I think the real estate market may have finally peaked

[DodgingCars]

Originally Posted by fujishig

I'm really, really close to being buyer number 2.

My wife and I were long priced out of the LA market. We're looking to move because of it.

[al_bundy]

Originally Posted by DodgingCars

Actually, there was a great article in the Economist on this. Some of their predictions seemed a little dramatic, but many of the reasons they citied that they believe that this is a bubble seemed legitimate. I know that people have talked about this for a couple of years, but I think the talk is getting more serious. We're also starting to see the market cool in some places overseas and even domestically (I mentioned earlier that Orange County and San Diego County had both seen some cooling). Most of the people that are taking the "There's no housing bubble!" stance seem to be in real estate or home building. I think all the talk of a housing bubble will cool the market a little (investors may back off).

We're starting to see more economists talking about seeing a bubble. There were several reports release just last week -- UCLA was one of them.

Without the help of "experts" though, I think some housing markets have to be at their peak. There are lower-middle class neighborhoods near me that have houses selling for $500-600k. That's nuts. Who's buying these houses? Houses in better areas (i.e. better school districts) have prices at about $700-800k. Someone I know lives on a street with, in my opinion, fairly modest houses selling for over a million dollars. These houses would have been $600k, at most, 5 years ago.

I read that article, and it was very short on actual facts except a few dire predictions

My theory on housing is that the whole thing is built on the first time home buyer. This is where the real cash money comes into the market. Everything else is equity and paper profits. But the real cash comes in from the first time buyer.

Example. First time buyer buys a home for $150,000 and puts 20% down. 10 years later he sells the home for $250,000 and uses the equity to buy a new home. The equity was financed by the person that bought the home from him and is now in the form of debt belonging to the current resident of that home. The original buyer most likely could not have afforded that new home without selling the original home to someone who is also probably a first time buyer.

My theory is that no matter how low rates go and no matter how much crazy financing they can think up, if the first time buyer can't afford their home then the whole system is in trouble and the more expensive homes can't get sold up the chain. In many places the market is at the point where interest rates are low, but people need crazy financing deals like IO or negative ammortization just to be able to afford the payment.

As far as bubble, I think California and Florida are maybes or most probably. NYC is a no to a small chance of a bubble here. The percentage of IO loans is one of the lowest in the country here and getting a mortgage is only part of the process. To buy most real estate you need to come up with 20% down in cash or more and have the HOA do a full background and credit check on you.

[Jack Straw]

Originally Posted by monkey42

I just bought a house a few weeks back, so based on that, prices will drop. Its a skill I have.

I think this will be the first time I've offerred congrats and condolences in the same sentence.

[LurkerDan]

Originally Posted by DodgingCars

I don't know if there is a national bubble, but I do think that there are some local markets they may be in one.

I was goint to point this out. It seems rather silly to talk about a bubble in the abstract, as it varies so much by region. In fact, here in Boulder, we had a number of years of flat prices, even slight declines. We were hit hard by the dot-com crash, plus we have a stupid-ass constitutional amendment regarding govt spending that has been surpressing a rebound. However, in the past few months, prices finally started to crank upwards. I doubt that suddenly things will burst now.

And I hope not, seeing as I closed on a house 4 days ago.

[Puzznic]

I think there is definitely a bubble. When the late 90s stock bubble burst everyone ran to real estate because it was "safe". Now with so many people desperate to get into the market they have just created the same problems as the late 90s stock market. It seems like you would be better off investing in stocks now because once the real estate bubble bursts the same people will probrobly run back to stocks.

[LurkerDan]

except people need houses to live in, nobody needs stocks. thinking about it purely in the same terms as other investments, like stocks, is incorrect.

[al_bundy]

I'm way ahead of you

Forbes has a nice article of how hedge funds are manipulating prices of T-Bills and oil. I need to get me a book to really learn it


http://www.forbes.com/business/2005/...0620rates.html

[al_bundy]

Originally Posted by LurkerDan

except people need houses to live in, nobody needs stocks. thinking about it purely in the same terms as other investments, like stocks, is incorrect.

he meant a lot of the 1990's speculators/day traders probably moved into real estate and started flipping homes. A lot of builders are putting an end to this and now they will have to move somewhere else

www.condoflipping.com

[LurkerDan]

Originally Posted by al_bundy

he meant a lot of the 1990's speculators/day traders probably moved into real estate and started flipping homes. A lot of builders are putting an end to this and now they will have to move somewhere else

www.condoflipping.com

but my point is valid. thinking about the market for stocks and the market for real estate as the same thing, 2 different types of investments that function the same, is incorrect. The market for real estate will not act the same as the market for stocks, because you don't have the same types of investors (which is due to the fact that the investments function very differently).

[al_bundy]

people sold their worthless stock certificates on ebay after the companies went bankrupt

real estate is like musical chairs, there is always a sucker at the end

if there is a bubble then some poor sucker is going to be left with a mortgage they can't afford. already has happened in las vegas

[al_bundy]

Watching a rerun of yesterday's Bloomberg and Bill Gross from Pimco was on as well as someone from Freddie Mac.

Both said that they are worried by speculation that they see in a few local markets and Bill Gross is also worried that some people are over leveraged in RE.

[DodgingCars]

Originally Posted by al_bundy

I read that article, and it was very short on actual facts except a few dire predictions

My theory on housing is that the whole thing is built on the first time home buyer. This is where the real cash money comes into the market. Everything else is equity and paper profits. But the real cash comes in from the first time buyer.

Example. First time buyer buys a home for $150,000 and puts 20% down. 10 years later he sells the home for $250,000 and uses the equity to buy a new home. The equity was financed by the person that bought the home from him and is now in the form of debt belonging to the current resident of that home. The original buyer most likely could not have afforded that new home without selling the original home to someone who is also probably a first time buyer.

My theory is that no matter how low rates go and no matter how much crazy financing they can think up, if the first time buyer can't afford their home then the whole system is in trouble and the more expensive homes can't get sold up the chain. In many places the market is at the point where interest rates are low, but people need crazy financing deals like IO or negative ammortization just to be able to afford the payment.

As far as bubble, I think California and Florida are maybes or most probably. NYC is a no to a small chance of a bubble here. The percentage of IO loans is one of the lowest in the country here and getting a mortgage is only part of the process. To buy most real estate you need to come up with 20% down in cash or more and have the HOA do a full background and credit check on you.

That's an interesting theory. I think its valid. There are already markets where many first time buyers have been priced out. This of course helps drive up other markets (i.e. cities in the west: Phoenix, Portland, Vegas, etc.) But then, people start getting priced out of those markets as well.

I didn't know NYC was so weird.

[X]

Every study I have seen shows no significant correlation between real estate prices and stock market prices. There certainly isn't a negative correlation between them but there might be a slightly positive trend.

Leaving out drastic interest rate increases which I think we can agree aren't very likely to occur, real estate prices most highly correlate with wage and unemployment levels.

[mosquitobite]

High end home - I'm talking 5bd, 3+ baths and over 3000 sq ft would cost you $400K TOPS.

First time home buyers here can still own a home for around $100K.

My 2600sq ft 4bd, 2ba brick home cost $118K.

No bubble on price here

I will say though, that I have noticed a LOT more "For Rent" signs around town. Which to me, seems to point to the fact that more people can afford to buy with the lower interest rates so why rent (especially here). I do wonder what this will do to the market here since investors will have to take lower rent or sell.


It's got me & my hubby wondering what our next step should be.

[Puzznic]

Originally Posted by LurkerDan

except people need houses to live in, nobody needs stocks. thinking about it purely in the same terms as other investments, like stocks, is incorrect.

Your right, its definitely not the same. I was just looking at it in a simple human behavior way. It just reminds me of the stocks bubble because the current RE market seems to be built like a house of cards.

[al_bundy]

6 months ago I would say no way there is a bubble

but with all the "creative" financing people are using these days just to afford a payment, I don't know

[SpaceBoy]

I think there maybe is some bubble bursting, at least in certain areas.

I have been watching a few different houses around the boston area, nothing great, but pretty nice value for the money.. (right around 500k, which is a reasonable house price up here, and even then the house normally needs lots of work done)

Just this week, 2 of the 3 I had been watching dropped around 50k each, in their asking price. That's a serious drop.. I'm going to go check one of those out now.

Also, I can count at least 10-15 houses in my neighborhood where I rent and surronding areas that the houses have been sitting since before xmas forsale.

I think only marginal gains are possible anymore in some markets. Overall doubt it will ever happen. I mean if you can get 2k sq ft place, like the one poster said in IN for around 120k, how much cheaper can it get.. ha

[X]

Originally Posted by al_bundy

6 months ago I would say no way there is a bubble

but with all the "creative" financing people are using these days just to afford a payment, I don't know

I'd sure like to hear your reasoning on this.

[Deftones]

The house prices in AZ continue to be insane. A 3800 sf house that is 12 years old just sold across from my gf's parent's house. It was bought for about $300k and just sold for $725k.

[VinVega]

There is a bubble, simply because of the 0% rate loans abounding and the speculation buying. People are buying condo's before they're even built in Florida and then flipping them after 6 months for a profit (still before they've been built). That can't continue for much longer, the market can't sustain that type of frenzy. I think they'll be a pullback, but a bust will be hard to achieve unless the interest rates skyrocket AND the economy slows.

[VinVega]

Originally Posted by X

Every study I have seen shows no significant correlation between real estate prices and stock market prices. There certainly isn't a negative correlation between them but there might be a slightly positive trend.

Leaving out drastic interest rate increases which I think we can agree aren't very likely to occur, real estate prices most highly correlate with wage and unemployment levels.

Didn't Real Estate prices spike up after the stock market recession in the early 1990's? I don't have the numbers in front of me though.

[SpaceBoy]

Originally Posted by Deftones

The house prices in AZ continue to be insane. A 3800 sf house that is 12 years old just sold across from my gf's parent's house. It was bought for about $300k and just sold for $725k.

725k for a 3800 sq ft is insane? Seems d@m good to me. My friend here got a plane 800k and it was just 2k sq ft.

Then again, the same can be said lots of places nowadays.

To bad a place that much only really does you any good if you sell it and move somewhere you dont' want to live, otherwise you just have to pay more.

[Deftones]

Originally Posted by SpaceBoy

725k for a 3800 sq ft is insane? Seems d@m good to me. My friend here got a plane 800k and it was just 2k sq ft.

But the AZ market is different in there is infinite space to expand. It's not like an LA where growth isn't possible.

It's insane in that just two years prior, that same house would've sold for about $500k. Now it's more than doubled in price in less than 2 years. Also, all the houses in that neighborhood of similar plans have sold in the $600k range in the past 6 months. That's like almost a $75k jump in that short period of time.

[al_bundy]

Originally Posted by X

I'd sure like to hear your reasoning on this.

affordability

at current low rates it should be nothing for a middle class family to buy a home on a fixed rate loan. Why are so many people getting IO loans?

How does a middle class family making $150,000 a year afford a $600,000 home in california if they are first time buyers?

My theory is that if the first time buyers can't afford then the person who is going to sell them the home can't sell it and buy something better and so on up the food chain.

[X]

Originally Posted by VinVega

Didn't Real Estate prices spike up after the stock market recession in the early 1990's? I don't have the numbers in front of me though.

Both the stock market and the real estate market spiked up. However they don't show a long term correlation and that time period certainly doesn't show that one spikes at the expense or due to weakness of the other.