Real Estate Bubble?

[NW-Bound]

One of the homes that caught our attention was listed at a (very much) stretch price for our budget - but checked off 100% of DH's boxes and 75% of mine. It also had a sentimental side to it - same street (but closer to the beach) that my grandparents lived when I was growing up. We decided we'd go look at it - but it went pending before we could get to see it. Judging by the shortness of pending to sold - it must have been a cash offer... For $205K over the asking price!!!!!
https://www.redfin.com/CA/San-Diego/1151-Missouri-St-92109/home/5133745

I like the ocean, but that house is not that close to the water for $1.6M.

For another $300K, I'd rather have this $1.9M deal on Bainbridge Island, with 3922 sq.ft. and more than 1 acre of land, and with a nice view to boot. And I am prejudiced towards the PNW (see my screen name).

Of course, the house may be bid up higher.

https://www.zillow.com/homedetails/3960-El-Cimo-Ln-NE-Bainbridge-Island-WA-98110/23396255_zpid/

 

[brucethebroker]

You might base your thinking of selling on your gut feeling about the future. If you think that the market is too hot, and maybe about to peak, could be the right time to sell. "No one ever went broke taking a small profit"....don't know the author, but good advice.

On the other hand, if you think "this time it is different", well..................

 

[SecondCor521]

The house is worth about $1.8 million today. 32 years old, no remodelling. Rebuilt to current standards and tastes, it would be over $2 million. But I likely can't build it for the maximum insured value of the structures.

OK.

But would you rebuild on the same lot or a different one? And if a different one, would you sell your current lot?

 

[brucethebroker]

When I see a property that has appreciated in value an average of 3%/yr over a 20 year period suddenly increase 40+% over the past three years, I'm more than a little skeptical.

+1.

 

[W2R]

As mentioned earlier in this thread - we've been watching the local market with the idea that if the right place came along, we'd downsize sooner than an our ideal timing. (Have re-thought this and won't make any moves for at least two years.)

One of the homes that caught our attention was listed at a (very much) stretch price for our budget - but checked off 100% of DH's boxes and 75% of mine. It also had a sentimental side to it - same street (but closer to the beach) that my grandparents lived when I was growing up. We decided we'd go look at it - but it went pending before we could get to see it. Judging by the shortness of pending to sold - it must have been a cash offer... For $205K over the asking price!!!!!
https://www.redfin.com/CA/San-Diego/1151-Missouri-St-92109/home/5133745

Oh I *LIKE* it!!! Wow. Except for the price, which I couldn't ever handle. And also I want to continue living where I am, next door to Frank. But what a nice house! Glad to know that such places really DO exist. Sorry that it went pending before you had a chance to see it.

 

[Another Reader]

OK.

But would you rebuild on the same lot or a different one? And if a different one, would you sell your current lot?

I'm sorry, I don't follow your point.

This is the land of Prop 13. I can't sell the lot and retain my base year property tax value. Plus there would be a huge capital gains tax on the sum of the sale price plus insurance proceeds, as I rolled over the basis of the prior primary residence into this one.

My point is that it would be very difficult to replace the structure on the existing lot for what the insurance would pay, even if I could find a contractor.

Market value is based on the principle of substitution. Replacement cost is a method of measuring value, but only if you can replace by building new. While there is a confluence of constraints in the Bay Area that drive prices here into orbit, some of the same factors are now in play in other markets, including shortages of land, materials, and labor.

 

[cathy63]

I'm sorry, I don't follow your point.

This is the land of Prop 13. I can't sell the lot and retain my base year property tax value. Plus there would be a huge capital gains tax on the sum of the sale price plus insurance proceeds, as I rolled over the basis of the prior primary residence into this one.

My point is that it would be very difficult to replace the structure on the existing lot for what the insurance would pay, even if I could find a contractor.

Market value is based on the principle of substitution. Replacement cost is a method of measuring value, but only if you can replace by building new. While there is a confluence of constraints in the Bay Area that drive prices here into orbit, some of the same factors are now in play in other markets, including shortages of land, materials, and labor.

I'm not sure how much it helps, but since Prop 19 passed last November, you can move your tax basis to a new property anywhere in the state if you are a victim of wildfire or if you are over 55. You'd still be stuck with the cap gains though.

 

[SecondCor521]

I'm sorry, I don't follow your point.

Sorry, I was just confused when you wrote

A lot similar to mine would go for at least $500k.

If you would rebuild on your existing lot (which completely makes sense based on everything you've written, setting aside Prop 19 for the moment) and you're getting rebuild cost on the structure, I'm not sure why the price of a lot like yours is relevant.

Not a big deal in any case.

(I don't live in CA but I know the tiniest bit about Prop 13 and Prop 19.)

 

[Gearhead Jim]

...

My point is that it would be very difficult to replace the structure on the existing lot for what the insurance would pay, even if I could find a contractor.
...

Here in Illinois, State Farm allows and encourages us to sit down with the agent and calculate what it would actually cost to rebuild after a total loss. Sure, they make more money (premiums) if we select a higher value, but it's optional to do that. They have an automatic inflation adjuster built in to the rebuild cost, sometimes it has had us over insured and sometimes like now, under insured. But we get to pick any reasonable number.

 

[karen1972]

Ok, I think Zillow has jumped the shark. I didn't think there was a bubble but now I'm thinking I was wrong. Zillow just paid cash 3 weeks ago basically full asking + $20k, then turned around and put it on the market for what most would deem now $50k over FMV. That seemed wrong, so I have another neighbor who has to move out of the country, mid July, I tell her go see what they will pay. Zillow just offered her $140k over the house that sold in April across the street from her which is almost identical.. and thats before you consider they will have to re-sell it. So this does not seem to be a fluke and now I'm worried something is way wrong with their algorithm and they will be sitting on a ton of product.. and potentially needing to dump it. $40k I totally could have justified, $140k is just a mistake on their part.

 

[stephenson]

I'm beginning to sense a slow-down ... anyone else picking up on it?

Could be the time of year, but ...

 

[ProspectiveBum]

Ok, I think Zillow has jumped the shark. I didn't think there was a bubble but now I'm thinking I was wrong. Zillow just paid cash 3 weeks ago basically full asking + $20k, then turned around and put it on the market for what most would deem now $50k over FMV. That seemed wrong, so I have another neighbor who has to move out of the country, mid July, I tell her go see what they will pay. Zillow just offered her $140k over the house that sold in April across the street from her which is almost identical.. and thats before you consider they will have to re-sell it. So this does not seem to be a fluke and now I'm worried something is way wrong with their algorithm and they will be sitting on a ton of product.. and potentially needing to dump it. $40k I totally could have justified, $140k is just a mistake on their part.

I was confused enough that you made me look it up. Sure enough, Zillow is buying homes. Here’s a blurb that I found from a NYT article from a couple of years ago:

Zillow essentially acknowledges that it doesn't expect to make much money per home on its instant-offers program. Instead, it sees selling homes as a way to generate business for its mortgage-lending arm, which it developed after acquiring Mortgage Lenders of America last year, and for other services.

https://www.nytimes.com/2019/05/07/business/economy/ibuying-real-estate.html

 

[Teacher Terry]

Karen, that’s really crazy.

 

[ExFlyBoy5]

Here in Illinois, State Farm allows and encourages us to sit down with the agent and calculate what it would actually cost to rebuild after a total loss. Sure, they make more money (premiums) if we select a higher value, but it's optional to do that. They have an automatic inflation adjuster built in to the rebuild cost, sometimes it has had us over insured and sometimes like now, under insured. But we get to pick any reasonable number.

Not a bad idea. Folks tend to underinsure since they don't take into account the other parts of dealing with "replacing" a house. Disposal of remnants of the old house, permits, etc. It can be significantly more expensive than "starting fresh."

 

[ExFlyBoy5]

I'm beginning to sense a slow-down ... anyone else picking up on it?

Could be the time of year, but ...

Maybe where you are, but not in the many markets my DW is involved in. It's still madness.

 

[braumeister]

Not a bad idea. Folks tend to underinsure since they don't take into account the other parts of dealing with "replacing" a house. Disposal of remnants of the old house, permits, etc. It can be significantly more expensive than "starting fresh."

You can google "home replacement cost" and find quite a few calculators that can help with estimating those costs. A good starting point for those who don't already have a good idea.

 

[RetireeRobert]

I'm beginning to sense a slow-down ... anyone else picking up on it?

Could be the time of year, but ...

Just last evening I was surfing the Redfin site of homes for sale, and recently sold in my area. While some of the seemingly reasonably priced homes had sold quickly (less than 7 days on Redfin), I noted several homes I had looked at before were still on the market 12 days, 18 days, 27 days later. These were ones I had thought were pushing it on price, but they were not really ridiculously overpriced.

So, yes, I too started wondering if the madness is beginning to ever so slightly be easing up.

 

[SecondCor521]

Just last evening I was surfing the Redfin site of homes for sale, and recently sold in my area. While some of the seemingly reasonably priced homes had sold quickly (less than 7 days on Redfin), I noted several homes I had looked at before were still on the market 12 days, 18 days, 27 days later. These were ones I had thought were pushing it on price, but they were not really ridiculously overpriced.

So, yes, I too started wondering if the madness is beginning to ever so slightly be easing up.

Seems to be easing up here as well.

Inventory is rising (still less than a month, but not as little as a week). Sellers are lowering asking prices. A local builder is offering discounts, especially if you buy by the end of this month. In the case of that builder though, that could just be a builder wanting to improve their balance sheet for whatever reason.

 

[Deej]

If you subscribe to the Zillow site, you'll notice a change when asking prices are showing up as "reduced". The more you see of this is a tell-tale. During the mist of the crazy market, I never saw anything reduced, but, starting to see just a few.

 

[firemediceric]

Still crazy in my neck of the woods without any sign of abating.

 

[pb4uski]

Not a bad idea. Folks tend to underinsure since they don't take into account the other parts of dealing with "replacing" a house. Disposal of remnants of the old house, permits, etc. It can be significantly more expensive than "starting fresh."

I'm not so sure about that.... you'll have water, electric and wastewater all in place... and in most cases a sound foundation with some clean up.

We demoilshed and rebuilt in 2011/2012 and our demolition costs were only $7k and permit was $25 but we are out in the boondocks.

 

[pb4uski]

Still crazy in my neck of the woods without any sign of abating.

You made me look... the Zestimate of my Florida condo is 25% higher than what it was last fall... realtor.com estimate is "only" 15% higher.

 

[Another Reader]

Here in Illinois, State Farm allows and encourages us to sit down with the agent and calculate what it would actually cost to rebuild after a total loss. Sure, they make more money (premiums) if we select a higher value, but it's optional to do that. They have an automatic inflation adjuster built in to the rebuild cost, sometimes it has had us over insured and sometimes like now, under insured. But we get to pick any reasonable number.

Their number grossly underestimates the actual rebuilding cost. I upped my coverage and added the optional 20 percent rider when I recently renewed. I hope to cover most of the current rebuilding cost. Contractors are impossible to find now, imagine what it woud be like after a major wildfire?

 

[Another Reader]

I'm not so sure about that.... you'll have water, electric and wastewater all in place... and in most cases a sound foundation with some clean up.

We demoilshed and rebuilt in 2011/2012 and our demolition costs were only $7k and permit was $25 but we are out in the boondocks.

The temperatures reached in some of the wildfires here weakened the slabs, rendering them useless. Underground plastic pipes melted and some metal pipes as well. Not your typical house fires.

 

[tmm99]

We bought our house in 2016. The housing news says that the housing prices in my area have increased by 30% in one year. Looking at the recent sales prices of the homes that are similar to mine, the housing prices have almost doubled since 2016, which means we couldn't afford our house if we were to a house today.

I feel for the people who are currently in the market...