Author Topic: Housing bubble  (Read 4199 times)

Case

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Housing bubble
« on: July 24, 2018, 06:14:49 PM »
Forgive me for this ignorant question.

My wife and i are on the market to buy a house.  Our timeline in that house is uncertain.... maybe 5-10 years very rough guess.  The COL in the area is medium.

My Mom sent a link to an article warning that we are in uncertain times and the housing bubblebursting risk is high in the next 5-10 years. 

Is this BS, and predicting this shit is impossible like it is for the stockmarket?  Or should i be heeding this advice?

Thanks.

Laserjet3051

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Re: Housing bubble
« Reply #1 on: July 24, 2018, 06:57:11 PM »
Of course no one can predict the future; that includes RE prices. Folks have been screaming crying about a RE collapse for years. It may happen, or perhaps prices will just level off for years, or maybe price growth rates will decelerate. But RE markets are local, what happens in Pacific Pallisades has zero bearing on Tulsa.  If your time horizon for buying is 5-10 years, and a price collapse is in the cards down the road, the best you can do is accumulate your down payment and when TSHTF, buy well below value. I suspect we will not see another RE collapse a la 2008/2009 in our lifetimes, but I may be wrong. If you want to buy now and you have the $, then the decision may be more difficult. But at 5-10 years out, why worry now?

bacchi

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Re: Housing bubble
« Reply #2 on: July 24, 2018, 07:17:37 PM »
I think the OP was going to stay in the house for 5-10 years.

Use the NYT rent calculator. It may not make sense to buy if you're only there for 5 years.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

Better Change

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Re: Housing bubble
« Reply #3 on: July 25, 2018, 06:58:04 AM »
(wife of OP here)

The home purchase will occur in the next 2-3 months.  The plan is to stay in the house 5-10 years, but who knows?  We're switching jobs and moving to a new area.  It could be a total dumpster fire, in which case we're looking at ~ 1-2 years.  FIRE isn't far off for us, but we'd like to give the new jobs a chance, because they could be really rewarding.  Plus we FINALLY made it out of the frozen tundra of the upper Midwest, and we're working on being happy here on the east coast.

The NYT rent vs. buy calculator is in favor of buying, because 1) rentals in this area suck 2) we have a substantial down payment available 3) we're projecting 5-10 years of ownership.  The NYT calculator doesn't figure that the things that make us happy (quiet, our hobbies) can't always be had in a rental unit.  But we've been watching the market for the past three months or so, and it's stupid.  Just stupid.  Offers go in after only a day (or less) on the market, and they're well above list price.  The article referenced in the original post reveals that buyers are writing letters again to form some sort of emotional bond with the seller: echoes of 2006-2007.  Will the market "crash" as epically as it did in 2008?  No, probably not.  But paying $550,000 for a FIXER UPPER is insane.  $700,000 for a 1900 sq. foot, 60 year-old ranch? 

We'll probably settle on a compromise: a 2-3 bedroom something-or-other in a quiet area that might need some work.  Something we can live in happily enough while we figure the rest out.  We'll probably take a loss if we have to turn right around and sell in a couple of years, but a loss on a $270,000 home is easier to swallow than the loss on a $600,000+ plus home....all the granite countertops and hardwood floors couldn't soften that blow.

Buying now doesn't feel nearly as comfortable as it did when we bought our first home in 2013, despite a much larger 'stache and way more knowledge about the trials of home ownership.  We're just commiserating with people who are thinking about buying now, too.

FIPurpose

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Re: Housing bubble
« Reply #4 on: July 25, 2018, 07:21:01 AM »
I'm kind of there with you. Currently living on East coast, and while I'd love to look into buying a home, the prices just don't make sense. Monthly rent is currently at ~.5-.75% of current prices, so it just doesn't make sense. This would barely cover property taxes and mortgage interest.

You can rent a single family home and maintain the hobbies that you're wanting to do. You can rent something outside of apartments. With the way inflated prices are, unless you're going to be staying in the home closer to 10 year side, I'd stay away. Even at 10 years, I'd be wary.

Sibley

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Re: Housing bubble
« Reply #5 on: July 25, 2018, 09:23:53 AM »
Since you're moving to a NEW area, I would not buy yet. Anytime you're moving areas, it's best to rent for a year because you just don't know the area yet.

RE the housing bubble possibility - we just HAD a housing bubble not long ago. What did prices in that area do before, during, and after 2008? If they had a massive price increase leading up to 2008, then had a massive correction, then have risen back to pre-crash levels, then you might actually have a problem. What's housing supply look like? What are housing prices compared to average incomes in the area? What's the rental market look like - prices, supply, etc.

patchyfacialhair

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Re: Housing bubble
« Reply #6 on: July 25, 2018, 09:34:36 AM »
I'd rent for 6 months to get a feel for the area before buying. You'll get a better feel for the market and which neighborhoods mesh with your desired lifestyle.

6 months in a 1 bedroom apartment is well worth it if it means you can feel better about your search.

FIPurpose

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Re: Housing bubble
« Reply #7 on: July 25, 2018, 09:44:32 AM »
With interest rates rising and scheduled for the near future, I think you'll see the housing prices cool off or maybe even dip a little as that will send demand down.

Mortgages are currently 4.5%, I would expect them to be early 5% next year.

FINate

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Re: Housing bubble
« Reply #8 on: July 25, 2018, 10:11:15 AM »
Rent.

Rent something cheap even if it's not ideal (what's 1-2 years, really?), and save save save.  You'll get a better sense of the viability of the new jobs. And you can bide your time looking for a good deal - easy to pop in for an open house/showing and put in a very strong offer when you find the right house.

With FIRE on the horizon it's doubly important that you buy well. Personally, I always prefer to buy in a buyer's market but realize that's not always possible. Multiple over-asking offers and very short on-market times would make me skittish just because I think this creates an illogical feeding frenzy mentality. For me this isn't about "timing the market" but is about value investing - is RE a good value right now? Valuations are somewhat in the eye of the beholder (esp. for a primary residence), but for most markets would not be looking to add investment properties right now.

FWIW, our area right now has a similar dynamic so I took the opportunity to reduce our RE holdings. Sold our primary residence for 11% over asking (price had run up over ~200k in a year!), on market for just 10 days. Moved to a rental we had purchased during the Great Recession.

Better Change

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Re: Housing bubble
« Reply #9 on: July 25, 2018, 01:13:29 PM »
Two things worth mentioning:

1) We aren't new-new to the area.  We're about 40 miles away.  We've made many trips down to get to know the city and house hunt already.

2) This is a relocation.  If we close before next April, we still have some purchase incentives (closing costs, mainly).  We're currently renting in our temporary location.

Maybe the next step is to rent again.  We're still thinking it over.  Unfortunately, our hobbies require altering the structure (need really good ventilation!), and the landlord/homeowner probably won't appreciate that.  But yes, the feeding frenzy mentality is intense.  So much (stupid) emotion in home buying!  We probably need to be more critical of ourselves and our wants/needs here.

patchyfacialhair

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Re: Housing bubble
« Reply #10 on: July 25, 2018, 01:17:46 PM »
Two things worth mentioning:

1) We aren't new-new to the area.  We're about 40 miles away.  We've made many trips down to get to know the city and house hunt already.

2) This is a relocation.  If we close before next April, we still have some purchase incentives (closing costs, mainly).  We're currently renting in our temporary location.

Maybe the next step is to rent again.  We're still thinking it over.  Unfortunately, our hobbies require altering the structure (need really good ventilation!), and the landlord/homeowner probably won't appreciate that.  But yes, the feeding frenzy mentality is intense.  So much (stupid) emotion in home buying!  We probably need to be more critical of ourselves and our wants/needs here.

Hobbies requiring ventilation? You growing stuff? Better buy lol

At the end of the day, you say "FIRE isn't too far off," so it's probably better to buy so you can live on your own terms, knowing that even in a worst case scenario, you sell at a loss and you have to work a couple more years. Hardly a bad scenario.

Lmoot

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Re: Housing bubble
« Reply #11 on: July 25, 2018, 04:51:45 PM »
I would buy, even if moving to a new area. But I would get a roommate/Airbnb extra rooms so you can at least get some of your money back if there is an issue in the short term that requires you to sell. Try to profit as much from the house in ways other than selling, like the roommate thing I mentioned and also building sweat equity. People who buy a house and just expect the market to price it for them, are suckers to be honest. That or they donít care enough to have a right to complain.

FrugalFisherman10

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Re: Housing bubble
« Reply #12 on: July 25, 2018, 05:00:54 PM »
Try to profit as much from the house in ways other than selling
"Make your money when you buy"
~ Some real estate book I read.

Oh yeah it was called "Building Wealth One House at a Time".

Hard to do the above when the market is so hot.


Lmoot

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Re: Housing bubble
« Reply #13 on: July 25, 2018, 05:13:18 PM »
Try to profit as much from the house in ways other than selling
"Make your money when you buy"
~ Some real estate book I read.

Oh yeah it was called "Building Wealth One House at a Time".

Hard to do the above when the market is so hot.

Well I wouldnít advise just anyone to buy a house just because. But if you already know you want to buy a house, and are ready to buy a house like in this case they are prepared to purchase within 2 to 3 months, why let the market decide your fate? Whether that fate is to buy or not buy? There are a lot of ways you can mitigate risk with real estate. Much of it has to do at the point of purchase and sale , but there are ways you can control profit/loss in the between.

I am not suggesting it as an ongoing strategy, just as a safety net in this particular case. We donít know whatís going to happen in a year much less 5 to 10 years. To allow that to guide your actions is a bit much.

Case

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Re: Housing bubble
« Reply #14 on: July 25, 2018, 06:37:08 PM »
I think the OP was going to stay in the house for 5-10 years.

Use the NYT rent calculator. It may not make sense to buy if you're only there for 5 years.

https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html

I hate apartments, because i have a serious aversion to noise from neighbors that share walls.  Rental homes are rare and quite crappy in my area.  I likely will buy instead of rent, but im trying to decide if i should go fro a minimum cost house or something nicer.

FIreDrill

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Re: Housing bubble
« Reply #15 on: July 25, 2018, 10:21:36 PM »
Have you checked out the redfin data that may be able to show you why prices are increasing in that area?  We recently purchased a home in an extremely hot market.  Wrote an offer letter and everything..... It felt so stupid that we had to essentially beg to purchase a home for so much.  There ended up being multiple cash offers on the table but ours was accepted because they "liked" us.  Absolutely rediculous...

Anyways, the redfin data shows a huge housing shortage in our area and months of supply is under 1 currently.  Housing supply has steadily been decreasing since 2013 which has been pushing prices higher and higher.  Looking at data from the 2008 bubble it appears supply wasn't really that low. Lending and money was way to easy to get which resulted in easy purchasing and over inflated prices.

We may or may not be in a bubble, but if we are, it's most likely cause by foreign investors buying up housing and holding.  At least that's what happening here.  Who knows how long this madness will last.  It could slow down or it could continue to rise.  If the foreign investors decide to cash out and flood the market with homes then we will see a correction.  All you can do is be aware of the variables involved and make the best decision for you based on the data and the risk you are willing to take.  Of course, if we saw massive job loss that would obviously affect the market as well....

Redfin data found here

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



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bacchi

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Re: Housing bubble
« Reply #16 on: July 25, 2018, 11:32:12 PM »
We may or may not be in a bubble, but if we are, it's most likely cause by foreign investors buying up housing and holding.  At least that's what happening here.  Who knows how long this madness will last.  It could slow down or it could continue to rise.  If the foreign investors decide to cash out and flood the market with homes then we will see a correction.  All you can do is be aware of the variables involved and make the best decision for you based on the data and the risk you are willing to take.  Of course, if we saw massive job loss that would obviously affect the market as well....

This happened to a friend of mine. He bought a year before Brexit happened. His $500k flat is worth much less now.

RyaninLA

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Re: Housing bubble
« Reply #17 on: July 28, 2018, 08:34:00 AM »
There has already been some softening in the hottest markets, which will probably continue to accelerate as the cycle matures. If you consider 2008 to be an anomaly, then you should buy and not really care if RE prices dip 5% or if time-on-market goes up. Worst case scenario if you have to move and you're underwater, rent out through another cycle with negative cash flow. Most importantly, it sounds like there are some reasonable emotional drivers (hobbies) to buy rather than rent, so go ahead and buy. My only suggestion is to wait for the off-season to get the best deal possible. Good luck!

sol

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Re: Housing bubble
« Reply #18 on: July 28, 2018, 08:48:24 AM »
There has already been some softening in the hottest markets, which will probably continue to accelerate as the cycle matures.

I concur.  In my little corner of the country, supply is suddenly way up, closed sales are way down, and prices are either flat or at least slowing considerably.  It's been fun watching my properties appreciate at 20% per year, but I think that show is over.


tralfamadorian

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Re: Housing bubble
« Reply #19 on: July 28, 2018, 11:39:21 AM »
Housing markets are local and inefficient so, yes, you can see change coming and adjust in ways that's not possible with the stock market. Prices may decrease and just even out. The cycle we just experienced with significant price drops through much of the nation concurrently was most probably once in a lifetime.

Better Change

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Re: Housing bubble
« Reply #20 on: July 31, 2018, 05:47:34 AM »
We've noticed that properties in the city limits (bad schools!) tend to stay on the market longer than the properties out in the 'burbs (better schools, more options).  Some of the feeding frenzy may still be due to parents trying to get their kids into certain districts before the school year starts, so that madness should slow down considerably this month.

We're actually considering a twin in the city pretty seriously.  The square footage (2000) jives much more with our DINKiness than the 3000+ monstrosities out in the 'burbs.  The smaller place comes with upgrades and requires no renovation as well.  Plus we'd get in at a much more reasonable price point: the listing is just over $300k. 

The biggest drawback?  It's the city!  We've said over and over again that we prefer peace and quiet, and a city is usually not that.  We're trying to get a feel for how much quiet we can expect living so close to downtown and the hospital.  I suppose one positive is that most of the downtown activity will roll up after 5 PM during the week and on weekends.  But the proximity to the notorious violent crime?  It's unnerving, to say the least.

Fishindude

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Re: Housing bubble
« Reply #21 on: July 31, 2018, 07:13:56 AM »
Those that get in trouble from housing bubbles are typically borrowing about the max they can with the minimum down payment.   Doesn't take much to get them upside down on a loan.   Buy a low or mid priced home with a hefty down payment and you'll probably be able to get out of it with some cash in your pocket no matter what the market does.

FIreDrill

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Re: Housing bubble
« Reply #22 on: July 31, 2018, 07:37:19 AM »
Those that get in trouble from housing bubbles are typically borrowing about the max they can with the minimum down payment.   Doesn't take much to get them upside down on a loan.   Buy a low or mid priced home with a hefty down payment and you'll probably be able to get out of it with some cash in your pocket no matter what the market does.
We actually opted for 5% down versus 20% because it keeps a lot of money accessible in case shit hits the fan.  Roughly 2-3 years worth of mortgage payments, which should be more than enough to ride out a storm and find another job if needed.

Although I suspect that most people putting the minimum amount down arnt doing it for this reason.....

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MacGyverIt

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Re: Housing bubble
« Reply #23 on: August 30, 2018, 11:48:36 AM »
I'm with you on the emotional aspect of buying a personal property -- it's easy to feel attached. I'm in an area where I know I'd be 1000% happy to live for the rest of my life but the houses in a bikeable/safe area with not too much maintenance required (homes built in 40s and 50s) are at least 350k. For example, there's a 3/2 1800 sq ft house that's been on the market for almost a year and they've only come down from 680k to 665k. The place sold last year for 294k but even if they've redone everything in this 1950 house that's still way over asking. The owner lives in a mcmansion on the beach so I guess he can afford to wait it out.

But yet, with the realization that this city will be my forever home and I can FIRE in 4-5 years I've been looking more intently the last few weeks. 

Abe

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Re: Housing bubble
« Reply #24 on: August 30, 2018, 09:40:31 PM »
My part of the country needs a good Pop! Some of the houses on the market are real pieces of ____. Remember that website Crack Shack or Mansion?
https://www.crackshackormansion.com/


clarkfan1979

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Re: Housing bubble
« Reply #25 on: September 03, 2018, 04:42:03 PM »
I would really focus on the fact that all real estate is local.

I left San Diego, CA in 2006 and moved to Fort Collins, CO for grad school and to also purchase a home. I wanted to get roommates to pay my mortgage for 4-5 years and then turn into a rental. The San Diego, CA prices seemed inflated for me at the time, but I wasn't about to call it a bubble. The numbers just didn't make sense for me. The most important thing is if the numbers make sense for you. 

Fort Collins, CO hardly had any real estate appreciation from 2000, so I bought in May 2007. In 2009-2010 many of my friends in California asked how far underwater I was on my house. My answer was that I added about 30K-40K of equity after purchase with only 10K of repairs. They couldn't believe it.

Buying something in San Diego in May 2007 would have been a mistake, IMO. However, purchasing in Fort Collins in May 2007 was a great move, IMO. I purchased for 182K, put in 10K of repairs and it's now worth about 375K.

I bought in Fort Myers, FL in Jan 2012 for 95K. It's now worth about 250K. If I bought in Fort Myers, FL in May 2007, I would have paid 260K. 




StressLess

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Re: Housing bubble
« Reply #26 on: September 07, 2018, 10:42:35 AM »
Maybe not for you but worth considering.

Unison home lending.

They match your down payment for a slice of appreciation. But they also will take loss on down payment if prices drop.

A few caveats: duration might be a problem. They don't lend I  all areas.  And unknowns...

I haven't done this but am seriously considering. I want to own a home for emotional reasons, not financial ones and moving is important. This gives you flexibility by allowing you to keep more cash in your pocket (diversified) and also hedging any downturns. But let's you have more of a independent life not at the whim of landlord or apartment life   

HouseFIRE.us

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Re: Housing bubble
« Reply #27 on: September 08, 2018, 02:13:53 PM »
We are in the longest economic expansion in US history right now. To think this will last forever is the same foolish thinking in 2008. There is definitely a correction coming, and probably sooner than people think. Foreclosures have increased over 10% in some major markets compared to the same time last year. This is a huge red flag.

I don't want to sound like Mr. Doomsday here. Let say this: Five years ago, I had some close friends say another Great Recession is right around the corner. I couldn't see and it didn't happen. I'm a fulltime real estate investor. Now, I'm seeing some signs of changing tide. I'm not saying is another Great Recession, but a noticeable market correction.

Abe

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Re: Housing bubble
« Reply #28 on: September 08, 2018, 02:32:03 PM »
I think a lot of the high-cost areas in particular are in a precarious situation. Having a lot of inventory that is so expensive as to require a high income to even consider is risky. The developers don't care because once it's sold they get their profit, but the banks are letting things get out of hand again (i.e. if no bank will give a $1m mortgage, then most houses are not going to sell for $1m). I guess since they know the government will bail them out again, they don't care either.

We would be in the market for a house in 1-2 years, but may just wait until prices come back down to earth. We're lucky now because we have high incomes and that gives us options. Most people can't tolerate a 10% rent increase several years in a row, and no one should have to fork over hundreds of thousands for POS houses to avoid egregious rent increases. We used to rent a house and I refused to increase the rent more than inflation since the renter was on fixed income.

sol

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Re: Housing bubble
« Reply #29 on: September 08, 2018, 05:10:38 PM »
News reports suggest the Seattle market average selling price is down 70k from the recent peak.

waltworks

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Re: Housing bubble
« Reply #30 on: September 08, 2018, 08:17:45 PM »
We sold all our rentals over the last few years as prices seemed to accelerate out of control. It will be interesting to see if that was a good move or not, I guess. We wanted out of the landlording game anyway at that point, but it was frustrating to watch prices keep climbing after selling.

-W

Long haul

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Re: Housing bubble
« Reply #31 on: September 09, 2018, 06:37:31 AM »
It's a good move if your happier. I'm still in the rental business.  I remind myself that it is a great investment & a horrible business. I don't see prices really going up much more. Interest will creep up a bit, but I don't think much. Long term, sure. I wonder from time to time now if I had just put all of that effort into a really good fund like VTSAX where I would be now, but that is 20/20 hindsight, and during the great recession I swore off doing anything more in the stock market (although I kept contributing in a 401 which was a good move). Another recession of some sort will eventually come, the catch is anything short of pure cash will drop.

clarkfan1979

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Re: Housing bubble
« Reply #32 on: September 09, 2018, 04:26:36 PM »
When considering a housing bubble for rentals, I am more concerned about a decrease in rent, not sticker price. During the last housing recession (2007-2013), rents flattened out for 2-3 years, but I don't think rent actually went down for single family homes in my neighborhood. I think rent of luxury apartments went down a little, which are not in my neighborhood.