What's Going on with the Real Estate Market?

[chassis]

@SD-455 makes sense. I see potentially moderating (hopefully) factors in lower lumber prices and the beginnings of slower car sales. People getting back to work will hopefully give them something else to think about besides buying/selling their principal dwelling.

The TX in-migration situation is a real thing that not all states are seeing. Seems like mainly TX, CO (from western states) and NC (from NE states) are getting large waves of in-migration.

Bids over asking, cash terms and quick closing is a common theme in many markets, for example the midwest where I live. Midwest migration is seeing either net zero or slight out-migration. It's too cold!

 

[jkern]

In the SF Bay Area the housing market is still very hot. It's virtually impossible to tell when it will cool down and if it will flatten or drop. I use to think I can predict these things. WRONG!!

The market started heating up last summer when interest rates dropped below 3%. Last summer my daughter was planning to take a year and then upgrade from her condo. When interest rates dropped, her affordability went up and she took action.

The rental market here has been stable for about 3 years and has increased very little. California legislation is very anti-landlord and I'd be very surprised if mom & pop landlords don't liquidate and exit the rental market in significant numbers. As a landlord I have been concerned about the ever increasing risk.

I can make an argument that Real Estate today is more affordable than it was 33 years ago. In 1988 my wife and I earned about $85K per year as two 8 year professionals (Electrical Engineer and Statistician). Today those same professionals earn about $300K. Using my house as an example, the mortgage and property taxes would have been a larger percentage of our income (10% interest rate) in 1988 vs. today (2.5% interest rate).

 

[chassis]

In the SF Bay Area the housing market is still very hot. It's virtually impossible to tell when it will cool down and if it will flatten or drop. I use to think I can predict these things. WRONG!!

The market started heating up last summer when interest rates dropped below 3%. Last summer my daughter was planning to take a year and then upgrade from her condo. When interest rates dropped, her affordability went up and she took action.

The rental market here has been stable for about 3 years and has increased very little. California legislation is very anti-landlord and I'd be very surprised if mom & pop landlords don't liquidate and exit the rental market in significant numbers. As a landlord I have been concerned about the ever increasing risk.

I can make an argument that Real Estate today is more affordable than it was 33 years ago. In 1988 my wife and I earned about $85K per year as two 8 year professionals (Electrical Engineer and Statistician). Today those same professionals earn about $300K. Using my house as an example, the mortgage and property taxes would have been a larger percentage of our income (10% interest rate) in 1988 vs. today (2.5% interest rate).

What is the price of the house in 1988 and in 2021?

 

[l8_apex]

Rental market in SF is stable?

Courtesy of https://wolfstreet.com/2021/06/27/anatomy-of-san-franciscos-economy-recovery-after-everything-went-to-heck-but-didnt/

 

[cyber888]

I'm from NC and we're experience an influx of migration, so housing market is going up. Many out of town folks coming to our place.

1) Housing shortage. Not enough supplies. People want more housing due to the pandemic and working from home.

2) No, not short-lived. This is very different from the subprime meltdown in 2008. We don't have a subprime problem. The current administration also choose to bail out Homeowners and not the banks (like in 2008). So, you cannot be evicted from your house during the pandemic - the bank will be forced to negotiate with you to extend it to a 40-year mortgage. People won't leave their homes. If they do, they sell high and someone will grab it at the highest price. Interest rates will remain low till the end of 2023 or 2024. Lastly, Investment companies are diversifying from stocks to housing. We got a letter from a company wishing to buy our house at a price much higher than Zillows and it's probably $60,000 more than if we sold it 2-3 months ago. Our neighbors house's sold for $150,000 more than what they are valued on Zillows.

3) Not a good time, unless you can sell your house for 100,000 more, because you pay 6% realtor comission 2% closing cost. That's huge.

Real estate prices have really shot up in my city over the past year, and from what I've heard, this is happening all over the place. A few questions:

1. What's going on? Why are prices jumping so high, all of a sudden?

2. Do you expect this to be short-lived, then prices stabilize? Or are we looking at something more prolonged?

3. Would now be a bad time to relocate? Or is it a wash? I'm thinking that since you could sell your old house for more, that would balance out the extra you'd be paying for the new one. But maybe I'm missing something.

 

[Chuckanut]

The market started heating up last summer when interest rates dropped below 3%. Last summer my daughter was planning to take a year and then upgrade from her condo. When interest rates dropped, her affordability went up and she took action.

The above is an excellent illustration of what I consider the obvious. Add in an ongoing inability to build enough new housing and we have a nice perfect storm for higher housing prices.

 

[jkern]

What is the price of the house in 1988 and in 2021?

I bought my house 1 year old in 1988 for $285K. Today it's valued at about $1.5M. However, I fully remolded the house at a cost of $150K to $200K. Houses in the neighborhood that are original sell for about $1.25M to $1.3M.

I used $285K to $1.25M for my calculations.

 

[jkern]

Rental market in SF is stable?

Courtesy of https://wolfstreet.com/2021/06/27/anatomy-of-san-franciscos-economy-recovery-after-everything-went-to-heck-but-didnt/

When I said stable I wasn't referring to SF by itself, but mostly the entire Bay Area. My wife has a rental in San Jose and my daughter has a rental in San Ramon. The rents on both of these have remained stable with a very small increase. We have also had turnover and didn't need to lower the rent.

 

[jim584672]

In my area (Long Island) the average price sold was $638,000 and 51% of the deals are done for cash, according to Bloomberg.

 

[Starsky]

I'm from NC and we're experience an influx of migration, so housing market is going up. Many out of town folks coming to our place.

1) Housing shortage. Not enough supplies. People want more housing due to the pandemic and working from home.

2) No, not short-lived. This is very different from the subprime meltdown in 2008. We don't have a subprime problem. The current administration also choose to bail out Homeowners and not the banks (like in 2008). So, you cannot be evicted from your house during the pandemic - the bank will be forced to negotiate with you to extend it to a 40-year mortgage. People won't leave their homes. If they do, they sell high and someone will grab it at the highest price. Interest rates will remain low till the end of 2023 or 2024. Lastly, Investment companies are diversifying from stocks to housing. We got a letter from a company wishing to buy our house at a price much higher than Zillows and it's probably $60,000 more than if we sold it 2-3 months ago. Our neighbors house's sold for $150,000 more than what they are valued on Zillows.

3) Not a good time, unless you can sell your house for 100,000 more, because you pay 6% realtor comission 2% closing cost. That's huge.

As an investor, it's nice to finally see NC real estate find a new equilibrium. We've owned there since the early 2000's, and the market has always been extremely stable, but basically flat. It has been great for rentals but terrible for asset appreciation. It still seems like a LCOL market given the quality of life. Since we've been there, Apex and Cary have both been voted the most livable cities in America.

 

[indiajust]

flows not value

https://awealthofcommonsense.com/2021/07/whats-driving-the-stock-bond-housing-markets-right-now/

Sanity will eventually return, but not today.

 

[KrissK]

1) Prices are rising because both inventory and interest rates are really low. So demand is high and houses are still relatively affordable.

2) The current market will stabilize, but no one can predict exactly when. Remember, nothing lasts forever.

3) It would be a smart move to relocate - assuming you can move somewhere with a lower cost of living.

For what it's worth, I'm a relator in the Midwest.

 

[chassis]

I bought my house 1 year old in 1988 for $285K. Today it's valued at about $1.5M. However, I fully remolded the house at a cost of $150K to $200K. Houses in the neighborhood that are original sell for about $1.25M to $1.3M.

I used $285K to $1.25M for my calculations.

Using the example, the home appreciated a bit more than 5% per year over the period. The salaries given appreciated around 3.8% per year over the period.

So the wage earner lost ground over the period, comparing market price of a house vs market price of a white collar worker.

When accounting for lower interest rates today, the monthly payment of a mortgage in the market may have reduced over the period, however at the cost of increased leverage. That for me is a step backwards in affordability over the period. People who shun debt will see it this way. People who buy things based on a monthly payment will see it as a step in the favorable direction.

 

[RobbieB]

I wish I had 3% loans when I bought. I had 10%.

 

[2177V]

Fear of Inflation is causing investors to put money into real estate. I am one of them. My AA is 25% equities, 25% bonds, 25% income producing properties and 25% precious metals and cash. The value of my primary house and my income producing real estate are doing great! If there is a correction, I am well positioned to increase my equities. Currently looking at properties to buy in Hawaii and China.

 

[sroby2020]

property tax appraisal

One downside to the housing price craziness is that the county tax appraiser will raise the appraised value of your home as much as they legally can this year.

 

[CaptTom]

One downside to the housing price craziness is that the county tax appraiser will raise the appraised value of your home as much as they legally can this year.(

But... Assuming the county (or around here, town) expenditures are about the same, if all properties were re-assessed it would reduce the mill rate for all. So you'd pay about what you paid before all the properties were re-assessed (plus inflation.)

 

[ShokWaveRider]

Home prices in the USA have always lagged the UK, various countries in the EU and more importantly Canada, with the exception of Hawaii. Size for Size US homes have been much larger and less expensive that their counterparts. In addition other countries do not have their homes subsidized with tax exemptions (anymore). RE Taxes can also be less in those countries, as income taxes are higher. US has always been at an advantage with respect to housing in comparison, perhaps US prices are simply catching up.

 

[Out of Steam]

Size for Size US homes have been much larger and less expensive that their counterparts. In addition other countries do not have their homes subsidized with tax exemptions (anymore).

The larger standard deduction, which I don't disagree with, means that real estate is much less supported with tax exemptions than it used to be.

I believe that NIMBYism and the physical limits of suburban sprawl (how far can you really drive to work) are hitting a lot more places with housing scarcity than they used to.

 

[jkern]

Using the example, the home appreciated a bit more than 5% per year over the period. The salaries given appreciated around 3.8% per year over the period.

So the wage earner lost ground over the period, comparing market price of a house vs market price of a white collar worker.

When accounting for lower interest rates today, the monthly payment of a mortgage in the market may have reduced over the period, however at the cost of increased leverage. That for me is a step backwards in affordability over the period. People who shun debt will see it this way. People who buy things based on a monthly payment will see it as a step in the favorable direction.

Actually, the home appreciation was 4.58% per year, not 5%. The equation is
X**33(285,000)=1,250,000. Where X is 1 plus your annual percent gain.

You are correct that there is an increase in leverage. However, since the payment is more affordable and it's a 30 year fixed payment, I considered that a greater advantage even though the leverage was higher.

The point I was trying to make was that actual affordability isn't drastically different than it was 33 years ago (plus or minus).

 

[4legsgood]

I'm sorta bummed about the increase in property values because our local property tax relief for low income seniors essentially freezes property value when you apply, and I can't apply for another year.

 

[Dtail]

One downside to the housing price craziness is that the county tax appraiser will raise the appraised value of your home as much as they legally can this year.

Resident homeowners in FLA are subject to a maximum yearly increase of 3%. They only "get" you when you sell and buy a similar or higher value house.

 

[FIREarly]

DW and I wanted to talk to a RE company about new building singles in our neighborhood. They forced us to have a prequal just to talk to create an appt and then told us there are no available homes for sale right now. They said to get on the waitlist we have to have the down-payment money ready, which, at that time, we needed to sell our current home to have the money. The RE agent said we'd have to find a place to live between getting on the wait list, getting approved for the home, and the build. Also, we were not guaranteed to even get the home but we'd have to sell our home to have to have down-payment to POSSIBLY get approved for the home and go through the building processes.

Maybe I am too new to RE and this is more normal than I thought but this new RE company that bought the previous company we got our current home from is no bueno. They are selling one new home per month to, IMO, keep demand in the RE company's control big time. The other developer in the same area already has a sign, sold-out.

Do not think the RE hike is over yet... especially in not urban markets.

 

[chassis]

Construction will pick up now that lumber prices have come down from the recent peak. The single family principal dwelling market has been underbuilt for 10 years. There is at least 5 years of strong construction in front of us. Interest rates will play a secondary role, because people need places to live.

 

[Lienlord]

We sold our family home of 28 years in February (after becoming empty nesters and DW early retirement). We plan to buy again someday, but currently in a nice new rental duplex for the next couple of years. Waiting for the pendulum to swing back, as it always has.

Like Warren Buffet says, "Sell when everyone is Buying, and Buy when everyone is Selling!"