it has been, and probably how it will always be. The only way younger people can buy in those markets is by stretching. When the economy turns, a certain percentage always get flushed out. But a 30 year old has a lot of time to recover from an unfortunate home purchase, so it’s often worth the risk.

This happened to me in the 90’s. I learned a very expensive lesson in the CA real estate market. Then I went on with my life, continued to save, bought another place that worked out better, and still retired in my early 50’s.

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Re: Are We In A Real Estate Bubble?

Post by SDLinguist » Thu Nov 08, 2018 9:29 am

From what I have seen in the northern parts of San Diego county prices are plateauing, they are getting to a point where there aren't enough capable buyers I think.

To me it's looks like ~12x the median income starts becoming the upper limit for North County San Diego cities. At least for SFHs. And these are cities where the median is above 100k.

We know most workers, regardless of income, are not saving anywhere near what most experts think they need to be.

One of my co-workers thinks it's impossible to max out 2 401ks on what I estimate to be about 210-230k income that she and her husband make combined a year. As she says: nobody can save 37k a year unless they make a million dollars. Her husband also told me on more than one occasion that saving is for poor people, they make a lot of money and don't need to save. This board pre-selects people without that mindset but the more I interact with people in the wider world the bleaker my view of the general American's financial skills becomes.

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Re: Are We In A Real Estate Bubble?

Post by leeks » Thu Nov 08, 2018 11:04 am

Grt2bOutdoors wrote:
Wed Nov 07, 2018 10:56 pm
ruralavalon wrote:
Wed Nov 07, 2018 4:59 pm
greg24 wrote:
Wed Nov 07, 2018 4:27 pm
Real estate is local. No bubble where I am. YMMV.
No bubble here either.
The bubble in Manhattan is deflating, some parts of outer boroughs are in bubble mode but the air is going to get taken out - the selling prices are far above agency conforming standards leaving them to either put more down and pay more for private label financing. The party isn’t going on forever. The burbs, depending which towns don’t have that feverish pitch we saw back in ‘06-07.
I was hoping this was true, that prices would drop in my outer-borough neighborhood over the next two years, but it seems Amazon might ruin my plans. My point is that local factors can be hard to predict.

kadibex1
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Re: Are We In A Real Estate Bubble?

Post by kadibex1 » Thu Nov 08, 2018 1:51 pm

Valuethinker wrote:
Thu Nov 08, 2018 3:54 am
kadibex1 wrote:
Wed Nov 07, 2018 3:40 pm
Are we in another real estate bubble? When i look at the data, the rise in real estate prices appear to be more organic and slower and not as dramatic say last decade. It's the good ole supply and demand. Yet I was at a real estate work shop recently and the brokers hosting it talked about how easy it is to get a zero % down payment for 1st time home buyers even with questionable credit. Which is a red flag (History repeating itself?) and I think is 1 of the reasons for the last real estate? What do you think?
interesting that the banking regulators are allowing that? I wonder what the loophole is?

To create that mortgage, a bank has to agree to lend it. It will then be securitized (packaged and sold off as a bond). Banks are in the shipping not storage business, in the jargon.

But whilst it sits on the bank's balance sheet it is a pretty risky thing, and the regulators, post crash, have been very interested in precisely that.

What I think is generally happening is that US mortgage rates are rising, and that is taking the steam out of some overheated markets.

It's not a crash, nor likely to be a crash -- barring some unforeseen event (another war, economic crisis etc.). But markets will struggle for a while in the face of rising interest rates.

As always with real estate markets it takes a while for sellers to adjust to the fact that their property is "worth" less on paper than it was. The market is sticky downwards. Until you get forced/ distressed sellers it won't actually fall back by a lot.
Funnily enough this is in California. Not sure if this is a nationwide thing though.

kadibex1
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Re: Are We In A Real Estate Bubble?

Post by kadibex1 » Thu Nov 08, 2018 1:52 pm

nisiprius wrote:
Thu Nov 08, 2018 8:06 am
gd wrote:
Thu Nov 08, 2018 8:02 am
You might consider explaining your goals in attending a real estate workshop hosted by brokers.
Indeed. Could the brokers be telling attendees what they think attendees want to hear? Was this a workshop on how to make money in real estate, and did the appeal of the idea depend on assuring participants that houses are easy to sell?
It was both a real estate investment workshop, but also people buying their first primary residence.

ncbill
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Re: Are We In A Real Estate Bubble?

Post by ncbill » Thu Nov 08, 2018 1:56 pm

I certainly hope so!

Since I'm getting a relative's home ready to sell.

Bring back the "fog a mirror to qualify" zero-down loans, please!

e5116
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Re: Are We In A Real Estate Bubble?

Post by e5116 » Thu Nov 08, 2018 2:15 pm

Yeah, in my area, prices for SFHs are currently about at 2004 levels (depending on size/price -- the largest/expensive homes haven't appreciated as much). They didn't rise all that quickly after the 2008 crash....So, I don't think they'll crash as much either if the "national bubble" bursts, but they certainly did fall significantly in 2008-2012. I realize in many highly desirable areas in the country, prices have been on a huge growth curve since 2012 and it does seem like there is a weakening in demand recently. Prices are pretty flat though as inventory continues to be a problem. So, I don't personally see a "pop" like we did before so quickly -- more like a slow steady state of flat or ever so slightly decreasing/rising prices in those desirable cities/neighborhoods where prices have surged the last 5 years or so. And with rising interest rates, a flat price is a decrease in affordability. But there may be more negotiation power given it feels like there are fewer bidding wars.

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Re: Are We In A Real Estate Bubble?

Post by renue74 » Thu Nov 08, 2018 2:25 pm

Sales tend to flatten in the fall/winter any ways.

Bidding wars on homes in my area have been around for a couple years...which was not the case in the early 2000s. Because supply then was much larger.

I will say that I feel like more "millennials" I know are actually looking into home ownership. (ages 28-32)

So yeah...it's a little later, but they are finally thinking about a home and it coincides with having children.

Rental market is sitll hot in Charlotte area. I have rentals and place them on Zillow....usually get about 50-100 inquiries in one week or so.

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Re: Are We In A Real Estate Bubble?

Post by Super Hans » Thu Nov 08, 2018 2:49 pm

leeks wrote:
Thu Nov 08, 2018 11:04 am

* * * * *

I was hoping this was true, that prices would drop in my outer-borough neighborhood over the next two years, but it seems Amazon might ruin my plans. My point is that local factors can be hard to predict.
I have the same problem. I've been holding out on buying in metro Washington for years, but now AMZN apparently is going to be my new neighbor. I'm not sure if this means I'll be a permanent renter or if I'll have to take on a multi-hour commute from some remote, rural part of old Virginia.

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Re: Are We In A Real Estate Bubble?

Post by stocknoob4111 » Thu Nov 08, 2018 2:56 pm

jadd806 wrote:
Thu Nov 08, 2018 7:52 am
Probably.

Totally anecdotal, but every single first time buyer I know is 2-3 missed paychecks away from complete financial ruin.
Anecdotal as well but I live in Los Angeles area and the people who have bought homes in the past 2-3 years that I have seen have leveraged themselves like MAD to get into their homes. I know for a fact that a ton of people are doing 5% down + FHA (an insanely expensive way to buy a home) with housing expenses at 50% or more of take home OR if they are putting a lot down (> 20% DINK couples with healthy savings) they still have 30% monthly, one of them loses their job and it's all over since their reserves are very lean since they put their entire life savings of $250,000 down on the home and have only $50k in the bank. When you have a monhtly burn rate of $7000-8000/month (mortgage + all your other expenses) that $50k is going to be chump change when you have a recession and can't replace your six figure income.

These are people who have stellar credit scores and solid six figure incomes. However, in my opinion these things are irrelevant, what people fail to understand is that six figure incomes are the first to go in a bad economy as the cost cutting mania takes effect in companies and they are very difficult to replace. This is unfortunately going to end in TEARS in my opinion as long yields are starting to creep up now, I think they will plateau at some point but the high point (guessing perhaps 10YT at 3.5???) will still be way too high and cause a lot of destruction. Just my $0.02.

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Re: Are We In A Real Estate Bubble?

Post by warner25 » Thu Nov 08, 2018 4:53 pm

I confess that I don't know how it's calculated, but I keep coming back to the Case Shiller Home Price Index:
http://www.multpl.com/case-shiller-home ... -adjusted/
This has been disturbing to me for a while. The latest rise looks nearly as sharp as the 2000-2006 rise, and it only needs to rise another 15% to match 2006. If that was a bubble, this certainly appears to be more of the same. We did have an interesting discussion earlier this year, though, about how maybe real estate was historically undervalued until the 1990s, kind of like stocks, and maybe the past two decades have been a correction to a more rational valuation.

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Re: Are We In A Real Estate Bubble?

Post by inbox788 » Fri Nov 09, 2018 2:48 am

Valuethinker wrote:
Thu Nov 08, 2018 3:54 am
What I think is generally happening is that US mortgage rates are rising, and that is taking the steam out of some overheated markets.

It's not a crash, nor likely to be a crash -- barring some unforeseen event (another war, economic crisis etc.). But markets will struggle for a while in the face of rising interest rates.

As always with real estate markets it takes a while for sellers to adjust to the fact that their property is "worth" less on paper than it was. The market is sticky downwards. Until you get forced/ distressed sellers it won't actually fall back by a lot.
It may not be a bubble that pops, but I think it will be deflating. The price may not take as big a beating as the volume, when you have homeowners asking far more than buyers are able to afford, and unable to fill the gap. It will take a while for the wages to catch up and improve housing affordability. And while all real estate is local, interest rates and the economy are global factors.

http://www.journalgazette.net/business/ ... mebuilders
https://fred.stlouisfed.org/series/COMPHAI

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Re: Are We In A Real Estate Bubble?

Post by Valuethinker » Fri Nov 09, 2018 6:10 am

inbox788 wrote:
Fri Nov 09, 2018 2:48 am
Valuethinker wrote:
Thu Nov 08, 2018 3:54 am
What I think is generally happening is that US mortgage rates are rising, and that is taking the steam out of some overheated markets.

It's not a crash, nor likely to be a crash -- barring some unforeseen event (another war, economic crisis etc.). But markets will struggle for a while in the face of rising interest rates.

As always with real estate markets it takes a while for sellers to adjust to the fact that their property is "worth" less on paper than it was. The market is sticky downwards. Until you get forced/ distressed sellers it won't actually fall back by a lot.
It may not be a bubble that pops, but I think it will be deflating. The price may not take as big a beating as the volume, when you have homeowners asking far more than buyers are able to afford, and unable to fill the gap. It will take a while for the wages to catch up and improve housing affordability. And while all real estate is local, interest rates and the economy are global factors.

http://www.journalgazette.net/business/ ... mebuilders
https://fred.stlouisfed.org/series/COMPHAI
Unfortunately the affordability graph only seemed to go back for a few months? Couldn't change the scale - maybe Chrome problem?

We are moving back to a "normal" world where interest rate sensitive businesses are ... sensitive to interest rates ;-).

I am not aware of evidence, numerical or anecdotal, that the US is in a housing bubble -- although it may well be so in some locales. Commercial Real Estate valuations are almost certainly too bullish (in certain sectors; retail is in meltdown it appears).

Where one sees extreme valuations like SF Bay area, one also sees a booming local industry paying extraordinary compensation (tech in that case). Also strong restrictions on further development. Houston or Dallas (or Atlanta) can spread outwards. SF LA/ SoCal NYC cannot. Conversely every construction area (AFAIK) is reporting labour shortages -- people left the industry in the recession and have not returned, non-American workers have gone home, etc.

Balanced against more expensive mortgages is very low unemployment and rising salaries. Affordability is stretched but in most US locales that simply means first time buyers move further outwards. You have a whole generation of Millennials who have yet to buy their first home, at an age when the previous postwar generations had done so - so there's a whole level of repressed demand.

The maxxed out, minimum deposit status of a lot of first or second time buyers is normal in a world where the economy is going up. There's a big step to get onto the lower rungs of the ladder, and that's being achieved with low down payments/ maxxed mortgage outgoings.

Rising interest rates will take some of the top off that, by raising the monthly payment.

As always the best guide I know of to current US housing and construction market conditions is Calculated Risk blog, where the economist who publishes it just knows a huge amount about US housing and US economic cycles.

If you look at the sales volumes of big SUVs and pickups, "Joe six pack" is doing well right now in America.

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Re: Are We In A Real Estate Bubble?

Post by Valuethinker » Fri Nov 09, 2018 6:26 am

warner25 wrote:
Thu Nov 08, 2018 4:53 pm
I confess that I don't know how it's calculated, but I keep coming back to the Case Shiller Home Price Index:
http://www.multpl.com/case-shiller-home ... -adjusted/
This has been disturbing to me for a while. The latest rise looks nearly as sharp as the 2000-2006 rise, and it only needs to rise another 15% to match 2006. If that was a bubble, this certainly appears to be more of the same. We did have an interesting discussion earlier this year, though, about how maybe real estate was historically undervalued until the 1990s, kind of like stocks, and maybe the past two decades have been a correction to a more rational valuation.
1. US population is at least 10% greater than 2008

2. US GDP is higher, so is GDP per capita (although many people are not as well off as they were in 2007)

1 & 2 would lead one to expect higher housing prices.

Changes in mortgage finance post Crash made, at least for a while, it more difficult to get mortgages. That, plus a wave of Millennials who arrived in the job market unable to find good permanent jobs, or to build up the downpayment for homes, meant that there is this repressed demand out there.

If the US has a significant recession next year we will say we should have seen the downturn in the housing market coming. If it does not, then I think these conditions will keep on going for a while.

Unemployment is the lowest in 40 years. Compensation is rising. You have a generation that's been held out of the home buying market for much longer than their older peers.

All this says housing prices keep going, or if they drop, it's not by much. If something unforeseen causes a fall in the economy, things reverse.

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Re: Are We In A Real Estate Bubble?

Post by inbox788 » Fri Nov 09, 2018 2:28 pm

Valuethinker wrote:
Fri Nov 09, 2018 6:10 am
Unfortunately the affordability graph only seemed to go back for a few months? Couldn't change the scale - maybe Chrome problem?
Yes, I think it's only a short series. Don't think it's a Chrome problem. Probably just a limited data set.
I am not aware of evidence, numerical or anecdotal, that the US is in a housing bubble -- although it may well be so in some locales. Commercial Real Estate valuations are almost certainly too bullish (in certain sectors; retail is in meltdown it appears).
I don't know when an overheated market becomes a bubble, or is that a self defining outcome, where overheated markets cool while bubbles burst?
The maxxed out, minimum deposit status of a lot of first or second time buyers is normal in a world where the economy is going up. There's a big step to get onto the lower rungs of the ladder, and that's being achieved with low down payments/ maxxed mortgage outgoings.

Rising interest rates will take some of the top off that, by raising the monthly payment.
In any case, if the gap between buyers and sellers widen, even if there isn't a big price drop, sales volumes could drop dramatically. I wouldn't want to be in the real estate sales or mortgage business next year.
If you look at the sales volumes of big SUVs and pickups, "Joe six pack" is doing well right now in America.
Interesting observation. I'm not sure what to make of it, but I wouldn't read too much into the numbers. Its a mixed picture as far as increases and there are a lot of crosscurrents at play. SUVs are more popular these days. Low interest loans are starting to dry up, so there may be a few last hurrah rallies driven by sellers or buyers. Loans have gotten longer in lengthen to keep payments low. More people may be leasing. Used cars are getting older. It's not clear which direction sales volumes are heading.

https://urbanmobilitydaily.com/have-we- ... -peak-car/
http://fortune.com/2017/04/12/auto-industry-decline/
https://www.nytimes.com/2018/01/03/busi ... sales.html

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Re: Are We In A Real Estate Bubble?

Post by warner25 » Fri Nov 09, 2018 2:37 pm

Valuethinker wrote:
Fri Nov 09, 2018 6:26 am
...1 & 2 would lead one to expect higher housing prices...
Population and GDP per capita have always grown, but the Case Shiller index was remarkably stable for 100 years until 2000. So what changed and why now (i.e. last ~20 years) to warrant a sharp ~50% rise in the index? Is it simply a matter of lower interest rates? If anything, the population and real GDP growth rates are slower than ever.

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Re: Are We In A Real Estate Bubble?

Post by Meg77 » Fri Nov 09, 2018 2:44 pm

kadibex1 wrote:
Wed Nov 07, 2018 3:40 pm
I was at a real estate work shop recently and the brokers hosting it talked about how easy it is to get a zero % down payment for 1st time home buyers even with questionable credit. Which is a red flag (History repeating itself?) and I think is 1 of the reasons for the last real estate?
Key words: "I was at a real estate workshop..."

These seminars / workshops are all very similar regardless of what part of the market cycle we are in. They always highlight how EASY!! it is to buy real estate with NO MONEY DOWN!!! and by using OTHER PEOPLE'S MONEY!!!!

I'm a banker, and I can tell you that it is not easy at all to get a mortgage with 0% down with questionable credit. Most first time buyer programs require 3% down at a minimum for a homestead (rentals usually require 20%), and underwriting standards have not swung anywhere close to being as loose as they were before the last recession at least on the consumer side (some commercial RE terms are getting pretty frothy in my view with long interest only periods at low fixed rates and as little as 10% equity required - although those certainly aren't the norm).

There are a precious few legitimate real estate workshops out there, and I'd be very careful buying whatever they are selling (which is often more workshops and "coaching").
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Re: Are We In A Real Estate Bubble?

Post by Meg77 » Fri Nov 09, 2018 3:06 pm

The current Beige Book (dated October 24) details the economic conditions in each of the 12 Federal Reserve Districts. Overall the real estate data appears to be quite mixed. In my district, Dallas, which covers all of TX as well as northern LA and southern NM, here is an excerpt:

Home sales were flat to up over the past six weeks, with continued strength noted at lower price points. Home prices were flat, and builders said it remained difficult to pass through notably higher construction costs. Rising interest rates and building costs were among top concerns in the single-family housing market. Apartment demand exceeded expectations in most major metros in Texas during the third quarter, pushing up occupancy and rents slightly.
...
Loan demand growth remained strong over the reporting period, while growth in actual loan volumes eased slightly. The deceleration was most pronounced for residential real estate and commercial/industrial loan volumes, while consumer loan volumes actually grew at a faster pace over the past six weeks. Loan pricing continued to rise as did banks' cost of funds.


https://www.federalreserve.gov/monetary ... 181024.pdf

As a banker and real estate investor in Dallas, I've noticed homes sitting on the market much longer and prices declining somewhat in the $400k - $700K range. Prices seem stable but don't appear to be rising in the $750K+ range and starter home range. Several realtor friends of mine say they are getting almost no turnout at open houses lately. Loan rates are up which will continue to compress prices, but inventory is still low compared to historic levels which is propping prices up. I can't figure out how to insert a picture, but I'm looking at a chart of housing starts and permits since 1998, and while those have risen slowly and steadily since 2010, we are nowhere near where we were in the early 2000s leading up to the great Recession.
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Re: Are We In A Real Estate Bubble?

Post by TomatoTomahto » Fri Nov 09, 2018 3:59 pm

Grt2boutdoors wrote: The burbs, depending which towns don’t have that feverish pitch we saw back in ‘06-07.
We got 20% less for our house recently (in a pricy North Jersey town) than reasonable realtors (ie., not trying to buy a listing) thought we’d get when we were preparing to list it in January

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Re: Are We In A Real Estate Bubble?

Post by srt7 » Fri Nov 09, 2018 3:59 pm

SDLinguist wrote:
Thu Nov 08, 2018 9:29 am
From what I have seen in the northern parts of San Diego county prices are plateauing, they are getting to a point where there aren't enough capable buyers I think.

To me it's looks like ~12x the median income starts becoming the upper limit for North County San Diego cities. At least for SFHs. And these are cities where the median is above 100k.

We know most workers, regardless of income, are not saving anywhere near what most experts think they need to be.

One of my co-workers thinks it's impossible to max out 2 401ks on what I estimate to be about 210-230k income that she and her husband make combined a year. As she says: nobody can save 37k a year unless they make a million dollars. Her husband also told me on more than one occasion that saving is for poor people, they make a lot of money and don't need to save. This board pre-selects people without that mindset but the more I interact with people in the wider world the bleaker my view of the general American's financial skills becomes.
What kind of logic is that? :confused
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Re: Are We In A Real Estate Bubble?

Post by ReformedSpender » Sat Nov 10, 2018 8:12 am

Valuethinker wrote:
Fri Nov 09, 2018 6:26 am


If the US has a significant recession next year we will say we should have seen the downturn in the housing market coming. If it does not, then I think these conditions will keep on going for a while.
I'm going to assume you haven't seen the performance YTD of home builder names :shock:
Market history shows that when there's economic blue sky, future returns are low, and when the economy is on the skids, future returns are high. The best fishing is done in the most stormy waters.

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Re: Are We In A Real Estate Bubble?

Post by toomuchRE » Sat Nov 10, 2018 1:50 pm

Maybe or not maybe. If you have to buy, buy a little less expensive house and less tax and commuter town. Worse case will not be that worse. This is what I figured. Wait till April to see what is the effect of SALT if you are in high tax state...

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Re: Are We In A Real Estate Bubble?

Post by Stormbringer » Sat Nov 10, 2018 2:47 pm

I've been investing in RE since the mid-90s. From my perspective, my local market feels nothing like 2006.

Home prices seem to be rising because the supply is so constrained. Nobody wants to sell their home with a 3% mortgage to buy a new one with a 5% mortgage. At the same time, buyers are panic buying to lock in a mortgage before rates go up further. Builders are having difficulty adding units to market because of labor shortages. Housing starts are half what they were at the previous peak.

I'm not too worried until I see excess supply coming on the market. That seems several years away, at best.
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Re: Are We In A Real Estate Bubble?

Post by mrspock » Sat Nov 10, 2018 4:26 pm

kadibex1 wrote:
Wed Nov 07, 2018 3:40 pm
Are we in another real estate bubble? When i look at the data, the rise in real estate prices appear to be more organic and slower and not as dramatic say last decade. It's the good ole supply and demand. Yet I was at a real estate work shop recently and the brokers hosting it talked about how easy it is to get a zero % down payment for 1st time home buyers even with questionable credit. Which is a red flag (History repeating itself?) and I think is 1 of the reasons for the last real estate? What do you think?
Can’t speak to bubble, but the market here in the SF Bay Area is definitely softer. Condos in SF which would go in days way over ask, are now sitting for 30+ days. There’s one I’m watching that doesn’t even look like they will break even after fees after owning it since 2015 (wow).

My guess is a combination of sagging tech stocks hurting RSU incomes and the sky high prices have finally taken their toll. But we will see... people here are nuts when it comes to real estate.

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Re: Are We In A Real Estate Bubble?

Post by mrspock » Sat Nov 10, 2018 4:35 pm

greg24 wrote:
Wed Nov 07, 2018 4:27 pm
Real estate is local. ...
I don’t recall it being so “local” in 2007-2008? :D But you know... perhaps this time it’s different!

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Re: Are We In A Real Estate Bubble?

Post by JoMoney » Sat Nov 10, 2018 5:11 pm

mrspock wrote:
Sat Nov 10, 2018 4:35 pm
greg24 wrote:
Wed Nov 07, 2018 4:27 pm
Real estate is local. ...
I don’t recall it being so “local” in 2007-2008? :D But you know... perhaps this time it’s different!
Directionaly most of the housing market was going down, but there was some wide differences in regional markets

NAR data on difference From 4th quarter 2007 to 4th quarter 2008
Akron, OH -21.1%
Austin-Round Rock, TX -0.1%
Anaheim-Santa Ana, CA -30.8%
Bloomington-Normal, IL +9.6%
Cleveland-Elyria-Mentor, OH -25.5%
Reading, PA +1.0%
Las Vegas-Paradise, NV -33.6%
Pittsfield, MA +1.7%
Riverside-San Bernardino-Ontario, CA -40.8%
Jackson, MS +4.7%
Cape Coral-Fort Myers, FL -50.8%
Dover, DE +6.5%
San Francisco-Oakland-Fremont, CA -37.4%
Sioux Falls, SD 0.0%
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Re: Are We In A Real Estate Bubble?

Post by Valuethinker » Sun Nov 11, 2018 7:48 am

warner25 wrote:
Fri Nov 09, 2018 2:37 pm
Valuethinker wrote:
Fri Nov 09, 2018 6:26 am
...1 & 2 would lead one to expect higher housing prices...
Population and GDP per capita have always grown, but the Case Shiller index was remarkably stable for 100 years until 2000. So what changed and why now (i.e. last ~20 years) to warrant a sharp ~50% rise in the index? Is it simply a matter of lower interest rates? If anything, the population and real GDP growth rates are slower than ever.
Edward Gleaser is the doyenne of urban economics.

One thing which changed was zoning controls. The nimbys got control of the planning process.

Another is the rise of certain industries concentrated on certain coastal cities the same ones w zoning controls. NYC in financial services. SF and now Seattle in tech. LA in the merged world of entertainment and internet.

Yet another factor has been the fall in real interest rates.

If you look at the non oceanic non coastal cities like Atlanta Houston Phoenix Las Vegas Chicago DFW Austin Florida you see growth but nothing like the growth in house prices. Adjusted for measures of quality it does not seem that housing prices have grown at all in real terms? Or not faster than incomes.

Denver might be the non coastal city w the coastal problem.

I am not sure if this is a structural break in American housing, or simply a bubble that will deflate via a long stagnation.

So in short I don't know ;-)

But it does not feel like housing finance is the source of the next American crash. Too much regulation put in place and memories do stretch back that far. It usually takes 20 years plus in finance for turnover of staff to eliminate institutional memory.

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Re: Are We In A Real Estate Bubble?

Post by Valuethinker » Sun Nov 11, 2018 8:33 am

JoMoney wrote:
Sat Nov 10, 2018 5:11 pm
mrspock wrote:
Sat Nov 10, 2018 4:35 pm
greg24 wrote:
Wed Nov 07, 2018 4:27 pm
Real estate is local. ...
I don’t recall it being so “local” in 2007-2008? :D But you know... perhaps this time it’s different!
Directionaly most of the housing market was going down, but there was some wide differences in regional markets

NAR data on difference From 4th quarter 2007 to 4th quarter 2008
Akron, OH -21.1%
Austin-Round Rock, TX -0.1%
Anaheim-Santa Ana, CA -30.8%
Bloomington-Normal, IL +9.6%
Cleveland-Elyria-Mentor, OH -25.5%
Reading, PA +1.0%
Las Vegas-Paradise, NV -33.6%
Pittsfield, MA +1.7%
Riverside-San Bernardino-Ontario, CA -40.8%
Jackson, MS +4.7%
Cape Coral-Fort Myers, FL -50.8%
Dover, DE +6.5%
San Francisco-Oakland-Fremont, CA -37.4%
Sioux Falls, SD 0.0%
Those price indices are not, by their nature, volume weighted? Thus a lot more houses went down more in number, and in total value, in Anaheim CA than in Bloomington IL?

I believe US housing prices then kept falling to 2010-11?

The places which were epicentres of bad mortgage finance went down first, and hard. However the Great Recession then spread like a ripple effect, bringing down housing prices almost everywhere? So the overall effect was the "boomtown" states and areas where bad mortgage lending had predominated were just awful (California, Nevada, Ohio, Colorado, Florida, Arizona) but most places were "bad" -- Texas was the standout (in terms of sharing many of the characteristics of most of the others, but neither bubbling up nor completely melting down) because post S&L debacle mortgage lending restrictions had stayed in place. The first synchronized housing downturn in the USA since the 1930s?

Housing prices are "sticky" downwards. If sellers are not in a forced sale situation (unable to remortgage; loss of employment/ relocation; death or divorce) they take a long time to get used to a lower price level - either they do not sell (realizing a "loss" on their mentally booked paper profits) or they don't even put them on the market-- volume dries up. Thus the price indices probably understate the degree of the downward move from peak to bottom. (My guess is it is asymmetric, because I don't think house prices are sticky upwards - when demand exceeds quantity supplied, house prices move up quickly).

It's fundamentally very different from stock prices because:

- the value of a share in any public company is available at least 40 hours per week (and, in fact, 24/ 7 mostly) and is set by the last transaction. Whether I buy an Apple share in London, or you buy one in New York, we have a pretty much instantaneous, global agreement about a homogeneous commodity - one publicly listed share in Apple, Inc.

Houses of course are nothing like that. My house in London is not yours in the SF Bay Area - even if we both live in suburban neighbourhoods in houses built in 1885 ;-). Every house has a different combination of size, amenities, location.

House price indices are at best an average guess. There's no doubt what the price of Apple shares is, and we are quarterly updated on its financial condition. My house? Update once a decade at that.

Transaction costs on selling a house are say 5% whereas stocks they are less than 0.1%.

- houses trade once every 10 years, and sometimes once a generation, not every microsecond of every working day

- your pension fund may need to sell stock at any moment to fund current expenditure by retirees. Whereas most of us only liquidate our housing once to pay retirement related bills

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Re: Are We In A Real Estate Bubble?

Post by lostdog » Sun Nov 11, 2018 8:42 am

SDLinguist wrote:
Thu Nov 08, 2018 9:29 am
From what I have seen in the northern parts of San Diego county prices are plateauing, they are getting to a point where there aren't enough capable buyers I think.

To me it's looks like ~12x the median income starts becoming the upper limit for North County San Diego cities. At least for SFHs. And these are cities where the median is above 100k.

We know most workers, regardless of income, are not saving anywhere near what most experts think they need to be.

One of my co-workers thinks it's impossible to max out 2 401ks on what I estimate to be about 210-230k income that she and her husband make combined a year. As she says: nobody can save 37k a year unless they make a million dollars. Her husband also told me on more than one occasion that saving is for poor people, they make a lot of money and don't need to save. This board pre-selects people without that mindset but the more I interact with people in the wider world the bleaker my view of the general American's financial skills becomes.
I just read in our local paper that roughly 45% of people in our area are obese and broke. They're 1 paycheck away from being totally broke. Paycheck to paycheck and obese.

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