Housing market bubble

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jayk238
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Joined: Tue Jan 31, 2017 1:02 pm

Housing market bubble

Post by jayk238 » Thu Apr 25, 2019 9:01 am

https://www.bloomberg.com/opinion/artic ... nd=premium

I made this same exact argument months ago and the topic was closed for whatever reason.

I argue, again, population changes make real estate a dangerous investment for many home buyers.

pqwerty
Posts: 67
Joined: Mon Jul 13, 2015 5:54 pm
Location: Michigan

Re: Housing market bubble

Post by pqwerty » Thu Apr 25, 2019 10:50 am

could be, I bought a house because I have 3 kids and don't want to live in apartment for 15 years because I read some opinion article on bloomberg. i guess reignite this thread in 15 years and throw it in my face ... but I'm pretty sure I won't can then either.

Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Re: Housing market bubble

Post by Valuethinker » Thu Apr 25, 2019 10:56 am

jayk238 wrote:
Thu Apr 25, 2019 9:01 am
https://www.bloomberg.com/opinion/artic ... nd=premium

I made this same exact argument months ago and the topic was closed for whatever reason.

I argue, again, population changes make real estate a dangerous investment for many home buyers.
Lots of evidence there are housing bubbles in various global locations: Toronto, Vancouver, Stockholm, Melbourne, Sydney, Auckland, maybe Singapore & HK. (London is definitely in a slump - we shall see what happens post Brexit (now set for 30 Oct 2019, or earlier if the UK Parliament agrees to a deal that the EU has also agreed to).

US? Maybe localized bubbles. From what I see in Calculated Risk, no evidence of general US bubble a la 2006. US consumer debt loads are still moderate relative to 2006 (bubbles, if they are such are specific sectors such as car loans, also corporate debt). Some signs supply and demand moving back towards balance (demand having run out in front) - higher mortgage rates have a huge impact.

Cities that look "bubbly" in valuation terms (SF Bay, Seattle, Southern California, Washington DC, New York ?) are also the cities where there is one or more local industries that is performing very strongly. This is a run up that has a cause, generally.

Moves towards the suburbs are happening again at the historic rate, driving demand for homes. Population growth is muted but still high by developed world standards.

Main issue is the housing industry cannot get the workforce - people left the industry post 2008, immigration from south of US border is lower.

Unless you happen to live in one of those favoured coastal areas, I don't think evidence shows that US housing has, quality adjusted, done a lot better than inflation in the long run -- when costs like property taxes & repairs & maintenance are fully factored in. It's a fairly so-so investment (although you can use leverage to increase your returns, and that's different from investing in stocks, say).

If you bought a house in Silicon Valley in the last 30 years, however, or an apartment in lower Manhattan, well, then ... ;-).
Last edited by Valuethinker on Thu Apr 25, 2019 11:01 am, edited 1 time in total.

BradJ
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Re: Housing market bubble

Post by BradJ » Thu Apr 25, 2019 10:59 am

Creepy whisper: If they want homes, a builder will come.

tbini87
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Joined: Mon Mar 04, 2019 12:04 am

Re: Housing market bubble

Post by tbini87 » Thu Apr 25, 2019 1:52 pm

jayk238 wrote:
Thu Apr 25, 2019 9:01 am
https://www.bloomberg.com/opinion/artic ... nd=premium

I made this same exact argument months ago and the topic was closed for whatever reason.

I argue, again, population changes make real estate a dangerous investment for many home buyers.
Are you talking about first time home buyers who plan on living in the residence long term? Or “investors” who are buying homes? I think there is a big difference. If you are speaking of the former, as long as they are buying something they can afford then I don’t see it as being a “dangerous investment.” They will be locking in their rent price that will not go up over time like normal rent will, and they will be living in their “investment” and would be paying for that one way or another.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Housing market bubble

Post by delamer » Thu Apr 25, 2019 1:56 pm

tbini87 wrote:
Thu Apr 25, 2019 1:52 pm
jayk238 wrote:
Thu Apr 25, 2019 9:01 am
https://www.bloomberg.com/opinion/artic ... nd=premium

I made this same exact argument months ago and the topic was closed for whatever reason.

I argue, again, population changes make real estate a dangerous investment for many home buyers.
Are you talking about first time home buyers who plan on living in the residence long term? Or “investors” who are buying homes? I think there is a big difference. If you are speaking of the former, as long as they are buying something they can afford then I don’t see it as being a “dangerous investment.” They will be locking in their rent price that will not go up over time like normal rent will, and they will be living in their “investment” and would be paying for that one way or another.
This is key.

Are you talking about investors in real estate or people buying a home to live in?

GT99
Posts: 211
Joined: Wed Jun 20, 2018 5:26 pm

Re: Housing market bubble

Post by GT99 » Thu Apr 25, 2019 2:24 pm

BradJ wrote:
Thu Apr 25, 2019 10:59 am
Creepy whisper: If they want homes, a builder will come.
If they can. Most HCOL areas have major supply constraints, both natural (bodies of waters/mountains), and man-made (regulations limiting construction). The highest cost of living places in the US have lots of both, and the lowest have little to none of either.

adamthesmythe
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Re: Housing market bubble

Post by adamthesmythe » Thu Apr 25, 2019 2:37 pm

jayk238 wrote:
Thu Apr 25, 2019 9:01 am
https://www.bloomberg.com/opinion/artic ... nd=premium

I made this same exact argument months ago and the topic was closed for whatever reason.

I argue, again, population changes make real estate a dangerous investment for many home buyers.
1. Housing isn't only an investment, not even primarily an investment.

2. I sold my house back east to a younger couple, downsized, well before 75. Entirely opposite to the claim of the article. I admit just one data point, but...

3. This is another attempt to find the One Number That Rules Them All. There isn't, because One doesn't.

Xrayman69
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Joined: Fri Jun 01, 2018 8:52 pm

Re: Housing market bubble

Post by Xrayman69 » Thu Apr 25, 2019 7:48 pm

Primary purpose of my home has been a roof over my and family’s head for shelter, comfort and well being.

Made sure I could afford the mortgage on day one and 10 years later still no issues with the same flat monthly mandate. Property tax has escalated with inflation. Refinanced once during this period. Pay extra every month.

Not necessarily an investment as I can’t go without a place to live and have no intention on using it as a piggy bank. It’s only worth more than what we paid on the day it’s sold and check clears.

I suppose if there was a bubble and a crash the property tax would go down (at some point) and I would still pay the monthly mandate and still have shelter.

DonIce
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Re: Housing market bubble

Post by DonIce » Thu Apr 25, 2019 8:31 pm

jayk238 wrote:
Thu Apr 25, 2019 9:01 am
https://www.bloomberg.com/opinion/artic ... nd=premium

I made this same exact argument months ago and the topic was closed for whatever reason.

I argue, again, population changes make real estate a dangerous investment for many home buyers.
I'm not sure what the argument even is?

The impact of the baby boomer demographic trends has been absurdly exaggerated and overhyped in the media for decades now. Boomers retiring and downsizing is not gonna sink the market. US population is still growing (primarily from immigration) and that is the fundamental driver of the nation's demographics.

Millenials mostly don't want the giant suburban houses preferred by previous generations anyway. They want smaller houses that are easier to maintain, and situated in walkable neighborhoods.

Valuethinker
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Re: Housing market bubble

Post by Valuethinker » Fri Apr 26, 2019 7:00 am

DonIce wrote:
Thu Apr 25, 2019 8:31 pm
jayk238 wrote:
Thu Apr 25, 2019 9:01 am
https://www.bloomberg.com/opinion/artic ... nd=premium

I made this same exact argument months ago and the topic was closed for whatever reason.

I argue, again, population changes make real estate a dangerous investment for many home buyers.
I'm not sure what the argument even is?

The impact of the baby boomer demographic trends has been absurdly exaggerated and overhyped in the media for decades now. Boomers retiring and downsizing is not gonna sink the market. US population is still growing (primarily from immigration) and that is the fundamental driver of the nation's demographics.
Is that true? Isn't the majority of US population growth due to domestic births? My mental image is that it's something like 2/3rds/ 1/3rd native births to immigration? It could even be higher than that. The USA is not Australia or Canada ie relatively small populations with deliberately high immigration - something like 1/5 Canadians was born outside of Canada.

Not coincidentally the US is a relatively religious country for a nation that developed - and people who are religiously practicing tend to have larger families (think the Amish).
Millenials mostly don't want the giant suburban houses preferred by previous generations anyway. They want smaller houses that are easier to maintain, and situated in walkable neighborhoods.
Latest stats I have seen is that Millenials are, indeed, moving to the suburbs. The economic problems until lately delayed that compared to the earlier generation, but it hasn't stopped it.

I agree that what Millenials seem to want is neighbourhoods like the suburban one my parents moved to - what was once in North America called a "streetcar suburb".

brianH
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Re: Housing market bubble

Post by brianH » Fri Apr 26, 2019 9:50 am

Valuethinker wrote:
Fri Apr 26, 2019 7:00 am
Latest stats I have seen is that Millenials are, indeed, moving to the suburbs. The economic problems until lately delayed that compared to the earlier generation, but it hasn't stopped it.

I agree that what Millenials seem to want is neighbourhoods like the suburban one my parents moved to - what was once in North America called a "streetcar suburb".
I have also found that the assumption that more Millennials prefer the city to be a gross exaggeration. This seemed to be the case, likely due to 2 main forces:

1) High price of traditional suburban housing vs. lower incomes and savings of that age cohort
2) Delay of having children (urban schools are still atrocious in most major cities)

Once enough saving/income is established, and especially once kids are involved, many city-dwelling Millennials move out to the 'burbs like their parents did.

If there is a demographic trend to pay attention to, it is likely the preference for smaller houses. This is in large part due to #1 above, but also due to the massive increase in cost of heating, cooling, maintaining, and taxes for large (sq/ft) houses. As the 3000 sq/ft+ houses built 10-20 years ago hit the age where maintenance costs start to rapidly rise, they represent a burden most of the Millenials (some in that age group are in their late 30s) are wisely avoiding.

Stormbringer
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Re: Housing market bubble

Post by Stormbringer » Sat Apr 27, 2019 9:48 am

jayk238 wrote:
Thu Apr 25, 2019 9:01 am
https://www.bloomberg.com/opinion/artic ... nd=premium

I made this same exact argument months ago and the topic was closed for whatever reason.

I argue, again, population changes make real estate a dangerous investment for many home buyers.
I'm in the midst of five (!) real estate transactions right now, and I've observed a few things in our local market:
  • The affordable home market is NUTS. If the home is decent and not overly expensive, a dozen or more buyers will view it in the first couple days and there will multiple, competing offers, often going over asking price.
  • The big, expensive houses are lingering on the market longer.
  • The supply is dreadfully low, perhaps because of "rate lock" where people don't want to give up their 2-3% fixed rate mortgages.
We've had to resort to making cash offers to even stand a chance. Echoes of 2005, except rents are higher.
"Compound interest is the most powerful force in the universe." - Albert Einstein

michaeljc70
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Re: Housing market bubble

Post by michaeljc70 » Sat Apr 27, 2019 10:50 am

Though anecdotal, my parents and both sets of grandparents died or plan on dying in the homes they have lived for 40+ years. A lot of my parents neighbors have lived there for decades. They aren't going to downsize. The houses aren't that big to begin with. Maybe a small portion of people that bought McMansions when they had kids will downsize.

rhornback
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Re: Housing market bubble

Post by rhornback » Sat Apr 27, 2019 1:43 pm

This is a dynamic I am watching with interest. I live in the Chicago suburbs and have seen the value of my house go down about 10% since when I bought it 3 years ago.

Here are some of the things I am watching.

1. The jobs, at least in Chicago, are downtown. Under previous mayors many of the downtown office buildings were given favorable real estate tax treatment and the administrations offered incentives to move downtown Chicago. May companies did. I also think they did this because through automation and outsourcing they need a smaller workforce and this was also a convenient excuse.

We have new administration coming into Chicago and I expect these type of incentives to dry up.

2. My wife works downtown Chicago with many young people who are now getting married and in some cases having children (these things happen!). They are complaining about how expensive housing is and how hard it is to make it to day care to pick up their child on time after work. The response my wife and I have is "welcome to our world". Though we don't really actually say that out loud.

3. Once the financial incentives given to these companies run out which I figure are probably good for 10 years (see point number 1). I wonder if companies will stay in Chicago downtown, the Chicago suburbs, more move somewhere else.

4. I drink coffee with elderly men (?me also?) most of which are retired. Most live with their wives in large houses which they would prefer to sell but not at the current prices (which they consider depressed).

I am watching these variables with interest because if I knew that housing in my area would be worth the same or even less in 10 years than now, it would make sense to just take the loss and move on. As it stands right now, any savings I would achieve in lower taxes due to moving to a smaller house would be eaten up by the loss I would take on my current residence.

But there are so many variables that I cannot forecast what is going to happen. But it is interesting watching.

rhornback
Posts: 125
Joined: Tue Mar 07, 2017 9:59 am

Re: Housing market bubble

Post by rhornback » Sat Apr 27, 2019 2:00 pm

brianH wrote:
Fri Apr 26, 2019 9:50 am
Valuethinker wrote:
Fri Apr 26, 2019 7:00 am
Latest stats I have seen is that Millenials are, indeed, moving to the suburbs. The economic problems until lately delayed that compared to the earlier generation, but it hasn't stopped it.

I agree that what Millenials seem to want is neighbourhoods like the suburban one my parents moved to - what was once in North America called a "streetcar suburb".
I have also found that the assumption that more Millennials prefer the city to be a gross exaggeration. This seemed to be the case, likely due to 2 main forces:

1) High price of traditional suburban housing vs. lower incomes and savings of that age cohort
2) Delay of having children (urban schools are still atrocious in most major cities)

Once enough saving/income is established, and especially once kids are involved, many city-dwelling Millennials move out to the 'burbs like their parents did.

If there is a demographic trend to pay attention to, it is likely the preference for smaller houses. This is in large part due to #1 above, but also due to the massive increase in cost of heating, cooling, maintaining, and taxes for large (sq/ft) houses. As the 3000 sq/ft+ houses built 10-20 years ago hit the age where maintenance costs start to rapidly rise, they represent a burden most of the Millenials (some in that age group are in their late 30s) are wisely avoiding.
The problem as I see it is that many builders will not build small houses. They might build town-homes but not single family homes. The reason is the cost of land and improvements (many mandated by the local government) are so high that if they build a small house on the property they still need to charge a lot. So they normally build larger houses so that buyers feel like they 'are getting more for their higher price point'

Where I live, Chicago suburbs, as stated in an earlier post, houses 500K and below are selling well while 500K and above are sitting. However, many of the 500K and below homes are older. I think young people underestimate how much it costs to maintain and upgrade a home. IMO many might not have the skills to do it themselves.

Of course if that is what you can afford and you want a house then these are the cards you are dealt.

rhornback
Posts: 125
Joined: Tue Mar 07, 2017 9:59 am

Re: Housing market bubble

Post by rhornback » Sat Apr 27, 2019 2:09 pm

BradJ wrote:
Thu Apr 25, 2019 10:59 am
Creepy whisper: If they want homes, a builder will come.
Over a long enough time yes supply will match demand for builders. However, my (albeit limited) observation is that much of the workforce in the trades were immigrants especially Hispanic (at least where I live). After the slowdown in 2008/2009 they moved on to something else. In the mean time as discussed ad-nauseum on this board and others, these are not jobs that young Americans want to do. And finally, increased border security and anti-immigrant rhetoric I suspect gives (illegal) immigrants pause in coming to the U.S. and working these trades.

So over the short term, I suspect there will continue to be a decrease in the amount of new homes built in the U.S.

sergio
Posts: 359
Joined: Sat Jun 20, 2015 6:52 pm

Re: Housing market bubble

Post by sergio » Sat Apr 27, 2019 2:15 pm

In our area even decent condition 3br townhouses in good school districts have shot up. The market for homes under $300k is beyond nuts, $3-500k is somewhat normal, and apparently has slowed down big time for homes above $500k.

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Housing market bubble

Post by delamer » Sat Apr 27, 2019 3:44 pm

rhornback wrote:
Sat Apr 27, 2019 1:43 pm
This is a dynamic I am watching with interest. I live in the Chicago suburbs and have seen the value of my house go down about 10% since when I bought it 3 years ago.

Here are some of the things I am watching.

1. The jobs, at least in Chicago, are downtown. Under previous mayors many of the downtown office buildings were given favorable real estate tax treatment and the administrations offered incentives to move downtown Chicago. May companies did. I also think they did this because through automation and outsourcing they need a smaller workforce and this was also a convenient excuse.

We have new administration coming into Chicago and I expect these type of incentives to dry up.

2. My wife works downtown Chicago with many young people who are now getting married and in some cases having children (these things happen!). They are complaining about how expensive housing is and how hard it is to make it to day care to pick up their child on time after work. The response my wife and I have is "welcome to our world". Though we don't really actually say that out loud.

3. Once the financial incentives given to these companies run out which I figure are probably good for 10 years (see point number 1). I wonder if companies will stay in Chicago downtown, the Chicago suburbs, more move somewhere else.

4. I drink coffee with elderly men (?me also?) most of which are retired. Most live with their wives in large houses which they would prefer to sell but not at the current prices (which they consider depressed).

I am watching these variables with interest because if I knew that housing in my area would be worth the same or even less in 10 years than now, it would make sense to just take the loss and move on. As it stands right now, any savings I would achieve in lower taxes due to moving to a smaller house would be eaten up by the loss I would take on my current residence.

But there are so many variables that I cannot forecast what is going to happen. But it is interesting watching.
Number 4 above is an interesting phenomenon. These men are probably sitting on large gains relative to what they actually paid for their houses 30 years ago, but what they are focused on is that they can’t sell for the maximum the houses were ever worth.

My in-laws have literally had their house for sale on-and-off for 10 years. They have been too anchored to that highest-ever amount and haven’t adjusted the price enough to fit the current market.

JoeRetire
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Joined: Tue Jan 16, 2018 2:44 pm

Re: Housing market bubble

Post by JoeRetire » Sat Apr 27, 2019 4:20 pm

jayk238 wrote:
Thu Apr 25, 2019 9:01 am
https://www.bloomberg.com/opinion/artic ... nd=premium

I made this same exact argument months ago and the topic was closed for whatever reason.

I argue, again, population changes make real estate a dangerous investment for many home buyers.
Meh.

"Downsizing for older homeowners, to the extent it happens at all, doesn’t begin until age 75 or so."

My wife (64) and I (65) sold our primary residence earlier this month to a newly married couple. We moved into our second home full time.

We were lucky enough to be in a hot housing market without enough inventory in the right price range. We got a lot more than I thought we could get ($20k above asking price). Good for us, I guess.

That doesn't make buying a home dangerous at all. Speculative real estate "investments" might be different. But all real estate is hyper-local.

BradJ
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Joined: Sun Jan 21, 2018 6:06 pm

Re: Housing market bubble

Post by BradJ » Sat Apr 27, 2019 8:00 pm

rhornback wrote:
Sat Apr 27, 2019 2:09 pm
BradJ wrote:
Thu Apr 25, 2019 10:59 am
Creepy whisper: If they want homes, a builder will come.
Over a long enough time yes supply will match demand for builders. However, my (albeit limited) observation is that much of the workforce in the trades were immigrants especially Hispanic (at least where I live). After the slowdown in 2008/2009 they moved on to something else. In the mean time as discussed ad-nauseum on this board and others, these are not jobs that young Americans want to do. And finally, increased border security and anti-immigrant rhetoric I suspect gives (illegal) immigrants pause in coming to the U.S. and working these trades.

So over the short term, I suspect there will continue to be a decrease in the amount of new homes built in the U.S.
Take this for what it’s worth, but I have a close friend who is a contractor and he told me it’s not labor shortages that is the problem, but rather 2008 changed the way builders approached business. Pre-crisis, builders built entire neighborhoods and sold as they went, but when the market hit that left many with tons of empty homes. Now, they approach things at a smaller, “piece by piece” way so they aren’t stuck with huge amounts of inventory.

User avatar
Kalo
Posts: 521
Joined: Sat May 25, 2013 1:01 pm

Re: Housing market bubble

Post by Kalo » Sat Apr 27, 2019 8:56 pm

BradJ wrote:
Sat Apr 27, 2019 8:00 pm
rhornback wrote:
Sat Apr 27, 2019 2:09 pm
BradJ wrote:
Thu Apr 25, 2019 10:59 am
Creepy whisper: If they want homes, a builder will come.
Over a long enough time yes supply will match demand for builders. However, my (albeit limited) observation is that much of the workforce in the trades were immigrants especially Hispanic (at least where I live). After the slowdown in 2008/2009 they moved on to something else. In the mean time as discussed ad-nauseum on this board and others, these are not jobs that young Americans want to do. And finally, increased border security and anti-immigrant rhetoric I suspect gives (illegal) immigrants pause in coming to the U.S. and working these trades.

So over the short term, I suspect there will continue to be a decrease in the amount of new homes built in the U.S.
Take this for what it’s worth, but I have a close friend who is a contractor and he told me it’s not labor shortages that is the problem, but rather 2008 changed the way builders approached business. Pre-crisis, builders built entire neighborhoods and sold as they went, but when the market hit that left many with tons of empty homes. Now, they approach things at a smaller, “piece by piece” way so they aren’t stuck with huge amounts of inventory.
I've noticed this where I live too. One plot that opened up that could hold about 25 homes was allocated out to four different builders, with each builder building 6 or so homes. I can't say exactly why it was done this way but it's consistent with the above post. These were all smaller builders, not big corporations.

Kalo
"When people say they have a high risk tolerance, what they really mean is that they are willing to make a lot of money." -- Ben Stein/Phil DeMuth - The Little Book of Bullet Proof Investing.

brianH
Posts: 270
Joined: Wed Aug 12, 2009 12:21 pm

Re: Housing market bubble

Post by brianH » Sun Apr 28, 2019 4:53 pm

rhornback wrote:
Sat Apr 27, 2019 2:00 pm
The problem as I see it is that many builders will not build small houses. They might build town-homes but not single family homes. The reason is the cost of land and improvements (many mandated by the local government) are so high that if they build a small house on the property they still need to charge a lot. So they normally build larger houses so that buyers feel like they 'are getting more for their higher price point'
That's very true. From a builder's prospective, making a house 25-50% bigger doesn't increase their cost by anything close to that percentage, mostly due to the fixed costs you mentioned. People say they want smaller houses, but the reality is, they don't want to pay a premium $/sq ft for them, thus, the builders are going to go where they can maximize their profit.

It's similar to how people *say* they want an energy efficient home, but builders know it's really the high end finishes drawing in buyers and commanding high prices. The vast majority of buyers aren't going to be wowed by $15,000 worth of energy efficiency upgrades that hide in the walls and attic. Even though they'd save many times that amount of 40 years, in all likelihood they'll move in 7 years anyway.

Valuethinker
Posts: 38161
Joined: Fri May 11, 2007 11:07 am

Re: Housing market bubble

Post by Valuethinker » Mon Apr 29, 2019 2:34 am

rhornback wrote:
Sat Apr 27, 2019 1:43 pm
This is a dynamic I am watching with interest. I live in the Chicago suburbs and have seen the value of my house go down about 10% since when I bought it 3 years ago.

Here are some of the things I am watching.

1. The jobs, at least in Chicago, are downtown. Under previous mayors many of the downtown office buildings were given favorable real estate tax treatment and the administrations offered incentives to move downtown Chicago. May companies did. I also think they did this because through automation and outsourcing they need a smaller workforce and this was also a convenient excuse.

We have new administration coming into Chicago and I expect these type of incentives to dry up.

2. My wife works downtown Chicago with many young people who are now getting married and in some cases having children (these things happen!). They are complaining about how expensive housing is and how hard it is to make it to day care to pick up their child on time after work. The response my wife and I have is "welcome to our world". Though we don't really actually say that out loud.

3. Once the financial incentives given to these companies run out which I figure are probably good for 10 years (see point number 1). I wonder if companies will stay in Chicago downtown, the Chicago suburbs, more move somewhere else.
I think companies will continue to move to downtowns, across America. Downtown is where the action is - the creative shoulder rubbing of being nearby your suppliers, your customers, your clients (aka "clusters" aka "external economies to scale"), your competitors. Caveat: if crime becomes a significant issue or the public transport system decays too far, that won't happen.

However they will also use less space - more outsourcing, more hotdesking. Temporary work spaces like wework are all the rage.

This is not just about real estate taxes, it's a general move away from suburban office locations by decision making centres - the corporate HQs, the design & other critical functions. However they won't stop trimming down their employment, either - so while big suburban office parks will go (a shift away from, rather than an end to) it won't be fully complemented by a rise in employment downtown.

I suspect companies will continue to move to downtown Chicago OR move out of metropolitan Chicago entirely - refugees to states with lower taxes & cheaper municipal services (Arizona, Atlanta, North Carolina, Memphis etc.).
4. I drink coffee wi
th elderly men (?me also?) most of which are retired. Most live with their wives in large houses which they would prefer to sell but not at the current prices (which they consider depressed).

I am watching these variables with interest because if I knew that housing in my area would be worth the same or even less in 10 years than now, it would make sense to just take the loss and move on. As it stands right now, any savings I would achieve in lower taxes due to moving to a smaller house would be eaten up by the loss I would take on my current residence.

But there are so many variables that I cannot forecast what is going to happen. But it is interesting watching.
Many people are stuck with too large homes.

You have already taken the loss on your house. It's just you have not "realised" (or "recognized") it in financial terms (by crystalizing a loss on sale) even though in cash terms you have already lost that money.

So that should not be a factor in your decision whether to move or not. Unless you are in negative equity, at which point you would need a cash injection to move. Similarly if you have a low rate mortgage you may not wish to lose that.

You really have to way current carrying cost vs. possible RE price appreciation over the next few years. But the former you can do something about (by moving) the latter you cannot (it happens, or it does not happen).

Valuethinker
Posts: 38161
Joined: Fri May 11, 2007 11:07 am

Re: Housing market bubble

Post by Valuethinker » Mon Apr 29, 2019 6:57 am

brianH wrote:
Sun Apr 28, 2019 4:53 pm
rhornback wrote:
Sat Apr 27, 2019 2:00 pm
The problem as I see it is that many builders will not build small houses. They might build town-homes but not single family homes. The reason is the cost of land and improvements (many mandated by the local government) are so high that if they build a small house on the property they still need to charge a lot. So they normally build larger houses so that buyers feel like they 'are getting more for their higher price point'
That's very true. From a builder's prospective, making a house 25-50% bigger doesn't increase their cost by anything close to that percentage, mostly due to the fixed costs you mentioned. People say they want smaller houses, but the reality is, they don't want to pay a premium $/sq ft for them, thus, the builders are going to go where they can maximize their profit.

It's similar to how people *say* they want an energy efficient home, but builders know it's really the high end finishes drawing in buyers and commanding high prices. The vast majority of buyers aren't going to be wowed by $15,000 worth of energy efficiency upgrades that hide in the walls and attic. Even though they'd save many times that amount of 40 years, in all likelihood they'll move in 7 years anyway.
That's the nub of the energy efficiency problem.

If built in at construction you can achieve quite amazing levels of air tightness and insulation. (Using a heat recovery system, you still get the requisite number of Air Changes per Hour, so there's not a fresh air issue). In areas where there is water scarcity, you can also put in gray water reuse systems fairly easily (everything does not go straight down to the sewer system).

Other than the aforementioned heat exchangers, and heat pumps (in some situations) & adaptable thermostats that's far more important than all the "gizmos" out there for energy efficiency.

You can't easily retrofit either insulation or air tightness. It's a lot cheaper done at construction. Clever location of windows & sizing (not always the largest possible) can also save a lot of energy (even the best windows leak heat in or out). In most of the USA, correct shading (external to the window) to reduce solar gain. Just longer eaves to the south and west of the house (in winter the sun is lower so will still catch sun, in summer will shade against a hotter sun which is higher in the sky).

But no one will pay for that upfront. Absolutely right that high end kitchens will sell a new home - and that will look incredibly dated in 20 years anyhow (in 50 years, it will be back in style ;-)).

Topic Author
jayk238
Posts: 582
Joined: Tue Jan 31, 2017 1:02 pm

Re: Housing market bubble

Post by jayk238 » Sat May 04, 2019 5:17 am

JoeRetire wrote:
Sat Apr 27, 2019 4:20 pm
jayk238 wrote:
Thu Apr 25, 2019 9:01 am
https://www.bloomberg.com/opinion/artic ... nd=premium

I made this same exact argument months ago and the topic was closed for whatever reason.

I argue, again, population changes make real estate a dangerous investment for many home buyers.
Meh.

"Downsizing for older homeowners, to the extent it happens at all, doesn’t begin until age 75 or so."

My wife (64) and I (65) sold our primary residence earlier this month to a newly married couple. We moved into our second home full time.

We were lucky enough to be in a hot housing market without enough inventory in the right price range. We got a lot more than I thought we could get ($20k above asking price). Good for us, I guess.

That doesn't make buying a home dangerous at all. Speculative real estate "investments" might be different. But all real estate is hyper-local.
Meh?
What you are describing (including the above meh) is precisely the problem many in your situation spent too much and paid too much (repairs, home size, furnishings) and then want us (younger) to fund their sale price for their retirement.

There simply is not enough of us to help you. Some might succeed but most wont. And demographics means statistically stories like yours will be fewer and fewer into the future.

Too many of the boomer generation think that the market is safe to sell us their homes. It isnt and is only getting worse

JoeRetire
Posts: 2548
Joined: Tue Jan 16, 2018 2:44 pm

Re: Housing market bubble

Post by JoeRetire » Sat May 04, 2019 6:42 am

jayk238 wrote:
Sat May 04, 2019 5:17 am
Meh?
What you are describing (including the above meh) is precisely the problem many in your situation spent too much and paid too much (repairs, home size, furnishings) and then want us (younger) to fund their sale price for their retirement.
Again I say: Meh.

You seem to think there is something unique about this time. It's not. When we purchased our first home it was from an older couple who had built the house. They were very happy with the price we paid them. We were pleased to have the home, although it was at the top of our budget.

Perhaps some have paid too much and spent too much, that certainly isn't me. And that certainly isn't solely a boomer thing. And we certainly don't need the sale price of our home to fund our retirement.

There simply is not enough of us to help you.
Not sure what you mean by "us". Since 2014, there are more millenials than boomers.
Some might succeed but most wont. And demographics means statistically stories like yours will be fewer and fewer into the future.

Too many of the boomer generation think that the market is safe to sell us their homes. It isnt and is only getting worse
Tell that to all the people who bid over the asking price for our home. Real Estate is hyper-local. Perhaps in your locale the market "isn't safe". Apparently you don't live anywhere near me.

You might be spooked by the thought of purchasing a house. Clearly others don't share your fears.

tmcc
Posts: 310
Joined: Tue Feb 06, 2018 6:38 pm

Re: Housing market bubble

Post by tmcc » Sun May 05, 2019 9:38 am

I didn't read the whole thread but the population in the US is aging. There won't be fewer old people in the future, there will be more. If you miss the wave, you might be permanently hosed. The real answer is that no one knows. Watch closely and you might be amongst first in or first out (market timer!)

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