Are we in a housing bubble?

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drk
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Re: Are we in a housing bubble?

Post by drk »

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 all these backstops to keep them cheap.
FWIW, amortization makes a 30-year mortgage more like a 10-year bond.
fortunefavored wrote: Mon May 10, 2021 4:07 pm The "real" interest rate on these types of loans is probably 4 to 5 percent higher if you don't have that government backstop.
Shouldn't we see that in the spread between Jumbo and conforming rates, then?
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Re: Are we in a housing bubble?

Post by abuss368 »

Flannelbeard wrote: Mon May 10, 2021 7:50 pm
abuss368 wrote: Mon May 10, 2021 6:30 pm According to Sam at Financial Samurai we are not:

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

Tony
Doesn't that guy own a sizeable amount of real estate?

IMO his site has drastically fallen in quality over the past several years, I mostly just consider his articles clickbait now.
He states that he has a San Francisco rental or two, Crowdfunding of $800,000+, and REITs.

I would agree the quality of the website has declined. He has been asked by many readers to provide more specifics regarding portfolios, asset allocation, dividends, and really has failed to do so.

Tony
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ensign
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Re: Are we in a housing bubble?

Post by ensign »

SuperTrooper87 wrote: Fri Mar 12, 2021 4:21 am Are we in another bubble?
Yes.
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Re: Are we in a housing bubble?

Post by 1789 »

Yes. The house prices in Portland/OR don't make any sense.
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Re: Are we in a housing bubble?

Post by WhyNotUs »

willthrill81 wrote: Mon May 10, 2021 4:32 pm 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).
Like most things, federally-backed mortgages come with two sides- a pathway to moderate health for the middle class and the excess in the housing market. A conscious consumer can make lots of good choices buy using an 80% mortgage for 30 years on a house that is what they need. It has brought opportunity to many, many families over the last 60 years.

Those who were denied access to those loans were disadvantaged.
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Re: Are we in a housing bubble?

Post by willthrill81 »

unclescrooge wrote: Mon May 10, 2021 7:06 pm
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.
I know at least one lady who has built and now lives in a tiny home and relishes the financial freedom it has brought her.

When I first heard Jacob Lund Fisker talk about his ideas of extreme early retirement, it really struck a cord with my DW and me. At the time, we lived in a 4/3 home with 2,400 sq. ft. with no children. To our credit, we bought it anticipating that we were going to have two children relatively soon and also wanted a guest room for our family, who visits us frequently from significant distances. Also, we had spent the prior four years in a 550 sq. ft. 1/1 apartment and wanted some space after that. But the children didn't come (we adopted our daughter a few years later), and we realized that we didn't need all that space. So we downsized to a 1,600 sq. ft. 3/1.5 townhome, then we downsized again to our current 1,200 sq. ft. 3/2 that fits our family's needs perfectly. We own it outright and save 50% of our gross income into various tax-advantaged accounts as a direct result.
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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 10:42 pm
unclescrooge wrote: Mon May 10, 2021 7:06 pm
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.
I know at least one lady who has built and now lives in a tiny home and relishes the financial freedom it has brought her.

When I first heard Jacob Lund Fisker talk about his ideas of extreme early retirement, it really struck a cord with my DW and me. At the time, we lived in a 4/3 home with 2,400 sq. ft. with no children. To our credit, we bought it anticipating that we were going to have two children relatively soon and also wanted a guest room for our family, who visits us frequently from significant distances. Also, we had spent the prior four years in a 550 sq. ft. 1/1 apartment and wanted some space after that. But the children didn't come (we adopted our daughter a few years later), and we realized that we didn't need all that space. So we downsized to a 1,600 sq. ft. 3/1.5 townhome, then we downsized again to our current 1,200 sq. ft. 3/2 that fits our family's needs perfectly. We own it outright and save 50% of our gross income into various tax-advantaged accounts as a direct result.
When we sold our previous 2,800 sqft house, I thought it was too much space and tried looking for a 2,300 sqft house. Instead we ended up with a 3,400 sqft house with an extra downstairs granny flat :oops:
But it was cost effective, and great to have during covid.
And we will rent out the downstairs during the next Olympics in Los Angeles.
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Re: Are we in a housing bubble?

Post by smitcat »

We have had both small and moderate sized homes over the years. I must say that the larger sized homes allowed us the ability to do so many worthwhile activities. And when looking back now in the rear mirror - they cost us very little.
texanghost
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Re: Are we in a housing bubble?

Post by texanghost »

One factor that may contribute to increased demand is an increased savings rate in the US. It's at historic highs, from 5% in 2000 to over 15% in 2020: https://time.com/nextadvisor/banking/sa ... e-soaring/

I imagine folks staying at home and not being able to travel or do much accelerated the savings for a down payment for some. I wish there was good data on breakdown of savings rate by income bracket to see if this increase somewhat holds across income brackets.
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Re: Are we in a housing bubble?

Post by rockstar »

smitcat wrote: Tue May 11, 2021 7:39 pm We have had both small and moderate sized homes over the years. I must say that the larger sized homes allowed us the ability to do so many worthwhile activities. And when looking back now in the rear mirror - they cost us very little.
Layout is just as important as size.

Do you know hard it is these days to find a home with a pantry and bathtub? You'd think those would be easy asks. I have no idea what's up with the group showers these days.
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Re: Are we in a housing bubble?

Post by Valuethinker »

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).
We know what the world looks like when middle class people cannot get mortgages.

It looks like Britain up to about 1930. Everyone lives in rental properties - either rented from the state (social) or privately rented. The suburbs basically didn't exist.

It was the 1930s which saw the housing revolution in Britain. On a population 2/3rds size it is now, we built 50% more homes pa.

Similar period for the US before 1946 & Levittown etc. Go to the Tenement Museum on Lower East Side of NY -- a fascinating tour, when it reopens. Single family of 5-7 people (including grandmother) living in a 2-3 room apartment. You can see similar in Berlin.
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Re: Are we in a housing bubble?

Post by willthrill81 »

Valuethinker wrote: Wed May 12, 2021 4:24 am
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).
We know what the world looks like when middle class people cannot get mortgages.

It looks like Britain up to about 1930. Everyone lives in rental properties - either rented from the state (social) or privately rented. The suburbs basically didn't exist.

It was the 1930s which saw the housing revolution in Britain. On a population 2/3rds size it is now, we built 50% more homes pa.

Similar period for the US before 1946 & Levittown etc. Go to the Tenement Museum on Lower East Side of NY -- a fascinating tour, when it reopens. Single family of 5-7 people (including grandmother) living in a 2-3 room apartment. You can see similar in Berlin.
Home ownership in the U.S. was around 44%, depending on which data is being used, before WW2. That increased to around 60% by 1960, and only small increases have been seen since (it's currently about 66% according to Statista). In this NBER article, Daniel Fetter examines this increase in home ownership between 1945-1960 and discusses various theories as to why it occurred. The increased availability of mortgages, especially VA mortgages, is one of the theoretical drivers, but there are others too (i.e., demographic changes, income, income tax, and others).

Further, the increased availability of mortgages, especially very long-term mortgages (e.g., 30 years), has likely been a contributing factor in the doubling of the median size of the newly built home relative to the median U.S. household size since 1972 and the increased COL of many areas. The same argument holds true with student loans in the U.S. (i.e., increased availability of student loans was at least partially responsible for increasing the cost of higher education).
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Re: Are we in a housing bubble?

Post by Jess Saying »

Good article about people trying to buy homes in boring, depleted small towns, but failing due to too much bidding competition. This is absolutely happening in the *****y small town I live in in flyover country as well.

https://www.wsj.com/articles/real-estat ... 1621511972

The article is paywalled, but here are a few fair-use snippets:
The average price for a house in the Allentown metro area, which includes Bethlehem, was about $225,000 a year ago, Mr. Campbell said. It has since shot past $270,000 in a market so hot that open houses trigger traffic jams, and properties sell in 48 hours.
So, up 20% in Allentown, PA metro in 1 year in the middle of a pandemic.
The city’s downtown has recently been redeveloped, but crime remains a common complaint, said Mr. Hazim, 25, who grew up there.
Healthcare and universities are now major employers in the region, which is known as the Lehigh Valley. Much of the area is still farmed. The road a few minutes drive outside of downtown Allentown is flanked by cornfields, and the air smells of manure.
Do people understand that you don't have to buy?
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Re: Are we in a housing bubble?

Post by nisiprius »

Real Estate Frenzy Overwhelms Small-town America: "I Came Home Crying" May 20th, 2021:
Buyers far from big cities lose out to investors and deep-pocket rivals in places where properties until a year ago offered affordable entry to the middle class

...Home prices in the U.S. have shot up in the past year, driven by limited supply, record-low interest rates and buyer demand. Bidding wars have spread from such high-profile locations as Palm Beach, Fla., and the suburbs outside New York City to smaller cities and towns, including long-neglected locales where properties typically sat on the market for months....

...With the exception of a few urban markets, including Manhattan and San Francisco, the U.S. is seeing “a chronic shortage of inventory, heavy sales volume and prices rising at levels wildly ahead of income growth,” said Jonathan Miller of New York-based Miller Samuel Real Estate Appraisers and Consultants. The Case-Shiller U.S. National Home Price NSA Index reported a 12% annual gain in February, a figure seen only a few times in the history of the index, said Craig Lazzara, a managing director at S&P DJI...
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rockstar
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Re: Are we in a housing bubble?

Post by rockstar »

Pretty irrational here in AZ. Home prices are up 20% yoy. Rent is up 4-5%. This isn't sustainable.
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Re: Are we in a housing bubble?

Post by Hannibal Barca »

People always jump to the 2008 housing crash. However, I don't see the NINJA loans, a red-hot CDO market, freelance workers buying a second house as an investment, etc. If you look at the Case Shiller Home Price Index, things are expensive, but not as expensive as the housing bubble of the mid-2000's. And keep in mind interest rates are much lower than they were back then, so homes are actually more affordable today.

That said, I see some catalysts that could lead to a small correction (up to 20%, but likely more like 5-10%). Home prices tend to be sticky, because retail sellers tend to anchor the price they paid for the house as the bare minimum.

Possible catalysts for softening market:
-Higher inflation leads the Fed to jack up rates, hurting mortgage affordability / buyer ability to pay.
-When COVID abates, some people return to city living
-Stock market correction leads people to feel less well off, leading to more price sensitivity
-When unemployment benefits get reduced to normal levels, more hourly workers return to home construction. This is more "medium term" than the other catalysts because home construction takes time.

Structural reasons price won't fall a lot:
-New home construction has lagged for a decade, and that lack of "young" inventory makes such homes more expensive. Even if the pace of construction picks up there's a big hole to dig out of
-Interest rates are still super low by historical standards, even if the Fed bumps rates a few points
-NIMBY zoning regulation and tight mortgage underwriting are unlikely to go away
-Millennials are a large age cohort and they're finally hitting marriage age (even if that means getting married in their mid-30's)
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Re: Are we in a housing bubble?

Post by rockstar »

Hannibal Barca wrote: Thu May 20, 2021 8:43 pm People always jump to the 2008 housing crash. However, I don't see the NINJA loans, a red-hot CDO market, freelance workers buying a second house as an investment, etc. If you look at the Case Shiller Home Price Index, things are expensive, but not as expensive as the housing bubble of the mid-2000's. And keep in mind interest rates are much lower than they were back then, so homes are actually more affordable today.
This is a different problem. Back then we had too many buyers because credit was way too loose. Now, we have supply shortages along with more expensive building costs. It's a supply side problem. And buyers are now being priced out again.

My expectation is that prices will go down when the supply returns to normal and building costs return to normal. What I don't know is what the reaction will be this time when buyers find themselves upside down.
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Re: Are we in a housing bubble?

Post by Hannibal Barca »

rockstar wrote: Thu May 20, 2021 9:21 pm
Hannibal Barca wrote: Thu May 20, 2021 8:43 pm People always jump to the 2008 housing crash. However, I don't see the NINJA loans, a red-hot CDO market, freelance workers buying a second house as an investment, etc. If you look at the Case Shiller Home Price Index, things are expensive, but not as expensive as the housing bubble of the mid-2000's. And keep in mind interest rates are much lower than they were back then, so homes are actually more affordable today.
This is a different problem. Back then we had too many buyers because credit was way too loose. Now, we have supply shortages along with more expensive building costs. It's a supply side problem. And buyers are now being priced out again.

My expectation is that prices will go down when the supply returns to normal and building costs return to normal. What I don't know is what the reaction will be this time when buyers find themselves upside down.
Agreed, it’s mostly supply side.

A mortgage originator can change its credit policy overnight. But a housing supply shortage that was bad pre Covid and has gotten worse takes much longer to work out. Really new construction has to ramp, local zoning laws have to be changed, and a lot of time has to pass to cure the shortage.
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Re: Are we in a housing bubble?

Post by AD3 »

I was looking at the FRED website and found this chart on the home ownership rate and based on the chart we aren't close to the highs of the last 15-20 years. Interest rates can't be the only thing that pushing prices this high?
https://fred.stlouisfed.org/series/USHOWN
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Re: Are we in a housing bubble?

Post by rockstar »

AD3 wrote: Fri May 21, 2021 3:08 pm I was looking at the FRED website and found this chart on the home ownership rate and based on the chart we aren't close to the highs of the last 15-20 years. Interest rates can't be the only thing that pushing prices this high?
https://fred.stlouisfed.org/series/USHOWN
It's supply. Check out this chart:

https://fred.stlouisfed.org/series/ACTLISCOU38060
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Re: Are we in a housing bubble?

Post by SmallSaver »

Hannibal Barca wrote: Thu May 20, 2021 8:43 pm People always jump to the 2008 housing crash. However, I don't see the NINJA loans, a red-hot CDO market, freelance workers buying a second house as an investment, etc. If you look at the Case Shiller Home Price Index, things are expensive, but not as expensive as the housing bubble of the mid-2000's. And keep in mind interest rates are much lower than they were back then, so homes are actually more affordable today.
National Case-Shiller index is significantly higher than during the 2000's peak.

Somethings gotta give (?) I saw a house near me that listed at $309k 18 months ago, now back on the market at $500k. (sales prices aren't disclosed in my state). In the bedroom communities people used to commute from prices have literally doubled since the start of the pandemic. There aren't that many places to live where I am, no idea how the average earner can do it.
Last edited by SmallSaver on Fri May 21, 2021 4:23 pm, edited 1 time in total.
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Re: Are we in a housing bubble?

Post by humbledinvestor »

rockstar wrote: Thu May 20, 2021 9:21 pm
Hannibal Barca wrote: Thu May 20, 2021 8:43 pm People always jump to the 2008 housing crash. However, I don't see the NINJA loans, a red-hot CDO market, freelance workers buying a second house as an investment, etc. If you look at the Case Shiller Home Price Index, things are expensive, but not as expensive as the housing bubble of the mid-2000's. And keep in mind interest rates are much lower than they were back then, so homes are actually more affordable today.
This is a different problem. Back then we had too many buyers because credit was way too loose. Now, we have supply shortages along with more expensive building costs. It's a supply side problem. And buyers are now being priced out again.

My expectation is that prices will go down when the supply returns to normal and building costs return to normal. What I don't know is what the reaction will be this time when buyers find themselves upside down.

https://www.realtor.com/news/trends/rea ... me-crying/
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Re: Are we in a housing bubble?

Post by EddyB »

rockstar wrote: Mon May 10, 2021 7:34 pm Are you guys ready for the increase in property taxes? These should go up a lot next year.
That depends on the state (and maybe the locality).
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Re: Are we in a housing bubble?

Post by esteen »

It's a toss up to me right now whether RE is a bubble or not. Probably is in some areas. Here's an interesting theory though: as population continues to level off, and maybe even fall in coming decades, combined with urbanization and farming efficiencies which free up more land... could we see developed countries have long term negative real RE pricing trends 30, 40, 50 years out? As in, land becomes less valuable over time?
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rockstar
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Re: Are we in a housing bubble?

Post by rockstar »

esteen wrote: Fri May 21, 2021 3:39 pm It's a toss up to me right now whether RE is a bubble or not. Probably is in some areas. Here's an interesting theory though: as population continues to level off, and maybe even fall in coming decades, combined with urbanization and farming efficiencies which free up more land... could we see developed countries have long term negative real RE pricing trends 30, 40, 50 years out? As in, land becomes less valuable over time?
Japan would be a good proxy, but they have limited land to build.
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Re: Are we in a housing bubble?

Post by Sasquatch1 »

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 agree with all points and have been expecting 40yr mortgages.

The real issue though is WHY these notes on everything are going with longer terms.

That issue is so people, govt and business can keep kicking the can down the road and charging inflated prices. I believe, big business has learned that they can charge almost anything they want as long as they give us an affordable monthly note. Look at vehicles, it’s easier to give us a longer finance then it is for them to come down to reality with prices. The sad part is, how financially dumb the general population is. They don’t even see the trap.

We are now starting to see notes on literal everything! All the way down to buying a shirt online, you get bombed with 4 easy payment options.

Idk how people can’t see what is taking place.
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Re: Are we in a housing bubble?

Post by ray.james »

rockstar wrote: Fri May 21, 2021 4:15 pm
esteen wrote: Fri May 21, 2021 3:39 pm It's a toss up to me right now whether RE is a bubble or not. Probably is in some areas. Here's an interesting theory though: as population continues to level off, and maybe even fall in coming decades, combined with urbanization and farming efficiencies which free up more land... could we see developed countries have long term negative real RE pricing trends 30, 40, 50 years out? As in, land becomes less valuable over time?
Japan would be a good proxy, but they have limited land to build.
Limited land actually makes it more interesting as it increases pressure on price increases.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
rockstar
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Re: Are we in a housing bubble?

Post by rockstar »

ray.james wrote: Fri May 21, 2021 4:30 pm
rockstar wrote: Fri May 21, 2021 4:15 pm
esteen wrote: Fri May 21, 2021 3:39 pm It's a toss up to me right now whether RE is a bubble or not. Probably is in some areas. Here's an interesting theory though: as population continues to level off, and maybe even fall in coming decades, combined with urbanization and farming efficiencies which free up more land... could we see developed countries have long term negative real RE pricing trends 30, 40, 50 years out? As in, land becomes less valuable over time?
Japan would be a good proxy, but they have limited land to build.
Limited land actually makes it more interesting as it increases pressure on price increases.
True. But I can't comp Japan against the US that has a lot more land to build.
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Re: Are we in a housing bubble?

Post by SmallSaver »

ray.james wrote: Fri May 21, 2021 4:30 pm
rockstar wrote: Fri May 21, 2021 4:15 pm
esteen wrote: Fri May 21, 2021 3:39 pm It's a toss up to me right now whether RE is a bubble or not. Probably is in some areas. Here's an interesting theory though: as population continues to level off, and maybe even fall in coming decades, combined with urbanization and farming efficiencies which free up more land... could we see developed countries have long term negative real RE pricing trends 30, 40, 50 years out? As in, land becomes less valuable over time?
Japan would be a good proxy, but they have limited land to build.
Limited land actually makes it more interesting as it increases pressure on price increases.
And yet Tokyo has rather famously managed to keep prices flat for the last several decades.
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Re: Are we in a housing bubble?

Post by rockstar »

Sasquatch1 wrote: Fri May 21, 2021 4:29 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 agree with all points and have been expecting 40yr mortgages.

The real issue though is WHY these notes on everything are going with longer terms.

That issue is so people, govt and business can keep kicking the can down the road and charging inflated prices. I believe, big business has learned that they can charge almost anything they want as long as they give us an affordable monthly note. Look at vehicles, it’s easier to give us a longer finance then it is for them to come down to reality with prices. The sad part is, how financially dumb the general population is. They don’t even see the trap.

We are now starting to see notes on literal everything! All the way down to buying a shirt online, you get bombed with 4 easy payment options.

Idk how people can’t see what is taking place.
Growing up in the 80s, I saw layaway everywhere. They have just rebranded it.
Sasquatch1
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Re: Are we in a housing bubble?

Post by Sasquatch1 »

esteen wrote: Fri May 21, 2021 3:39 pm It's a toss up to me right now whether RE is a bubble or not. Probably is in some areas. Here's an interesting theory though: as population continues to level off, and maybe even fall in coming decades, combined with urbanization and farming efficiencies which free up more land... could we see developed countries have long term negative real RE pricing trends 30, 40, 50 years out? As in, land becomes less valuable over time?
I have a real hard time ever thinking land will go down in value. No more land is being created while human encroachment is forever increasing. Whether it’s from population growth or just the fact people now days want more and bigger. Plus demographics change always causing things to shuffle around.
Sasquatch1
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Re: Are we in a housing bubble?

Post by Sasquatch1 »

rockstar wrote: Fri May 21, 2021 4:37 pm
Sasquatch1 wrote: Fri May 21, 2021 4:29 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 agree with all points and have been expecting 40yr mortgages.

The real issue though is WHY these notes on everything are going with longer terms.

That issue is so people, govt and business can keep kicking the can down the road and charging inflated prices. I believe, big business has learned that they can charge almost anything they want as long as they give us an affordable monthly note. Look at vehicles, it’s easier to give us a longer finance then it is for them to come down to reality with prices. The sad part is, how financially dumb the general population is. They don’t even see the trap.

We are now starting to see notes on literal everything! All the way down to buying a shirt online, you get bombed with 4 easy payment options.

Idk how people can’t see what is taking place.
Growing up in the 80s, I saw layaway everywhere. They have just rebranded it.
True, I remember that too. However I think it’s much diff now. The debt level shows it. Then ppl just didn’t have money, now they just grossly overspend on things and have real bad cases of the wants.
THY4373
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Re: Are we in a housing bubble?

Post by THY4373 »

Sasquatch1 wrote: Fri May 21, 2021 4:39 pm No more land is being created
This isn't true. New land is being created across the northern latitudes as the earth's crust rebounds from the now missing ice from last ice age (though some areas like the southern UK are sinking for the same reason) and new land is being created on the Big Island of Hawaii from volcanic action and I am sure other places. I am not suggesting any of this has a measurable impact on real estate but new land for sure is still being created.
Sasquatch1
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Re: Are we in a housing bubble?

Post by Sasquatch1 »

THY4373 wrote: Fri May 21, 2021 5:09 pm
Sasquatch1 wrote: Fri May 21, 2021 4:39 pm No more land is being created
This isn't true. New land is being created across the northern latitudes as the earth's crust rebounds from the now missing ice from last ice age (though some areas like the southern UK are sinking for the same reason) and new land is being created on the Big Island of Hawaii from volcanic action and I am sure other places. I am not suggesting any of this has a measurable impact on real estate but new land for sure is still being created.

It’s also washing away in others and we destroy it fast lol
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starboi
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Re: Are we in a housing bubble?

Post by starboi »

Well in Japan they have 100 year mortgages. And in Hawaii, you can get a 30-year leasehold. In Denmark they have negative interest mortgages. So there are further tricks in the bag.
SmallSaver
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Re: Are we in a housing bubble?

Post by SmallSaver »

Sasquatch1 wrote: Fri May 21, 2021 4:39 pm
esteen wrote: Fri May 21, 2021 3:39 pm It's a toss up to me right now whether RE is a bubble or not. Probably is in some areas. Here's an interesting theory though: as population continues to level off, and maybe even fall in coming decades, combined with urbanization and farming efficiencies which free up more land... could we see developed countries have long term negative real RE pricing trends 30, 40, 50 years out? As in, land becomes less valuable over time?
I have a real hard time ever thinking land will go down in value. No more land is being created while human encroachment is forever increasing. Whether it’s from population growth or just the fact people now days want more and bigger. Plus demographics change always causing things to shuffle around.
Maybe not land, but in a lot of places the problem is the restrictions on what you can do with it.
Sasquatch1
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Re: Are we in a housing bubble?

Post by Sasquatch1 »

starboi wrote: Fri May 21, 2021 5:26 pm Well in Japan they have 100 year mortgages. And in Hawaii, you can get a 30-year leasehold. In Denmark they have negative interest mortgages. So there are further tricks in the bag.
What is the end game in that?? A mortgage for longer than you live? A mortgage that basically pays you to buy a home? Those instances seem like more govt kicking the reall issues on down the road to only get bigger and bigger, like we do but they just farther along I guess?

Man one day something just has to give id think but who knows.
Bungo
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Re: Are we in a housing bubble?

Post by Bungo »

Sasquatch1 wrote: Fri May 21, 2021 6:11 pm
starboi wrote: Fri May 21, 2021 5:26 pm Well in Japan they have 100 year mortgages. And in Hawaii, you can get a 30-year leasehold. In Denmark they have negative interest mortgages. So there are further tricks in the bag.
What is the end game in that?? A mortgage for longer than you live? A mortgage that basically pays you to buy a home? Those instances seem like more govt kicking the reall issues on down the road to only get bigger and bigger, like we do but they just farther along I guess?

Man one day something just has to give id think but who knows.
The monthly payments on a 100-year mortgage are within 5% of the payments on an interest-only mortgage of the same size and interest rate, so there's definitely a law of diminishing returns at work here.

As a soon-to-be cash buyer in my retirement destination state, I'm certainly not looking forward to people bidding against me with money they're able to borrow at near-zero interest rates. But such is life.
anoop
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Re: Are we in a housing bubble?

Post by anoop »

Bungo wrote: Fri May 21, 2021 6:23 pm
Sasquatch1 wrote: Fri May 21, 2021 6:11 pm
starboi wrote: Fri May 21, 2021 5:26 pm Well in Japan they have 100 year mortgages. And in Hawaii, you can get a 30-year leasehold. In Denmark they have negative interest mortgages. So there are further tricks in the bag.
What is the end game in that?? A mortgage for longer than you live? A mortgage that basically pays you to buy a home? Those instances seem like more govt kicking the reall issues on down the road to only get bigger and bigger, like we do but they just farther along I guess?

Man one day something just has to give id think but who knows.
The monthly payments on a 100-year mortgage are within 5% of the payments on an interest-only mortgage of the same size and interest rate, so there's definitely a law of diminishing returns at work here.

As a soon-to-be cash buyer in my retirement destination state, I'm certainly not looking forward to people bidding against me with money they're able to borrow at near-zero interest rates. But such is life.
They'll bid against you with IPO funny money instead!
decapod10
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Re: Are we in a housing bubble?

Post by decapod10 »

tj wrote: Fri Mar 12, 2021 10:42 am
I know other areas are seeing similar situations as there is a mass exodus out of the urban areas (NY, CA, etc).
The housing prices in coastal SoCal definitely do not suggest a mass exodus.
Not sure about SF proper, but real estate prices in Bay Area are skyrocketing as well.
ballons
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Re: Are we in a housing bubble?

Post by ballons »

Hannibal Barca wrote: Thu May 20, 2021 8:43 pm People always jump to the 2008 housing crash. However, I don't see the NINJA loans, a red-hot CDO market, freelance workers buying a second house as an investment, etc. If you look at the Case Shiller Home Price Index, things are expensive, but not as expensive as the housing bubble of the mid-2000's. And keep in mind interest rates are much lower than they were back then, so homes are actually more affordable today.

That said, I see some catalysts that could lead to a small correction (up to 20%, but likely more like 5-10%). Home prices tend to be sticky, because retail sellers tend to anchor the price they paid for the house as the bare minimum.
The reward for people who panic bid up a house they don't really care for and waived the inspection on is a 20% falling knife? New buyers aren't going to waive inspections and will quickly "un-stick" that price.
anoop
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Re: Are we in a housing bubble?

Post by anoop »

decapod10 wrote: Fri May 21, 2021 6:27 pm
tj wrote: Fri Mar 12, 2021 10:42 am
I know other areas are seeing similar situations as there is a mass exodus out of the urban areas (NY, CA, etc).
The housing prices in coastal SoCal definitely do not suggest a mass exodus.
Not sure about SF proper, but real estate prices in Bay Area are skyrocketing as well.
People moving out of SF + IPO money. CEO of Snowflake was getting a payout of ~$100MM per month because of stock!!
Hannibal Barca
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Re: Are we in a housing bubble?

Post by Hannibal Barca »

ballons wrote: Fri May 21, 2021 6:35 pm
Hannibal Barca wrote: Thu May 20, 2021 8:43 pm People always jump to the 2008 housing crash. However, I don't see the NINJA loans, a red-hot CDO market, freelance workers buying a second house as an investment, etc. If you look at the Case Shiller Home Price Index, things are expensive, but not as expensive as the housing bubble of the mid-2000's. And keep in mind interest rates are much lower than they were back then, so homes are actually more affordable today.

That said, I see some catalysts that could lead to a small correction (up to 20%, but likely more like 5-10%). Home prices tend to be sticky, because retail sellers tend to anchor the price they paid for the house as the bare minimum.
The reward for people who panic bid up a house they don't really care for and waived the inspection on is a 20% falling knife? New buyers aren't going to waive inspections and will quickly "un-stick" that price.
In the somewhat affluent suburbs where I live, post-2008 home prices didn't fall much, but they basically didn't rise at all for ~6 years. Owners didn't have to sell, but buyers didn't feel like the homes were a great deal either, so not much transaction activity occurred. The ultimate impact on long term home prices was similar to if prices fell a lot but then rebounded at a healthy CAGR. Real estate as a market can be more inefficient and irrational than public equities, because the main market participants are retail.
esteen
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Re: Are we in a housing bubble?

Post by esteen »

SmallSaver wrote: Fri May 21, 2021 5:37 pm
Sasquatch1 wrote: Fri May 21, 2021 4:39 pm
esteen wrote: Fri May 21, 2021 3:39 pm It's a toss up to me right now whether RE is a bubble or not. Probably is in some areas. Here's an interesting theory though: as population continues to level off, and maybe even fall in coming decades, combined with urbanization and farming efficiencies which free up more land... could we see developed countries have long term negative real RE pricing trends 30, 40, 50 years out? As in, land becomes less valuable over time?
I have a real hard time ever thinking land will go down in value. No more land is being created while human encroachment is forever increasing. Whether it’s from population growth or just the fact people now days want more and bigger. Plus demographics change always causing things to shuffle around.
Maybe not land, but in a lot of places the problem is the restrictions on what you can do with it.
I do too, to be honest. But I was thinking if US population did cap out and start to fall eventually, the "population growth" issue may not be a factor (a big "if", current UN projections have it as less than 20% likelihood by end of century, here).

But even if population continues to grow, urbanization continues to increase which means more of the people will be densely populated in the cities, taking up less land. And if climate change continues to affect northern latitudes, internationally the large land masses that are currently not well suited for human development (much of Russia, and northern Canada) will become more available.

Probably not ever to a degree that would affect residential real estate prices, especially in the US... but it is an interesting thing to think about! :beer
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ossipago
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Re: Are we in a housing bubble?

Post by ossipago »

SmallSaver wrote: Fri May 21, 2021 4:36 pm
ray.james wrote: Fri May 21, 2021 4:30 pm
rockstar wrote: Fri May 21, 2021 4:15 pm
esteen wrote: Fri May 21, 2021 3:39 pm It's a toss up to me right now whether RE is a bubble or not. Probably is in some areas. Here's an interesting theory though: as population continues to level off, and maybe even fall in coming decades, combined with urbanization and farming efficiencies which free up more land... could we see developed countries have long term negative real RE pricing trends 30, 40, 50 years out? As in, land becomes less valuable over time?
Japan would be a good proxy, but they have limited land to build.
Limited land actually makes it more interesting as it increases pressure on price increases.
And yet Tokyo has rather famously managed to keep prices flat for the last several decades.
My understanding is that this is largely due to extremely flexible land use policies that allow rapid changes in supply (housing stock) in reaction to changes in demand. In fact, I consider it strong evidence that most urban housing price increases globally are driven primarily by supply issues originating from restrictive land use policies.
1moreyr
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Re: Are we in a housing bubble?

Post by 1moreyr »

According to Zillow, my house gained $13K in a month.
feels like a bubble to me...

luckily , i have no plans to move or look for something else.
anoop
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Re: Are we in a housing bubble?

Post by anoop »

1moreyr wrote: Fri May 21, 2021 8:12 pm According to Zillow, my house gained $13K in a month.
feels like a bubble to me...

luckily , i have no plans to move or look for something else.
It's probably being undervalued even now. There's no bubble unless everyone is buying 3 and 4 houses (bubble means there needs to be speculation). But right now, it looks like lending standards are not at all lax. Much of the buying is happening by people and institutions with access to funny money.

I don't see a bubble. I just see a big downward adjustment in lifestyle for future generations and lots of inflation on the horizon (Burry fan here).

A latex mattress that I bought last year costs 30% more (yes you read that right) this year (actually about 9 months later).

I'm more concerned about not being able to afford to fix things in and around the house when they break.
Bungo
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Re: Are we in a housing bubble?

Post by Bungo »

anoop wrote: Fri May 21, 2021 6:27 pm
Bungo wrote: Fri May 21, 2021 6:23 pm
Sasquatch1 wrote: Fri May 21, 2021 6:11 pm
starboi wrote: Fri May 21, 2021 5:26 pm Well in Japan they have 100 year mortgages. And in Hawaii, you can get a 30-year leasehold. In Denmark they have negative interest mortgages. So there are further tricks in the bag.
What is the end game in that?? A mortgage for longer than you live? A mortgage that basically pays you to buy a home? Those instances seem like more govt kicking the reall issues on down the road to only get bigger and bigger, like we do but they just farther along I guess?

Man one day something just has to give id think but who knows.
The monthly payments on a 100-year mortgage are within 5% of the payments on an interest-only mortgage of the same size and interest rate, so there's definitely a law of diminishing returns at work here.

As a soon-to-be cash buyer in my retirement destination state, I'm certainly not looking forward to people bidding against me with money they're able to borrow at near-zero interest rates. But such is life.
They'll bid against you with IPO funny money instead!
No, that's what I'm using to bid against them. (Well, RSU money in my case.) ;-D
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Forester
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Re: Are we in a housing bubble?

Post by Forester »

Adjusted for inflation, US house prices look frothy

Image

Canada is probably much worse, puzzled me when driving through the outskirts of Canadian cities, so much empty land alongside eye watering home prices. Obviously the complexities of supportive infrastructure (electric, gas, water) is lost on me...
Amateur Self-Taught Senior Macro Strategist
jackbeagle
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Re: Are we in a housing bubble?

Post by jackbeagle »

Sasquatch1 wrote: Fri May 21, 2021 6:11 pm
starboi wrote: Fri May 21, 2021 5:26 pm Well in Japan they have 100 year mortgages. And in Hawaii, you can get a 30-year leasehold. In Denmark they have negative interest mortgages. So there are further tricks in the bag.
What is the end game in that?? A mortgage for longer than you live? A mortgage that basically pays you to buy a home? Those instances seem like more govt kicking the reall issues on down the road to only get bigger and bigger, like we do but they just farther along I guess?

Man one day something just has to give id think but who knows.
Think of all the TikTok and YouTube gurus that will then tell you that your best financial move is to minimize your monthly payment with an interest-only mortgage and "invest the difference" :wink:

30 year is the end game. Beyond that, you don't see a lot of success in paying off the original note, or even a lot of success in making timely payments. Beyond 30 years / interest-only / negative interest are all perversions of what was initially a longer-term mortgage for lower-income buyers, HINGED ON THE NOTION THAT INCOME WOULD EVENTUALLY RISE AND PAY IT OFF. Then conventional lenders started doing 30y for people of all incomes and it became the "new normal". It set a new purchase price bar. People were budgeting for paychecks vs. monthly payments, not thinking about the implications of carrying even a somewhat fixed payment for longer than they had working years left.

I have said since about 2019 that there are too many A-players in the market. Lots of cash, perfect credit scores, dual income, dual degreed, dual work-from-home, having kids later in life, family gifts, generational wealth... you name it. There are no longer any advantages, only disadvantages. If you lack even one of the above, you automatically now carry a stigma as a buyer.
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