WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

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willthrill81
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WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by willthrill81 » Sun Jul 08, 2018 4:20 pm

I just read an interesting guest post on the White Coat Investor blog titled "This Real Estate Bubble - Likely Isn't a Bubble."

The author brings up ten interesting data-driven points. These are below, along with a brief summary of my own in brackets for some.

1. Housing is more affordable today than it has been for the past 20 years. [monthly housing payments compared to median income]
2. A strong U.S. economy is churning out well-qualified buyers. [steadily increasing jobs and average hourly wages]
3. Existing home inventory levels are low relative to the number of qualified buyers.
4. Mortgage credit standards are near an all-time high.
5. Mortgage loan delinquencies are near record lows.
6. Americans are sitting in $5.42 Trillion of tappable equity. [tappable equity is defined as 80% of a home's market value less the mortgage balance]
7. The luxury home market has not seen the run-up in prices that starter and mid-level homes have.
8. Rising interest rates are not likely to kill the real estate market. [mortgage rates have been increasing for years while prices have steadily increased as well, counter-intuitively]
9. Homeownership rates are beginning to turn higher.
10. Recession does not equal a housing crisis. [during the last six recessions, housing prices were lower at the end than the beginning only for 2008-2010]

What are your thoughts about this argument?

I would ask that we not discuss the guest author's credentials or motives in any way. Ad hominem attacks are usually childish and pointless. Let's please stay on task and discuss the argument being made. Thank you.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by ResearchMed » Sun Jul 08, 2018 4:29 pm

willthrill81 wrote:
Sun Jul 08, 2018 4:20 pm
I just read an interesting guest post on the White Coat Investor blog titled "This Real Estate Bubble - Likely Isn't a Bubble."

The author brings up ten interesting data-driven points. These are below, along with a brief summary of my own in brackets for some.

1. Housing is more affordable today than it has been for the past 20 years. [monthly housing payments compared to median income]
2. A strong U.S. economy is churning out well-qualified buyers. [steadily increasing jobs and average hourly wages]
3. Existing home inventory levels are low relative to the number of qualified buyers.
4. Mortgage credit standards are near an all-time high.
5. Mortgage loan delinquencies are near record lows.
6. Americans are sitting in $5.42 Trillion of tappable equity. [tappable equity is defined as 80% of a home's market value less the mortgage balance]
7. The luxury home market has not seen the run-up in prices that starter and mid-level homes have.
8. Rising interest rates are not likely to kill the real estate market. [mortgage rates have been increasing for years while prices have steadily increased as well, counter-intuitively]
9. Homeownership rates are beginning to turn higher.
10. Recession does not equal a housing crisis. [during the last six recessions, housing prices were lower at the end than the beginning only for 2008-2010]

What are your thoughts about this argument?

I would ask that we not discuss the guest author's credentials or motives in any way. Ad hominem attacks are usually childish and pointless. Let's please stay on task and discuss the argument being made. Thank you.
It was an interesting read, and did bring up some points together in a way I hadn't thought of it all.

However, I don't agree that "mortgage rates have been increasing for years while prices have steadily increased as well" - at least about the mortgage rates increasing "for years". The rates are still historically very low, and have only increased slightly, less than I was expecting.
As for prices "steadily" increasing, that would be since the prices crashed, about 8-9-10 years ago (depending upon market). In some places, the prices are only recently back to or slightly above what they were at the peak. (I'll ignore the Bay area, as that's its own little ecosystem, it seems, and I'm just glad we don't have to move there, nice as it might be.)

RM
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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by runner540 » Sun Jul 08, 2018 6:23 pm

To keep this actionable, I will note that I am tracking this data closely because I may be ready to buy a house in the next 3-5 years.
Also, to keep this intellectually honest, we need to acknowledge that the source/author is a mortgage lender, who makes money when people buy houses and use a lot of leverage to do it. Here are my views, and some robust data sources to support certain points.

1. Housing being affordable at the median nationwide doesn't preclude the possibility of major metro areas being unaffordable due to speculation. Also, other major costs (healthcare, education) have risen quickly in the last 20 years, so that doesn't mean households aren't squeezed elsewhere at current home price levels.
2. (related to #5, we'll see if house prices are sustainable when consumers are less confident)
3. True
4. False, this is what the real estate industry wants us to believe to keep the party going: standards are only slightly better than during the 2005-2007 bubble. 0% and 1% down mortgages are back in a big way, as well as "creative" financing with Air BnB down payment help, lender gifts of down payments, etc. Fannie/Freddie now permit DTI >50% without compensating factors (such as a bigger down payment or higher credit score). The steady deterioration of credit standards has brought in more and more marginal buyers, who set the price for the market. As in the stock market, prices are set by the last transaction, so the current prices depend on making 0% down mortgages and people who are paying 50%+ of their income to their mortgage. The American Enterprise Institute has done some very robust analysis of mortgage data and updates it monthly. http://www.aei.org/housing/ or housingrisk.org to see the data.
Also, apparently appraisals by a human being are not needed for Fannie/Freddie to insure a mortgage - desktop analysis from a foreign country is ok. https://www.washingtonpost.com/realesta ... b21f09909f

5. Related to #2
6. It's all paper wealth until it's sold. New homebuyers with 0-5% down are underwater from the day of closing.
7. Some data says that the luxury market did run up, and is now softening.
8. The interest rates won't "kill" anything, but they do matter on the margin when you're lending at 50% DTI (see #4), and limit how much people can pay. On a $250K mortgage, the difference between 5% and 6% is ~$200/month. To many Bogleheads, that might not be a big deal, but if you are already stretching to buy, it will.
9. The highest home "ownership" rates were during the last run up - not necessarily the watermark we should be looking to match. I put "ownership" in quotes because the median down payment for all home purchases in the AEI data was 5%.
10. See #2 and #5. Time will tell. Also, with low down payments, there is less reason not to default.

Part of bubbles is the psychology, and I've seen some of that here on BH: "We make $400k a year and are worried we won't be able to buy a home in 3 years!"

Another part is the decoupling of valuation from fundamentals, like rental cash flow, because it indicates speculative behavior, buying in the hopes of appreciation making up for negative cash flow now. Check out Dallas, Denver and Houston in this buy-vs-rent index (very sophisticated, includes almost all implicit and explicit costs for both buying and renting in major metro areas). https://business.fau.edu/departments/fi ... nd-graphs/
Last edited by runner540 on Sun Jul 08, 2018 6:30 pm, edited 1 time in total.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Leesbro63 » Sun Jul 08, 2018 6:27 pm

Bubble? Maybe in California. No bubble here in the Midwest. Healthy gains, but what bubble?

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by delamer » Sun Jul 08, 2018 6:30 pm

In the Great Recession, homes values (in many areas) and stock values crashed at the same time as unemployment rates soared.

So people who expect a stock market correction/bear soon think that means that housing values will decline too.

But those things don’t typically happen all at the same time; the Great Recession was so named because all of those financial disasters did occur simultaneously.

If you can afford the house you want and plan to stay in it for the longer run (say 8 or more years), then why care if there is a housing bubble?

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Theoretical » Sun Jul 08, 2018 7:06 pm

Lending standards being better is totally wrong.

Living in Dallas, we definitely have a bad housing bubble going on right now here. Good news is it looks fairly limited.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Leesbro63 » Sun Jul 08, 2018 7:14 pm

Theoretical wrote:
Sun Jul 08, 2018 7:06 pm
Lending standards being better is totally wrong.

Living in Dallas, we definitely have a bad housing bubble going on right now here. Good news is it looks fairly limited.
Isn’t “limited” the thing that determines whether bubble or not a bubble is not a bubble?

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Theoretical » Sun Jul 08, 2018 7:29 pm

Limited in terms of regions. Look at Dallas for 2008. It’s ugly but not the terribleness of Miami or LA. What I was trying to say is there’s definitely a crazy local/regional bubble in Texas, but it is encouraging that there’s not quite as systematic stuff elsewhere.

Also the lending standards things are a very real factor that could make this a lot worse.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Grt2bOutdoors » Sun Jul 08, 2018 7:40 pm

Funny, the guest blogger makes the point of equity, equity is a ghost, cash is a bird in hand. Big difference!

But let’s explore the point of equity, to tap into requires large transactional costs. Sell a house, pay 5% of selling price to a middleman, buy a house, pay another 5%. Want to borrow against your home equity? New tax law restricts deduction of interest expense. Sounds like the guest blogger is involved in the real estate business - am I close?
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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Leesbro63 » Sun Jul 08, 2018 7:41 pm

Reply to two posts above: I don’t think certain areas going up qualifies as a true “bubble”. We’ve always had hot real estate areas. They change from time to time. A bubble implies a widespread, huge spurt in prices for a large geographic area.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by MSO4PRN » Sun Jul 08, 2018 7:46 pm

One thing not mentioned is the increases in property tax to cover increasing pension obligations/municipal debt. in chicago and surrounding suburbs this is a hot topic.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Sandtrap » Sun Jul 08, 2018 7:49 pm

willthrill81 wrote:
Sun Jul 08, 2018 4:20 pm
I just read an interesting guest post on the White Coat Investor blog titled "This Real Estate Bubble - Likely Isn't a Bubble."

The author brings up ten interesting data-driven points. These are below, along with a brief summary of my own in brackets for some.

1. Housing is more affordable today than it has been for the past 20 years. [monthly housing payments compared to median income]
2. A strong U.S. economy is churning out well-qualified buyers. [steadily increasing jobs and average hourly wages]
3. Existing home inventory levels are low relative to the number of qualified buyers.
4. Mortgage credit standards are near an all-time high.
5. Mortgage loan delinquencies are near record lows.
6. Americans are sitting in $5.42 Trillion of tappable equity. [tappable equity is defined as 80% of a home's market value less the mortgage balance]
7. The luxury home market has not seen the run-up in prices that starter and mid-level homes have.
8. Rising interest rates are not likely to kill the real estate market. [mortgage rates have been increasing for years while prices have steadily increased as well, counter-intuitively]
9. Homeownership rates are beginning to turn higher.
10. Recession does not equal a housing crisis. [during the last six recessions, housing prices were lower at the end than the beginning only for 2008-2010]

What are your thoughts about this argument?

I would ask that we not discuss the guest author's credentials or motives in any way. Ad hominem attacks are usually childish and pointless. Let's please stay on task and discuss the argument being made. Thank you.
I don't think anything has changed overall.
In some areas there is a "bubble".
In some areas there is a "stall".
and so forth.
j

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by slayed » Sun Jul 08, 2018 7:59 pm

11. Increased regulatory costs of new construction.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by zaboomafoozarg » Sun Jul 08, 2018 8:22 pm

I'm kind of sad I didn't buy a house 6 or 7 years ago when prices were really low.

Then again, any house I bought would've been 100 miles away from work since I changed jobs 5 years ago.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by nisiprius » Sun Jul 08, 2018 8:28 pm

Image

Google Books link

Are You Missing the Real Estate Boom?: The Boom Will Not Bust and Why Property Values Will Continue to Climb Through the End of the Decade - And How to Profit From Them, Feb 22, 2005, David Lareah, chief economist for the National Association of Realtors. Despite the cheesy cover, it's a real book by a real publisher (Random House). Wikipedia notes that "Lereah was also the Chief Economist for the Mortgage Bankers Association during the 1990s and has testified before Congress on economic and real estate matters." Clearly, he's a legitimate expert.
There ls No Real Estate Bubble
Year after year, as real estate prices achieve new heights, the media and a handful of Wall Street analysts wam us that "the bubble is about to burst." As I stated earlier, there is no bubble in real estate. Bubbles imply that prices are bloated, that they are unaccountably high. The stock market developed a bubble in the late 1990s because irrational exuberance led investors to overbuy the market. No such irrational exuberance exists in real estate today. Today's real estate market is the result of rational decision making based on supply-and-demand conditions....

Today, investors and households alike purchase homes based on economic sense rather than tax consequences or the desire to make a quick buck. In Chapter 12, I make a compelling case why no national price bubble in the U.S. housing markets exists today. While there can always be local price bubbles, with today's economy, home owners are in no danger of experiencing a widespread fallout of home prices....
He goes on to analyze the reasons for the housing boom and why it will continue: "Housing finance innovations lowered home ownership costs," "Home listings were centralized on the Internet," "Minority home ownership became a government priority," "Real estate became a safe haven for household wealth," and a few others. He argues that all of the fundamentals that produced the boom were still in place, so the boom would continue. In Chapter 12, he said
There is no national real estate bubble. Even if mortgage rates rise, the long-term national expansion will continue. Why do I say that? Because the market fundamentals l discussed earlier that gave birth to the real estate boom of the 1990s will still be in play for the remainder of this decade and into the next. Although there are no sure bets, a compelling case can be made that this boom will continue for another five to ten years. Nor am l alone in my predictions Last year, the chief economists of the five leading real estate organizations in the nation (yes, l was one of them)-—Fannie Mae, Freddie Mac, National Association of Homebuilders, National Association of Realtors, and America's Community Bankers association--provided ten-year housing projections that clearly forecasted continued healthy expansion in the housing markets for the next decade.
So, what are my thoughts about Josh Mettle's argument? My thought is that in 2005, I couldn't have poked any holes in David Lareah's, data-based, book-length argument, and I can't poke any holes in Josh Mettle's argument, either. But I'm glad that in 2005 I didn't take any actions based on fear that I might have been "missing the real estate boom."
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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by willthrill81 » Sun Jul 08, 2018 10:09 pm

nisiprius wrote:
Sun Jul 08, 2018 8:28 pm
So, what are my thoughts about Josh Mettle's argument? My thought is that in 2005, I couldn't have poked any holes in David Lareah's, data-based, book-length argument, and I can't poke any holes in Josh Mettle's argument, either. But I'm glad that in 2005 I didn't take any actions based on fear that I might have been "missing the real estate boom."
That's kind of what I'm wondering as well. Those who claim that we are currently in another housing bubble haven't, at least so far in this thread, laid out specific data that strongly supports their case. I think that Mettle has made at least a halfway decent argument that real estate isn't in a bubble, but it seems that a very common problem with bubbles is that they are largely invisible when you're inside them, and it's easy to find evidence that they don't exist. Once they pop, it's easy to find an explanations for why they existed.
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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by willthrill81 » Sun Jul 08, 2018 10:12 pm

zaboomafoozarg wrote:
Sun Jul 08, 2018 8:22 pm
I'm kind of sad I didn't buy a house 6 or 7 years ago when prices were really low.

Then again, any house I bought would've been 100 miles away from work since I changed jobs 5 years ago.
We bought our first home in 2009 (loved that $8k tax credit) and sold it four years later for about a 10% net profit. We bought another in 2013 and sold it a year later for about a 5% net profit. We purchased our current home at the end of 2014 and are up about 25% in home value (not net). It's been a good run for us, but I don't expect it to last.
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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by muddlehead » Sun Jul 08, 2018 11:41 pm

Gosh. If we've learned one thing from being on the planet and paying a modicum of attention the past 40 years or so, it is this. These types of articles are fun to read and talk about. Period. Don't base huge life decisions on the conclusions within.
Last edited by muddlehead on Mon Jul 09, 2018 8:29 pm, edited 1 time in total.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by willthrill81 » Mon Jul 09, 2018 12:27 am

muddlehead wrote:
Sun Jul 08, 2018 11:41 pm
Gosh. If we've learned one thing from being on the planet and paying a modicum of attention the past 40 years or so, it is this. These types of articles or fun to read and talk about. Period. Don't base huge life decisions on the conclusions within.
If you read the blog post, you sadly learn that many people are indeed making life decisions based on little more than rumor (i.e. "I heard that there's a housing bubble, so we're putting off buying the home that would really be great for our family until the bubble pops").
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Leesbro63 » Mon Jul 09, 2018 6:26 am

willthrill81 wrote:
Mon Jul 09, 2018 12:27 am
muddlehead wrote:
Sun Jul 08, 2018 11:41 pm
Gosh. If we've learned one thing from being on the planet and paying a modicum of attention the past 40 years or so, it is this. These types of articles or fun to read and talk about. Period. Don't base huge life decisions on the conclusions within.
If you read the blog post, you sadly learn that many people are indeed making life decisions based on little more than rumor (i.e. "I heard that there's a housing bubble, so we're putting off buying the home that would really be great for our family until the bubble pops").
I would guess more people got hurt chasing the bubble than by refusing to participate in the bubble

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Engineer250 » Mon Jul 09, 2018 10:52 am

Leesbro63 wrote:
Mon Jul 09, 2018 6:26 am
willthrill81 wrote:
Mon Jul 09, 2018 12:27 am
muddlehead wrote:
Sun Jul 08, 2018 11:41 pm
Gosh. If we've learned one thing from being on the planet and paying a modicum of attention the past 40 years or so, it is this. These types of articles or fun to read and talk about. Period. Don't base huge life decisions on the conclusions within.
If you read the blog post, you sadly learn that many people are indeed making life decisions based on little more than rumor (i.e. "I heard that there's a housing bubble, so we're putting off buying the home that would really be great for our family until the bubble pops").
I would guess more people got hurt chasing the bubble than by refusing to participate in the bubble
This. I see too many people in my area who think it isn't a bubble, and think they better hurry up and buy something they don't really want and can barely afford just to "get in the market" before they are priced out. If those people waited, I don't think it would hurt them any more. Of course, rents here are currently absurd as well, so what do I know.
Where the tides of fortune take us, no man can know.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by greg24 » Mon Jul 09, 2018 11:07 am

All real estate is local.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by missingdonut » Mon Jul 09, 2018 11:18 am

muddlehead wrote:
Sun Jul 08, 2018 11:41 pm
Gosh. If we've learned one thing from being on the planet and paying a modicum of attention the past 40 years or so, it is this. These types of articles or fun to read and talk about. Period. Don't base huge life decisions on the conclusions within.
I think articles like this are great indicators of market conditions, like the old anecdote about Joe Kennedy and the shoeshine boy. I don't think people should sell their homes and live in a cardboard box based on this information, but I think it provides some concern against getting too much into the real estate game in the hopes of making mad bucks.
willthrill81 wrote:
Sun Jul 08, 2018 4:20 pm
4. Mortgage credit standards are near an all-time high.
I fully disagree with this point made by the author. I know the plural of "anecdote" is not "data," but I'm also noticing that the underwriting tactics of 2006 and 2007 are resurfacing (although thankfully not the "liar loans").
7. The luxury home market has not seen the run-up in prices that starter and mid-level homes have.
The article has a graph that says that over the last 5 years, home prices on the low end have gone up 55% and go down a sliding scale to the high end, where prices have gone up 30%. In addition, the statistics listed in numbers 2, 3, 5, 8, and 9 are factors which indicate an acceleration of the trend of increased prices. If the housing market (taken as a whole) is not currently a bubble, it seems likely that it's approaching bubble territory.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by willthrill81 » Mon Jul 09, 2018 4:10 pm

missingdonut wrote:
Mon Jul 09, 2018 11:18 am
If the housing market (taken as a whole) is not currently a bubble, it seems likely that it's approaching bubble territory.
Two questions for you:
1. How do you define "bubble territory?"
2. What data do you have to suggest that we are in said territory?

There isn't much empirical data being provided in this thread in contradiction to the author's claim. This makes me very curious.
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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Stormbringer » Mon Jul 09, 2018 4:32 pm

I haven't been seeing Carleton Sheets on late night TV, so I'm not too concerned.
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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by missingdonut » Mon Jul 09, 2018 4:58 pm

willthrill81 wrote:
Mon Jul 09, 2018 4:10 pm
Two questions for you:
1. How do you define "bubble territory?"
2. What data do you have to suggest that we are in said territory?
I would define a housing bubble as one where the price of housing has risen significantly above and beyond the underlying value of the housing, and that the trend is continuing.

Over the past three years, I’ve done no improvements to my home yet the “value” of it has gone up 25%. Looking at the shape of my living room carpet, it seems more accurate that intrinsic value of my home went down...

If you want data, well, go back to the original article. The author's data provided in item 7 is a huge indication that we could be in a bubble. The statistics provided in numbers 2, 3, 5, 8, and 9 are all issues that will shorten supply and/or increase demand in the future, which would all contribute to an increased price for the same underlying asset.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Engineer250 » Mon Jul 09, 2018 5:00 pm

willthrill81 wrote:
Mon Jul 09, 2018 4:10 pm
missingdonut wrote:
Mon Jul 09, 2018 11:18 am
If the housing market (taken as a whole) is not currently a bubble, it seems likely that it's approaching bubble territory.
Two questions for you:
1. How do you define "bubble territory?"
2. What data do you have to suggest that we are in said territory?

There isn't much empirical data being provided in this thread in contradiction to the author's claim. This makes me very curious.
With the caveat that all real estate is local, and that I'm an engineer not an economist...

Median home price in my county peaked at $500k in 2006 and 2007 according to Trulia. It's now at $595k.

Median household income in my county peaked at $71k in 2007. Dipped to a low of $63k during the recession and is back up to $70k in 2016 (these are inflation adjusted numbers apparently).

So if this $70k median household could scrounge up the $119k they need for a down payment, their P&I alone would be 40% of their pre-tax income.

Maybe 2008 wasn't a bubble, so this isn't either. Or maybe the wealthiest will buy multiple houses in order to sustain the prices. I don't know.
Where the tides of fortune take us, no man can know.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by TheAccountant » Mon Jul 09, 2018 5:14 pm

willthrill81 wrote:
Sun Jul 08, 2018 4:20 pm
I just read an interesting guest post on the White Coat Investor blog titled "This Real Estate Bubble - Likely Isn't a Bubble."

The author brings up ten interesting data-driven points. These are below, along with a brief summary of my own in brackets for some.

1. Housing is more affordable today than it has been for the past 20 years. [monthly housing payments compared to median income]
Median income in 2000 was ~ $ 40,000. Today is ~ 60,000. Median housing in 2000 was $ 162,000. Today is ~ $ 320,000. You do your own math on that one.
2. A strong U.S. economy is churning out well-qualified buyers. [steadily increasing jobs and average hourly wages]
You mean the fake "strong" US economy running on cheap credit?
3. Existing home inventory levels are low relative to the number of qualified buyers.
That's because starter homes aren't being built due to the fact that everyone is getting approved for sky-high mortgages on existing homes. Any new homes being built are McMansions starting in the high 300's.
4. Mortgage credit standards are near an all-time high.
Are they? I'm finding people buying second homes, investment properties, camps, with an average household income. Sounds like easy leverage to me.
5. Mortgage loan delinquencies are near record lows.
That's because a lot of people are just getting approved. Wait 2-3 years for the economy to tank and people to start getting laid off to resume that cycle.
6. Americans are sitting in $5.42 Trillion of tappable equity. [tappable equity is defined as 80% of a home's market value less the mortgage balance]
Thanks to the bubble that people are in denial about.
7. The luxury home market has not seen the run-up in prices that starter and mid-level homes have.
That's because nobody is buying them.
8. Rising interest rates are not likely to kill the real estate market. [mortgage rates have been increasing for years while prices have steadily increased as well, counter-intuitively]
No, but it'll reduce what people can afford and drive down prices, wiping out the ridiculous equity some people have right now.
9. Homeownership rates are beginning to turn higher.
Thanks to easy loan approvals.
10. Recession does not equal a housing crisis. [during the last six recessions, housing prices were lower at the end than the beginning only for 2008-2010]
The dot com bubble also saw housing prices lower at the end than at the beginning, so this statement is nonsense.
What are your thoughts about this argument?

I would ask that we not discuss the guest author's credentials or motives in any way. Ad hominem attacks are usually childish and pointless. Let's please stay on task and discuss the argument being made. Thank you.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by invst65 » Mon Jul 09, 2018 5:24 pm

I read articles just like this one before buying my house in March of 2006. Actually, I even remember reading that there was no such thing as a housing bubble.

According to Zillow my house still isn't worth what I paid for it 12 years ago so I guess they were wrong.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by willthrill81 » Mon Jul 09, 2018 5:25 pm

Engineer250 wrote:
Mon Jul 09, 2018 5:00 pm
willthrill81 wrote:
Mon Jul 09, 2018 4:10 pm
missingdonut wrote:
Mon Jul 09, 2018 11:18 am
If the housing market (taken as a whole) is not currently a bubble, it seems likely that it's approaching bubble territory.
Two questions for you:
1. How do you define "bubble territory?"BLS
2. What data do you have to suggest that we are in said territory?

There isn't much empirical data being provided in this thread in contradiction to the author's claim. This makes me very curious.
With the caveat that all real estate is local, and that I'm an engineer not an economist...

Median home price in my county peaked at $500k in 2006 and 2007 according to Trulia. It's now at $595k.

Median household income in my county peaked at $71k in 2007. Dipped to a low of $63k during the recession and is back up to $70k in 2016 (these are inflation adjusted numbers apparently).

So if this $70k median household could scrounge up the $119k they need for a down payment, their P&I alone would be 40% of their pre-tax income.

Maybe 2008 wasn't a bubble, so this isn't either. Or maybe the wealthiest will buy multiple houses in order to sustain the prices. I don't know.
Well one county is hardly a good representation of the country, but let's go with that for a moment.

You didn't say the Trulia prices were adjusted for inflation, so I'm guessing that they weren't. $500k in May, 2006, had the same buying power as $621.2k today, according to the BLS. So after adjusting for inflation, prices for your county are slightly below their 2006 peak. However, that alone does not necessarily indicate that your county is in a bubble. The underlying economics of your county may be better now than in 2006, more demand, etc. You know more about that than I do.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by delamer » Mon Jul 09, 2018 8:00 pm

TheAccountant wrote:
Mon Jul 09, 2018 5:14 pm
willthrill81 wrote:
Sun Jul 08, 2018 4:20 pm
I just read an interesting guest post on the White Coat Investor blog titled "This Real Estate Bubble - Likely Isn't a Bubble."

The author brings up ten interesting data-driven points. These are below, along with a brief summary of my own in brackets for some.

1. Housing is more affordable today than it has been for the past 20 years. [monthly housing payments compared to median income]
Median income in 2000 was ~ $ 40,000. Today is ~ 60,000. Median housing in 2000 was $ 162,000. Today is ~ $ 320,000. You do your own math on that one.
2. A strong U.S. economy is churning out well-qualified buyers. [steadily increasing jobs and average hourly wages]
You mean the fake "strong" US economy running on cheap credit?
3. Existing home inventory levels are low relative to the number of qualified buyers.
That's because starter homes aren't being built due to the fact that everyone is getting approved for sky-high mortgages on existing homes. Any new homes being built are McMansions starting in the high 300's.
4. Mortgage credit standards are near an all-time high.
Are they? I'm finding people buying second homes, investment properties, camps, with an average household income. Sounds like easy leverage to me.
5. Mortgage loan delinquencies are near record lows.
That's because a lot of people are just getting approved. Wait 2-3 years for the economy to tank and people to start getting laid off to resume that cycle.
6. Americans are sitting in $5.42 Trillion of tappable equity. [tappable equity is defined as 80% of a home's market value less the mortgage balance]
Thanks to the bubble that people are in denial about.
7. The luxury home market has not seen the run-up in prices that starter and mid-level homes have.
That's because nobody is buying them.
8. Rising interest rates are not likely to kill the real estate market. [mortgage rates have been increasing for years while prices have steadily increased as well, counter-intuitively]
No, but it'll reduce what people can afford and drive down prices, wiping out the ridiculous equity some people have right now.
9. Homeownership rates are beginning to turn higher.
Thanks to easy loan approvals.
10. Recession does not equal a housing crisis. [during the last six recessions, housing prices were lower at the end than the beginning only for 2008-2010]
The dot com bubble also saw housing prices lower at the end than at the beginning, so this statement is nonsense.
What are your thoughts about this argument?

I would ask that we not discuss the guest author's credentials or motives in any way. Ad hominem attacks are usually childish and pointless. Let's please stay on task and discuss the argument being made. Thank you.

Just to show that real estate really is local, I laughed out loud at “McMansions starting in the high 300’s.”

In my neighborhood, you get a 30-year-old 3 bedroom, 1 bath townhouse for that amount.

For a McMansion, you are talking $1.3 million+.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by willthrill81 » Mon Jul 09, 2018 8:14 pm

missingdonut wrote:
Mon Jul 09, 2018 4:58 pm
willthrill81 wrote:
Mon Jul 09, 2018 4:10 pm
Two questions for you:
1. How do you define "bubble territory?"
2. What data do you have to suggest that we are in said territory?
I would define a housing bubble as one where the price of housing has risen significantly above and beyond the underlying value of the housing, and that the trend is continuing.
The problem with clearly defining a bubble is that there usually doesn't seem to be a better metric of what the "underlying value of the housing" is than the current market price. Real estate isn't nearly as 'efficient' as more liquid assets like stocks, but if you could consistently forecast future market prices more effectively than the market, you could use that to your advantage and potentially become very wealthy as a result. Many have done this in real estate, but it's not easy.
missingdonut wrote:
Mon Jul 09, 2018 4:58 pm
Over the past three years, I’ve done no improvements to my home yet the “value” of it has gone up 25%. Looking at the shape of my living room carpet, it seems more accurate that intrinsic value of my home went down...
Have you had your home formally appraised, or are you using an online estimator? Many, including me, use the latter to get a rough idea of a home's value, but 'rough' is the key word there. They obviously don't know the condition of your home, which can obviously be a huge factor in its value. A real appraisal will usually reveal much more about such things.

And just because a home has experienced some wear and tear doesn't necessarily mean that its market value has gone down. The opposite happens frequently.
missingdonut wrote:
Mon Jul 09, 2018 4:58 pm
If you want data, well, go back to the original article. The author's data provided in item 7 is a huge indication that we could be in a bubble. The statistics provided in numbers 2, 3, 5, 8, and 9 are all issues that will shorten supply and/or increase demand in the future, which would all contribute to an increased price for the same underlying asset.
Would you elaborate on why you think what you do about #7? It seems that you agree with the author about the other items you reference.
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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by TheAccountant » Mon Jul 09, 2018 8:24 pm

delamer wrote:
Mon Jul 09, 2018 8:00 pm
TheAccountant wrote:
Mon Jul 09, 2018 5:14 pm
willthrill81 wrote:
Sun Jul 08, 2018 4:20 pm
I just read an interesting guest post on the White Coat Investor blog titled "This Real Estate Bubble - Likely Isn't a Bubble."

The author brings up ten interesting data-driven points. These are below, along with a brief summary of my own in brackets for some.

1. Housing is more affordable today than it has been for the past 20 years. [monthly housing payments compared to median income]
Median income in 2000 was ~ $ 40,000. Today is ~ 60,000. Median housing in 2000 was $ 162,000. Today is ~ $ 320,000. You do your own math on that one.
2. A strong U.S. economy is churning out well-qualified buyers. [steadily increasing jobs and average hourly wages]
You mean the fake "strong" US economy running on cheap credit?
3. Existing home inventory levels are low relative to the number of qualified buyers.
That's because starter homes aren't being built due to the fact that everyone is getting approved for sky-high mortgages on existing homes. Any new homes being built are McMansions starting in the high 300's.
4. Mortgage credit standards are near an all-time high.
Are they? I'm finding people buying second homes, investment properties, camps, with an average household income. Sounds like easy leverage to me.
5. Mortgage loan delinquencies are near record lows.
That's because a lot of people are just getting approved. Wait 2-3 years for the economy to tank and people to start getting laid off to resume that cycle.
6. Americans are sitting in $5.42 Trillion of tappable equity. [tappable equity is defined as 80% of a home's market value less the mortgage balance]
Thanks to the bubble that people are in denial about.
7. The luxury home market has not seen the run-up in prices that starter and mid-level homes have.
That's because nobody is buying them.
8. Rising interest rates are not likely to kill the real estate market. [mortgage rates have been increasing for years while prices have steadily increased as well, counter-intuitively]
No, but it'll reduce what people can afford and drive down prices, wiping out the ridiculous equity some people have right now.
9. Homeownership rates are beginning to turn higher.
Thanks to easy loan approvals.
10. Recession does not equal a housing crisis. [during the last six recessions, housing prices were lower at the end than the beginning only for 2008-2010]
The dot com bubble also saw housing prices lower at the end than at the beginning, so this statement is nonsense.
What are your thoughts about this argument?

I would ask that we not discuss the guest author's credentials or motives in any way. Ad hominem attacks are usually childish and pointless. Let's please stay on task and discuss the argument being made. Thank you.

Just to show that real estate really is local, I laughed out loud at “McMansions starting in the high 300’s.”

In my neighborhood, you get a 30-year-old 3 bedroom, 1 bath townhouse for that amount.

For a McMansion, you are talking $1.3 million+.
It's all relative to the local economy. What does everyone make in your neighborhood relative to those housing prices? I'll bet you could buy one McMansion per year here with the salary in your area.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by ReformedSpender » Mon Jul 09, 2018 8:29 pm

I see bidding wars are back in a big way here locally. Asking prices start overvalued and only soar higher when multiple parties absolutely "have to have it". From '09 to '11, average price per sq/ft of sold homes was around $125. Today we are creeping ever so close to $200+. To top it all off, I see some of the new families purchasing once modest "starter" homes for 500-750k+ and its single incomers with 2 to 3 kids.

Personally, I believe plenty are back to 5% down and banks are pushing the envelope approving mortgages at 5x (or more) gross income.

Something has to give

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Last edited by ReformedSpender on Mon Jul 09, 2018 8:41 pm, edited 2 times in total.
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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by willthrill81 » Mon Jul 09, 2018 8:34 pm

ReformedSpender wrote:
Mon Jul 09, 2018 8:29 pm
I see bidding wars are back in a big way here locally. Asking prices start overvalued and only soar higher when multiple parties absolutely "have to have it".
We see that around us as well. A home nearly identical to ours across the street was on the market for three days, and the owners had four offers on it, two of which were cash offers above the asking price. It sold for about 25% more than it was purchased for fewer than three years prior. That being said, our neighborhood is one of the hottest within a 100+ radius as well, though I am hearing reports of some bidding wars in other nearby areas as well.

Even though that is anecdotal, it does make me pause and wonder (1) how long this will go on and (2) what will happen when it ceases (i.e. will prices just level off, will they drop a little bit, will they fall substantially, etc.).

But I keep coming back to a saying I heard when I was young: "Real estate is expensive when you're young and outrageous when you're old."
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by rnitz » Mon Jul 09, 2018 8:39 pm

My view on this is to go back to first principles. The factors that should impact the rise in residential real estate prices should be:

1. Materials cost (wood, fixtures, etc.) - go up roughly with inflation.
2. Labor cost - go up slightly more than inflation.
3. Land cost - the big unknown. Dependent on geography (San Francisco, Manhattan, etc.) but more likely on regulatory costs (unavailability of more land, fees, etc.) and the biggie: desirability of the area.

It's a bubble if the increases in real estate prices are way above these principles. Again, all real estate is local. How does your locality look according to these principles?

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by delamer » Mon Jul 09, 2018 9:01 pm

TheAccountant wrote:
Mon Jul 09, 2018 8:24 pm
delamer wrote:
Mon Jul 09, 2018 8:00 pm
TheAccountant wrote:
Mon Jul 09, 2018 5:14 pm
willthrill81 wrote:
Sun Jul 08, 2018 4:20 pm
I just read an interesting guest post on the White Coat Investor blog titled "This Real Estate Bubble - Likely Isn't a Bubble."

The author brings up ten interesting data-driven points. These are below, along with a brief summary of my own in brackets for some.

1. Housing is more affordable today than it has been for the past 20 years. [monthly housing payments compared to median income]
Median income in 2000 was ~ $ 40,000. Today is ~ 60,000. Median housing in 2000 was $ 162,000. Today is ~ $ 320,000. You do your own math on that one.
2. A strong U.S. economy is churning out well-qualified buyers. [steadily increasing jobs and average hourly wages]
You mean the fake "strong" US economy running on cheap credit?
3. Existing home inventory levels are low relative to the number of qualified buyers.
That's because starter homes aren't being built due to the fact that everyone is getting approved for sky-high mortgages on existing homes. Any new homes being built are McMansions starting in the high 300's.
4. Mortgage credit standards are near an all-time high.
Are they? I'm finding people buying second homes, investment properties, camps, with an average household income. Sounds like easy leverage to me.
5. Mortgage loan delinquencies are near record lows.
That's because a lot of people are just getting approved. Wait 2-3 years for the economy to tank and people to start getting laid off to resume that cycle.
6. Americans are sitting in $5.42 Trillion of tappable equity. [tappable equity is defined as 80% of a home's market value less the mortgage balance]
Thanks to the bubble that people are in denial about.
7. The luxury home market has not seen the run-up in prices that starter and mid-level homes have.
That's because nobody is buying them.
8. Rising interest rates are not likely to kill the real estate market. [mortgage rates have been increasing for years while prices have steadily increased as well, counter-intuitively]
No, but it'll reduce what people can afford and drive down prices, wiping out the ridiculous equity some people have right now.
9. Homeownership rates are beginning to turn higher.
Thanks to easy loan approvals.
10. Recession does not equal a housing crisis. [during the last six recessions, housing prices were lower at the end than the beginning only for 2008-2010]
The dot com bubble also saw housing prices lower at the end than at the beginning, so this statement is nonsense.
What are your thoughts about this argument?

I would ask that we not discuss the guest author's credentials or motives in any way. Ad hominem attacks are usually childish and pointless. Let's please stay on task and discuss the argument being made. Thank you.

Just to show that real estate really is local, I laughed out loud at “McMansions starting in the high 300’s.”

In my neighborhood, you get a 30-year-old 3 bedroom, 1 bath townhouse for that amount.

For a McMansion, you are talking $1.3 million+.
It's all relative to the local economy. What does everyone make in your neighborhood relative to those housing prices? I'll bet you could buy one McMansion per year here with the salary in your area.
You are probably right there are a lot of families in my area that could buy one of your area’s McMansions with a year’s gross income, with a 20% or so downpayment.

But we have a lot of friends in our neighborhood who freely admit that they could not afford a mortgage on their current home if they had to buy it at today’s prices. I am talking about families who have been in the neighborhood 20+ years.

The “original” families of 30 years ago when the development was new paid roughly $155K for their homes. They’d sell today for about $750K.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by NEInvestor » Mon Jul 09, 2018 9:02 pm

If you are investing in real estate, there are always opportunities to find deals if that is your business. Most investors featured on the Bigger Pockets podcast over the past year have said it is much harder to find deals then a couple years ago.

In Massachusetts, the entry level house in the Boston area has seen significant appreciation in the past 5 years and bidding wars are the norm unless your offer is extremely strong.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by JBTX » Tue Jul 10, 2018 7:29 am

runner540 wrote:
Sun Jul 08, 2018 6:23 pm
To keep this actionable, I will note that I am tracking this data closely because I may be ready to buy a house in the next 3-5 years.
Also, to keep this intellectually honest, we need to acknowledge that the source/author is a mortgage lender, who makes money when people buy houses and use a lot of leverage to do it. Here are my views, and some robust data sources to support certain points.

1. Housing being affordable at the median nationwide doesn't preclude the possibility of major metro areas being unaffordable due to speculation. Also, other major costs (healthcare, education) have risen quickly in the last 20 years, so that doesn't mean households aren't squeezed elsewhere at current home price levels.
2. (related to #5, we'll see if house prices are sustainable when consumers are less confident)
3. True
4. False, this is what the real estate industry wants us to believe to keep the party going: standards are only slightly better than during the 2005-2007 bubble. 0% and 1% down mortgages are back in a big way, as well as "creative" financing with Air BnB down payment help, lender gifts of down payments, etc. Fannie/Freddie now permit DTI >50% without compensating factors (such as a bigger down payment or higher credit score). The steady deterioration of credit standards has brought in more and more marginal buyers, who set the price for the market. As in the stock market, prices are set by the last transaction, so the current prices depend on making 0% down mortgages and people who are paying 50%+ of their income to their mortgage. The American Enterprise Institute has done some very robust analysis of mortgage data and updates it monthly. http://www.aei.org/housing/ or housingrisk.org to see the data.
Also, apparently appraisals by a human being are not needed for Fannie/Freddie to insure a mortgage - desktop analysis from a foreign country is ok. https://www.washingtonpost.com/realesta ... b21f09909f

5. Related to #2
6. It's all paper wealth until it's sold. New homebuyers with 0-5% down are underwater from the day of closing.
7. Some data says that the luxury market did run up, and is now softening.
8. The interest rates won't "kill" anything, but they do matter on the margin when you're lending at 50% DTI (see #4), and limit how much people can pay. On a $250K mortgage, the difference between 5% and 6% is ~$200/month. To many Bogleheads, that might not be a big deal, but if you are already stretching to buy, it will.
9. The highest home "ownership" rates were during the last run up - not necessarily the watermark we should be looking to match. I put "ownership" in quotes because the median down payment for all home purchases in the AEI data was 5%.
10. See #2 and #5. Time will tell. Also, with low down payments, there is less reason not to default.

Part of bubbles is the psychology, and I've seen some of that here on BH: "We make $400k a year and are worried we won't be able to buy a home in 3 years!"

Another part is the decoupling of valuation from fundamentals, like rental cash flow, because it indicates speculative behavior, buying in the hopes of appreciation making up for negative cash flow now. Check out Dallas, Denver and Houston in this buy-vs-rent index (very sophisticated, includes almost all implicit and explicit costs for both buying and renting in major metro areas). https://business.fau.edu/departments/fi ... nd-graphs/
I've seen this rent vs buy analysis posted re Dallas / Houston before. I love in dfw area, and my take is this:

This area did not have near the runup prior to 2007 vs the coasts. However we are getting some good appreciation now. My guess is that is largely due to a strong local economy.

Even at higher prices home prices in dfw are much more affordable than coastal urban areas.

Home construction costs are likely lower than average.

As to rent vs buy, perhaps it is true that here renting has the advantage, but the index may be rational if there is an expectation of either rising home prices or rising interest rates since you lock in your mortgage costs but rents continue to increase.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by missingdonut » Tue Jul 10, 2018 9:13 am

willthrill81 wrote:
Mon Jul 09, 2018 8:14 pm
The problem with clearly defining a bubble is that there usually doesn't seem to be a better metric of what the "underlying value of the housing" is than the current market price. Real estate isn't nearly as 'efficient' as more liquid assets like stocks, but if you could consistently forecast future market prices more effectively than the market, you could use that to your advantage and potentially become very wealthy as a result. Many have done this in real estate, but it's not easy.
The current market price is a ridiculous metric of the "underlying value of the housing" imaginable. rnitz posted an excellent metric on what the underlying value of housing is, and it doesn't change just because the economy gets better or worse, or because of constrained supply or growing demand.
Have you had your home formally appraised, or are you using an online estimator? Many, including me, use the latter to get a rough idea of a home's value, but 'rough' is the key word there. They obviously don't know the condition of your home, which can obviously be a huge factor in its value. A real appraisal will usually reveal much more about such things.
My 25% rise in value is based on written appraisals done by humans, but all appraisals are rough ideas, subject to pressure from the person paying him or her, and thus can vary significantly. Frankly, I'd trust the free online estimate to be more impartial than the human.
And just because a home has experienced some wear and tear doesn't necessarily mean that its market value has gone down. The opposite happens frequently.
Which makes about as much sense as buying a new car for $20k, put 2,500 miles on it in the first year, and saying its value is now $22,000.
Would you elaborate on why you think what you do about #7? It seems that you agree with the author about the other items you reference.
From 2013 to 2017, inflation went up a combined 12% or so. The price of housing in those years went up 30%-55%. This suggests that factors outside of the underlying value of the property are at play.

I do not dispute any piece of data the author provided except for #4. I'm just saying the data doesn't justify the author's conclusion (and in fact seems to suggest just the opposite).

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by willthrill81 » Tue Jul 10, 2018 12:19 pm

missingdonut wrote:
Tue Jul 10, 2018 9:13 am
willthrill81 wrote:
Mon Jul 09, 2018 8:14 pm
The problem with clearly defining a bubble is that there usually doesn't seem to be a better metric of what the "underlying value of the housing" is than the current market price. Real estate isn't nearly as 'efficient' as more liquid assets like stocks, but if you could consistently forecast future market prices more effectively than the market, you could use that to your advantage and potentially become very wealthy as a result. Many have done this in real estate, but it's not easy.
The current market price is a ridiculous metric of the "underlying value of the housing" imaginable. rnitz posted an excellent metric on what the underlying value of housing is, and it doesn't change just because the economy gets better or worse, or because of constrained supply or growing demand.
Calling the market price "ridiculous" seems a bit heavy handed. If you carefully note rnitz's breakdown of a home's value, land value is the big unknown that is purely dependent on what the market says it is. Construction costs are easily quantified, but land value is purely market driven.
missingdonut wrote:
Tue Jul 10, 2018 9:13 am
My 25% rise in value is based on written appraisals done by humans, but all appraisals are rough ideas, subject to pressure from the person paying him or her, and thus can vary significantly. Frankly, I'd trust the free online estimate to be more impartial than the human.
Certainly an online estimate may be more impartial, but impartiality does not equal accuracy. Any estimate of a home's value that takes no consideration for the condition of the home, as you note below, is suspect.
missingdonut wrote:
Tue Jul 10, 2018 9:13 am
willthrill81 wrote:
Mon Jul 09, 2018 8:14 pm
And just because a home has experienced some wear and tear doesn't necessarily mean that its market value has gone down. The opposite happens frequently.
Which makes about as much sense as buying a new car for $20k, put 2,500 miles on it in the first year, and saying its value is now $22,000.
Cars are depreciating assets. Homes tend to be appreciating assets, mainly due to the underlying land. But yes, structures require ongoing maintenance costs in order to maintain their value and not depreciate.
missingdonut wrote:
Tue Jul 10, 2018 9:13 am
willthrill81 wrote:
Mon Jul 09, 2018 8:14 pm
Would you elaborate on why you think what you do about #7? It seems that you agree with the author about the other items you reference.
From 2013 to 2017, inflation went up a combined 12% or so. The price of housing in those years went up 30%-55%. This suggests that factors outside of the underlying value of the property are at play.

I do not dispute any piece of data the author provided except for #4. I'm just saying the data doesn't justify the author's conclusion (and in fact seems to suggest just the opposite).
Fair enough. Time will tell.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Maverick3320
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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Maverick3320 » Tue Jul 10, 2018 12:43 pm

rnitz wrote:
Mon Jul 09, 2018 8:39 pm
My view on this is to go back to first principles. The factors that should impact the rise in residential real estate prices should be:

1. Materials cost (wood, fixtures, etc.) - go up roughly with inflation.
2. Labor cost - go up slightly more than inflation.
3. Land cost - the big unknown. Dependent on geography (San Francisco, Manhattan, etc.) but more likely on regulatory costs (unavailability of more land, fees, etc.) and the biggie: desirability of the area.

It's a bubble if the increases in real estate prices are way above these principles. Again, all real estate is local. How does your locality look according to these principles?
You're forgetting the most important one: psychology. In the absence of hard data, consumers will make decisions based on beliefs.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by dharrythomas » Tue Jul 10, 2018 1:31 pm

greg24 wrote:
Mon Jul 09, 2018 11:07 am
All real estate is local.
Until it isn't. While the bubble varied, there was a nationwide bubble, apparent in Calhoun County, AL and Richland County, SC followed by a nationwide crash. It was worse on the coast and in Vegas, but it was not a localized problem.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Utahdogowner » Tue Jul 10, 2018 1:55 pm

I think the guy that Josh talked to that "inspired" the article was me. I know I broached this topic with him at the conference, but lots of people talked with him. I certainly wasn't thinking it was a national bubble, more local; we bought ~3y ago for 250k a 3200sq ft split level home that we have come to hate the floor plan. Now that we've retired my student loans we are thinking of moving. As we started looking ~18m ago, our home had already appraised for 115k more, and the higher end homes all seemed to jump by more than that 25%. Mettle's argument in person was that Salt Lake metro is going to be the next San Fran / Portland w/ sustained year-over-year growth because of the tech industry moving to Utah and an inland port that Salt Lake has been trying to get built. I didn't buy it in person, and after reading his article, I'm still not sure I believe him.

That being said, the comments about not wasting your life waiting for the bubble to pop are apropos. The problem is we just want to move, we don't NEED to move, and being the cheapskates we are, we don't want to pay top-dollar to move.

Also, these grown-up decisions are really difficult. :shock:

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by willthrill81 » Tue Jul 10, 2018 2:00 pm

Utahdogowner wrote:
Tue Jul 10, 2018 1:55 pm
I think the guy that Josh talked to that "inspired" the article was me. I know I broached this topic with him at the conference, but lots of people talked with him. I certainly wasn't thinking it was a national bubble, more local; we bought ~3y ago for 250k a 3200sq ft split level home that we have come to hate the floor plan. Now that we've retired my student loans we are thinking of moving. As we started looking ~18m ago, our home had already appraised for 115k more, and the higher end homes all seemed to jump by more than that 25%. Mettle's argument in person was that Salt Lake metro is going to be the next San Fran / Portland w/ sustained year-over-year growth because of the tech industry moving to Utah and an inland port that Salt Lake has been trying to get built. I didn't buy it in person, and after reading his article, I'm still not sure I believe him.

That being said, the comments about not wasting your life waiting for the bubble to pop are apropos. The problem is we just want to move, we don't NEED to move, and being the cheapskates we are, we don't want to pay top-dollar to move.

Also, these grown-up decisions are really difficult. :shock:
Thanks for adding detail to the situation.

Such decisions aren't easy. But as long as you aren't going to get yourself into financial straits if the real estate market does drop, I'd say go with what will work best for your family. I'd be surprised if the homes you're looking at aren't valued higher in ten years than now. The intermediate period doesn't really matter as long as you don't need to sell and don't run into issues making the mortgage payments.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by missingdonut » Wed Jul 11, 2018 9:12 am

willthrill81 wrote:
Tue Jul 10, 2018 12:19 pm
Calling the market price "ridiculous" seems a bit heavy handed. If you carefully note rnitz's breakdown of a home's value, land value is the big unknown that is purely dependent on what the market says it is. Construction costs are easily quantified, but land value is purely market driven. [...]

Cars are depreciating assets. Homes tend to be appreciating assets, mainly due to the underlying land.
You're reading more into rnitz's statement than what I am. An acre of land in downtown San Fransisco can have higher underlying value than an acre in Nowhereville, Montana, absolutely. But that doesn't mean that the land's underlying value equals what the market value alleges to be.

Case in point: if we split my home into building and land, and if the building itself went up 7% in the past three years due to inflation, mathematically the "value" of my land would have to go up by at least 600% for the property as a whole to go up 25%. I don't see how the underlying value of the land could have sextpuled in three years.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by willthrill81 » Wed Jul 11, 2018 10:24 am

missingdonut wrote:
Wed Jul 11, 2018 9:12 am
willthrill81 wrote:
Tue Jul 10, 2018 12:19 pm
Calling the market price "ridiculous" seems a bit heavy handed. If you carefully note rnitz's breakdown of a home's value, land value is the big unknown that is purely dependent on what the market says it is. Construction costs are easily quantified, but land value is purely market driven. [...]

Cars are depreciating assets. Homes tend to be appreciating assets, mainly due to the underlying land.
You're reading more into rnitz's statement than what I am. An acre of land in downtown San Fransisco can have higher underlying value than an acre in Nowhereville, Montana, absolutely. But that doesn't mean that the land's underlying value equals what the market value alleges to be.

Case in point: if we split my home into building and land, and if the building itself went up 7% in the past three years due to inflation, mathematically the "value" of my land would have to go up by at least 600% for the property as a whole to go up 25%. I don't see how the underlying value of the land could have sextpuled in three years.
That was a point I made above: if you believe that you can anticipate a particular real estate market's moves before they happen, whether up or down, you can become very wealthy. This is possible, as evidenced by the substantial number of real estate investors who have successfully done so for years. But it's not easy.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by AZAttorney11 » Wed Jul 11, 2018 11:30 am

dharrythomas wrote:
Tue Jul 10, 2018 1:31 pm
greg24 wrote:
Mon Jul 09, 2018 11:07 am
All real estate is local.
Until it isn't. While the bubble varied, there was a nationwide bubble, apparent in Calhoun County, AL and Richland County, SC followed by a nationwide crash. It was worse on the coast and in Vegas, but it was not a localized problem.
Phoenix says hello.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by AZAttorney11 » Wed Jul 11, 2018 11:36 am

There seems to be a lot of people who believe the recent gains in real estate (over the last 10ish years) are sustainable on a long-term basis in select cities. For some reason, folks forget about the dot.com bust, the housing market crash from 10 years ago, etc. Tech may be a long-term driver of the U.S. economy, but that doesn't mean everything will be smooth sailing, or that the tech industry as a whole is recession proof. I fear there's going to be a lot of disappointed home owners over the next few years. And, in select cities, prices have increased, in part, due to strong foreign demand. If certain Asians countries have an economic downturn, that will cause a ripple effect in certain markets. Does this mean there's a bubble? I have no idea, but I'm in the camp that thinks San Francisco, Seattle, etc. are overvalued at the moment.

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Re: WCI blog post - "This Real Estate Bubble - Likely Isn't a Bubble"

Post by Engineer250 » Wed Jul 11, 2018 12:54 pm

AZAttorney11 wrote:
Wed Jul 11, 2018 11:36 am
There seems to be a lot of people who believe the recent gains in real estate (over the last 10ish years) are sustainable on a long-term basis in select cities. For some reason, folks forget about the dot.com bust, the housing market crash from 10 years ago, etc. Tech may be a long-term driver of the U.S. economy, but that doesn't mean everything will be smooth sailing, or that the tech industry as a whole is recession proof. I fear there's going to be a lot of disappointed home owners over the next few years. And, in select cities, prices have increased, in part, due to strong foreign demand. If certain Asians countries have an economic downturn, that will cause a ripple effect in certain markets. Does this mean there's a bubble? I have no idea, but I'm in the camp that thinks San Francisco, Seattle, etc. are overvalued at the moment.
I'm in SoCal and can't figure out what anyone thinks is driving the increases here. There are some tech jobs (moreso than other parts of the country) but we are no little Silicon Valley. Wages are, like everywhere else, relatively stagnant. I think foreign buyers are an issue, but again not to the degree as other cities.

My personal experience is old people who bought decades ago are either "stuck" because there's no premium on larger homes, everything is expensive, or are leaving for other states because they are retired
and don't neee to stay near their job anymore. Young professionals are using VA loans or buying on the edge of the county with long commutes. Some folks who bought 10 years ago are selling condos and buying bigger houses. I suspect bank of mom and dad is having an effect as boomers with big retirement portfolios and lots of equity are passing that on to their kids who otherwise couldn't afford to buy. My non-college-educated friends haven't seen wage increases in years, and keep having to move further away and to smaller apartments just to try to afford their rent. I keep thinking the rents are unsustainable and lack of renters who can afford it will eventually drive rents down and drive demand to be a landowner down. But maybe the have-nots will just get priced into longer and longer commutes and nothing will change.
Where the tides of fortune take us, no man can know.

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