Real Estate Bubble?

[JoeWras]

Quote:

Originally Posted by ShokWaveRider In Canada and other countries Home prices have been increasing for the last 15 years with no sign of retreat. Not a bubble there. Why Here?

In our neck of the woods, we weren't calling it a bubble the last 10 years when prices were rising 5 to 10% per year, even though that is well above inflation.

Now, when they start rising 5 to 10% per month, well, you might be in a bubble of some sort. Hence the discussion.

[mrstop]

We won't be able to tell if we are in a bubble until it bursts.


I'm a home remodeler and I'm beginning to think we're not going to see a slow down anytime soon. I think people staying at home due to Covid definitely cause a jump in real estate activity for a variety of reasons. However, things were already busy prior. Covid just seemed to pour more fuel on.

Underlying this growth in activity, my hypothesis is that it's due to the forces of two huge generational phenomenons: The Boomers and the Millennials (Millennials - Wikipedia). The Boomers are a huge group and the Millennials (their children) are now just as large. Since adult population drives housing, these two groups have a huge influence on what is happening (economy not withstanding). Here's what I think is happening and driving the overall macro trend (ignoring the short term impact of Covid) and reflects my personal experience:

• Boomers are staying/aging in place and upgrading their homes as they look to retirement
• Boomers are moving (downsizing, changing geography) causing either
  • demand for new housing
  • upgrading/taking care of deferred maintenance of their existing homes in preperation for sale
  • upgrading/remodeling the homes they are moving to
• Boomers are buying second homes to vacation/winter and entice their Millennial children and their grandkkids to visit causing new construction or remodeling activities
• Millennials are now in their prime household formation years and are buying new homes or older homes and upgrading to fit their tastes and lifestyles
• Boomers are helping to supply cash/funding to their Millennial children so that they can afford or bring "cash offers" to the table.

Add to this that the supply side of housing has been limited or decreased over the past decade. Factors potentially impacting supply:

• Stalled or limited new home building due to drops from the 2008 financial crisis
• Difficulty for new homes to built or the high cost of new homes built due to tougher zoning regulations
• Distressed homes being demolished from the 2008 financial crisis
• Hedge funds snatching up tons of foreclosed single family homes and turning them into rentals (When Wall Street Is Your Landlord) during the 2008 financial crisis and beyond.

Without a ton of research, I think we have 10+ years of these underlying macro trends that will be a tailwind to residential housing. Of course, the economy, interest rates and other factors could throw a wrench at us.

[Montecfo]

Quote:

Originally Posted by JoeWras In our neck of the woods, we weren't calling it a bubble the last 10 years when prices were rising 5 to 10% per year, even though that is well above inflation. Now, when they start rising 5 to 10% per month, well, you might be in a bubble of some sort. Hence the discussion.

What metric is that 5-10 pct per month based on?

[zesty]

I need to find a house and am seriously thinking about buying a run-down shack for $60k and putting up with it for a few years until prices get better.


If they never get better, I'll just learn to live with it. This is not how I wanted my life to go, but my timing is so bad that I should've expected it.

[pb4uski]

Quote:

Originally Posted by Badger 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. ...

DS and DBIL were in that situation in Texas in the early 1980s. They thought about handing the bak the keys and walking (deed in lieu of foreclosure) but they didn't want a blemish on their credit record so they stuck it out and came out ok.

[Fermion]

Quote:

Originally Posted by zesty I need to find a house and am seriously thinking about buying a run-down shack for $60k and putting up with it for a few years until prices get better. If they never get better, I'll just learn to live with it. This is not how I wanted my life to go, but my timing is so bad that I should've expected it.

Non-water front land is still really cheap in our area, not sure about yours. The prices drop off like crazy the distance you get from a river/lake. 0.5 acres on a lake for $600,000, 5 acres a half mile from the lake, $40,000.

Just don't try to build anything right now. You will spend $60,000 just on OSB

[Surewhitey]

Quote:

Originally Posted by cooch96 +1. I just had my roof replaced this month. Quoted hourly rates for roofers ranged from $40-$80! We'll be seeing carpenter work billed at $100/hr soon in these parts; labor costs are up. Millennials are moving from downtown into the suburbs, so demand is up. Lumber and plywood prices have screamed upwards the last 9 months, so material costs are up. I think high housing prices are here to stay for long while, just like medical care costs and higher education.

Carpenter here & typically getting $50-70/hr. MCOL area. I'm not looking for w*rk @ this rate...

[Fermion]

By the time our house is finished, we will have about 2 years of work by 2 people in it. Say 8000 hours at $20/hr would be $160,000 in labor. Materials cost is around $250,000.

So we have built a 1400 sq-ft house for $410,000 in an area where it would sell for maybe $250,000

[retire to nature]

Quote:

Originally Posted by mrstop We won't be able to tell if we are in a bubble until it bursts. [/LIST]Add to this that the supply side of housing has been limited or decreased over the past decade. Factors potentially impacting supply: Stalled or limited new home building due to drops from the 2008 financial crisis Difficulty for new homes to built or the high cost of new homes built due to tougher zoning regulations Distressed homes being demolished from the 2008 financial crisis Hedge funds snatching up tons of foreclosed single family homes and turning them into rentals (When Wall Street Is Your Landlord) during the 2008 financial crisis and beyond. Without a ton of research, I think we have 10+ years of these underlying macro trends that will be a tailwind to residential housing. Of course, the economy, interest rates and other factors could throw a wrench at us.

But you are missing the death from the covid. I think the number is very high. So the home will come out. I think 10 yrs is too hopeful. How soon the covid end, and ppl try to sell it would be the key in my opinion. Now still ppl are so scared so demand and supply is off set balance causing keep going up.

I am in housing business, so wanna go upper, but I am scared to the death number too.

[MarieIG]

The bubble has avoided my block.

My already high property tax went up approx 28% in 2020.

Anybody interested? Anybody . . .

Crickets.

[JoeWras]

Quote:

Originally Posted by Montecfo What metric is that 5-10 pct per month based on?

Checking on listing and settlement prices in our neighborhood. Also, my neighbor is a realtor and he can't keep any inventory so bids are way over listing price. It is his ballpark estimate of the current situation.

Last fall, the general ballpark listing price around here was $320k to $350k. Today, it is $400k to $470. And that is just in the last 6 months, with most of that increase occurring this year, which is where I'm talking about 5 to 10% per month. That's sustained for 3 months. How much more is anyone's guess.

Zillow isn't perfect, but it shows this curve for a nearby home which I find is matching sales prices pretty well:

[chassis]

Quote:

Originally Posted by mrstop We won't be able to tell if we are in a bubble until it bursts. I'm a home remodeler and I'm beginning to think we're not going to see a slow down anytime soon. I think people staying at home due to Covid definitely cause a jump in real estate activity for a variety of reasons. However, things were already busy prior. Covid just seemed to pour more fuel on. Underlying this growth in activity, my hypothesis is that it's due to the forces of two huge generational phenomenons: The Boomers and the Millennials (Millennials - Wikipedia). The Boomers are a huge group and the Millennials (their children) are now just as large. Since adult population drives housing, these two groups have a huge influence on what is happening (economy not withstanding). Here's what I think is happening and driving the overall macro trend (ignoring the short term impact of Covid) and reflects my personal experience: Boomers are staying/aging in place and upgrading their homes as they look to retirement Boomers are moving (downsizing, changing geography) causing either demand for new housing upgrading/taking care of deferred maintenance of their existing homes in preperation for sale upgrading/remodeling the homes they are moving to Boomers are buying second homes to vacation/winter and entice their Millennial children and their grandkkids to visit causing new construction or remodeling activities Millennials are now in their prime household formation years and are buying new homes or older homes and upgrading to fit their tastes and lifestyles Boomers are helping to supply cash/funding to their Millennial children so that they can afford or bring "cash offers" to the table. Add to this that the supply side of housing has been limited or decreased over the past decade. Factors potentially impacting supply: Stalled or limited new home building due to drops from the 2008 financial crisis Difficulty for new homes to built or the high cost of new homes built due to tougher zoning regulations Distressed homes being demolished from the 2008 financial crisis Hedge funds snatching up tons of foreclosed single family homes and turning them into rentals (When Wall Street Is Your Landlord) during the 2008 financial crisis and beyond. Without a ton of research, I think we have 10+ years of these underlying macro trends that will be a tailwind to residential housing. Of course, the economy, interest rates and other factors could throw a wrench at us.

100% this. Great post @mrstop

[Montecfo]

Quote:

Originally Posted by JoeWras Checking on listing and settlement prices in our neighborhood. Also, my neighbor is a realtor and he can't keep any inventory so bids are way over listing price. It is his ballpark estimate of the current situation. Last fall, the general ballpark listing price around here was $320k to $350k. Today, it is $400k to $470. And that is just in the last 6 months, with most of that increase occurring this year, which is where I'm talking about 5 to 10% per month. That's sustained for 3 months. How much more is anyone's guess. Zillow isn't perfect, but it shows this curve for a nearby home which I find is matching sales prices pretty well:

Thanks for that. Prices can rise in a burst for short periods but we are talking a time when Covid has both limited supply and goosed demand. That won't continue.

But I think above-trend housing prices increases can continue due to pent up demand for HH formation heading back to the financial crisis. But pure affordability will limit that in most markets I expect.

Over the long term housing prices rise at the rate of inflation plus 1 to 1.5 percent.

In our area (suburban DC) inventory is tight and houses have sold over list recently, with a notable burst in prices. But the rate of rise is not sustainable and I do not expect prices to double or anything (at say 7.5 pct per month, midpoint of your range, prices double in about 10 months).

And the highest selling price in the neighborhood remains circa 2006, funny money era.

[mrstop]

Quote:

Originally Posted by retire to nature But you are missing the death from the covid. I think the number is very high. So the home will come out. I think 10 yrs is too hopeful. How soon the covid end, and ppl try to sell it would be the key in my opinion. Now still ppl are so scared so demand and supply is off set balance causing keep going up. I am in housing business, so wanna go upper, but I am scared to the death number too.

Covid deaths may help free up housing supply, but I can't believe it would be huge numbers. You would have to remove all those who were non-homeowners (i.e. renters, in nursing homes, prisons, living with family etc.). Additionally, there are likely many who are survived by a partner. The aging and mortality of the boomers will likely have a much larger impact on loosening housing supply than Covid deaths.

[MichaelB]

I wouldn’t be so certain this is temporary. When looking at the US population by age, in 5 year cohorts, the two largest are 25-29 and 30-34. This is much different than a decade ago, when the largest cohorts were much older. (45-55). Source is Calculated Risk blog, here.

This trend will accentuate over the next decade. By 2030, the four largest cohorts will be 25-45. These age groups are ready for upward mobility, marrying, having families and buying homes.

The sharp increases in price may not continue, but the age breakdown looks like there will be steady demand for single family housing for the next decade.

[Montecfo]

Quote:

Originally Posted by MichaelB I wouldn’t be so certain this is temporary. When looking at the US population by age, in 5 year cohorts, the two largest are 25-29 and 30-34. This is much different than a decade ago, when the largest cohorts were much older. (45-55). Source is Calculated Risk blog, here. This trend will accentuate over the next decade. By 2030, the four largest cohorts will be 25-45. These age groups are ready for upward mobility, marrying, having families and buying homes. The sharp increases in price may not continue, but the age breakdown looks like there will be steady demand for single family housing for the next decade.

Yes. You are describing the pent up demand for HH formation that I referred to. That is why I think pricing growth can remain above historical trend. But again, wage growth is a limiter and interest rates will be also. So I think the gains will be single digits annually on average.

[ivinsfan]

Quote:

Originally Posted by MichaelB I wouldn’t be so certain this is temporary. When looking at the US population by age, in 5 year cohorts, the two largest are 25-29 and 30-34. This is much different than a decade ago, when the largest cohorts were much older. (45-55). Source is Calculated Risk blog, here. This trend will accentuate over the next decade. By 2030, the four largest cohorts will be 25-45. These age groups are ready for upward mobility, marrying, having families and buying homes. The sharp increases in price may not continue, but the age breakdown looks like there will be steady demand for single family housing for the next decade.

Well let's see how the trend of living in Mom and Dad's basement, marrying late if at all, and having few if any kids shakes out...upward mobility requires a good economy and a motivated and educated workforce. There has been a lot of hand wringing on several threads wondering if the economy can keep motoring along. If I'm a young adult living in the Bay Area and don't want to leave, what kind of job am I going to get that lets me buy my own home?

[jim584672]

I remember a few years ago all the Millennials seemed like they wanted to be permanent renters. Now it seems like they all got married and want to be homeowners.

Sort of an echo baby boom as the Boomer's children flood the market.

Last year a condo by me went for $320,000. Same condo listed today at $449,000.

[JoeWras]

We're way ahead of the 2008 highs in this market. Every market is different.

NC also has the unique issue of migrants from higher priced markets. I think karen mentioned this earlier. We've seen waves in the past, but this influx seems huge. We get folks coming from NY, for example, who are used to half million dollar homes. They come here and see the equivalent at 300k and have no problem making a rising cash bid.

[Montecfo]

JoeWras,

You are correct and I would guess buyers are seeing a lot more value there than here, and accordingly greater room for the price moves you have described.