Real Estate Bubble?
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stephenson
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Florida - western corner of the Panhandle.
Seems like a bubble - except fewer mortgages ... lots of cash deals. Prices have doubled in five years. Multiple offers for pretty awful properties.
We have single family rental properties and receive several offers a week from flip companies. Prices shown on zillow up 10% a month over last six months.
Bought our current home in March 2020 - up 25-30% since then - this in one of most expensive neighborhoods.
Seems like a bubble - except fewer mortgages ... lots of cash deals. Prices have doubled in five years. Multiple offers for pretty awful properties.
We have single family rental properties and receive several offers a week from flip companies. Prices shown on zillow up 10% a month over last six months.
Bought our current home in March 2020 - up 25-30% since then - this in one of most expensive neighborhoods.
Then why isn't urban areas going down? I moved to Long Beach, CA and the prices are insane. I'm already considering moving back to Arizona, lol.
Another Reader
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List it for sale at the lower end of the range of sales that have closed in the last 60 days on a Wednesday afternoon or Thursday morning. Say sold "as is." All offers will be reviewed after 5 PM Monday. Submit your highest and best offer by then. That creates the urgency and starts the bidding war. If you don't like any of the offers, pull it and start over.
Another Reader
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Same advice. List at the lower end of the market, and set a date and time for offers. Create the auction frenzy. Do clean it up and get it on the market ASAP, before rates move up.
Interesting perspective.....How many RE cycles have you lived through?
-Late 70's-early 80's - oil patch overbuilding due to "oil prices can only go up". Other things going on then as well-high interest rates/inflation and Volker aggressively moving to squeeze out both.
-Late 80's-early 90's - high defense spending and employment growth in that sector. RE was collapsing in MA and CA even before the USSR folded.
-Institution-based overbuilding, primarily in the Sunbelt. Much of it concurrent with the tail end of the defense spending in the late 80's. That's how we ended up with the Resolution Trust Corporation to liquidate S&Ls.
-Easy credit due to regulatory push for "affordable" housing and housing finance, coupled with an investment demand for yield. Both substantial contributors to the decline starting in 2008. I think this is what you would characterize as a "consumer debt issue". Which, BTW, was not a significant factor in the earlier declines.
Different factors at play now-high construction costs, tight labor market, people fleeing some states for others. The price action lately tells me we are much closer to the top than a year ago, but there is no way to know when, or how, it will end.
When I was in the game, I had interactions with the economists at the major trade groups and finance companies. They knew who they worked for
. Most of what passes for "analysis" is substantially based on the prognostications of those folks.
Fortunately, I'm out of the game-no longer working and content to stay in my current home for several more years. No "debate" for me. I played the game, pushed back from the table and cashed in my chips. I'm a spectator now.
Make your money now, but don't be greedy. And don't bet your financial future on being able to accurately predict when and how it will end.
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A 3/2 in our average little Central FL neighborhood just sold for $184 per square foot, if it sold for asking price. It was on the market for 10 days. It was rehabbed and flipped in Dec 2016. No pool but interior was all updated. Nice finishes, nothing high end.
It appears our house has gone up about 15% in less than a year. Crazy!
Telly
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Bubble Bubble Bubble!
I think the driver that has really blown it up large is Covid-19 and the "work from home, so home can be anywhere" issue.
But I think with a bit of time, there will be some strong currents the other way:
1) A return to work in-person for many. Problems bringing on new people, and getting them up to speed when so many/all are "remote" workers. Loss of intellectual critical mass, where big new things start/problems are solved due to hallway or overheard conversations. How to decide who to promote, when remote (catchy phrase, eh?). Remote workers may unknowingly put themselves onto the gig-worker track. They may like the idea at first, but losing stability, benefits, the next recession... Not everyone is cut out to be a one-person consultant company. If they think that they can do it sitting at home in their PJs getting up at 10 AM to use their laptop, and that's the way it will be, good luck. A few can do it, till their star fades, I think most can't.
2) Moving from another state, or from urban to rural... may be many dropouts out of that after the initial excitement wears off. May miss a lot of things they had before. May hate many things that are "new" in their new location. Can go on and on on the possible negatives on this one, after starry eyes start to smart. So they move back, and those property prices then take a big drop, takers few and far between. I strongly doubt that the US migration to cities/suburbs is going to reverse for any real length of time.
3) Recency bias. This one is self-explanatory!
4) No matter what the mortgage rates are down to, a bad buy is a bad buy. All the "grab it while you can, quick quick quick!" won't make it feel any better when it's over.
5) I wonder what the increase in the divorce rate will be. Remember, divorce often means somebody has to sell, somebody loses big $, somebody has a tough time financially and or mentally.
I could keep thinking up things here, but to me, the whole situation screams of "Bubble!"
I think the driver that has really blown it up large is Covid-19 and the "work from home, so home can be anywhere" issue.
But I think with a bit of time, there will be some strong currents the other way:
1) A return to work in-person for many. Problems bringing on new people, and getting them up to speed when so many/all are "remote" workers. Loss of intellectual critical mass, where big new things start/problems are solved due to hallway or overheard conversations. How to decide who to promote, when remote (catchy phrase, eh?). Remote workers may unknowingly put themselves onto the gig-worker track. They may like the idea at first, but losing stability, benefits, the next recession... Not everyone is cut out to be a one-person consultant company. If they think that they can do it sitting at home in their PJs getting up at 10 AM to use their laptop, and that's the way it will be, good luck. A few can do it, till their star fades, I think most can't.
2) Moving from another state, or from urban to rural... may be many dropouts out of that after the initial excitement wears off. May miss a lot of things they had before. May hate many things that are "new" in their new location. Can go on and on on the possible negatives on this one, after starry eyes start to smart. So they move back, and those property prices then take a big drop, takers few and far between. I strongly doubt that the US migration to cities/suburbs is going to reverse for any real length of time.
3) Recency bias. This one is self-explanatory!
4) No matter what the mortgage rates are down to, a bad buy is a bad buy. All the "grab it while you can, quick quick quick!" won't make it feel any better when it's over.
5) I wonder what the increase in the divorce rate will be. Remember, divorce often means somebody has to sell, somebody loses big $, somebody has a tough time financially and or mentally.
I could keep thinking up things here, but to me, the whole situation screams of "Bubble!"
RetireeRobert
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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.
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.
Badger
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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
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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.
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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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
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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....
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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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.
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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
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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.
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
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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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Yet 5 years ago, suburbia was the butt of jokes, memes and political pressure.
Things change fast.
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.
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Locking-In my Gain
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.
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.
I like the observation and colorful write-up
kcowan
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Do you mark to market?
SheitlQueen
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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
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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.
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.
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