Real Estate Bubble?

[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]

sight unseen. The site was unseen.

Thanks. Still learning!

 

[pjigar]

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]

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]

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]

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:

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]

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]

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]

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.

 

[Starsky]

The supply of homes has been low for a number of years. This past year, the price of building materials shot up like crazy, so I don't think builders are making up for the lack of inventory anytime soon.

I don't think it's so much existing buyers playing musical chairs, as it is the demand is growing with new buyers coming online with historically low interest rates and no homes for them to buy. Because this has been going on so long, it is not likely to be resolved quickly. As long as the economy keeps clicking along, I'd expect that rising interest rates will slow rising prices before inventory adjustments do.

 

[Mr. Tightwad]

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

I sent you a direct response.

 

[1242Vintage]

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

Its good for us with our home and rentals in the area. But it’s heartbreaking seeing young growing families that we know in our local area priced out of the market.

 

[tryan]

Been a RE investor for 30 years ....

First 5 properties (late 80's) ... lost money ... wrote checks at closings.

Next 13 properties where purchased at RTC (Resolution Trust Corp) auctions (mid 90's)

Dumped a bunch in 2005-2006 ... made a killing (FIRE'd).

Tried a flip 2010-2012 .... made peanuts.

Still carrying an RTC purchase ... paid 15k for ... realtor says 250k "minimum".

Yes ... it's a bubble. Enjoy the ride!

 

[DaCounselor]

I feel like I've seen this movie before. Not just regarding housing, but also raw land, stocks, commodities, trading cards, tulips, etc. etc. As human beings willingly decide to pay staggeringly higher and higher prices for something, we get peppered with explanations and rationalizations as to how things are "different this time" and we are in a "new paradigm".

The assets and the facts may indeed be different each time, but the human emotions driving and yes compelling people to sign the contracts are the same - fear, pride, greed, envy. Perhaps no asset stirs the emotions more than residential real estate. When you have a market that is comprised of bidding wars with many losers and only one winner per house, the impact on the losers' mentality going into the next "auction" is significant. Contracts get signed at price levels that probably seem crazy to the purchaser, yet they sign anyway.

I have no idea if it's really "different this time", if we we really are in a "new paradigm'". But I am hearing the explanations about why it is, just like every bubble de jour in the past. If I had to bet, I'd say this is just another sequel to the prior Bubble movies, and the ending is going to be pretty similar. Thankfully, I don't have to bet and can just watch this thing with a beer in my hand and my feet up.

 

[chassis]

Yellen's remark on the "i" word, interest rates, in an interview recorded yesterday and broadcast today had an effect on today's stock market. Will it have an effect on consumer demand for single family homes? I don't see that happening.

 

[NW-Bound]

Not all cities and towns in the US see a big housing price increase. The following article lists 50 cities where the average home price stagnates, or even drops as much as 9% in the last 12 months. Among the list are Jackson, MS, San Mateo, CA, Laredo, TX, and even San Francisco and Chicago.

https://www.msn.com/en-us/money/realestate/50-housing-markets-that-are-turning-ugly/ss-BB1agCW5

 

[jkern]

Not all cities and towns in the US see a big housing price increase. The following article lists 50 cities where the average home price stagnates, or even drops as much as 9% in the last 12 months. Among the list are Jackson, MS, San Mateo, CA, Laredo, TX, and even San Francisco and Chicago.

https://www.msn.com/en-us/money/realestate/50-housing-markets-that-are-turning-ugly/ss-BB1agCW5

I'm not sure where they get the data from, but I'm not buying their numbers. I'm from San Mateo and currently live in the East Bay. San Mateo has not dropped by 6% over the last two years. Even if the drop was accurate, the neighboring cities (Burlingame, Belmont) would have dropped too. However, they are no even on the list. Totally bogus.

 

[pjigar]

This article is a click-bait with old data. I saw reference to 2019 in one of the city. I stopped reading at that point.

 

[Gearhead Jim]

Not all cities and towns in the US see a big housing price increase. The following article lists 50 cities where the average home price stagnates, or even drops as much as 9% in the last 12 months. Among the list are Jackson, MS, San Mateo, CA, Laredo, TX, and even San Francisco and Chicago.

https://www.msn.com/en-us/money/realestate/50-housing-markets-that-are-turning-ugly/ss-BB1agCW5

I don't know about the city of Chicago itself, but out here in the distant suburbs, prices are zooming. We've lived in this neighborhood for 40 years and houses here have appreciated more in the last year than in the previous couple of decades.