Real Estate Bubble?

[Willers]

We live in a small town in Colorado and what we're seeing:

- Construction costs (labor shortages and material costs) have driven the cost of building up more than 50%+. I just had a builder friend tell me that he had a call a potential client and break the news that his $800K build discussed in the fall is now $1.8M.

- Although technically short-term rentals are illegal, the county commissioners and their general counsel have decided that STR's are "too hard to track" so they are just allowing them to happen. It is a great deal for the county since they collect the occupancy tax charged by the sites but don't need to do any oversight or regulation. What used to be too expensive to hold is now doable because of the VRBO/ABNB rents. This has radically decreased the number of homes for long-term rent or sale.

- This lack of rentals is leading to a catch-22. I can get a great price for my house, but then I have nowhere to live. Sale contingencies are a no-go here. Many are deciding that changing homes isn't worth it. Even if you find a rental you are now seeing 2%/mo increases while you look for a new place.

- Finally, we're seeing a literal flood of out-of-state money coming in. I've never seen so many CA plates before. Realtors are telling me they have dozens of cash buyers, mainly from CA, OR, WA, and TX, waiting their turn. One said that the buyers are desperate not to miss out since mountain towns are quickly appreciating out of reach.

It is certainly entertaining watching the hordes descend every time a new property comes on the market. We have to be careful not be run down by Range Rovers on our walks. Can it last? Just when I think it can't I look at Aspen and Telluride and think that there may not really be a limit.

[jkern]

Quote:

Originally Posted by l8_apex Hmm, I'm not so sure about that. I bought my '60s 3 bed 2 bath 1600 sq ft home in Santa Clara in 2011 for $640k. That would have rented for $3500. I'm pretty confident in that number as I tried to find a home to rent before I resorted to buying. $480k at 3.0% was $2,040/mo for P & I. It's an anecdote obviously, and I still remember how much homes in the pricier cities cost back then, to say nothing of what they cost now.

The year 2011 was probably at the bottom of the big crash. Could be an exception. Rents haven't changed as much as the RE purchase price has. My wife has a 3 bed, 2 1/2 bath, 1645 ft2 TH in San Jose. It rents for $3400 and it's current value is about $1M.

[2lhasas]

After looking at the cost of apartments in my son's college town, we decided it would be worthwhile to purchase something instead of renting. We were looking at properties under $250K, which was probably a sweet spot for first time homebuyers. Starting at the end of the year, we would schedule to see a property as soon as it was listed. Within 24 hours the seller would have multiple offers and the home was off the market within 48 hours. Some of the listings would literally say open for viewing on Saturday, accepting offerers until noon on Sunday. It was nuts.

We were fortunate to find a flipper who hadn't listed the home yet. We were paying cash and offered to close in 2 weeks, and he was happy to get his money out and move on to his next property. We ended up getting it for $25K less than a similar home in the same subdivision sold for a week later, and still paid $18K more than the most recent sale in the subdivision, which was only 2 months earlier.

[harley]

sight unseen. The site was unseen.

[Oz investor]

given the willingness of some governments to disrupt the economy over surges in positive virus tests , i would say ABSOLUTELY

how many can guarantee they can keep up with mortgage repayments now

it is one thing to BUY a property , and another to repay the loan in a timely manner ( especially if you are relying on rental income to do so )

[Ed Waggoner]

Hello Mr. Tightwad, whats your thoughts moving forward on selling or keeping SFH rentals with the thought of the 43.8% capital gains taxes Biden is proposing, that would most likely bring down property values. I own 40 paid off houses in Richmond VA that my wife and I self manage.I'm 57, wife is 55. We have a good network of handyman to take care of all issues, as well as a great lawyer and low vacancy rates. We just sold two houses to put a few 100k in the bank just incase.Thanks in advance. Ed

[pb4uski]

Ed, you should probably do some research on what the proposals are before hitting the panic button. As I understand the proposals, capital gains on sales would not change for incomes under $1 million. Add in the likelihood that it will ever pass the Senate and headlines of a 43.8% capital gains tax rate is just click-bait for more than 99.7% of people.

That and for investment real estate you already have the portion of the gain relating to depreciation recapture being taxed at higher than the regular capital gains rates anyway.

[tmitchell]

Where are people getting all the money for down payments on these homes?

Any ideas? Is this boomers handing their kids money or what?

[pjigar]

Quote:

Originally Posted by harley sight unseen. The site was unseen.

Thanks. Still learning!

[pjigar]

Quote:

Originally Posted by tmitchell Where are people getting all the money for down payments on these homes? Any ideas? Is this boomers handing their kids money or what?

Increased personal savings rate due to COVID is part of the reason. Run up in the stocks is also at play. But all this apply to people in the upper fork of the K shaped recovery. I am surrounded by mostly people who are in the upper fork so I am not sure what is going on with the lower fork. But historically upper half of the income/networth population are potential homeowners and rest are renters. So what happens to the upper half matters more for the home prices.

[USGrant1962]

Quote:

Originally Posted by tmitchell Where are people getting all the money for down payments on these homes? Any ideas? Is this boomers handing their kids money or what?

Assuming you mean the third of the market that is first time homebuyers, the same place they always did. Savings and in some cases help from parents.

Personal savings rates are at all time highs due to lack of spending during Covid and a lot of the unemployed made more than when they were working (close to 50% in one analysis). Unemployment is back down to 6% which is within the normal range.

https://fred.stlouisfed.org/series/PSAVERT

[1242Vintage]

Quote:

Originally Posted by tmitchell Where are people getting all the money for down payments on these homes? Any ideas? Is this boomers handing their kids money or what?

In our part of rural Northern California we have SF Bay Area folks who can now remote work are cashing out equity in homes there and buying homes here, escalating our prices close to SF Bay Area levels.

It’s a frenzy.

[Out of Steam]

Quote:

Originally Posted by tmitchell Where are people getting all the money for down payments on these homes? Any ideas? Is this boomers handing their kids money or what?

There's been very little to spend money on in the past year, and many younger people (including our daughter) have moved back in with their parents.

For someone who has kept working through the pandemic, it hasn't been hard to add $25K or more to savings--even at a modest salary.

[MichaelB]

The NY Fed Quarterly Report on Household Debt and Credit (here) shows most of the new mortgage originations have very high credit scores (760+). Banks have not lowered lending standards, so it’s safe to assume buyers can afford these home values and are probably not moving out of mom and dad’s basement.

[NW-Bound]

Is it "sight unseen" or "site unseen"?

From grammarphobia.com:

Quote:

What this idiomatic usage means is that a “sight” (a view) has not been “seen.” When you buy something “sight unseen,” whether it’s a four-acre lot or a four-pound Chihuahua, you haven’t laid eyes on it. The Oxford English Dictionary says “sight unseen” is an American expression for “without inspection” and dates from the 1890s. The OED’s earliest citation, from 1892, is in Dialect Notes, a journal of the American Dialect Society: “To trade knives sight unseen is to swap without seeing each other’s knife.”

[Out-to-Lunch]

Quote:

Originally Posted by NW-Bound Is it "sight unseen" or "site unseen"? From grammarphobia.com:

I agree. Look at post #224.

[chassis]

Strong construction data release today: https://www.census.gov/construction/c30/pdf/release.pdf

Single family residential construction continues very strongly. In my view this could continue for some time.

[38Chevy454]

Quote:

Originally Posted by chassis Strong construction data release today: https://www.census.gov/construction/c30/pdf/release.pdf Single family residential construction continues very strongly. In my view this could continue for some time.

Seems the high materials prices will also continue as long as demand is still strong.

[ivinsfan]

Quote:

Originally Posted by 1242Vintage In our part of rural Northern California we have SF Bay Area folks who can now remote work are cashing out equity in homes there and buying homes here, escalating our prices close to SF Bay Area levels. It’s a frenzy.

Isn't this a game of musical chairs, eventually bay area prices should flatten out somewhat

[harley]

Well, we're considering selling our home in SWFL next spring, so I fully expect the bubble (or whatever it is) to burst just before then. That should give you all a baseline for whatever decisions you need to make.