Is It THE BUBBLE Again?

[bld999]

Here in north Seattle where I live, single home inventory for sale has plummeted in the last 8 months and pushed prices past the high point of 2007 -2008 in many cases. Many other cities are getting the same effect, and prices are rising quickly, drawing bidding wars again; e.g., my zipcode has an average of 12 offers per sale.

What is everybody else seeing? does this runup have legs, or will it crash just as hard as before?

 

[FIREd]

In the Bay Area, I hear tales of houses with 20+ offers and going several hundred thousand dollars over asking price (a lot of people who relocated with us to the BA are in the market right now and keep us apprised of the situation).

 

[pb4uski]

Both of those sound like a bubble to me.

 

[chasesfish]

This is also happening in Atlanta,


IMO, it's not a bubble yet. We are all seeing prices reset quickly to a "normal" level. Once housing reaches the point that a builder can purchase land and build a house, then sell it with a 5-10% profit, you'll see prices flatten out. This recent run up is just getting used product closer to the cost of buying new

 

[brewer12345]

If you factor in today's low interest rates, we are probably not in bubble territory yet for real estate.

The market I think is closest to bubble conditions is the corporate credit market (both junk and investment grade). Spreads are low, covenants are weak, and exotic structures are starting to pop up in an environment where even CCC-rated issuers can get financed. As a result I have taken the hint and liquidated most of my junk exposures. However, credit has not been in a bubble long enough to do truly catastrophic damage if the bubble pops. We need another year or two of stupidity to make things really precarious. I would suggest that this means that equities will benefit as there is nothing like cheap, easy money to make corporations go nuts and buy each other at inflated prices (let alone what private equity/LBO shops will do).

 

[chasesfish]

If you factor in today's low interest rates, we are probably not in bubble territory yet for real estate.

The market I think is closest to bubble conditions is the corporate credit market (both junk and investment grade). Spreads are low, covenants are weak, and exotic structures are starting to pop up in an environment where even CCC-rated issuers can get financed. As a result I have taken the hint and liquidated most of my junk exposures. However, credit has not been in a bubble long enough to do truly catastrophic damage if the bubble pops. We need another year or two of stupidity to make things really precarious. I would suggest that this means that equities will benefit as there is nothing like cheap, easy money to make corporations go nuts and buy each other at inflated prices (let alone what private equity/LBO shops will do).

I'm not used to reading about things like covenants, spreads, and structures outside of the office. There is wwwaaayyy too much liquidity in the bond market and and excess capacity in the banking sector relative to demand. The combination of QE X and the government requiring more capital in the banking industry. Usually his excess capacity can be merged away, but I think red tape is preventing that M&A.

 

[Dawg52]

No housing bubble where I live. Plenty of houses for sale. But I have heard realtors say sales have improved locally.

 

[JoeWras]

The markets I follow have stabilized. In some local pockets, there is some slight uptick. But nothing like I'm hearing on the West coast.

And not just from you guys. I have a lot of co-w*rkers who live out there (mostly Silicon Valley) and they are reporting it to be hot, hot, hot. The numbers they throw around just blow my mind. I see no way I could enter that market, unless I want to continue w*rking there. Nahhh.

Isn't Rich_in_Tampa moving West? Should be interesting to get his observations. FL market is still recovering from its bubble. No new one there yet.

 

[Accidental Retiree]

In the Bay Area, I hear tales of houses with 20+ offers and going several hundred thousand dollars over asking price (a lot of people who relocated with us to the BA are in the market right now and keep us apprised of the situation).

That is also what I am hearing -- albeit from realtors who want to list our house! Still, they sell quickly and for more than I would expect.

Lots of cash offers, too, I also hear.

 

[Accidental Retiree]

In the Bay Area, I hear tales of houses with 20+ offers and going several hundred thousand dollars over asking price (a lot of people who relocated with us to the BA are in the market right now and keep us apprised of the situation).

+1

 

[Koolau]

Honolulu has been a relatively stable housing market for many years. One reason for this is that the crazy financing (e.g., no-doc loans, etc) were never much of a factor here. The RE price trend has been up with inflation as well as the situation where (except for the Big Island, heh, heh) they aren't making any more land. Sure enough, prices dropped when the bubble burst, but it was never in free fall as in some areas. Now, inventory is declining and prices are rising. It all seems pretty tame - if it weren't for the actual (relatively high) prices involved. Dis mainland haole boy is still surprised when looking at current prices and recalling how little he paid back on the mainland. Having said that, there is no apparent "bubble", just a gradual return to the relatively outrageous (with respect to people's earning power) prices of Paradise. IIRC The Islands have one of the highest levels of multi-generational occupancy (we call it ohana or "family"). Three generations is not at all uncommon here. It's part of the cost of Paradise. Owing to the more oriental culture, it's not only accepted, but considered a good thing in most cases. YMMV

Here's a current article on local RE.

Asking Prices and Inventory for Homes in Honolulu Hawaii | Department of Numbers

 

[clifp]

The market in Vegas continues to be crazy hot, with 10 to 20 offers most above list being very common. It has been this way for almost two years and shows no sign of cooling off. Prices have risen considerably but considering that many properties declined 60-75% from the peak and are less than 50% today there is still plenty of room to appreciate before hitting the bubble stage.

The market in Hawaii is also picking up with homes selling above list in some case. Prices here never declined by that much ~20-30% but I think in general are still below the 2007/2008 peak.

On the other hands, with the record low interest rates, homes are very affordable by historical standards in many parts of the country, with mortgages payment+tax and insurance less than rents in lots of places.

 

[Koolau]

<SNIP>

On the other hands, with the record low interest rates, homes are very affordable by historical standards in many parts of the country, with mortgages payment+tax and insurance less than rents in lots of places.

It occurred to me that, as clifp points out, purchasing RE (based on mortgage rates) is approaching "bargain" status in some areas. The only reason I can see that the bubble has not returned is that loans are still difficult to get. If you get a loan, the terms are great. But proving to a financial institution that you are "worthy" of borrowing their money is still a challenge. I've documented here the travail DW and I went through to get a mortgage 3 years ago. I was ready to commit mayhem before the process was through (and that was with a credit score like 820).

 

[timo2]

until a couple months ago, I was in a vanpool with a new home sales person. He told me that his new homes (Denver metro area) were selling quickly starting late last summer, and still were. According to him, many of his buyers had attempted to buy existing homes but were consistently being beat out by investors paying cash. I suppose the investors are renting out the homes until prices rise.

 

[ShortInSeattle]

We've gotten a few "cold call" letters in the mail with agents saying their client wanted to buy in our building, so they wanted to talk to anyone even curious about selling. Weird indeed. Our condo has gone up 10% in value in the last year, per Zillow estimates.

SIS

 

[Koolau]

We've gotten a few "cold call" letters in the mail with agents saying their client wanted to buy in our building, so they wanted to talk to anyone even curious about selling. Weird indeed. Our condo has gone up 10% in value in the last year, per Zillow estimates.

SIS

DW and I enjoy browsing Zillow (especially to see what is happening in our old neighborhoods, etc.) Because we also keep track of actual sales in the area, stay in contact with realtors, etc., we have found Zillow to be only a guesstimate. While an apparent 10% increase in values probably reflects the correct trend, I would assume there are significant error bars around that figure. Don't know your area, so I could easily be wrong about this. Still, in areas I know, I take Zillow with a few margarita sized grains of salt. Not that I don't find it interesting and even valuable. YMMV as always.

 

[cjogo]

Supply and demand keeping the prices hot in Carmel & Pebble. Steady climb since the summer >> $22 million sale this month in Pebble.

Amazing what a 800 -1200 sqft home can run still ..on a small lot.
Median List Price $1,825,000
Median $ / Sq. Ft. $1,166
Median Sale / List 95.6%

 

[clifp]

until a couple months ago, I was in a vanpool with a new home sales person. He told me that his new homes (Denver metro area) were selling quickly starting late last summer, and still were. According to him, many of his buyers had attempted to buy existing homes but were consistently being beat out by investors paying cash. I suppose the investors are renting out the homes until prices rise.

My Vegas realtor says the same thing. She primarily has two type of buyers,investor like myself that are mostly paying cash and FHA buyers.

So many of the sales in Vegas, and other distressed markets, are short sales and bank owned properties, that cash buyers are preferred in most cases.

Prices are appreciating enough that bank appraiser are fairly consistently appraising house below the purchase price. None if which would be a problem except for a ton of buyers are once again buying with no money down. So if the put in an offer for $100,000 and the appraisal comes up for $97,000 they have no money to make up the difference.

FHA, USDA, and VA all allow 0-3% down with the seller buying closing costs, i.e. points so the buyer can buy with no money down.

The truly frightening thing to me is that almost all of her buyers, as well as the people that bought my Mom's house, defaulted on their mortgages between 2007-2009. So here they are in 2013, with lousy credit scores, and they are able to buy houses with mortgage guaranteed by Fannie and Freddie (aka the US taxpayers.)

So rather than competing with with buyers like myself for any of the boatload of lightly used 5-10 year old houses in Las Vegas. They are buying new houses, the newish house in Vegas are $70-90 square foot and generally have established neighborhoods. The new houses are running $100-$120 square foot and really are not any nicer.

Now the buyers are having to pay 1.35% AFAIK, mortgage insurance, and do believe the days of the liar loans are mostly behind us. None the less it is seems crazy that once again the government is enabling and encouraging people who have past history of not paying their debts,and haven't been able to save money even 5-$10,000 over the last 5 years to overpay for houses.

 

[bUU]

They talked about this on NPR yesterday:

Increase In Sales And Low Inventory Indicate Housing Recovery Is In Full Swing : NPR

 

[chasesfish]

It occurred to me that, as clifp points out, purchasing RE (based on mortgage rates) is approaching "bargain" status in some areas. The only reason I can see that the bubble has not returned is that loans are still difficult to get. If you get a loan, the terms are great. But proving to a financial institution that you are "worthy" of borrowing their money is still a challenge. I've documented here the travail DW and I went through to get a mortgage 3 years ago. I was ready to commit mayhem before the process was through (and that was with a credit score like 820).

The difference today verses three years ago is the heathy banks and credit unions are now also making portfolio, in house loans. I see them originated often now. Tyre typically 20%+ equity loans, 15 years or less, but can work with self employed or retired borrowers easier than Fannie/Freddie rules, which only really want to deal with w-2 emplyees

 

[bld999]

DW and I enjoy browsing Zillow (especially to see what is happening in our old neighborhoods, etc.) Because we also keep track of actual sales in the area, stay in contact with realtors, etc., we have found Zillow to be only a guesstimate. While an apparent 10% increase in values probably reflects the correct trend, I would assume there are significant error bars around that figure. Don't know your area, so I could easily be wrong about this. Still, in areas I know, I take Zillow with a few margarita sized grains of salt. Not that I don't find it interesting and even valuable. YMMV as always.

I own two houses side by side, both built 10 years apart, same size, style, and features. Zillow says one appreciated 14k last month, the other fell 6k in the same period. I agree that they get the trend direction correct, but as we know, "you don't need a weathervane to know which way the wind blows" ...
Maybe the algorithm was having a bad hair day.

 

[Midpack]

Haven't (US) real estate bubbles been largely regional phenomena? Seattle is a hot spot it seems among others (San Francisco, NYC, Wash DC, Los Angeles, etc.).

But even in the 08-09 meltdown, most (flyover) areas were nowhere near as inflated and didn't fall as spectacularly. see graph here http://www.early-retirement.org/forums/f27/residential-median-sale-price-per-sq-ft-65661.html

Should all the financially strapped San Francisco homeowners suddenly put their homes on the market, it would make a dramatic difference in the current low inventory—8% of the city's homeowners still owe more on their bubble-era mortgage than the property's current market value. But with values rising so fast, even houses that sold at the height of the 2007 insanity are getting close to parity. More houses on the market might bring some sense back to people, because it is reportedly damaging to sanity when you're shown four crappy little houses that all need a lot of work, and you're outbid on all of them, immediately.

Meanwhile, just an hour away in California's Central Valley, lots of towns still have a huge shadow inventory of foreclosed homes and people waiting for the good times to return to Adobe Falls Estates behind the old Circuit City and the Applebee's.

Despite a recent upturn in sales and prices, "the housing market is still very weak," said Sheila Bair, who headed the Federal Deposit Insurance Corp. from 2006 to 2011. Bair, speaking at a Washington "economic summit" organized by The Atlantic magazine, warned homeowners that "we need more experience and data to know if it's really turned around."

Bair said lenders may be sitting on huge numbers of foreclosed upon houses that have been held back from the market. As housing prices start to perk up, that hidden inventory may come flooding into the market – and pushing prices back down, she said.

Moreover, millions of homeowners are "under water," i.e., they still owe more on mortgages than they could get by selling their homes. As soon as they can sell at prices high enough to pay off old loans, they'll put their properties on the market—and again drive down prices, she said.

Welcome To The New American Housing Bubble (In Coastal Elite Cities) | The Awl

 

[heeyy_joe]

There may be another bubble coming but it will not be in real estate.

 

[timo2]

Welcome To The New American Housing Bubble (In Coastal Elite Cities) | The Awl

That the housing market doesn't match the national economy is similar, IMHO, to the stock market not matching the national economy. Maybe the it really is different this time.

 

[timo2]

There may be another bubble coming but it will not be in real estate.

I've recently been thinking the bubble is in corporate profits.