Is the realestate bubble bursting?

[Aerides]

Prices won't fall immediately. There will be more inventory, more due diligence, fewer sight-unseen purchases, fewer cash offers, fewer over-asking-price bids, that sort of thing. And, yes, a good indication is when the "For Sale" signs stay up longer.

I think it's safe to say at this point that would-be sellers who waited have missed the peak. Buyers are probably wise to wait, or at least not make a panic purchase. Beyond that, my crystal ball starts to get cloudy.

This is my thinking. Despite low rates, a significant majority of SFH purchases in the past 18 months have been cash and investment buyers. So, mortgage rates rising doesn't impact them much, and just makes it even harder for "normal" buyers.

Until supply increases significantly, there's nothing to burst. There will be a slowing and a leveling off, but not a burst. And remember, 2008 was built on a supply of dodgy money that was laundered into the whole financial system.

 

[Montecfo]

I hear the comments about supply staying low, and I agree supply is low. And there is a lot of pent-up demand to to delayed HH formation as well as WFH, etc.

But buying power aka "demand" has taken a serious hit. There is just little chance that housing is valued the same when the ability to pay in terms of mortgage interest rates has taken such a huge hit. Mortgage rates have risen by 75 percent +, with a commensurate decline in buying power.

We will definitely see price declines. We are already seeing evidence of demand destruction (fewer bidders, less traffic, expanding DOM). The higher priced houses will be effected the most.

This is to be expected but it is also healthy.

 

[aja8888]

Real estate prices are sticky and people won't sell unless they have to. In the 2009 GFC, it took two years for prices to bottom. We bought our second home at that time and paid $62/sq. ft. for it (3 year old 2,000 sq. ft. brick ranch in Spring, TX). It sold new for around $200,000 in 2007.

Once mortgage rates go higher with increased fed funds rate increases, there will be less people who will be able to afford a mortgage and prices of homes will fall to accommodate those higher rates.

It does this in cycles and it's no mystery.

 

[CRLLS]

In my very limited experience, Interest rates going higher generally means sales price goes lower. Interest rates higher along with higher inflation means more people put in a bind. Some of those will need to sell to get our of their predicament which means more homes on the market.

On the other hand, so far employment is high for now, meaning higher salaries or they leave for another employer. That allows the homeowner to afford the higher cost of a home (price and mortgage). Even those who take a new job at a new location are likely to get a larger salary, not to mention the timeframe they are under means they will gladly pay more.

How it home prices will end up is beyond my capabilities to predict with any accuracy. If I could, I would be in real estate. My guess is it will get worse before it gets better.

 

[MC Rider]

All real Estate is local. Pay no mind to national numbers. Other than things like interest rates that are not local. Note the NAR / National Assn of Realtors thinks every single day is a good day to buy or sell RE. Are they biased? LOL. Consider the source. Do your own local research for the property type you are interested in.

 

[NW-Bound]

The housing market probably will not burst like a pricked balloon. "POP".

I think it will be more like a punctured tire. "Hiss..."

 

[NW-Bound]

The housing market probably will not burst like a pricked balloon. "POP".

I think it will be more like a punctured tire. "Hiss..."

But I do not really care. I am more interested in the stock market movements.

 

[Scrapr]

Just saw in the news that the White House would like to implement a nationwide set of building codes. YOu can be if implemented, it will increase the cost, time and complexity of new construction.

States (almost all) use IRC. International Residential Codes. The updates are I think every 2 or 3 years.

https://www.iccsafe.org/wp-content/uploads/Code_Adoption_Maps.pdf

Improvements happen every code cycle. Last 10 (maybe 15?) or more years energy efficiency has been top of mind. There are also different codes for plumbing, mechanical & electrical. The White House may lobby for changing the codes but the States decide on implementation

*my trade was not code focused but I sat in many meetings talking about code change for more energy efficient homes

 

[harllee]

Typically the housing bubble pops in resort areas first. I own a house in the mountains of NC, mainly second homes. I am already seeing a decline in prices there. Many more listings, price reductions and days on the market. Also vacation rentals are down by about 25%.

 

[captain3d]

https://www.redfin.com/news/data-center/

Is a graph generator from various sales/rent data.

 

[Out of Steam]

Hard to say that a house such as ours, which has gone up 30% in value since 2019, is part of a bubble when the price of everything else is 30% higher than in 2019.

 

[rodi]

prices are/were outrageous here. A house similar to ours is pending at $1.8M.... *but* there was a local tv station interviewing the owner and his realtor (who also lives on our street) saying this may be the last of the multiple bid houses because of interest rates.

We're looking at downsizing in a few years when the younger son launches all the way... But, since we'll be selling/buying in the same market, it doesn't really matter.

 

[tmm99]

In this post I included a video on an Ontario market: https://www.early-retirement.org/forums/f28/is-the-realestate-bubble-bursting-114490.html#post2793396 which collaborates your observation.

That's a good video, thanks. Yep, that's exactly what is happening here. Free fall housing prices and inventory skyrocketing.

 

[FlaGator]

This is my thinking. Despite low rates, a significant majority of SFH purchases in the past 18 months have been cash and investment buyers. So, mortgage rates rising doesn't impact them much, and just makes it even harder for "normal" buyers.

Until supply increases significantly, there's nothing to burst. There will be a slowing and a leveling off, but not a burst. And remember, 2008 was built on a supply of dodgy money that was laundered into the whole financial system.

And it is those "investment buyers" that are a concern in my part of the FL Panhandle. I call them speculators, given how late many of them started buying. In my subdivision of ~ 200 homes a short distance from the beach, nearly every purchase in the last 2 years has been by someone turning a once owner-occupied home into a vacation rental. And did so at ever-increasing prices. We're now at 40+ vacation rentals vs. >15 4 years ago.

I've run the numbers on recent sales prices based on reasonable expected occupancy rates (200 nights/year is about the max of the summer season, spring break, shoulders and some winter) and I don't see a reasonable cash-on cash return. To compound the uncertainty, rentals are down in my 'hood this season. One buyer who paid a 40% premium over the house next door called the seller and asked why he was only 50% booked in the peak summer season. Yeah, anecdotal, but the decline in occupancy is visible as I ride a bike past every house in the 'hood every day. Immediate post-pandemic in 2020 and Biden Bucks in 2021 likely contributed to higher occupancy in those years. And the expectation those higher rates would continue unabated may have then contributed to recent prices.

As to the "dodgy money" of the prior bubble, it is true underwriting standards are more rigorous and down payments are higher. It is reasonable to wonder how much HEL money was used to "pay cash" or make down payments on additional property purchases. All it takes is a death, divorce, and subsequent liquidation to lower the price floor in an area to start the process.

Maybe there will be a flat-lining of prices for a few years instead of significant deflation. In my area, I think it's an even bet on the path of prices.

I've been in this game for 35+ years. Seen a lot of explanations as to why "it won't happen this time, because the circumstances are different than last time". Maybe this time it will actually be different

 

[2HOTinPHX]

prices are/were outrageous here. A house similar to ours is pending at $1.8M.... *but* there was a local tv station interviewing the owner and his realtor (who also lives on our street) saying this may be the last of the multiple bid houses because of interest rates.

We're looking at downsizing in a few years when the younger son launches all the way... But, since we'll be selling/buying in the same market, it doesn't really matter.

Good point about selling/buying in the same market. If your purchase price is lower wouldn't your property taxes also start out lower in most places right? So that could be a possible silver lining, after all property taxes are forever.

 

[Scuba]

Typically the housing bubble pops in resort areas first. I own a house in the mountains of NC, mainly second homes. I am already seeing a decline in prices there. Many more listings, price reductions and days on the market. Also vacation rentals are down by about 25%.

I agree and it will be interesting to see what happens in Palm Springs, CA. The market here crashed over 50% in 2008-2011 because many of the homes were second homes and were highly leveraged. Looks like DOM have increased a bit, but pricing is still increasing and it’s still a seller’s market. Many of the homes purchased here in the last few years were all cash sales because the market was so hot, people had to pay cash for their offer to be considered. That is one big difference vs 2006-2008 bubble when people were getting 95% loans.

Still, it seems logical that with higher rates, the market will come down eventually.

https://www.movoto.com/palm-springs-ca/market-trends/

 

[Closet_Gamer]

Things appear to remain quite tight in our community outside of Philly ... there are still zero houses available for sale which is pretty unprecedented in the 16 years we've lived there.

In my on-going search for a beach house, I'm tracking one specific zip code pretty carefully. My observation is that the houses are up for longer, more are taking modest price drops, and more cheaper homes are coming onto the market. I haven't done the math, but I suspect "cheaper" is somewhat driven by "only" being up 75% in 24 months rather than 100%.

I suspect interest rates, inflation are beginning to take a toll on buying power. This may be amplified by people suddenly looking at more styles of vacations with Covid less of an issue. When the world was on fire, going and hiding in a rented beach house for a week was a pretty good option. Suddenly Disney World and international travel are back on the menu.

Net...I think beach price houses in that area may be topping. Maybe.

 

[Teacher Terry]

I have noticed in Reno that people are still getting high prices but if they ask more than a recent sale their property isn’t selling and for the first time houses and condos will sit for months if overpriced.

 

[harllee]

If I were looking to buy a home in a resort area I would wait another year or two, I bet there will be some bargains coming up. It is true that many of the resort buyers are cash investors buying to rent. But if the investor buyers find they can't rent the property for a reasonable return then they will dump it and move on to the next big thing.

 

[donheff]

The market has cooled a bit in DC but prices have not yet seemed to fall. I'm a bit surprised that we haven't yet since a drop since mortgage rates are about double what they were a year ago when DD refinanced. A $1M mortgage (pretty common here) would cost $25K+/yr more than a year ago.

 

[googily]

If I were looking to buy a home in a resort area I would wait another year or two, I bet there will be some bargains coming up. It is true that many of the resort buyers are cash investors buying to rent. But if the investor buyers find they can't rent the property for a reasonable return then they will dump it and move on to the next big thing.

That was my plan until the one came along that checked all my boxes and is a very rare combo in this small town. I have made myself feel better by knowing that I didn't buy it as an investment, and expect to hold it for at least 10 years. And I got a decent rate right before the skyrocket. No, not optimal to buy now (definitely paid top dollar), but I wanted what I got.

 

[eytonxav]

Raising mortgage rates will continue to negatively impact house sales/prices, doesn't matter what market you are in.

 

[ShokWaveRider]

Raising mortgage rates will continue to negatively impact house sales/prices, doesn't matter what market you are in.

Only for those who require a Morgage to buy their primary home/residence. Rental homes and such that are leveraged, maybe.

We're now at 40+ vacation rentals vs. >15 4 years ago.

I know to each his/her own, but we personally would not want to live in a development that has so many vacation rentals in it, especially Airbnb/VRBO type vacation rentals. Not condemning it, but we are so happy our HOA does not allow them. Bearing in mind we only have Single Family homes, that probably makes a difference too. MMDV

 

[ERD50]

Originally Posted by DFW_M5 View Post
Raising mortgage rates will continue to negatively impact house sales/prices, doesn't matter what market you are in.

Only for those who require a Morgage to buy their primary home/residence. Rental homes and such that are leveraged, maybe. ....

No, since mortgages are required by a significant portion of those in the market, those people will be taken out of the market, or can't buy until prices drop. That's going to put pressure on home prices, regardless.

It's supply and demand. Demand shrinks, prices drop, even if you are not personally affected.

-ERD50

 

[eytonxav]

Only for those who require a Morgage to buy their primary home/residence. Rental homes and such that are leveraged, maybe.

That fits the majority of buyers so house prices go down as raising rates tampers demand, that is the point.