Real Estate Bubble Or No Bubble

[kenhoeve]

clearly your answers have no weight, but i am friggin going nuts here. i am doing all the research i can, and for every yes, i have a no. personally i am shaking in my boots at the prospect of signing a $600,000 note for a 1,400sqft condo, but some say it will only get worse. i then ask, well, if we can't afford it when that day comes, who can?

Prices are up 40% in 2 years. How is that realistic? 60% of mortgages in OC are interest only. You can bet these over extended morons are making the minimum payment too(cause they're leasing a BMW or Benz they can't afford, trust me). what happens in 3 years when all those people's rate goes up a couple points? The county is almost fully developed, will there be a supply crunch that keeps prices up? Can income growth sustain home prices? Will the local economy support the job growth necessary to do so? How much will mortgage rates rise in the next couple years? How will that affect prices? UCLA and Chapman say there is a bubble, USC says there is not, who's right? My head is spinning, you guys must have all the answers.

Chuck?

[the underlørd]

this is a good thing for you. it might take a while, but the housing market will collapse...

[gdizzle]

we're having the same issues out here Ken, not as bad, but close. I bought my house for 364k back in nov. The same house in the same neighborhood is now selling for 419k. It's crazy. The prices are just climbing and climbing but the wages aren't compensating. There are neighborhoods around here offering 50year mortgages now! :blink:

[mmetz]

we're having the same issues out here Ken, not as bad, but close.  I bought my house for 364k back in nov.  The same house in the same neighborhood is now selling for 419k.  It's crazy.  The prices are just climbing and climbing but the wages aren't compensating.  There are neighborhoods around here offering 50year mortgages now!

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yeah the DC area is def. expericencing the same thing.... however I don't think there will be a "bust"... I do think we'll begin to see things level out as the housing market catches up to reality

while we're on the topic... I'm going to settlement on my new place on Aug. 1... WOOHOO! [though I'm prolly paying double what it was worth 5 years ago]

[gdizzle]

yeah the DC area is def. expericencing the same thing.... however I don't think there will be a "bust"... I do think we'll begin to see things level out as the housing market catches up to reality

while we're on the topic... I'm going to settlement on my new place on Aug. 1... WOOHOO! [though I'm prolly paying double what it was worth 5 years ago]

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Oh I do. I don't see how things can keep going the way they are. People aren't making enough money to pay for the houses, it's crazy! All things must come to an end. Just buy now and hope the trend keeps up forawhile so when it crashes you aren't screwed an you don't lose your asson the house!

[javadoc]

We had a bubble here back in the 70s/80s, and then we had a huge recession (locally) and housing prices dropped by 50%. It was awful, the bank taking all these family's homes, and the prices being so depressed. Well, unless you had a good job and bought at the bottom of the swing. They're now up above that pre-bubble-burst level, finally, but I think it's due to the scarcity of land. Local real estate inflation here is in the 30%+ region annually, and we bought last year (440k, $162/sf) what we could've bought the year before for 330k ($122/sf).

Boy, $600k for a condo. I'd probably rent and see what happens in 5yrs myself, but I know how it sux to be paying rent. On the other hand, you could commute, which is another hassle.

What if you became a flipper? Buy fix-er upper condos, renovate them and sell them. After a number of good sales, you could possibly buy with cash. :)

[kenhoeve]

the real problem i keep running into is that the market here is uncharted territory. there has never been an appreciation of this magnitude and duration. so looking at historical trends becomes equivalent to gazing into a crystal ball. there are only two certainties here.

1. appreciation at this rate is not sustainable.

2. a significant bust of 20% or more would have to be precipitated by some type of economic shock.

Boom doesn't mean bust, but it also doesn't mean sure thing.

The real question then is, will the market flatten, or will it check downward slowly over time. This will determine how stuck you are.

[StickThatClutch]

Where are you moving to Ken? There is more craziness in the condo market.

To be honest at this point I wouldn't be scared to put more money into real estate. If its going to be where you're going to settle down for a while in reality you don't lose money if your house goes down in value untill you sell it. I doubt any depreciation (they expect depreciation in some LA zip codes this year) will get to the point that it will make your house worth less than you buy it for by the time you want to sell it.

My brother Henry bought a house out in the inland empire. Growth is almost 25% a year. Seriously if the "bubble" burst he's still going to come out even. Now you're in a year later but figure South County is saturated. There is no where else to build. The likeliness of a great depression in real estate in our area in my mind is pretty slim.

Oh and I love my new equity rich neighbors. They stare at me from their leased S-Classes while I have to toil and wash my own car on the weekend.

EDIT: Looking at my foreclosure listings South County has very few listings. That's usually a good sign of a stable market...

EDIT EDIT: South County has seen pretty steady growth through the last decade when I was a youngin' you could get a 3000 sq ft house for 300k. The scary thing is when people start to flip houses. Generally, most real estate here cost too much for the average joe to use this practice... Vegas on the other hand... :unsure:

[Asinine]

The bottom line with any investment is that you make money where everyone else isn't.

As soon as the general population think that real estate is a sure thing, then you know it's done. Case in point...

"Hey man, what do you think of the new back street boys album, best one of 1998!!"

"I didn't buy it, instead i bough www.ieatshit.com stock and it doubled over night"

POP!

Lets do a little bit of economic common sense thinking here.

1) your home (condo or house) is only worth as much as someone else will pay for it.

2) more and more supply is being added to the real estate market all the time.

3) fewer new buyers are showing up; pretty soon all would-be home buyers will be home owners

4) when interest rates rise people paying interest only on $500 - 1mil (stupid people) are going to be screwed - they obviously can't handle a mortgage in low interest rate environment.

So.. we have a decreasing level of demand for homes, and increasing supply of homes and increasing costs for homes = bust

Between people not buying, way too many home options and the fact that the current run up and low interest rates has made new home ownership almost unaffordable tells me to wait 8 years before i think about buying any more real estate!

[bill d cat]

My head is spinning, you guys must have all the answers.

←

Oh, I always have answers..... they're just not always right, though.

Look at your poll. The MAJORITY is almost always wrong... unless you want to argue that Volvo owners are particularly astute investors.

Suggest next time you stop at a bookseller, page through (don't bother to buy it) the SECOND EDITION (which is hardcover) of Robert Shiller's book "Irrational Exuberance". He "called" the NASDAQ /Internet bubble in the late 1990s so his reflections might be worth your attention.

Most people either predict a crash or a moonshot. Shiller expects an insidious decline, maybe a couple of percent annually in nominal terms, not anything really noticable by most people, but it would all add up after ten years or so.

Housing (shelter) is just a utility. If it's cheaper to buy, you should buy, if it's cheaper to rent, you should rent.

I still have my house (it's paid for and I live in it) and I'm not short stock in the luxury homebuilders (yet).

[Kibim]

I can't belive your rate is 3.5%! That's crazy! Ours is 11%!! I guess the difference is I payed $100 000 for a 1400sq foot house.

(i think that's the conversion - 135sq metre)

[StickThatClutch]

Wow. You can live good in RSA for what you could only scrape by on here...

[prasamin]

Ken, we're in CA....real estate bubble is really hard to burst...it's really hard to say what will happen, especially with the I.E. expanding so much with cheaper housing and more land. However, the O.C. has alot of CA's most prime property, so I don't think it's likely that the demand for existing housing will go down....Of course, there is really no room for development.

[Fake Name]

Bubble? Yes.

Burst? Maybe not. Slow or reduce prices? Maybe.

I say it depends on how long you intend to keep it. I would not buy if I thought I might have to sell within about 4-5 years. Beyond that, if you keep it long enough, you'll be fine. Yes, lots of folks suggest renting right now. The answer to that lies in your tax status- can you hide income in tax-deferred places? If you are on a salary and have to take all your earnings, you might be better off buying ANYTHING rather than giving the $ to the government.

I don't believe in a bubble burst of any kind. Correction, yes. Burst with half-values? No way.

fn

[steve s]

very close to bubble imo