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Interesting article on real estate bubble
- Thread starter Argo
- Start date
FrustratedUser
Lifer
I hope the real estate market bombs!
Vic
Elite Member
The 40 year interest-only stated income 100% non-owner-occupied mortgage makes me very nervous, I must admit. I'm not a doomsayer, but I don't think this appreciation can go on like this forever. In some markets, even people with above average incomes for their area can no longer afford to buy a home.
StageLeft
No Lifer
Average auto loan term now is 62 months...that means a lot of people are getting 72 monthers.
What can I say, americans have no damn clue about personal finance. Oh, Canadians are a bit better, but some ballpark. As a whole our society's level of financial education is despicable.
I don't think we'll all be living in $10k homes any time soon, but this trend _cannot_ continue indefinitely. It's not like the country just had half its land seized.
I don't know what relevance it has to this topic, but on my street (two years old) are about 50 houses. Until a few months ago there would be 1-2 for sale at once, and now there are seven. I don't know if that's people dumping their appreciated homes to buy new or what, but it's a bit unnerving.
I read a bit about Japan's economic catastrophe, but I don't think it's the same thing that's going on here.
IF this article is right--and there are articles that refute it, of course--then it means you don't buy in the next little while, because when the bubble bursts housing prices will plummet, and so you want to wait a while.
Unfortunately, as with the stock market, you cannot always estimate the troughs and highs very well.
Vic
Elite Member
Depends on where you want to buy. Not every market is overvalued. Some, particularly in the Midwest, are actually undervalued, with homes selling for roughly the same prices as they did 10 and 15 years ago.
Look out for markets that have seen dramatic appreciation in the past few years, where mortgage payments for a "starter" home are much higher than comparable market rents (often more than twice as much), and where creative financing with reduced documentation and interest only options have become the norm.
Basically, if a modest condo costs $300k or more (meaning a $2500/mo mortgage payment with taxes and insurance), but rent for an almost identical apartment is around $1000/mo., that's a really bad sign.
I am not saying that we aren't in a bubble, but the writer relies on some specious logic for some of his arguments. For example:
He is implying that 100% of all homeowners who take a mortgage for a non-personal residence speculative. So no-one is buying houses for parents, children, in-laws because they can build equity faster at lower interest rates. No one is buying as cash-flow investing (i.e. rentals). At best, based on the assumption that the bubble had yet to get going in 2000 (implied by the writer), that would at best indicate that 2.7% of the market is speculative. That's at best 2.7%, not at least 8.5%. But that doesn't sound quite so dire....
One of the reasons why there is a supposed "bubble" is that interest rates are so low. People will never be able to afford more than a certain amount for housing. As rates drop, sellers can demand higher prices, and buyer's can afford them thanks to less interest payments. As rates rise, the housing inflation should cool off, but affordability should remain the same.
Also, even if the bubble does burst, the people who can afford their housing will continue to have housing. They may be forced to stay in it longer to gain equity, but even if the floor completely fell out of the market, they still would have their houses at the same standard of living they are enjoying today. The only ones who would be hurt are the speculators (read: gamblers) who make up a much smaller portion of the market than the dot-commers did in 2000. Speculating is taking on a much higher risk with the potential for much higher gains - including a risk of 100% loss...
Again, I'm not saying there's a bubble, but I don't think the situation is as dire as the author makes it out to be.
He is implying that 100% of all homeowners who take a mortgage for a non-personal residence speculative. So no-one is buying houses for parents, children, in-laws because they can build equity faster at lower interest rates. No one is buying as cash-flow investing (i.e. rentals). At best, based on the assumption that the bubble had yet to get going in 2000 (implied by the writer), that would at best indicate that 2.7% of the market is speculative. That's at best 2.7%, not at least 8.5%. But that doesn't sound quite so dire....
One of the reasons why there is a supposed "bubble" is that interest rates are so low. People will never be able to afford more than a certain amount for housing. As rates drop, sellers can demand higher prices, and buyer's can afford them thanks to less interest payments. As rates rise, the housing inflation should cool off, but affordability should remain the same.
Also, even if the bubble does burst, the people who can afford their housing will continue to have housing. They may be forced to stay in it longer to gain equity, but even if the floor completely fell out of the market, they still would have their houses at the same standard of living they are enjoying today. The only ones who would be hurt are the speculators (read: gamblers) who make up a much smaller portion of the market than the dot-commers did in 2000. Speculating is taking on a much higher risk with the potential for much higher gains - including a risk of 100% loss...
Again, I'm not saying there's a bubble, but I don't think the situation is as dire as the author makes it out to be.
actually the bubble didn't get started until 2000, i.e., the decline of our economy immediately after the dot com bubble and the million other simultaneous things that happened to fuel the real estate bubble. Some parts of the country is not seeing a bubble, like the midwest, but the north east, west coast, and all over texas is definitely seeing one.
FrustratedUser
Lifer
I am just being selfish. I own no stocks and would like to be able to afford a house but with this market I don't see that happening.
My lease is up in June 2006, I'll decide by then.
well, i just bought my first overvalued home in the washington DC region. prices have gone up over 200% in 3 years....maybe these trends will continue at least until i can make some money off mine! I have friends who bought a year ago and have already had their *condos* go up 100K in a year. Tough to find an investment with that kind of return...
Triumph
Lifer
Sounds like the DC/Nova metro area! My current living situation really sucks, so I'm itching to own a home, but this region is just insane. I make $62k a year, single, with NO debt, and a 2 bedroom townhouse would put me just under the 50% debt-to-income margin. I've heard you mention this idea about mortgage prices versus rent prices, and it seems to be a good yardstick. But the buying craze itself is partially responsible for lowering the average rent prices.
Then there are places like NYC, where a young professional making a hefty salary still can't afford to buy anything, and it's been that way for years and years. Some markets are just very expensive by nature.
Triumph
Lifer
I don't even want to make a killing like that. I'd be happy if I bought a place and it didn't lose value a month after I buy it. That is ultimately what I am afraid of, getting upside down on a mortgage, not being able to rent for enough to cover the mortgage, and being stuck in this area for longer than I'd like to.
FrustratedUser
Lifer
It just can't go on forever with normal salaries going up by 3% or so a year. Who the hell will be able to buy? The bubble will burst when there is nobody willing to pay up. That's it.
I used to live in Tucson and 1 to 1.5 years ago I could easily find a nice $135k - $150k home I could afford but I didn't have the $$$ for down payment to get in and then in I was told I had to move to VA.
Looking at the market in Tucson now.... holy shiat, it's gone crazy over there. Prices are up 15% since December.
*shakes head*
The appreciation rates in the majority of the country arn't making housing unaffordable. There are the pocket areas surrounding many metro areas that are experiencing an unsustainable rate of inflation.
The market will regulate. Expect some good foreclosure deals in socal in the future.
The market will regulate. Expect some good foreclosure deals in socal in the future.
LordSnailz
Diamond Member
I think the article is true for parts of the U.S., I agree that it's dangerous to be flipping real estate at this time, but I still think it makes sense to buy if you're planning to stay in the place for 7 yrs or more.
Interest rates are still at record lows, so if you find a place then go for it.
You might be able to find a good deal on a foreclosure later on but more than likely not, there are enough people in the market that will be able to pick those up quicker than the regular joe.
The place I see where the "housing bubble" will have a huge effect is those flipping real estate and the million dollar homes. The median priced houses, 500-700k (norcal) will only see a minor price adjustment.
Thoughts?
Interest rates are still at record lows, so if you find a place then go for it.
You might be able to find a good deal on a foreclosure later on but more than likely not, there are enough people in the market that will be able to pick those up quicker than the regular joe.
The place I see where the "housing bubble" will have a huge effect is those flipping real estate and the million dollar homes. The median priced houses, 500-700k (norcal) will only see a minor price adjustment.
Thoughts?
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