Real Estate Bubble?

[Keim]

I was at a presentation by a Realtor discussing our local market. Like many, it is really hopping. Home values going up $15k every two weeks, limited inventory, offers with no contingencies going $50k over asking on first bid. The realtor discussed her thoughts on why-Covid making our rural market more desirable, etc.

I asked-if people are moving here they must be leaving somewhere. Supply and Demand what it is, that means the market is down somewhere. Where?

She claimed the market was up everywhere, but insisted she expected no imminent crash and we weren't in a bubble. How's that work?

 

[ponyboy]

It is a bubble. We'll see the fall in 5 years. Also, if you pay over asking, you got taken.

 

[Out-to-Lunch]

Some buyers are currently renting, for example.

 

[RetireeRobert]

Maybe no bubble, I don't know. I suppose as long as interest mortgage rates low, demand will not abate to any "bubble crashing" extent.

But I would expect supply to gradually move to more near normal inventory levels as covid vaccines roll out, and as initial work-from-home surge tapers off or reverses.

So, maybe no crash, but the price increases and supply shortage cannot continue at the current blistering pace. One year? Six Months? Fifteen months? To a more normal supply? Place your bets.

 

[teejayevans]

Also, if you pay over asking, you got taken.

Here in Florida, that’s pretty common for any desirable property...you’ll have plenty of company.

 

[Mr. Tightwad]

My net worth is 78% real estate, hope the good times keep going.

 

[LRDave]

I wonder if buildable lots are going up as fast? It is crazy expensive right now to build - both materials and labor.

 

[flintnational]

I can only speak to our market, Atlanta metro. Zillow says our house has increased 11% in the last 30 days. An aquaintance bought their first investment property. They were excited because they beat out 32 other offers. My bet is on bubble.


ETA: But as we know, bubbles can go on for years.

 

[OldShooter]

Bubbles are never visible in the windshield, only in the rear view mirror. In the mean time, everyone wants to stay at the party until just before cops show up.

Fama on bubbles: https://www.ai-cio.com/news/cant-spot-bubble-dont-even-try-says-eugene-fama/

 

[JoeWras]

What the hell? I decided to look at both Zillow and actual recent sales in our neighborhood.

NUTS!

I know R.E. has gone expensive, but this is gone into crazy territory. 15% since year start. The curve has gone exponential.

 

[HoneyBadger]

Bubble!

Yes, the SFH market is in a bubble almost everywhere in the US. Although part of what's fueling this is low interest rates: most buyers decide what's affordable by the monthly payment, not the total purchase price; and as a lower rate lowers the payment, people can afford higher purchase prices.

 

[jrcunniff]

As I look at how prices have increased, my initial reaction is it must be a bubble... but I’m no expert. I am surprised by the number of people/experts who are saying it *isn’t* a bubble. ��*

I’ve been casually shopping for a vacation home, nothing serious, but I have definitely noticed prices increasing with supply decreasing. I asked a friend who is a realtor, who didn’t really have any concrete explanation or timeline for what’s going on. We speculated it’s a lot of exodus from city-dwellers who no longer need to live in expensive urban areas since they are working from home. What’s interesting is she notiiced all this has affected is existing houses; condos, apartments, and new homes haven’t seen a spike in her market.

Also we talked about how some segment of the population has MORE cash on hand after COVID lockdowns because they’re commuting less (gas/tolls/repairs), working from home (not buying new work clothes), little or no eating out at restaurants, etc. People have been saving a lot more than usual this past year, and are willing and able to pay more.

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.

 

[yhoomajor]

What many call Bubble is just another incarnation of Inflation. Which many refuse to admit is rampant right now.

- Building costs have doubled
- Labor costs have spiked (if you can find someone to do the actual labor)
- Everything else has gone up.

A house is just culmination of all these things, plus some local factors (based on location). But too much Stimulus money is floating around the system. Most everyone's (who is not running his own small business) income has been going up as well. People who were working for $12/hr last year, don't want to come back less than $18/hr. You do the math.

Too much deficit spending does impact one segment - those reliant on fixed income. Sad but true.

 

[MichaelB]

To better understand the topic and the responses, would anyone care to define a real estate bubble and how it differs from a strong real estate market.

 

[Keim]

To better understand the topic and the responses, would anyone care to define a real estate bubble and how it differs from a strong real estate market.

<sarcasm>
A bubble is when I either:
Can't afford to get into the market OR The market goes down immediately after I purchase.

A strong real estate market is when I can afford to get in, and the market continues to go up after I do so.
</sarcasm>

 

[FlaGator]

Bubble, but will likely go on longer than I think it will. Residential RE price cycles have historically been 15 yrs +/- one->two years. Last peak was 2005-6.

I have no clue what will bring the price increases to an end, nor if nominal home values will just flatten for a while, or experience a decline. Both have happened.

After the last peak, first payment defaults were an early indicator of trouble. Mortgage delinquency rates are something keep an eye on.

I'd be selling now if the kids were launched, but that's a few years out. Sure wouldn't be buying, especially a seasonal rental which are common in my area.

 

[JoeWras]

What many call Bubble is just another incarnation of Inflation. Which many refuse to admit is rampant right now.

This.

My 22 yr. old HVAC is having issues, with a small slow coil leak finally occurring. I could limp it for an unknown time (week, month, year?) by refilling the refrigerant (R-410). (I saw one guy on bogelheads claim he has a barrel of R-22 so he just refills every now and then and keeps his unit running 'forever.' Never mind the ozone layer.)

But due to changing efficiency laws, I can't even get a coil that will fit in the space of my unit. So, it is time to look at both a new furnace and compressor.

I don't like the price quotes, but you know what? I don't see them going down. So instead of playing chicken with inflation, I just bit the bullet and sprung for a new unit which will go in this week. Time to Blow That Dough.

 

[Aerides]

Mortgage delinquency rates are something keep an eye on.

While rates are low, mortgages aren't easy money right now. Lenders can afford to be picky - massive down-payments, extra picky on criteria, etc. Sellers are taking cash offers when they are made.

So, on the whole, delinquencies shouldn't surge. Not like last time, where high risk loans where underwriting the market. And even if they do, there will be buyers ready to snap up foreclosures.

Also on bubble-no-bubble...housing rates only just crept back up to pre-collapse levels in the past year in a lot of markets. Zillow still has our home slightly under the 2007 peak. So maybe a tiny part of this stuff is also catching up and correcting from back then?

 

[LRDave]

Two anecdotes (not data):

1) Our friends in metro Boston put their house on the market and sold it in 3 days $200K over the asking. BUT, they took the best all cash/no inspection offer and not the best qualified buyer/requested inspection offer, which was much higher. The realtor told them cash offers are winning almost every time.

Per Zillow, DW's vacation rental in coastal GA is still $100K below its highest Zillow estimate ever (2008ish). There is almost no inventory so I am having a hard time understanding this.

 

[ExFlyBoy5]

Per Zillow, DW's vacation rental in coastal GA is still $100K below its highest Zillow estimate ever (2008ish). There is almost no inventory so I am having a hard time understanding this.

The thing to understand is "Zillow" which tends to have issues depending on the market.

 

[Golden sunsets]

Zillow's median valuation on our home is $150,000+ more than the Redfin valuation which I think is a reasonable valuation. I don't think Zillow's is realistic, even though I see daily, the sales data on properties in our area, selling in record time and at record prices over ask.

Oh and I'm a former real estate appraiser.

 

[ExFlyBoy5]

Zillow's median valuation on our home is $150,000+ more than the Redfin valuation which I think is a reasonable valuation. I don't think Zillow's is realistic, even though I see daily, the sales data on properties in our area, selling in record time and at record prices over ask.

My DW deals with R/E in several states and one of her former co-workers works at Zillow and we had a pretty long conversation when we were in ATL a few weeks ago. Zillow *can* be very accurate, but it is HIGHLY dependent on where you are...and that means at the STREET level, not just the town or even neighborhood.

My DW just did a comprehensive CMA on our house as she would as a R/E broker and she came in about 10% off of what Zillow has, 18% off what Trulia has and about 5% on what Realtor.com has....so it's all over the map. Oh, and she did it the "old fashioned way" by not referencing values from any of the above three sites.

 

[Montecfo]

Zillow is not the market

You have limited supply in desirable locations, due to Covid. That's it.

Trees do not grow to the sky. When supply and demand come back into equilibrium you will see more reasonable prices.

 

[RobbieB]

The last bubble really was a bubble. Loans made w/o income verification to people who didn't have money. Now we have the covid times with work from home and people that were renting with huge stock market gains that pay in cash.

Me thinks it will go down but not go "pop" like the last bubble.

 

[Dtail]

Zillow's median valuation on our home is $150,000+ more than the Redfin valuation which I think is a reasonable valuation. I don't think Zillow's is realistic, even though I see daily, the sales data on properties in our area, selling in record time and at record prices over ask.

Yeah Zillow always seems to be the highest quote, when one uses the quoting services for our house.