Are we in a housing bubble?

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willthrill81
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Re: Are we in a housing bubble?

Post by willthrill81 »

smitcat wrote: Thu May 06, 2021 12:17 pm
willthrill81 wrote: Thu May 06, 2021 11:46 am
smitcat wrote: Thu May 06, 2021 11:37 am
willthrill81 wrote: Thu May 06, 2021 11:32 am The only reasons I've heard as to why we are currently in a housing bubble are that prices have gone up significantly in a relatively short period of time and because housing prices are higher now, adjusted for inflation, than they were before the GFC.

However, I've heard far more reasons, which I also find more compelling, as to why we are not currently in a housing bubble. Those include the facts that it's much harder to get a mortgage these days and those mortgages are generally not for 100% or more of the value of the property, the price of new construction being much higher now than ~14 years ago, there not being enough housing for everyone who wants it, and interest rates being significantly lower now than before.

For those who think we're in a bubble already, what's going to 'pop' it? Interest rates are very unlikely to suddenly spike, people aren't likely at all to suddenly default en masse (the delinquency rate on SFH mortgages didn't even hit 3% in 2020 and has remained lower than where it was for all of 2018), and demand for housing isn't likely at all to suddenly drop.
"For those who think we're in a bubble already, what's going to 'pop' it?"
I do not know about a 'pop' but housing will adjust down relatively speaking as folks readjust to working in metro areas. This along with the markets long rise has supported much of what we see now.

"there not being enough housing for everyone who wants it"
Yet there is no real population surge.
I'm not sure that metro areas will go back to the way they were. There will certainly be at least a partial return, but I doubt that there will be a full return. Further, housing prices were increasing long before COVID hit.

There isn't a population surge, but there are other reasons for the shortage, some of which are outlined here. Regulations on new housing seem to be a major factor.

Personally, I think that low interest rates are the biggest driver of the boost in housing prices in recent years, and I don't see those jumping up anytime soon.
Not what we have seen in the areas we have been active in the past 6-12 months.
I don't doubt that at all. It's easily forgotten, but there isn't really a national real estate market, just a lot of local markets.
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Washingtonian
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Re: Are we in a housing bubble?

Post by Washingtonian »

badger42 wrote: Fri Mar 12, 2021 10:03 am
SuperTrooper87 wrote: Fri Mar 12, 2021 4:21 am
Several times they offered on homes, 15%+ over asking, just to lose. He mentioned just offering more next time and using his ability as a first time homebuyer to put 3% down. This is when alarms went off in my head.
I suspect that a lower cash offer, or a lower 20%+ down offer, would win out over a 3% down FHA offer. Doubly so if the seller isn't 100% confident on the house appraising - 20% or more down can always kick in more cash.

I know when we were last selling (many years ago) we had two offers at our ask. One was 35% down, conventional mortgage - the other was FHA and needed help with closing costs. We went with the former - far less chance of drama - even though the latter wrote us a letter about how much they love the house.
Using the story of the coworker as a stand-in for the purchase market, if the response to being out-gunned with a conventional mortgage is to turn to FHA, that undercuts the bubble storyline (stronger appraisal underwriting requirements). Now if there's some appreciable uptick in subprime and creative mortgage solutions, batten the hatches.
Ron Ronnerson
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Re: Are we in a housing bubble?

Post by Ron Ronnerson »

Ron Ronnerson wrote: Sat Mar 13, 2021 10:19 am
dboeger1 wrote: Fri Mar 12, 2021 11:15 am ...Meanwhile, single family homes from the East Bay all the way to bloody Tahoe are skyrocketing. I think this all tells a clear story that people are fleeing tight urban apartments for more comfortable suburban homes with yards.
I pretty much see it the same way but a yard is apparently not mandatory. I’m in the East Bay (tri-valley) and live in a townhome. Prices have risen from $850k in December of 2020 to $975k now. I don’t know if it’s a bubble but that sort of increase in that short amount of time did raise my eyebrow. This is for a home with no backyard located in a nice neighborhood with great schools. The area is not very congested and there are lots of parks and hiking trails in the region.
Well, it's been about two months since I posted on this thread and the insanity continues. Below is the change in prices for 2000 sq. ft. townhomes in my East Bay neighborhood:
January 2021: $850k
February 2021: $900k
March 2021: $975k
April 2021: $1.050M
May 2021: $1.150M

A neighbor recently listed their home for $1M and it sold for over $1.2M almost immediately. I don't know if this is a bubble or not but it doesn't seem sustainable.
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Re: Are we in a housing bubble?

Post by Kookaburra »

Ron Ronnerson wrote: Thu May 06, 2021 1:11 pm
Ron Ronnerson wrote: Sat Mar 13, 2021 10:19 am
dboeger1 wrote: Fri Mar 12, 2021 11:15 am ...Meanwhile, single family homes from the East Bay all the way to bloody Tahoe are skyrocketing. I think this all tells a clear story that people are fleeing tight urban apartments for more comfortable suburban homes with yards.
I pretty much see it the same way but a yard is apparently not mandatory. I’m in the East Bay (tri-valley) and live in a townhome. Prices have risen from $850k in December of 2020 to $975k now. I don’t know if it’s a bubble but that sort of increase in that short amount of time did raise my eyebrow. This is for a home with no backyard located in a nice neighborhood with great schools. The area is not very congested and there are lots of parks and hiking trails in the region.
Well, it's been about two months since I posted on this thread and the insanity continues. Below is the change in prices for 2000 sq. ft. townhomes in my East Bay neighborhood:
January 2021: $850k
February 2021: $900k
March 2021: $975k
April 2021: $1.050M
May 2021: $1.150M

A neighbor recently listed their home for $1M and it sold for over $1.2M almost immediately. I don't know if this is a bubble or not but it doesn't seem sustainable.
35% in 4 months. Ummm, this can’t end well.
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willthrill81
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Re: Are we in a housing bubble?

Post by willthrill81 »

Flannelbeard wrote: Thu May 06, 2021 1:32 pm
willthrill81 wrote: Thu May 06, 2021 11:32 am The only reasons I've heard as to why we are currently in a housing bubble are that prices have gone up significantly in a relatively short period of time and because housing prices are higher now, adjusted for inflation, than they were before the GFC.

However, I've heard far more reasons, which I also find more compelling, as to why we are not currently in a housing bubble. Those include the facts that it's much harder to get a mortgage these days and those mortgages are generally not for 100% or more of the value of the property, the price of new construction being much higher now than ~14 years ago, there not being enough housing for everyone who wants it, and interest rates being significantly lower now than before.

For those who think we're in a bubble already, what's going to 'pop' it? Interest rates are very unlikely to suddenly spike, people aren't likely at all to suddenly default en masse (the delinquency rate on SFH mortgages didn't even hit 3% in 2020 and has remained lower than where it was for all of 2018), and demand for housing isn't likely at all to suddenly drop.
Rates don't need to spike, just slowly climb 1-2% and the rug is pulled in terms of affordability. Every 1% increase in mortgage rates increases the monthly payment on the same purchase price by 13%. Defaults are being artificially limited via COVID forbearance so I'm not sure that metric paints anything relevant.

In regards to "harder to get a mortgage" I think that's technically true compared to the 2008 bubble, there's no NINJA (no income no job) loans floating around, but if you do have income, it's laughably simple to get conventional loans at 45% DTI, and even push that above 50% in some cases. That sounds pretty house poor to me, and not the picture of the "highly qualified buyers" everyone in the real estate industry is crowing about.

I've seen some people citing cash offers as a sign of market strength, but there's no metric for how many of these are "real" cash offers using the buyer's money, versus cash offers made via hard money loans, 401k loans (doesn't count against DTI), or the alarming number of companies popping up such as Ribbon and Flyhome who will charge you a percentage of the home price to put in a cash offer on your behalf, then sell the home back to you when you get financing.
Your points are generally valid, though I really doubt that many cash offers are made with cash obtained from loans. It's impossible for most to get hundreds of thousands in cash without a lot of collateral. And if they have the collateral to back it up, even that's not really an issue.

I agree that rates slowly increasing would put downward pressure on home prices, but I strongly suspect that seeing prices remain flat for some time is much more likely than seeing a retreat.

The very high debt-to-income ratios are, I believe, generally limited to VHCOL areas. To be honest, I don't think that buying a home in a VHCOL area makes sense for most right now.
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jackbeagle
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Re: Are we in a housing bubble?

Post by jackbeagle »

av111 wrote: Wed May 05, 2021 3:35 pm
sojersey wrote: Wed May 05, 2021 3:18 pm I don't know whether we are in a bubble or not, but I've all but given up on buying a house anytime soon. My friends just paid 1.2M for the first + basement + small back yard (~2000 sq ft) of a triple decker in Somerville MA. Its a nice place, and I'm happy for them, but it just seems insane to me… at least as a single person.

I'm about to give up on this area and try living elsewhere, though expect everywhere to be just as competitive. Years of under-building and general NIMBY policy isn't going to alleviate anytime soon.
As a single person several benefits of home ownership are not used so it is suboptimal to buy a home for personal consumption. Still look for duplexes (live in one and rent the other) or rental SFR at decent rent/expense ratio if you want to benefit from low interest rates and potential increase in price
I am seeing this advice a lot around the internet, "house hacking", but do you REALLY want your tenants to live RIGHT next to you?
jackbeagle
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Re: Are we in a housing bubble?

Post by jackbeagle »

There is a limited number of "good moves" one can make in a market like this. Maybe you're selling in a HCOL+ area and moving to complete isolation where they haven't yet felt the waves. Leaving the west coast for the mountains of Virginia. I'm not talking about tourist areas with lots of cabins. I mean places like Grundy, Meadow, Galax, that have plenty of homes of lifelong residents being sold. No new construction.

One probably won't net anything trading like-for-like. Moving across town, for example. But if you're ready to leave an area that's "full" for one that is a "never was", now's the time.
reln
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Re: Are we in a housing bubble?

Post by reln »

SuperTrooper87 wrote: Fri Mar 12, 2021 4:21 am Currently, in rural New England, homes are and have been selling far above their appraised value. Homes that are “worth” 200k are getting same day as listing offers of 240-270k cash, no inspection, sight unseen.

I know other areas are seeing similar situations as there is a mass exodus out of the urban areas (NY, CA, etc).

In the midst of this influx of urban money to the rural area, locals are trying to compete with homeownership. I lately heard a story from a coworker who has been trying to desperately buy a home before their rental lease ends. (Not being renewed as they plan to sell). Several times they offered on homes, 15%+ over asking, just to lose. He mentioned just offering more next time and using his ability as a first time homebuyer to put 3% down. This is when alarms went off in my head.

This seems eerily reminiscent of 2008. People taking loans to the max, no equity in homes, no EF, etc. What’s this kids chance of refinancing in 5 years because he has to buy a new roof or furnace because he overpaid on the house and has no cash? Well now home prices potentially sunk and his 250k home is really only worth 160k. He and others are screwed.

Are we in another bubble? Is this a national trend due to covid or is this in isolated pockets?
I think so. But residential housing has large momentum so this bubble can run for a long time.
stoptothink
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Re: Are we in a housing bubble?

Post by stoptothink »

jackbeagle wrote: Thu May 06, 2021 1:46 pm
av111 wrote: Wed May 05, 2021 3:35 pm
sojersey wrote: Wed May 05, 2021 3:18 pm I don't know whether we are in a bubble or not, but I've all but given up on buying a house anytime soon. My friends just paid 1.2M for the first + basement + small back yard (~2000 sq ft) of a triple decker in Somerville MA. Its a nice place, and I'm happy for them, but it just seems insane to me… at least as a single person.

I'm about to give up on this area and try living elsewhere, though expect everywhere to be just as competitive. Years of under-building and general NIMBY policy isn't going to alleviate anytime soon.
As a single person several benefits of home ownership are not used so it is suboptimal to buy a home for personal consumption. Still look for duplexes (live in one and rent the other) or rental SFR at decent rent/expense ratio if you want to benefit from low interest rates and potential increase in price
I am seeing this advice a lot around the internet, "house hacking", but do you REALLY want your tenants to live RIGHT next to you?
If you are going to be a landlord, that's the best way to do it.
av111
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Re: Are we in a housing bubble?

Post by av111 »

jackbeagle wrote: Thu May 06, 2021 1:46 pm
av111 wrote: Wed May 05, 2021 3:35 pm
sojersey wrote: Wed May 05, 2021 3:18 pm I don't know whether we are in a bubble or not, but I've all but given up on buying a house anytime soon. My friends just paid 1.2M for the first + basement + small back yard (~2000 sq ft) of a triple decker in Somerville MA. Its a nice place, and I'm happy for them, but it just seems insane to me… at least as a single person.

I'm about to give up on this area and try living elsewhere, though expect everywhere to be just as competitive. Years of under-building and general NIMBY policy isn't going to alleviate anytime soon.
As a single person several benefits of home ownership are not used so it is suboptimal to buy a home for personal consumption. Still look for duplexes (live in one and rent the other) or rental SFR at decent rent/expense ratio if you want to benefit from low interest rates and potential increase in price
I am seeing this advice a lot around the internet, "house hacking", but do you REALLY want your tenants to live RIGHT next to you?
There are definite pluses and minuses. Tenants are also people except you select who lives next door to you. It can still go south sometimes but I guess that happens any time you deal with people. There are ways to manage it. Working with people requires maturity and patience. If you have managed a team you would know what I am talking about.
AV111
smitcat
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Re: Are we in a housing bubble?

Post by smitcat »

reln wrote: Thu May 06, 2021 1:59 pm
SuperTrooper87 wrote: Fri Mar 12, 2021 4:21 am Currently, in rural New England, homes are and have been selling far above their appraised value. Homes that are “worth” 200k are getting same day as listing offers of 240-270k cash, no inspection, sight unseen.

I know other areas are seeing similar situations as there is a mass exodus out of the urban areas (NY, CA, etc).

In the midst of this influx of urban money to the rural area, locals are trying to compete with homeownership. I lately heard a story from a coworker who has been trying to desperately buy a home before their rental lease ends. (Not being renewed as they plan to sell). Several times they offered on homes, 15%+ over asking, just to lose. He mentioned just offering more next time and using his ability as a first time homebuyer to put 3% down. This is when alarms went off in my head.

This seems eerily reminiscent of 2008. People taking loans to the max, no equity in homes, no EF, etc. What’s this kids chance of refinancing in 5 years because he has to buy a new roof or furnace because he overpaid on the house and has no cash? Well now home prices potentially sunk and his 250k home is really only worth 160k. He and others are screwed.

Are we in another bubble? Is this a national trend due to covid or is this in isolated pockets?
I think so. But residential housing has large momentum so this bubble can run for a long time.
Actually it can turn on a dime sometimes.
LateFire
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Re: Are we in a housing bubble?

Post by LateFire »

In Upper Midwest where I purchased my house in 2002, it has not even kept up with inflation. I live in a fairly vibrant city by mid-western standards.
Dunning-Kruger cognitive test: People think they are more capable than they really are. Sufferers don't know how much they don't know, and the most ignorant are the most confident.
namajones
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Re: Are we in a housing bubble?

Post by namajones »

I worked in the financial sector for part of my career and learned about things like debt-to-income ratio to determine whether someone was credit worthy when applying for a home loan.

The home prices over the past decades have been so out of whack (high) relative to incomes (stagnant) that they push many people's debt-to-income ratio well beyond what used to be considered acceptable to lenders.

So yeah, I'd say many HCOL areas are in a housing bubble and have been since the late 90s. Debt-to-income ratios are one way to measure the level of bubblishness. I would personally not be a buyer today.

Here's a rudimentary debt-to-income calculator:

https://www.ramseysolutions.com/debt/de ... calculator

My current debt to income ratio is 9 percent. I'm comfortable with anything under 12 percent, personally. Lenders should get uncomfortable with levels in the 35+ percent range and above. When selling prices push most buyers into that range (I've even heard of 50+ ranges), then we're in bubble territory.
Last edited by namajones on Fri May 07, 2021 11:01 am, edited 4 times in total.
jcricket73
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Re: Are we in a housing bubble?

Post by jcricket73 »

namajones wrote: Fri May 07, 2021 10:48 am I worked in the financial sector for part of my career and learned about things like debt-to-income ratio to determine whether someone was credit worthy when applying for a home loan.

The home prices over the past decades have been so out of whack (high) relative to incomes (stagnant) that they push many people's debt-to-income ratio well beyond what used to be considered acceptable to lenders.

So yeah, I'd say many HCOL areas are in a housing bubble and have been since the late 90s. I would personally not be a buyer today.
Tldr: Averages are deceiving. People with means are willing to trade money for time buy buying in close-in neighborhoods that aren't seeing much building, but this doesn't mean their DTI is out-of-whack.

Average down-payments have increased markedly, and there's been a decrease in homes in mortgage forbearance, along with inventory and mortgage rates. Credit standards haven't loosened, and "liar loans" aren't back. While I can't predict anything about the future of home prices, this isn't a repeat of the circumstances from 2008.

I'd speculate though that spikes in income/prices in VHCOL areas may be driving most of the rise in the median home price (along with low inventory and low building, some from zoning, some from Covid over-hang). There are probably plenty of areas seeing much less home price appreciation they just get swamped by the "hot cities"

https://www.forbes.com/advisor/mortgage ... -by-state/

https://www.calculatedriskblog.com/2021 ... se-in.html
namajones
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Re: Are we in a housing bubble?

Post by namajones »

jcricket73 wrote: Fri May 07, 2021 10:55 am
Tldr: Averages are deceiving. People with means are willing to trade money for time buy buying in close-in neighborhoods that aren't seeing much building, but this doesn't mean their DTI is out-of-whack.
IMO, averages are helpful. It does not really help to refer to "people with means" when discussing general trends that would lead one to identify a bubble. There will always be people who can afford bubblish prices. They probably care much less about bubbles. Since they're not the norm, though, it really doesn't help to include them in a discussion of overall trends.

If it takes two highly-paid surgeons to get a DTI down to reasonable levels in an area, then we're looking at a bubble. There are only so many of such couples in the world.
WhiteMaxima
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Re: Are we in a housing bubble?

Post by WhiteMaxima »

We are in housing shortgage now. Supply vs demand. Also building material cost is up. Construction labor shortgage. All these contribute to the housing price hike. Plus history low interest rate. Wait everything normalized and housing price will flat out.
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Re: Are we in a housing bubble?

Post by willthrill81 »

LateFire wrote: Fri May 07, 2021 10:39 am In Upper Midwest where I purchased my house in 2002, it has not even kept up with inflation. I live in a fairly vibrant city by mid-western standards.
That can actually be a big plus. Due to our home's appreciation in market value, our property taxes are 30% higher now than they were in 2018 and will very likely continue to go up for a while at least. Yes, we have a lot of appreciated value in the home, but unless we sell and buy a less costly home or rent, that doesn't help us at all.
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Lee_WSP
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Re: Are we in a housing bubble?

Post by Lee_WSP »

I've read this thread off and on over it's lifetime. I just finished reading boom and bust, so the housing market and stock market has again entered my mind.

My question to those who have been following this thread is: Has a bubble been defined?

It's fairly easy to observe that home prices are currently surging and out of the realm of affordability for the vast majority of Americans. However, does that make it a bubble or just a supply shock a la the oil embargo?

The boom and bust authors define a bubble as having three sides plus a spark, similar to a fire. Marketability, money/credit, and speculation.

I'm not sure how much more marketable MBSs are, but they sure did help the last housing bubble. Interest rates are low and there doesn't seem to be a dearth of loans. I don't know about the third leg though.
invest4
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Re: Are we in a housing bubble?

Post by invest4 »

I had to look up what defines a "housing bubble":

https://www.investopedia.com/terms/h/housing_bubble.asp
What Is a Housing Bubble?

A housing bubble, or real estate bubble, is a run-up in housing prices fueled by demand, speculation, and exuberant spending to the point of collapse. Housing bubbles usually start with an increase in demand, in the face of limited supply, which takes a relatively extended period to replenish and increase. Speculators pour money into the market, further driving up demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices—and the bubble bursts.
Given the broad definition, it seems we are indeed in the midst of one. However, I am more interested in its underlying root causes and potential outcomes if conditions should significantly change.

Some thoughts:

* Supply and demand is undoubtedly a critical component - there are simply not enough houses right now to satisfy current demand. Further exacerbating price are temporary shortages of lumber, etc.

* Due to historically low mortgage rates, people can afford to purchase a bit more house.

* There are many working people who did not experience a material financial impact during the pandemic. In fact, many people saw their financial position appreciably improve...gains via the stock market for example. Willing and able to buy.

* I believe the assessment of credit worthiness remains much improved vs the last bubble and all things being equal, do not expect an inglorious "pop" with massive defaults and disruption. Prices will fall and there will be "winners" and "losers"...but calamity? I doubt it.

* People continue to behave as they always have. Leading up to the previous bubble, a wide perception was that prices would only continue upward and buying today will be cheaper than buying tomorrow. The typical emotions that plague most people also remain...once you have fallen in love with the home, many will go to great lengths to purchase it. Potential investors may also perceive it as a "can't lose" proposition.

Shark feeding frenzy! :wink:

Of course, while I am always prepared to be surprised (did not have the imagination to see how the banks were setting themselves up during the last bubble), I think this bubble will also burst, but will not result in widespread disaster. More likely, some degree of local hand-wringing here and there (depends on your market) as it works itself out. I am sympathetic to those who have to navigate the waters when under these conditions...both financial and mental.

Best wishes.
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Re: Are we in a housing bubble?

Post by Jess Saying »

jackbeagle wrote: Thu May 06, 2021 1:51 pm There is a limited number of "good moves" one can make in a market like this. Maybe you're selling in a HCOL+ area and moving to complete isolation where they haven't yet felt the waves. Leaving the west coast for the mountains of Virginia. I'm not talking about tourist areas with lots of cabins. I mean places like Grundy, Meadow, Galax, that have plenty of homes of lifelong residents being sold. No new construction.

One probably won't net anything trading like-for-like. Moving across town, for example. But if you're ready to leave an area that's "full" for one that is a "never was", now's the time.
I live in one of the worst regions of the country. Poor economy, terrible climate, limited cultural events, etc. The last bubble bypassed us completely.

About 2 months ago, I showed my brother a listing he couldn't believe. It was a ranch style home out in the boonies with a decent sized backyard. The asking price blew his mind. The owner ended up accepting an offer the first day of showing. There's been multiple sales like that since. If the price blowup is here, it's everywhere.
jcricket73
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Re: Are we in a housing bubble?

Post by jcricket73 »

Flannelbeard wrote: Fri May 07, 2021 3:10 pm
jcricket73 wrote: Fri May 07, 2021 10:55 am
namajones wrote: Fri May 07, 2021 10:48 am I worked in the financial sector for part of my career and learned about things like debt-to-income ratio to determine whether someone was credit worthy when applying for a home loan.

The home prices over the past decades have been so out of whack (high) relative to incomes (stagnant) that they push many people's debt-to-income ratio well beyond what used to be considered acceptable to lenders.

So yeah, I'd say many HCOL areas are in a housing bubble and have been since the late 90s. I would personally not be a buyer today.
Tldr: Averages are deceiving. People with means are willing to trade money for time buy buying in close-in neighborhoods that aren't seeing much building, but this doesn't mean their DTI is out-of-whack.

Average down-payments have increased markedly, and there's been a decrease in homes in mortgage forbearance, along with inventory and mortgage rates. Credit standards haven't loosened, and "liar loans" aren't back. While I can't predict anything about the future of home prices, this isn't a repeat of the circumstances from 2008.

I'd speculate though that spikes in income/prices in VHCOL areas may be driving most of the rise in the median home price (along with low inventory and low building, some from zoning, some from Covid over-hang). There are probably plenty of areas seeing much less home price appreciation they just get swamped by the "hot cities"

https://www.forbes.com/advisor/mortgage ... -by-state/

https://www.calculatedriskblog.com/2021 ... se-in.html
Averages are deceiving. So why quote average down payments in your very next point?
Because the poster before talked about DTI ratio and credit-worthiness and I'm presenting counter-evidence. I've seen no evidence presented that people are taking "out of whack" DTIs or dropping their down-payments to qualify for the homes. In fact, the opposite. Something else is driving the rise in price. If the averages are going up it's theoretically possible that's only folks at the high end paying "all cash" and folks at the low-end are qualifying at the edge of the traditional back-end DTI range or using 3% down-payments. If so, I'll start believing we're at more of a bubble.

It also doesn't appear we're about to see a big burst in job creation (although I remain concerned the recovery will be terribly uneven).

I do not believe we are in a bubble the way folks seem to casually toss that word around here, because none of the 2008-era conditions are replicated right now. That doesn't mean prices will continue to rise indefinitely (or even much past this year). The analysts at Goldman are likening this to the late 70s/80s-era housing price increases (driven by secular/macro trends) and predicting double-digit price increases for 2021 and 2022. I myself have a hard time believing that, but I don't think this is a repeat of 2005-2007.

In the case of the late 70s/80s, price increases cooled off and dropped in some areas at the tail end of that, but there wasn't a big pop with 40-50% price declines.
SimplicityNow
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Re: Are we in a housing bubble?

Post by SimplicityNow »

I don't think this is a bubble. And if it is it has different drivers than the last one. Here was our personal experience as one data point.

We live in the suburbs of NYC in a VHCOL. House prices here have increased about 20% since this time last year and are still increasing. At first the large increases were limited to starter and mid sized homes but more recently it has spread to include more expensive homes. There is very limited supply and huge demand.

We listed our home and had over 30 families visit it over 3 days. All were pre-aproved before our realtor would show them the house.

We had eight offers and all but one was at or above asking price. Two were cash and the ones with mortgages were putting 40-50% down.

Two offered to wave inspection and appraisals as part of their offers. After we accepted an offer, another buyer offered to up his bid by another 50K. Then another realtor called mine and said their buyer would pay 30K about the best offer we received without even knowing what it was. What was interesting to us was that only one of the offers came from someone who actually lived in NYC. Most were locals.
LittleMaggieMae
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Re: Are we in a housing bubble?

Post by LittleMaggieMae »

Kookaburra wrote: Thu May 06, 2021 1:34 pm
Ron Ronnerson wrote: Thu May 06, 2021 1:11 pm
Ron Ronnerson wrote: Sat Mar 13, 2021 10:19 am
dboeger1 wrote: Fri Mar 12, 2021 11:15 am ...Meanwhile, single family homes from the East Bay all the way to bloody Tahoe are skyrocketing. I think this all tells a clear story that people are fleeing tight urban apartments for more comfortable suburban homes with yards.
I pretty much see it the same way but a yard is apparently not mandatory. I’m in the East Bay (tri-valley) and live in a townhome. Prices have risen from $850k in December of 2020 to $975k now. I don’t know if it’s a bubble but that sort of increase in that short amount of time did raise my eyebrow. This is for a home with no backyard located in a nice neighborhood with great schools. The area is not very congested and there are lots of parks and hiking trails in the region.
Well, it's been about two months since I posted on this thread and the insanity continues. Below is the change in prices for 2000 sq. ft. townhomes in my East Bay neighborhood:
January 2021: $850k
February 2021: $900k
March 2021: $975k
April 2021: $1.050M
May 2021: $1.150M

A neighbor recently listed their home for $1M and it sold for over $1.2M almost immediately. I don't know if this is a bubble or not but it doesn't seem sustainable.
35% in 4 months. Ummm, this can’t end well.
I'm wondering if some of this is driven by "speculators".

If you bought (closed) on one of these townhouses in January - and put it back on the market in May and it sells for 1.150 mil in June - you've made an incredible return on your down payment (170K) money - even with the cost of the buying and selling. The new owner didn't have to move in or change anything in the house. Just needed to pay the utilities and had to make a few mortgage payments (or not).

I think that speculation (and short turn ownership) was also one of the things driving up the housing prices in the years before the Housing Bubble made the news and popped.

It's like musical chairs - who gets stuck with an overpriced house which may mean they will be under water at some point in the future (or just really reluctant to have to sell because they won't have much more than their Down Payment after the cost of selling it) even if the mortgage has a really low rate.
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Random Musings
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Re: Are we in a housing bubble?

Post by Random Musings »

The building inflationary pressures, including housing prices, will put pressure on interest rates. As starting to feel like the housing overvaluation a little over a decade ago.

RM
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rockstar
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Re: Are we in a housing bubble?

Post by rockstar »

Random Musings wrote: Fri May 07, 2021 9:28 pm The building inflationary pressures, including housing prices, will put pressure on interest rates. As starting to feel like the housing overvaluation a little over a decade ago.

RM
Good write-up on this by Krugman over at the NY Times.

Home prices will fall. But I have no idea by how much. I definitely wouldn't buy right now.
Slacker
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Re: Are we in a housing bubble?

Post by Slacker »

We raised the rent on our most expensive property by 10% and still had almost 40 people apply within 4 days to rent the property.

This is 3500+ rent/month in a suburb of a major metro about a 45 min drive outside the metro. Not a coastal state.
Ron Ronnerson
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Re: Are we in a housing bubble?

Post by Ron Ronnerson »

LittleMaggieMae wrote: Fri May 07, 2021 9:09 pm
Kookaburra wrote: Thu May 06, 2021 1:34 pm
Ron Ronnerson wrote: Thu May 06, 2021 1:11 pm
Ron Ronnerson wrote: Sat Mar 13, 2021 10:19 am
dboeger1 wrote: Fri Mar 12, 2021 11:15 am ...Meanwhile, single family homes from the East Bay all the way to bloody Tahoe are skyrocketing. I think this all tells a clear story that people are fleeing tight urban apartments for more comfortable suburban homes with yards.
I pretty much see it the same way but a yard is apparently not mandatory. I’m in the East Bay (tri-valley) and live in a townhome. Prices have risen from $850k in December of 2020 to $975k now. I don’t know if it’s a bubble but that sort of increase in that short amount of time did raise my eyebrow. This is for a home with no backyard located in a nice neighborhood with great schools. The area is not very congested and there are lots of parks and hiking trails in the region.
Well, it's been about two months since I posted on this thread and the insanity continues. Below is the change in prices for 2000 sq. ft. townhomes in my East Bay neighborhood:
January 2021: $850k
February 2021: $900k
March 2021: $975k
April 2021: $1.050M
May 2021: $1.150M

A neighbor recently listed their home for $1M and it sold for over $1.2M almost immediately. I don't know if this is a bubble or not but it doesn't seem sustainable.
35% in 4 months. Ummm, this can’t end well.
I'm wondering if some of this is driven by "speculators".

If you bought (closed) on one of these townhouses in January - and put it back on the market in May and it sells for 1.150 mil in June - you've made an incredible return on your down payment (170K) money - even with the cost of the buying and selling. The new owner didn't have to move in or change anything in the house. Just needed to pay the utilities and had to make a few mortgage payments (or not).

I think that speculation (and short turn ownership) was also one of the things driving up the housing prices in the years before the Housing Bubble made the news and popped.

It's like musical chairs - who gets stuck with an overpriced house which may mean they will be under water at some point in the future (or just really reluctant to have to sell because they won't have much more than their Down Payment after the cost of selling it) even if the mortgage has a really low rate.
I honestly don't know but my theory is that it's not as much speculation as it is other factors at play. I think it's partly because of supply-and-demand and also that these townhomes are a good half million dollars or so less expensive than nearby single-family houses. As prices get higher and higher for all houses in the area, these townhomes might be looking relatively affordable in comparison.

They're a fair distance from Silicon Valley and San Francisco but if someone can work from home for part of the week and is willing to make the commute for the rest of the days (or can find a job that doesn't require going to those places), the positives of living in this part of the East Bay may be tempting. The houses are a decent size and located in a good neighborhood with outstanding schools. These days, for a little bit over a $1M, that probably sounds like a steal to a lot of people living in the Bay Area. To me, it's sort of hard to wrap my head around. We bought here in 2010 when the homes were being newly constructed. They were listed in the high $400,000s at the time.
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Re: Are we in a housing bubble?

Post by Tingting1013 »

Ron Ronnerson wrote: Fri May 07, 2021 10:30 pm
LittleMaggieMae wrote: Fri May 07, 2021 9:09 pm
Kookaburra wrote: Thu May 06, 2021 1:34 pm
Ron Ronnerson wrote: Thu May 06, 2021 1:11 pm
Ron Ronnerson wrote: Sat Mar 13, 2021 10:19 am

I pretty much see it the same way but a yard is apparently not mandatory. I’m in the East Bay (tri-valley) and live in a townhome. Prices have risen from $850k in December of 2020 to $975k now. I don’t know if it’s a bubble but that sort of increase in that short amount of time did raise my eyebrow. This is for a home with no backyard located in a nice neighborhood with great schools. The area is not very congested and there are lots of parks and hiking trails in the region.
Well, it's been about two months since I posted on this thread and the insanity continues. Below is the change in prices for 2000 sq. ft. townhomes in my East Bay neighborhood:
January 2021: $850k
February 2021: $900k
March 2021: $975k
April 2021: $1.050M
May 2021: $1.150M

A neighbor recently listed their home for $1M and it sold for over $1.2M almost immediately. I don't know if this is a bubble or not but it doesn't seem sustainable.
35% in 4 months. Ummm, this can’t end well.
I'm wondering if some of this is driven by "speculators".

If you bought (closed) on one of these townhouses in January - and put it back on the market in May and it sells for 1.150 mil in June - you've made an incredible return on your down payment (170K) money - even with the cost of the buying and selling. The new owner didn't have to move in or change anything in the house. Just needed to pay the utilities and had to make a few mortgage payments (or not).

I think that speculation (and short turn ownership) was also one of the things driving up the housing prices in the years before the Housing Bubble made the news and popped.

It's like musical chairs - who gets stuck with an overpriced house which may mean they will be under water at some point in the future (or just really reluctant to have to sell because they won't have much more than their Down Payment after the cost of selling it) even if the mortgage has a really low rate.
I honestly don't know but my theory is that it's not as much speculation as it is other factors at play. I think it's partly because of supply-and-demand and also that these townhomes are a good half million dollars or so less expensive than nearby single-family houses. As prices get higher and higher for all houses in the area, these townhomes might be looking relatively affordable in comparison.

They're a fair distance from Silicon Valley and San Francisco but if someone can work from home for part of the week and is willing to make the commute for the rest of the days (or can find a job that doesn't require going to those places), the positives of living in this part of the East Bay may be tempting. The houses are a decent size and located in a good neighborhood with outstanding schools. These days, for a little bit over a $1M, that probably sounds like a steal to a lot of people living in the Bay Area. To me, it's sort of hard to wrap my head around. We bought here in 2010 when the homes were being newly constructed. They were listed in the high $400,000s at the time.
Can confirm that three story townhomes are going for $2M here on the Peninsula. $1M in East Bay is a steal.
Stormbringer
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Re: Are we in a housing bubble?

Post by Stormbringer »

If we are headed into a housing bubble, it seems to be like we have a long way to go before it pops. Here is the housing inventory in my local market:

Image

Classic bubbles usually pop when the market runs out of buyers, as happened in the housing bubble that preceeded the Great Recession. The inventory grew and grew until homes began to languish on the market because there weren't enough buyers left to buy them all.

Today we are in almost a completely opposite situation, where there are too many buyers and too few sellers. Unlike stocks, where people can just sell and go to cash or bonds, home sellers need to live somewhere after they sell. That will constrain the inventory of existing homes coming onto the market. Barring a sharp rise in interest rates, I think the mostly likely outcome is a construction boom that will take many years to play out.
“The greatest shortcoming of the human race is our inability to understand the exponential function.” - Albert Allen Bartlett
namajones
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Re: Are we in a housing bubble?

Post by namajones »

SimplicityNow wrote: Fri May 07, 2021 3:33 pm I don't think this is a bubble. And if it is it has different drivers than the last one. Here was our personal experience as one data point.

We live in the suburbs of NYC in a VHCOL. House prices here have increased about 20% since this time last year and are still increasing. At first the large increases were limited to starter and mid sized homes but more recently it has spread to include more expensive homes. There is very limited supply and huge demand.

We listed our home and had over 30 families visit it over 3 days. All were pre-aproved before our realtor would show them the house.

We had eight offers and all but one was at or above asking price. Two were cash and the ones with mortgages were putting 40-50% down.

Two offered to wave inspection and appraisals as part of their offers. After we accepted an offer, another buyer offered to up his bid by another 50K. Then another realtor called mine and said their buyer would pay 30K about the best offer we received without even knowing what it was. What was interesting to us was that only one of the offers came from someone who actually lived in NYC. Most were locals.
Now THAT'S scary.
squinchy
Posts: 10
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Re: Are we in a housing bubble?

Post by squinchy »

Anecdotal data here on the bubble question, but maybe illustrative of the situations some of us are finding ourselves in.

I work for a mid-sized tech company that is (was?) based in San Francisco. The company decided not to renew the lease on the office in SF when it was up last October, and both the CEO and CFO relocated to no-income-tax states. My wife is CEO of a (small, non-tech) company and they also gave up their office lease in Oakland. Neither company plans to return to an in-office model, and it seems like this is more than just an isolated phenomenon:

https://www.sfgate.com/bayarea/article/ ... 160557.php

In March, we decided to sell our house in the East Bay and move up to Lake Tahoe. We listed the house for $2M, it had 65 showings over the week it was on the market and got seven offers, all of them with contingencies waived. Several were all cash, with the top offer at $2.5M and included free rent-back until school's out in June. The buyers provided documentation of their liquid assets as part of the offer. We netted about $1.5M after mortgage payoff and commission.

Now in contract for a home in Incline Village, NV with a nice view of Lake Tahoe and about 1000 sq. ft. bigger than what we sold, for about the same price. We took a larger mortgage so we can put some cash in the bank and do a little remodeling. Higher mortgage payment is offset by a lower interest rate (2.5% vs. 3.25% on our last mortgage) and $30K / year in tax savings between income and property tax. Also found a great school nearby with tuition 1/3 lower than the kids' current school.

Part of me is still in disbelief at all of this, but I'm also very excited for the opportunity to live somewhere that we really love and could only occasionally vacation in before.
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Re: Are we in a housing bubble?

Post by MBB_Boy »

willthrill81 wrote: Fri May 07, 2021 11:30 am
LateFire wrote: Fri May 07, 2021 10:39 am In Upper Midwest where I purchased my house in 2002, it has not even kept up with inflation. I live in a fairly vibrant city by mid-western standards.
That can actually be a big plus. Due to our home's appreciation in market value, our property taxes are 30% higher now than they were in 2018 and will very likely continue to go up for a while at least. Yes, we have a lot of appreciated value in the home, but unless we sell and buy a less costly home or rent, that doesn't help us at all.
Yeah, in a perfect world there's little appreciation while you live there, and then you get all caught up right before selling. Alas.....
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PoultryMan
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Re: Are we in a housing bubble?

Post by PoultryMan »

YES we are in a bubble
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Re: Are we in a housing bubble?

Post by willthrill81 »

MBB_Boy wrote: Mon May 10, 2021 8:18 am
willthrill81 wrote: Fri May 07, 2021 11:30 am
LateFire wrote: Fri May 07, 2021 10:39 am In Upper Midwest where I purchased my house in 2002, it has not even kept up with inflation. I live in a fairly vibrant city by mid-western standards.
That can actually be a big plus. Due to our home's appreciation in market value, our property taxes are 30% higher now than they were in 2018 and will very likely continue to go up for a while at least. Yes, we have a lot of appreciated value in the home, but unless we sell and buy a less costly home or rent, that doesn't help us at all.
Yeah, in a perfect world there's little appreciation while you live there, and then you get all caught up right before selling. Alas.....
I feel sorry for our young daughter. It will be difficult for those her age to buy a decent home in our area in ~20 years even if appreciation slows to a crawl between now and then. When we bought our very modestly sized home 6.5 years ago, it was under 2x our annual gross income, but it's now appreciated to nearly 3x, despite nice increases in our income during the same time.
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Grt2bOutdoors
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Re: Are we in a housing bubble?

Post by Grt2bOutdoors »

rockstar wrote: Fri May 07, 2021 9:30 pm
Random Musings wrote: Fri May 07, 2021 9:28 pm The building inflationary pressures, including housing prices, will put pressure on interest rates. As starting to feel like the housing overvaluation a little over a decade ago.

RM
Good write-up on this by Krugman over at the NY Times.

Home prices will fall. But I have no idea by how much. I definitely wouldn't buy right now.
Was the writeup by Krugman recently published?
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New Providence
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Re: Are we in a housing bubble?

Post by New Providence »

Housing has become the new college tuition.

Back in the day you bought a house cash, or with little debt. Same as as college tuition.

Then, the financial system found out that lenders would benefit to lend you to go to college. The unintended, or intended, consequence was the tuition skyrocketed. You maybe didn't have the money to pay a massive tuition, but lenders are hungry for your business.

30 yr mortgages make no sense. Housing prices would collapse if the maximum tenor was, say, 5 yrs.

Bubbles are ALWAYS generated by the lender.
smitcat
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Re: Are we in a housing bubble?

Post by smitcat »

willthrill81 wrote: Mon May 10, 2021 9:50 am
MBB_Boy wrote: Mon May 10, 2021 8:18 am
willthrill81 wrote: Fri May 07, 2021 11:30 am
LateFire wrote: Fri May 07, 2021 10:39 am In Upper Midwest where I purchased my house in 2002, it has not even kept up with inflation. I live in a fairly vibrant city by mid-western standards.
That can actually be a big plus. Due to our home's appreciation in market value, our property taxes are 30% higher now than they were in 2018 and will very likely continue to go up for a while at least. Yes, we have a lot of appreciated value in the home, but unless we sell and buy a less costly home or rent, that doesn't help us at all.
Yeah, in a perfect world there's little appreciation while you live there, and then you get all caught up right before selling. Alas.....
I feel sorry for our young daughter. It will be difficult for those her age to buy a decent home in our area in ~20 years even if appreciation slows to a crawl between now and then. When we bought our very modestly sized home 6.5 years ago, it was under 2x our annual gross income, but it's now appreciated to nearly 3x, despite nice increases in our income during the same time.
Home prices could always adjust down - to get more or less back in line at some point.
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willthrill81
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Re: Are we in a housing bubble?

Post by willthrill81 »

smitcat wrote: Mon May 10, 2021 10:19 am
willthrill81 wrote: Mon May 10, 2021 9:50 am
MBB_Boy wrote: Mon May 10, 2021 8:18 am
willthrill81 wrote: Fri May 07, 2021 11:30 am
LateFire wrote: Fri May 07, 2021 10:39 am In Upper Midwest where I purchased my house in 2002, it has not even kept up with inflation. I live in a fairly vibrant city by mid-western standards.
That can actually be a big plus. Due to our home's appreciation in market value, our property taxes are 30% higher now than they were in 2018 and will very likely continue to go up for a while at least. Yes, we have a lot of appreciated value in the home, but unless we sell and buy a less costly home or rent, that doesn't help us at all.
Yeah, in a perfect world there's little appreciation while you live there, and then you get all caught up right before selling. Alas.....
I feel sorry for our young daughter. It will be difficult for those her age to buy a decent home in our area in ~20 years even if appreciation slows to a crawl between now and then. When we bought our very modestly sized home 6.5 years ago, it was under 2x our annual gross income, but it's now appreciated to nearly 3x, despite nice increases in our income during the same time.
Home prices could always adjust down - to get more or less back in line at some point.
That's possible, but it seems unlikely that housing prices in our area won't at least keep pace with inflation over the next ~20 years. I could be totally wrong though.
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smitcat
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Re: Are we in a housing bubble?

Post by smitcat »

willthrill81 wrote: Mon May 10, 2021 10:21 am
smitcat wrote: Mon May 10, 2021 10:19 am
willthrill81 wrote: Mon May 10, 2021 9:50 am
MBB_Boy wrote: Mon May 10, 2021 8:18 am
willthrill81 wrote: Fri May 07, 2021 11:30 am

That can actually be a big plus. Due to our home's appreciation in market value, our property taxes are 30% higher now than they were in 2018 and will very likely continue to go up for a while at least. Yes, we have a lot of appreciated value in the home, but unless we sell and buy a less costly home or rent, that doesn't help us at all.
Yeah, in a perfect world there's little appreciation while you live there, and then you get all caught up right before selling. Alas.....
I feel sorry for our young daughter. It will be difficult for those her age to buy a decent home in our area in ~20 years even if appreciation slows to a crawl between now and then. When we bought our very modestly sized home 6.5 years ago, it was under 2x our annual gross income, but it's now appreciated to nearly 3x, despite nice increases in our income during the same time.
Home prices could always adjust down - to get more or less back in line at some point.
That's possible, but it seems unlikely that housing prices in our area won't at least keep pace with inflation over the next ~20 years. I could be totally wrong though.
Just basing it on our experience with personal history.
Should it not adjust ....it would be one of the reasons we did not stop working right when we hit our number.
brianH
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Re: Are we in a housing bubble?

Post by brianH »

New Providence wrote: Mon May 10, 2021 10:17 am 30 yr mortgages make no sense. Housing prices would collapse if the maximum tenor was, say, 5 yrs.
Why don't 30y mortgages make sense? Houses last, even without much maintenance, at least that long. One could also reasonably expect that 30 years represents an average length of time someone might inhabit a home and still be working to pay the mortgage (age 30-60). The fact that people move more frequently than that is irrelevant.

If anything, I expect the US will start to see 40 or 50 year mortgages soon, like other countries already have.

A shorter term would probably lower prices overall, but it would also price more people out. There's some minimum it costs to build a house, and that minimum is larger than almost anyone could afford paid over 5 years.
SmallSaver
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Re: Are we in a housing bubble?

Post by SmallSaver »

brianH wrote: Mon May 10, 2021 2:25 pm
New Providence wrote: Mon May 10, 2021 10:17 am 30 yr mortgages make no sense. Housing prices would collapse if the maximum tenor was, say, 5 yrs.
Why don't 30y mortgages make sense? Houses last, even without much maintenance, at least that long. One could also reasonably expect that 30 years represents an average length of time someone might inhabit a home and still be working to pay the mortgage (age 30-60). The fact that people move more frequently than that is irrelevant.

If anything, I expect the US will start to see 40 or 50 year mortgages soon, like other countries already have.

A shorter term would probably lower prices overall, but it would also price more people out. There's some minimum it costs to build a house, and that minimum is larger than almost anyone could afford paid over 5 years.
I think part of the argument is that 30 year fixed-rate loans have a ton of interest rate risk. You'd expect them to be expensive then, but there are all these backstops to keep them cheap. The problem is that then it just drives up asset prices. Which is what I think would happen with 40 and 50 year mortgages - monthly payments would stay about the same and prices would adjust up, equity growth would slow. At some point the term gets long enough you're basically just making interest payments.

That's kind of off the cuff, if I'm thinking wrong let me know.

Edited to add - the backstop specifically being able to sell them to Fannie/Freddie. Lenders can make the loan and then immediately sell it off to shed the rate risk of a 30-year 2.75% loan. If the government weren't a willing buyer for them I don't think there'd be nearly the same appetite in the open market. (Gotta think about that a little bit more though - clearly there was appetite during the GFC and the 30 year treasury is 2.24% at the moment).
Last edited by SmallSaver on Mon May 10, 2021 3:09 pm, edited 2 times in total.
tomsense76
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Re: Are we in a housing bubble?

Post by tomsense76 »

SmallSaver wrote: Mon May 10, 2021 2:46 pm I think part of the argument is that 30 year fixed-rate loans have a ton of interest rate risk. You'd expect them to be expensive then, but there are a all these backstops to keep them cheap. The problem is that then it just drives up asset prices. Which is what I think would happen with 40 and 50 year mortgages - monthly payments would stay about the same and prices would adjust up, equity growth would slow. At some point the term gets long enough you're basically just making interest payments.

That's kind of off the cuff, if I'm thinking wrong let me know.
Yeah I've wondered about this as well. IOW whether what we have seen in the bond market with falling yields driving up bond prices is in some way analogous to falling mortgage rates driving up housing prices.
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Re: Are we in a housing bubble?

Post by Grt2bOutdoors »

New Providence wrote: Mon May 10, 2021 10:17 am Housing has become the new college tuition.

Back in the day you bought a house cash, or with little debt. Same as as college tuition.

Then, the financial system found out that lenders would benefit to lend you to go to college. The unintended, or intended, consequence was the tuition skyrocketed. You maybe didn't have the money to pay a massive tuition, but lenders are hungry for your business.

30 yr mortgages make no sense. Housing prices would collapse if the maximum tenor was, say, 5 yrs.

Bubbles are ALWAYS generated by the lender.
The 30 year mortgage was originated by the Federal Housing Administration. Yep, you guessed it - started with a government agency. https://www.marketplace.org/2018/10/31/ ... ge-anyway/
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fortunefavored
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Re: Are we in a housing bubble?

Post by fortunefavored »

SmallSaver wrote: Mon May 10, 2021 2:46 pm [snip]
Edited to add - the backstop specifically being able to sell them to Fannie/Freddie. Lenders can make the loan and then immediately sell it off to shed the rate risk of a 30-year 2.75% loan. If the government weren't a willing buyer for them I don't think there'd be nearly the same appetite in the open market. (Gotta think about that a little bit more though - clearly there was appetite during the GFC and the 30 year treasury is 2.24% at the moment).
You can get an idea of this if you try to get an alternative loan - asset depletion, collateral backed, etc. The "real" interest rate on these types of loans is probably 4 to 5 percent higher if you don't have that government backstop.

It is one of the reasons I wanted to lock my current housing in before walking away from my W2 job.
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Re: Are we in a housing bubble?

Post by willthrill81 »

brianH wrote: Mon May 10, 2021 2:25 pm
New Providence wrote: Mon May 10, 2021 10:17 am 30 yr mortgages make no sense. Housing prices would collapse if the maximum tenor was, say, 5 yrs.
Why don't 30y mortgages make sense?
If people couldn't get mortgages and had to pay cash for homes, would they be consuming as much housing as they do now?

Are consumers financially better off by consuming more or less housing?

BTW, the size of the median newly built home vs. the median household size has doubled over the last 50 years (i.e., twice as much housing space in newly built homes compared to the number of people likely to occupy them).
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Re: Are we in a housing bubble?

Post by New Providence »

SmallSaver wrote: Mon May 10, 2021 2:46 pm
brianH wrote: Mon May 10, 2021 2:25 pm
New Providence wrote: Mon May 10, 2021 10:17 am 30 yr mortgages make no sense. Housing prices would collapse if the maximum tenor was, say, 5 yrs.
Why don't 30y mortgages make sense? Houses last, even without much maintenance, at least that long. One could also reasonably expect that 30 years represents an average length of time someone might inhabit a home and still be working to pay the mortgage (age 30-60). The fact that people move more frequently than that is irrelevant.

If anything, I expect the US will start to see 40 or 50 year mortgages soon, like other countries already have.

A shorter term would probably lower prices overall, but it would also price more people out. There's some minimum it costs to build a house, and that minimum is larger than almost anyone could afford paid over 5 years.
I think part of the argument is that 30 year fixed-rate loans have a ton of interest rate risk. You'd expect them to be expensive then, but there are all these backstops to keep them cheap. The problem is that then it just drives up asset prices. Which is what I think would happen with 40 and 50 year mortgages - monthly payments would stay about the same and prices would adjust up, equity growth would slow. At some point the term gets long enough you're basically just making interest payments.

That's kind of off the cuff, if I'm thinking wrong let me know.

Edited to add - the backstop specifically being able to sell them to Fannie/Freddie. Lenders can make the loan and then immediately sell it off to shed the rate risk of a 30-year 2.75% loan. If the government weren't a willing buyer for them I don't think there'd be nearly the same appetite in the open market. (Gotta think about that a little bit more though - clearly there was appetite during the GFC and the 30 year treasury is 2.24% at the moment).
Yes, that's exactly right.
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abuss368
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Re: Are we in a housing bubble?

Post by abuss368 »

According to Sam at Financial Samurai we are not:

https://www.financialsamurai.com/why-th ... ont-crash/

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unclescrooge
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Re: Are we in a housing bubble?

Post by unclescrooge »

willthrill81 wrote: Mon May 10, 2021 4:32 pm
brianH wrote: Mon May 10, 2021 2:25 pm
New Providence wrote: Mon May 10, 2021 10:17 am 30 yr mortgages make no sense. Housing prices would collapse if the maximum tenor was, say, 5 yrs.
Why don't 30y mortgages make sense?
If people couldn't get mortgages and had to pay cash for homes, would they be consuming as much housing as they do now?

Are consumers financially better off by consuming more or less housing?

BTW, the size of the median newly built home vs. the median household size has doubled over the last 50 years (i.e., twice as much housing space in newly built homes compared to the number of people likely to occupy them).
Some people think they are not better off. These people are buying/building tiny homes and paying them over within 12 months.
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Re: Are we in a housing bubble?

Post by rockstar »

Grt2bOutdoors wrote: Mon May 10, 2021 10:00 am
rockstar wrote: Fri May 07, 2021 9:30 pm
Random Musings wrote: Fri May 07, 2021 9:28 pm The building inflationary pressures, including housing prices, will put pressure on interest rates. As starting to feel like the housing overvaluation a little over a decade ago.

RM
Good write-up on this by Krugman over at the NY Times.

Home prices will fall. But I have no idea by how much. I definitely wouldn't buy right now.
Was the writeup by Krugman recently published?
Last week.
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Re: Are we in a housing bubble?

Post by rockstar »

Are you guys ready for the increase in property taxes? These should go up a lot next year.
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