Coastal Flight, Work-from-Home: Real Estate Bubble or New Normal?

[kevink]

As I watch booming real estate and tight rental markets here in Tucson and in every desirable nearby place I know of (from Santa Fe and Albuquerque to everywhere in Colorado and Utah) I'm both wondering if this is a bubble and more than a little fearful of getting priced out.

Financially-savvy friends in Santa Fe who've written extensively about the virtues of renting vs. owning in high-priced markets like theirs just bit the bullet on a house purchase because they felt pretty certain they'd otherwise be priced out of both the rental and ownership markets. They paid 450K cash for a small place that'd have sold for ~300K a year ago.

Any thoughts on this and/or resources to follow trends appreciated!

 

[Koolau]

Just looking at the old home town on Zillow indicates prices have roughly doubled of late. I see no underlying reason - especially in the area. It's certainly not the kind of place you expect Californians and New Yorkers to "flee" to. I'd go back in a minute if the whole Paradise thing doesn't work out. I know the area, have friends/family close by. But the main draw is availability of empale*yment. Other than that - pick any spot in the prairie and you wouldn't distinguish it. I can't believe economic activity had picked up that much since I've been gone. The area was always diversified economically so why the sudden housing price doubling? Doesn't make sense to me, but I've been gone too long so YMMV.

 

[jurgs01]

Just looking at the old home town on Zillow indicates prices have roughly doubled of late. I see no underlying reason - especially in the area. It's certainly not the kind of place you expect Californians and New Yorkers to "flee" to. I'd go back in a minute if the whole Paradise thing doesn't work out. I know the area, have friends/family close by. But the main draw is availability of empale*yment. Other than that - pick any spot in the prairie and you wouldn't distinguish it. I can't believe economic activity had picked up that much since I've been gone. The area was always diversified economically so why the sudden housing price doubling? Doesn't make sense to me, but I've been gone too long so YMMV.

Years of artificially low interest rates can push prices well above where they should be with normal supply and demand.

 

[FreeBear]

As I watch booming real estate and tight rental markets here in Tucson and in every desirable nearby place I know of (from Santa Fe and Albuquerque to everywhere in Colorado and Utah) I'm both wondering if this is a bubble and more than a little fearful of getting priced out.

I see this too in the SW, SE, and just about any other place, except my part of Frozen Flyover where I hope to unload a house

No idea if this is a bubble or not, but I don't care either way. I view my house as an expense, not an investment. If we like a place and it is within our budget, as defined our overall financial plan and SWR, then we buy it.

We did this here in Tucson last year because prices have been rising and selection declining strongly for at least 2-3 years. We were getting to the end of our budget even last year, and we feared getting shut out. I estimated that we would have been priced out by 2021 or 2022, regardless of selection. Glad we pulled the trigger, just before covid hit. We love our new location and house, despite record heat last summer. Sure beats the Frozen North.

If you want to move for personal reasons or need to find a lower COL location, I'd suggest getting a move on. Resale options here have virtually disappeared. If I had waited, I'd be looking at expensive new construction far from our preferred locations. Plus, I'd be freezing my *ss off up north.

 

[Ready]

Prices have been rising in Southern California too. COVID has motivated people to upgrade their homes because they are spending so much more time at home now, especially if they are working from home.

Prices have been rising in our neighborhood for 13 years in a row. They can’t go up forever but it’s anyone’s guess when the correction will occur. But it will occur.

 

[Jerry1]

Wonder if there will be a flip flop. When prices in the city go down low enough, won’t those be good locations for people who are retired and want to be able to walk to places like restaurants and entertainment? Just a thought as it seems like there has to be some form of equilibrium eventually.

 

[Teacher Terry]

Nevada’s housing prices have exploded. High prices and low inventory. Northern Nevada in particular is insane but California people with money keep moving in.

 

[travelover]

The price of lumber has skyrocketed, so it seems this would make used houses more valuable as people get priced out of new construction.

 

[Bamaman]

We're seeing starter homes in the south jump dramatically in price. Millennials are spending $250K and below, and the homes won't stay on the market more than a few hours in many cases. It's where sellers give buyers 48 hours, and then they take the highest offer. And in so many cases, the homes need substantial repairs--and they still sell.

We fronted our granddaughter the $ to get into a $205K home in a good rural neighborhood.

 

[Out-to-Lunch]

Wonder if there will be a flip flop. When prices in the city go down low enough, won’t those be good locations for people who are retired and want to be able to walk to places like restaurants and entertainment? Just a thought as it seems like there has to be some form of equilibrium eventually.

That is my hope/plan! We will be looking to move to a lock-and-leave condo in the city (just a few miles away). I am hoping your vision comes to fruition.

 

[harley]

Our plan has always been to move back into NoVA when we get older to be near our family, but we don't want to live there now. So we have a house in MD on the shore, and a house (primary residence) in SWFL for snow birding. We owned a townhouse in NoVA that we had rented to DD, but when she got married they bought their own place. We sold the TH a year or so ago, but I was fearful of getting priced out of the market here, so we bought another TH. This one is single floor living in an amazing location, and we are going to stay here off and on for the next few year while we decide what we're going to do when we grow up.

Our house in MD has never recovered from the 2009 housing crisis, and is still down about 25% from our original cost. But the DC area never seems to suffer from a housing downturn, so I'm not worried about losing money there. Sometimes it slows down, but in my 40+ years of experience it never drops, at least not for long.

My thinking is that if I took the money from the sale of the TH and put it in cash/bonds, I'd definitely lose buying power. If I invest it in the market it might keep up with housing prices in the DC area, but we'd have to get lucky with the timing. I'd just as soon put it in the house now, and have it to use as well as as a backup in case one of us got sick or hurt. We'd want to be near family and good health care, and neither of the other two places have that combination.

Time will tell if this works out, but I feel like it's a good choice for us. This has nothing to do with the Covid housing "bubble", as we made these decisions long before the pandemic came along. I'm actually hoping the rising tide will float the price of our MD house, in which case we might sell and not lose so much money. We'll see how it goes. But as far as the pandemic bubble is concerned, I'm not sure I'd buy to lock in an affordable price. I'm not sure if those prices are sustainable.

As a bonus, we got a low mortgage rate on the new place, and tomorrow I'm refinancing it to an even lower 2.75% (30 year) rate. I'm willing to bet that over our combined life span we'll be able to beat that rate quite handily due to inflation and rising rates. Right now that doesn't seem likely, but I'm willing to take that risk.

 

[Montecfo]

People are selling in cities (and troubled states) and buying in suburban and rural locations, they seek more space due to working from home, lower cost, better government, greater security and more options.

Most of us live in suburban and rural locations so we are seeing the higher prices. Not uniformly true in the cities, especially the worst hit ones.

People in suburban and rural areas are not selling due to pandemic which creates a supply-demand imbalance..

Affordability is high due to low interest rates but that is nothing new. Buyers have improved balance sheets due to saving during pandemic.

It does not appear to be a bubble Mortgage credit is still rather constrained. This is not 2006.

 

[Aerides]

I would not want to be out of the RE market now. And I'd hate to be a first time buyer.

I know someone who sold last February and decided to rent to a year as they hadn't found somewhere yet to buy...6 months later the market had already gone up 15-20%. Now she's in bidding wars on anything in her range, and lenders are very VERY picky. As a small business owner, she's being told she needs 40% down to qualify.

I do think there is a supply/demand balance bubble approaching. There are more flippers active in my area now, and houses are selling fast for more than is sensible (homes that sold for $350k in 2016 are listing over $600 - and selling). Eventually this imbalance will level off, and I expect prices to drop some - not all the way but maybe a 10% correction in 18 months.

 

[djsander]

As I watch booming real estate and tight rental markets here in Tucson and in every desirable nearby place I know of (from Santa Fe and Albuquerque to everywhere in Colorado and Utah) I'm both wondering if this is a bubble and more than a little fearful of getting priced out.

Financially-savvy friends in Santa Fe who've written extensively about the virtues of renting vs. owning in high-priced markets like theirs just bit the bullet on a house purchase because they felt pretty certain they'd otherwise be priced out of both the rental and ownership markets. They paid 450K cash for a small place that'd have sold for ~300K a year ago.

Any thoughts on this and/or resources to follow trends appreciated!

I would say yes Santa Fe is desirable, but Albuquerque no due to the extremely high crime rate. The flight will be short lived as interest rates become more in line and people miss the allure of the coastal cities. It’s more hype on the flight than anything else. Interest rates are the big housing driver right now.

 

[kevink]

I would say yes Santa Fe is desirable, but Albuquerque no due to the extremely high crime rate. The flight will be short lived as interest rates become more in line and people miss the allure of the coastal cities. It’s more hype on the flight than anything else. Interest rates are the big housing driver right now.

This doesn't jibe with what I'm hearing from realtors here in AZ and in New Mexico, as well as friends actively shopping for houses in these markets. Multiple full-price offers - including all-cash - from Californians in particular but also East Coast folks are the norm.

And yeah, Albuquerque has sky-high crime but is still booming. Of course part of that is due to more than half of Santa Fe's workforce living there and commuting but not all of it.

Lots of moving parts to these trends, which are occurring not just in well-known cities and towns but pretty obscure and remote ones.

 

[HawkeyeNFO]

Wonder if there will be a flip flop. When prices in the city go down low enough, won’t those be good locations for people who are retired and want to be able to walk to places like restaurants and entertainment? Just a thought as it seems like there has to be some form of equilibrium eventually.

Around here in the Washington DC area, the stage is being set for that right now. The turnaround will not be sudden, but rents in the urban area are much much lower than they were a year ago. Buddy living in Crystal City, where Amazon is building HQ2, said his rent would drop from $2400 to $1700 if he could break his 1.5 year old lease and get the same place today. Lots of restaurants have closed in the area, but I would bet they'll come back or be replaced with new ones. And in a couple of years, lots of job seekers will be looking move near the office, even if they don't visit it 5x per week. Right now might be THE time to invest in multi-family residential, if you know the area.

 

[FreeBear]

We're seeing starter homes in the south jump dramatically in price. Millennials are spending $250K and below, and the homes won't stay on the market more than a few hours in many cases. It's where sellers give buyers 48 hours, and then they take the highest offer. And in so many cases, the homes need substantial repairs--and they still sell.

We fronted our granddaughter the $ to get into a $205K home in a good rural neighborhood.

Similar story to a friend who is moving to a small/mid sized metro in the SE. His budget is lower 200's, but nothing clean and near town can be found at this price point. Can still get fixer-upper stuff with a decent chunk of land out in the sticks, but this isn't how he rolls. Is now targeting new construction subdivisions this week.

I'm afraid to ask him how it is going. Builders seem to be pushing larger, more expensive houses, not lower cost "starter" homes. List price has gone up around 3% just since Christmas and I'm afraid it will be tough negotiating, assuming he can even get that far. Going to be a rough week

In our case, we are fortunate to have landed our modest dream house just before the pandemic. We still have to unload our place up north, which hasn't moved upward in price in a decade. Still, between the stock market rise and the booming RE market in SE AZ, our paper gains are covering all our moving and transition expenses. Pretty amazing considering how much we have been bleeding cash throughout our slow-motion pandemic move.

 

[Koolau]

Years of artificially low interest rates can push prices well above where they should be with normal supply and demand.

Thanks. I'm sure you are correct to some extent. However, we are seeing "softening" of prices here in Honolulu right now and we do hear that there is at least some flight from the Islands - due to economic issues (most likely exacerbated by Covid.) So whether that's an issue in the old home area, I don't know (as mentioned who from Cali (or Hawaii) wants to live among the corn and soy bean fields?) Could all be interest rates - but just seems "too much." Glad I'm not looking for a home "back home" right now. YMMV

 

[Walt34]

We're seeing much higher prices and fast sales on houses here and while we're not quite flyover country, D.C. is an hour and a half away and many people do commute. Most of the commuters to the D.C. area commute to northern Montgomery County in MD or Fairfax or Loudoun County in VA, although some do commute to within D.C. itself. That's a brutal commute though on a good day, and if it snows, forget it and get a hotel. Houses in this development sell within a week at most and usually within a few days. We're not down to selling within hours, yet.