Real Estate Bubble?

[Badger]

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Originally Posted by RetireeRobert People are not dumb. They see Washington DC printing presses running overtime, printing money out of thin air, for one multi trillion dollar extravaganza after another. People are running to put their rapidly devaluing dollars into some real asset---houses! And the good thing about a house is, you can live in it. Better to have a house with an inflating value, than to leave one's wealth in dollars which are being rapidly devalued.

Until the bottom falls out of the market and you are upside down in your mortgage. Seems like there were quite a lot of people that got bit like that about 12 years ago. I had a few friends that had to walk away from their home at that time.

it is tempting to put my house (that I paid $50k for) on the market without a realtor for cash offers over $1.2 million since a lot the size of mine that is 3 down from my house recently sold for $1.1 million. But then I would have to find another home, move, and pay higher taxes, etc. Not worth the trouble. I'm enjoying my retirement too much.

And I would not trust what a realtor says. Whether the market is up or down they always say that now is the best time to buy.



Cheers!

[JoeWras]

It seems a bit like late 70s. Although I was just a late teen at the time, I was vaguely paying attention since my boomer cousins were getting into the market. But here's the thing: stocks were stagnant and you could get a CD for 10%. So, it is not the same.

Like many things, I agree with the assessment it is a factor of many things, especially free money.

I want to point out one other in particular: the millennial wave. In the past years, we had discussions on this board about what millennials want. Here's just one of many that discuss it (Millennials will prioritize necessity spending).

In the blink of an eye, millennials' bio clocks all went off at once. Guess what? They don't want to raise their kids in grandma and grandpa's basement. Yet ironically, many grandparents are building homes for the kids to do so... but the kids want their space.

At the same time, just a few years ago all the talk was about millennials living downtown so they could walk to the bar, eat avocado toast at the cafe, and just be urban-cool. And then: COVID. Suddenly, avocado toast isn't high on the list. What is high on the list is getting space for the damn home office and a back yard for the grown kids to run in.

Downtowns are not dead, but they should be on notice that their halcyon days are over -- for this cycle.

[steelyman]

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Originally Posted by jrcunniff This is an aside, but I can’t imagine working a corporate/office job that’s 100% WFH. Not saying it can’t be done, but for me I needed that face-to-face interaction to build relationships, provide feedback, etc. I often wonder how I would have managed being forced to WFH for the past year.

Yes. While still working, there were periods when I had to work from home due to impending deadlines and needed “no interruptions”. It didn’t take long to realize that when you work from home you’re always at work. Not for me, I was glad to return to normal work-life separation.

[bobandsherry]

Perhaps a bubble as defined here: https://www.investopedia.com/terms/h/housing_bubble.asp

As the article notes, bubbles end by 1) "An increase in interest rates that puts homeownership out of reach for some buyers". People with mortgages back in 1980 have told stories, mine was pretty similar. But used to be 4.5%-5% was a sweet spot for mortgage rates so room to move higher indeed.

Another 2) "A downturn in general economic activity that leads to less disposable income, job loss or fewer available jobs". Seems we have experienced that, is that light now at the end of the tunnel an openness or train coming at us.

And 3) "Demand is exhausted, bringing supply and demand into equilibrium and slowing the rapid pace of home price appreciation that some homeowners". The jury still out.


But it's not so much it being a bubble but how big and will it end with a pop or a pffftttt....

[JoeWras]

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Originally Posted by steelyman Yes. While still working, there were periods when I had to work from home due to impending deadlines and needed “no interruptions”. It didn’t take long to realize that when you work from home you’re always at work. Not for me, I was glad to return to normal work-life separation.

I feel the same way. I'm amazed at all the people who want to be 100% in work for home.

Even if working from office becomes a thing again, I expect that WFH won't go away. Many companies will allow workers some time at home. Heck, my old megacorp was ahead of the curve and was very liberal in allow WFH for all kinds of things from having the sniffles to waiting for UPS. Home offices are here to stay and will become a huge selling point for homes.

[Aerides]

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Originally Posted by steelyman Yes. While still working, there were periods when I had to work from home due to impending deadlines and needed “no interruptions”. It didn’t take long to realize that when you work from home you’re always at work. Not for me, I was glad to return to normal work-life separation.

When I took at WFH role at my Mega I knew this could be a trap. So I carved out space in a spare bedroom, kitted out an office, etc. So that became "work" and I could close the door at night. You can't WFH long term from the dining table and have real separation.

And that's another reason for the bubble. 2 parents with kids zoom-schooling in a 3 bedroom house? Not big enough! So people are upgrading, and coming out of small apartments and condos, etc.

[Montecfo]

We could actually have higher than trend housing price growth (outside of major cities) for a while. Household formation has been low since the financial crisis and there is a lot of pent-up demand.

Combine that with low inventories (due to Covid but also due to trends like greater local regulation on builders) and interest rates which seem likely to stay near historic lows for the foreseeable future.

Suburban homes in particular, given their greater square footage and yards probably will continue to grow in price driven by these trends and a greater slice of the workforce working from home.

Moderating costs trends as the economy normalizes should help.

[LRDave]

A small factor to note: Someone I know very big in the short-selling side of residential real estate told me the short-selling market has virtually disappeared.

[JoeWras]

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Originally Posted by Montecfo Suburban homes in particular, given their greater square footage and yards probably will continue to grow in price driven by these trends and a greater slice of the workforce working from home.

Yet 5 years ago, suburbia was the butt of jokes, memes and political pressure.

Things change fast.

[frank]

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Originally Posted by Bamaman I'm in the same point as you, however my compressor locked up on my 26 year old heat pump. It's time for a new unit. You can see the prices online==$2250-2500 for 3 ton heat pumps. I was quoted $5300, $7200 and $8900. I'm sorry, but I'm not going to pay anyone for a $3000, $4500 or $6000 profit for one day's labor. I finally got a $4100 bid and jumped on it. The guy is a small HVAC firm without all the overhead of the contractors with 30-50 employees.

I did a furnace and ac bid for my son this winter. the prices were crazy for the most part. high bid was 7800. finally after getting about 6 bids. I hired a contractor for 4500. minus 800. in utility rebates, so finally ended about 3700. for furnace and central air. I need one of mine replaced but don't have any idea what the prices will look like this summer.

[sengsational]

Is there any way to lock-in the gain on owned real estate? If you found an investment buyer for your house and got a rent-back contract, that might work, but fraught with move-out risk. Shorting residential REIT would probably be expensive.

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Originally Posted by JoeWras In the blink of an eye, millennials' bio clocks all went off at once. Guess what? They don't want to raise their kids in grandma and grandpa's basement. Yet ironically, many grandparents are building homes for the kids to do so... but the kids want their space.

I like the observation and colorful write-up

[Fermion]

I have a suspicion inflation is being under reported. If true inflation is actually in the ~5% range instead of 2%, locking in a 3% loan would be pretty smart.

[kcowan]

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Originally Posted by Mr. Tightwad My net worth is 78% real estate, hope the good times keep going.

Do you mark to market?

[SheitlQueen]

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Originally Posted by jrcunniff I’ve been casually shopping for a vacation home, nothing serious, but I have definitely noticed prices increasing with supply decreasing. In the meantime, my (tentative) plans for buying a vacation home are on hold unless prices start to scale down. I also don’t see myself paying over list price and getting into a bidding war. So we’ll see what the future holds.

I'm in the same situation. A month ago I made an offer on a house in Nevada. The owner sent back a counter and before I responded took the house off the market and increased the price $30k. I'm also sitting out buying a secondary home until things settle down.

[Looking4Ward]

Austin TX here and the goofy money is goofier than ever.

Median home price in two local zip codes have jumped 34% over last year. Older homes in need of upgrading are selling for over $300/sf in a matter of days. Home next door to me was listed at $799k, sold for $999k in a week and was then listed for lease for $7k a month.

Buyers are playing a game of outbidding each other, signing appraisal and inspection waivers, paying closing costs, agreeing to three month no-charge leasebacks, throwing hundreds of thousands over the table at closing, and then patting themselves on the back for the great "deal" they got.

My many realtor friends say it's not going to slow down, prices will keep going up. I ask them if they are telling their prospective sellers to wait a year so they can make even more?

Mortgage forbearances, eviction moratoriums, cash stimulus, low interest rates, low inventory, large percentage of existing homeowners choosing cash-out refi's instead of moving and liquidating their equity while adding to their mortgage balance, the rise of house-sharing in many unaffordable markets, and several other factors will eventually lead to downward pressure on housing prices.

I'm getting out while the getting out is good and signed a 15 month lease on a 2br/2ba 1250sf apartment for $1800 a month - almost what I currently pay just in property taxes. I'll save tens of thousands and be ready to buy when homes go on sale again.

ETA: Anecdotal example in regards to inflation but yesterday I sold a travel trailer for $1K more than I paid for it new five years ago.

[JoeWras]

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Originally Posted by Fermion I have a suspicion inflation is being under reported. If true inflation is actually in the ~5% range instead of 2%, locking in a 3% loan would be pretty smart.

Speaking of inflation... Cars are getting out of control, especially recent vintage used cars. And now we have this semiconductor shortage hitting the auto manufacturers. Chaos ahead in the new car market.

Dad used to talk about the years after WWII. What we're experiencing now has many echoes to those days. The difference is the world is not in rubble, and people world over have the means to buy stuff. We have billions of people looking to buy stuff versus 100 million or so.

[Montecfo]

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Originally Posted by Fermion I have a suspicion inflation is being under reported. If true inflation is actually in the ~5% range instead of 2%, locking in a 3% loan would be pretty smart.

Well the bond market seems to disagree, but conceptually you are correct.

Home prices are not measured as part of CPI however.

And people always notice the prices going up, even temprarily, and ignore or forget those going down or rising only very slowly. CPI is a comprehensive basket of goods and services.

I agree that a mortgage can be a valuable hedge against possible future inflation.

[ExFlyBoy5]

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Originally Posted by steelyman Yes. The realtor phrase I’ve heard around here is that the market is “hot”. Sounds more upbeat but less near-term gloomy than “bubble”.

Is it not an accurate statement? There is record low inventory, houses are selling far more than asking in a lot of markets and days on the market is also at record lows. It's not a "Realtor" statement, it's simply fact. Is there a bubble? Well, that remains to be seen but my not so professional opinion says that it won't continue to be this crazy forever.

As an aside, after my DW did the CMA on our house, I got to looking around at some houses that are for sale around us. She pulled some up on the MLS and showed that like many markets, days on the market are few and sold prices are coming in higher than asking. A newer neighborhood across from us is selling as soon as they hit the market. Even more remarkable is we went and looked at some of these houses that are selling for FAR more than I would think and the construction quality is far from what I would require for the prices they are commanding.

I am also hearing from someone that is in the construction business in S.C. that due to the lumber shortage, some contractors are going to 24" on center framing instead of the traditional 16". Of course this is one guy telling me about a few things he has seen, so not sure how widespread this might be (or even if some building inspections/codes would allow for it) but it's just more indicative of the housing situation.

[ExFlyBoy5]

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Originally Posted by RetireeRobert The Millenials now days don't know what it is to pay any real interest.

Interest rates aren't very favorable to student loans. Just sayin'

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Originally Posted by doneat54 We met with our realtor last week about possible future plans. We said that she must be loving the "hot" market. She said she hates it. She has 14 buyers from out of state looking for properties, ready to pay 100% cash (including one wanting a $1M horse farm) and she can't find any sellers. We have decided to try an pull in the sale of our primary home from '23 to '22 as not to miss this "hot" market.

But Realtors are taking advantage of everyone and becoming multi-millionaires!!! (heavy sarcasm intended).

My DW isn't in sales anymore but is in the residential leasing business and oversees homes in about 7 states (I can't recall the exact number, it changes on occasion) and it has been a nightmare. Houses are getting 10 or more applications as soon as they hit the MLS (which then spreads to other sites such as Zillow, Trulia, Hot Pads, etc.) and showings that if allowed would have 50 or more showings IN A DAY. The prices are being raised and current tenants are angry at the increased costs...it's really a huge freaking mess and is painful for a lot of people "in the biz."

The agents that work under her are being run into the ground with the amount of work all this involves. They have even gone so far as to start using a phone tenant screening app that will allow potential tenants to enter/view a house without having an agent with them (unoccupied houses only) but the agents are still being worked to the bone. It's a mad, mad world out there.

[pjigar]

Lot of investors are buying homes in our area which has real negative cash flow. I always wonder how long one can survive negative cash flow? Renters want to buy home as well. CAGR of my home we owned for 8 years is 7%. Historically, our SFH CAGR has been 3-4%. So yes, I call it a bubble.

PS: We are putting ours for sale this Friday. Price has gone up by $100K in 6 months. Crazy. We had a contract 6 months ago that fell apart so I know the price then and now. Best thing ever happened!