Crazy Hot Housing Market

[jehovasfitness23]

https://www.youtube.com/watch?v=EBb9zf_zWvU

case in point, 1940-50s house just outside DC in rough rough shape. Listed for $275k sold for $500k with 88 offers with 70 of those all cash.

What in the world is going on, this can't end well.

[anni]

I like these hosts' energy but I'm not satisfied with the depth of their arguments. As a young person it's really easy to get mad at the continually increasing difficulty of owning, but I would love to understand the facts a little bit better - is it really "BlackRock and Japan" buying 1 in 5 houses or is it more like individual rich(-ish) people looking to increase their wealth through landlording a couple of places that would otherwise be owner-occupied? I feel more strongly against the former than the latter.

I wonder all the time, if it's really Big Landlord© and/or wealth-obscuring schemes from Russia and China driving up real estate prices everywhere, won't those properties still eventually have to be sold? Older generations buying in cash still usually have to sell their old houses, and eventually they'll pass away and even more housing stock will be available, right? Or are already-rich families and companies just holding on to housing stock and converting it all to rentals to preserve wealth? If so, that sucks, but doesn't that mean rents have to stay low because there are too many rentals competing with each other for tenants? Or that construction supply for starter homes eventually has to catch up to ownership demand?

Unless some Housing Monopoly somehow comes into being, rent prices always have to at least stay competitive with purchase prices, right? Or is there already a Housing Monopoly that I don't know about? If more housing gets built, then rents will fall, and landlords will not want to hoard so many houses anymore because the math won't work out in their favor anymore, so house sale prices have to come down... right? Or will NIMBY zoning regulations become too strict in desirable cities and neighborhoods to reasonably increase nearby stock?

As for their "case study," in Silver Spring MD, I'm not swayed. It was probably a bunch of young DC families earning >$200K combined who had a >$100K DP saved up and were thrilled just at the possibility of owning a SFH in that area for below the national average home price that drove all those offers. That's my guess anyway. There's not a single listing on Zillow in Silver Spring for less than $300K right now, fixer-upper or not. It's a booming metro area anchored by highly stable government work so I'm not surprised investment banks got in on the action of just owning the land for that cheap, since they could afford to hold onto it and build something livable there once construction is cheaper.

Anyway, good grace those youtube comments are depressing.... I just have more questions now.

[bacchi]

I like these hosts' energy but I'm not satisfied with the depth of their arguments. As a young person it's really easy to get mad at the continually increasing difficulty of owning, but I would love to understand the facts a little bit better - is it really "BlackRock and Japan" buying 1 in 5 houses or is it more like individual rich(-ish) people looking to increase their wealth through landlording a couple of places that would otherwise be owner-occupied? I feel more strongly against the former than the latter.

That 1 in 5 number actually corresponds with the stats my county has released.

If you look at the background article about this particular house, it reads something like, "The land alone is worth that price." I expect this house will be torn down and replaced.

[waltworks]

IMO that's an outlier that the asking price was just way out of whack. The land was worth it, someone will build a nice house on it, and lots of people wanted to. Not that weird, really.

As someone who invested through and profited from the 2007 crash, I can say that this doesn't feel similar, really. There are no NINJA loans, no flippers (or at least none in my area), etc.

That said, it's obviously not sustainable. At some point people can't afford the payment even at 2.5% interest. Most people already can't. And the demographics of the USA are pretty grim in the medium/long term.

My preference, personally, would be for a long stagnation with minimal disruption to the larger economy, rather than another crash. Though if there is a crash, I'll make out like a bandit again.

-W

[Paper Chaser]

Are foreign investors, or domestic corporations contributing to price increases? Sure, probably to some extent. But I still think the biggest drivers are super low interest rates, low new housing construction, and high material/labor prices raising the cost of new construction. It's just a supply and demand problem at it's core.

If we look at the supply side, here are new housing starts over time for the US:


Look at the times when housing was below the '1000' line on that chart and we see a handful of very brief, very shallow drops. Historically that was the low point. And then it plummets to 500 in 2008 and stays below 1000 basically from 2008-2014. That's low production for an incredibly long time historically speaking. So we've spent the last decade+ with less construction than historical average and we're just now returning to around average new construction numbers. Supply is limited and has been for a long time.

Now demand is a little trickier, but population and interest rates are certainly important variables so lets look at them:


Here we see more people needing places to live



And here we see historically low rates since 2009ish. In simplistic terms, that means we've had super low supply and super high demand for over a decade now. I'm not convinced that foreign or corporate money is really playing as large a role as some argue.

[PMJL34]

I'd argue that local and foreign corps are affecting the market tremendously. Way more than we even know, especially in major cities.

Now, it's hard to quantify it because I don't have insider info, but I'd wager that it's even higher than the 20% figure provided in terms of total purchases. Not only the 20% number, but the way they acquire the homes (all cash offers and deeper pockets) are certainly doing damage to the owner occupier as well.

[mozar]

I live near Silver Spring and it's been a sellers market for at least the past 12 years. My mother wanted to buy in Silver Spring in 2004 and she was basically priced out. I remember when I was buying in the county next to Silver Spring over 8 years ago and I kept being out bid by all cash offers. The houses would get maybe a handful of bids. Now it's dozens and the media has "noticed" the result of structural issues that have been going on for years.

[waltworks]

I'd argue that local and foreign corps are affecting the market tremendously. Way more than we even know, especially in major cities.

Now, it's hard to quantify it because I don't have insider info, but I'd wager that it's even higher than the 20% figure provided in terms of total purchases. Not only the 20% number, but the way they acquire the homes (all cash offers and deeper pockets) are certainly doing damage to the owner occupier as well.

I mean, it could affect things a little. But there zero supply and a ton of demand. Occam's razor says there's not some secret conspiracy of foreign buyers.

-W

[PMJL34]

I mean, it could affect things a little. But there zero supply and a ton of demand. Occam's razor says there's not some secret conspiracy of foreign buyers.

-W

I agree, I don't think there is a conspiracy of foreign buyers. I meant more along the lines of mega corps/ultra wealthy (both domestic and international) were/are buying up properties the way they are allegedly pouring in money into crypto. For example Donald Sterling owned like 200+ properties (not units) in LA. Whoever MMA group is owns 100,031 apartments in US. In my area, there are very few small time mom and pop rental owners.

I also agree that the zero supply + low interest rate is also wreaking havoc during covid.

[Sid Hoffman]

Agree that the short supply is a huge problem, especially now that millennials are old enough to be buying homes and they're the largest generation: https://www.statista.com/statistics/797321/us-population-by-generation/

If we take the middle of the millennials, that means people born in 1990, which puts them at 31 years old now. That's smack dab at exactly the typical age of first marriage in the USA now, which is exactly what causes people to buy homes. They're suddenly dual income and looking to have kids, which is the #1 reason you settle down and buy a house.

It's demographics as much as any of the other things mentioned above. So not just population growth alone: it's the fact that the generation which is 30 years old now is the largest generation which is especially relevant.

[Paper Chaser]

I agree, I don't think there is a conspiracy of foreign buyers. I meant more along the lines of mega corps/ultra wealthy (both domestic and international) were/are buying up properties the way they are allegedly pouring in money into crypto. For example Donald Sterling owned like 200+ properties (not units) in LA. Whoever MMA group is owns 100,031 apartments in US. In my area, there are very few small time mom and pop rental owners.

https://www.huduser.gov/portal/pdredge/pdr-edge-frm-asst-sec-061118.html

"According to data from the 2015 American Housing Survey, there are nearly 48.5 million rental units in the United States, 43.9 million of which are occupied. The 2015 Rental Housing Finance Survey (RHFS) shows that these units are in 22.5 million properties. The RHFS identifies two primary types of ownership:

    Individual investors. About 22.7 million units in 16.7 million properties are owned by individual investors. Individual investors are more likely to own single-family and duplex rental homes. We often describe these investors as “mom and pop” landlords.
    Business entities. The remaining 25.8 million units are owned by businesses, primarily limited partnerships, limited liability companies, and limited liability partnerships. Businesses are more likely to own the multifamily rental inventory."

That data set may be a bit dated, but I think it shows that while a single entity owning 100k units is an awful lot of doors, it's a pretty small percentage of the total units in the US.



Here's an interesting list of entities that own the most apartments in the US as of 2020 (MAA is Mid America Apartment Communities):

https://www.statista.com/statistics/603416/leading-apartment-owners-in-the-us-by-units-owned/

If my math is right, the top 20 largest rental owners combined own 1,280,661 apartments, or roughly 2.6% of the total rental doors in the US.

[waltworks]

"Mega corps" and wealthy people have always invested in RE, though.

If what you mean is that people are investing in RE that otherwise wouldn't bother because of high stock prices/low bond yields, then I'd agree with you. But again, supply and demand is the story here. A billionaire buying 100 houses doesn't move the needle.

-W

[bacchi]

"Mega corps" and wealthy people have always invested in RE, though.

If what you mean is that people are investing in RE that otherwise wouldn't bother because of high stock prices/low bond yields, then I'd agree with you. But again, supply and demand is the story here. A billionaire buying 100 houses doesn't move the needle.

-W

If 20% of the houses in one year in one city/MSA are bought by institutional investors*, over many years, how could that not move the needle? Some private buyers who miss out will continue looking the next year, further increasing demand.

This article is from 2013 and the II* % has continued and increased since then.

In April, institutional investors bought 10% of the houses sold in the nation's 100 busiest real estate markets, up from 5% the year before, according to real estate tracker Radar Logic.

The increase underscores how important investors such as Wall Street investment funds are to the national housing recovery. Their appetite for homes has helped drive prices up faster than many real estate forecasters expected even a year ago.

What we're seeing is that IIs were/are taking advantage of the housing crash and the Gen Y demographics, as Sid mentioned. Supply is definitely a problem but IIs are taking significant homes off the market and keeping them in the rental pool.


* Freddie defines an "institutional investor" as an organization that owns more than 2000 units.

[waltworks]

Oh, more institutional buyers will move the demand higher, of course. Lots of big hedge funds and investment firms bought lots of houses post-crash (so did I). Many of those houses have since been sold to realize profits, of course. But the story of supply/demand is not just about demand.

We're not building any houses and we didn't build any for more than a decade, basically.

It's the scarcity that is the issue here, and the scarcity is driving the demand from investors because prices keep rising while that ratio stays out of whack.

-W

[PMJL34]

Thank you Paper chaser for the info. I'd wager that mom and pop places have significantly decreased since 2015 report and corps have gained significant ground.

I agree with Bacci that 20% certainly moves the needle. Again, not just in volume, but the way they obtain the homes (buying in cash, deeper pockets, etc.). I also disagree that the investors have sold since the 2009 crash. I think the corps holding on to the housing stock contributes to the limited supply. An average home owners moves what every 7 years? I bet the corps aren't selling every 7 years, especially during this bull run and great rents.

However, if I were to assign blame/reason for this run up I would say it's 75% limited supply 15% corps 10% interest rate. But keep in mind, the growing corp rentals certainly contributes to the limited supply imo. 

[clarkfan1979]

I like these hosts' energy but I'm not satisfied with the depth of their arguments. As a young person it's really easy to get mad at the continually increasing difficulty of owning, but I would love to understand the facts a little bit better - is it really "BlackRock and Japan" buying 1 in 5 houses or is it more like individual rich(-ish) people looking to increase their wealth through landlording a couple of places that would otherwise be owner-occupied? I feel more strongly against the former than the latter.

I wonder all the time, if it's really Big Landlord© and/or wealth-obscuring schemes from Russia and China driving up real estate prices everywhere, won't those properties still eventually have to be sold? Older generations buying in cash still usually have to sell their old houses, and eventually they'll pass away and even more housing stock will be available, right? Or are already-rich families and companies just holding on to housing stock and converting it all to rentals to preserve wealth? If so, that sucks, but doesn't that mean rents have to stay low because there are too many rentals competing with each other for tenants? Or that construction supply for starter homes eventually has to catch up to ownership demand?

Unless some Housing Monopoly somehow comes into being, rent prices always have to at least stay competitive with purchase prices, right? Or is there already a Housing Monopoly that I don't know about? If more housing gets built, then rents will fall, and landlords will not want to hoard so many houses anymore because the math won't work out in their favor anymore, so house sale prices have to come down... right? Or will NIMBY zoning regulations become too strict in desirable cities and neighborhoods to reasonably increase nearby stock?

As for their "case study," in Silver Spring MD, I'm not swayed. It was probably a bunch of young DC families earning >$200K combined who had a >$100K DP saved up and were thrilled just at the possibility of owning a SFH in that area for below the national average home price that drove all those offers. That's my guess anyway. There's not a single listing on Zillow in Silver Spring for less than $300K right now, fixer-upper or not. It's a booming metro area anchored by highly stable government work so I'm not surprised investment banks got in on the action of just owning the land for that cheap, since they could afford to hold onto it and build something livable there once construction is cheaper.

Anyway, good grace those youtube comments are depressing.... I just have more questions now.

Very good analysis. I can't believe you are only 25 years old.

[Sid Hoffman]

However, if I were to assign blame/reason for this run up I would say it's 75% limited supply 15% corps 10% interest rate. But keep in mind, the growing corp rentals certainly contributes to the limited supply imo.

Probably. Also keep in mind that institutional buyers need to justify their purchases with numbers. Example: they need to be able to justify spending $X on a house by showing that it's going to be occupied Y% of the time at $Z/year of net income. While rents are up, rents are not increasing anywhere near as fast as the cost of homes, which means that it gets harder and harder for institutional buyers to justify buying properties that do not perform and thus drag down the profitability of the company/fund.

Individual people and families however do not need to justify their purchases in any way. It can be entirely emotional and so long as they qualify for the loan, they can buy the most expensive home that they are able to qualify for. They do not need to show what it would rent for or build a risk profile for if rents or home values go down. If anything, rapidly rising home prices while rents are not increasing pushes those institutional buyers to the sidelines and ensures that a greater proportion of the homes sold go to owner/occupants.

[Captain Cactus]

I've been saving diligently for a condo in a small resort town in the White Mountains, New Hampshire.  Condos in this place would sometimes sit on the market for months and sometimes years...some would sell but it wasn't anything crazy.  NOW, since last year, condos come on the market and they're going "contingent" or "pending" within 18 hours.  And the prices are about 20% higher than in the past.

So frustrating, because I've fantasized for years about getting a 2nd home here and now that 1) I have FINALLY saved enough money to buy one outright and 2) I finally have my wife on board with the idea... we don't even get the chance to see a place before it's "gone". 

So what's happening up there?  Low inventory and high demand from rich people in Boston who feel comfortable paying higher prices and sight unseen.  Some people are even moving there and putting their kids in the local school during the pandemic.  It's definitely a "crazy hot housing marketing".  Oy vey.   

[waltworks]

That happened to all the mountain/ski towns, especially ones (like here) that kept their schools open. You should feel lucky prices only went up 20% there, it was more like 50-100% here (from a baseline of a $1 million median house!)

It'll be interesting to see if all those folks stick around. I'd trade my extra million bucks of equity for them to leave, honestly.

-W

[Paper Chaser]

However, if I were to assign blame/reason for this run up I would say it's 75% limited supply 15% corps 10% interest rate. But keep in mind, the growing corp rentals certainly contributes to the limited supply imo.

Probably. Also keep in mind that institutional buyers need to justify their purchases with numbers. Example: they need to be able to justify spending $X on a house by showing that it's going to be occupied Y% of the time at $Z/year of net income. While rents are up, rents are not increasing anywhere near as fast as the cost of homes, which means that it gets harder and harder for institutional buyers to justify buying properties that do not perform and thus drag down the profitability of the company/fund.

Individual people and families however do not need to justify their purchases in any way. It can be entirely emotional and so long as they qualify for the loan, they can buy the most expensive home that they are able to qualify for. They do not need to show what it would rent for or build a risk profile for if rents or home values go down. If anything, rapidly rising home prices while rents are not increasing pushes those institutional buyers to the sidelines and ensures that a greater proportion of the homes sold go to owner/occupants.

This is my thinking as well. If corporations are setting the market ever higher by outbidding everyone else and often paying cash, that seems like quite the gamble. So what's their goal? Rents are tied to incomes. They can only climb so high. The margins only get smaller as the purchase price rises. If they're hoping to more or less flip these places to harvest appreciation in a couple of years that also seems pretty shaky vs 10 years ago.

VTSAX is up about 70% in the last 12 months. Why would corporations choose RE over the market? Tons of smaller landlords in my area have been selling off properties that they bought for peanuts from 2009-2012 because the numbers make more sense to sell than to keep renting. If small time landlords in the middle of nowhere are figuring that out, then how are big time investors making the numbers work to buy in rather than sell out and harvest the massive appreciation? It's been a seller's market for years now. Why would smart, seasoned institutional investors be buying rather than selling?

[Captain Cactus]

That happened to all the mountain/ski towns, especially ones (like here) that kept their schools open. You should feel lucky prices only went up 20% there, it was more like 50-100% here (from a baseline of a $1 million median house!)

It'll be interesting to see if all those folks stick around. I'd trade my extra million bucks of equity for them to leave, honestly.

-W

The houses in my area of desire aren't quite that high, but still fairly pricy.  After much anguish and reflection I'm thinking I just need to take a step back for a while...the thought being that the frenzy will eventually die down, inventory will increase, and hopefully some of the people that "panic bought" a condo last year to escape the pandemic will get bored and want to move back to the city again.  Prices may not drop down, because nobody likes selling "for less than what it's worth" and the new anchor is always the market peak, but if there's an inventory to choose from and less demand... maybe that'll make it easier for us to get a place?

Egocentric I know, but I can't help but feel like these people buying up these properties don't have the same skin in the town that I have...we've been going there for years (though don't own our own place obviously) and have a long-term appreciation for the town.  Whereas these rich newcomers just flippantly bought a SHTF bugout condo with their pocket change.  Somehow I'm more deserving since I've been saving up for so long.  LOL.  I'm crazy, I know. 

[cysewr]

That happened to all the mountain/ski towns, especially ones (like here) that kept their schools open. You should feel lucky prices only went up 20% there, it was more like 50-100% here (from a baseline of a $1 million median house!)

It'll be interesting to see if all those folks stick around. I'd trade my extra million bucks of equity for them to leave, honestly.

-W

The houses in my area of desire aren't quite that high, but still fairly pricy.  After much anguish and reflection I'm thinking I just need to take a step back for a while...the thought being that the frenzy will eventually die down, inventory will increase, and hopefully some of the people that "panic bought" a condo last year to escape the pandemic will get bored and want to move back to the city again.  Prices may not drop down, because nobody likes selling "for less than what it's worth" and the new anchor is always the market peak, but if there's an inventory to choose from and less demand... maybe that'll make it easier for us to get a place?

Egocentric I know, but I can't help but feel like these people buying up these properties don't have the same skin in the town that I have...we've been going there for years (though don't own our own place obviously) and have a long-term appreciation for the town.  Whereas these rich newcomers just flippantly bought a SHTF bugout condo with their pocket change.  Somehow I'm more deserving since I've been saving up for so long.  LOL.  I'm crazy, I know.

Totally sympathize with that feeling. Here in Eastern WA/North ID, it is really hard not to feel resentment towards those who have moved in from high earning areas (California being the obvious example), and have done a lot to drive up prices out of reach for the younger generation that has grown up here.

[Captain Cactus]

That happened to all the mountain/ski towns, especially ones (like here) that kept their schools open. You should feel lucky prices only went up 20% there, it was more like 50-100% here (from a baseline of a $1 million median house!)

It'll be interesting to see if all those folks stick around. I'd trade my extra million bucks of equity for them to leave, honestly.

-W

Exactly...it's like those with large amounts of money can capriciously drop some change on a getaway without really having to think/agonize/save for years, thus blocking out those of us who have been working towards the goal for years.

The houses in my area of desire aren't quite that high, but still fairly pricy.  After much anguish and reflection I'm thinking I just need to take a step back for a while...the thought being that the frenzy will eventually die down, inventory will increase, and hopefully some of the people that "panic bought" a condo last year to escape the pandemic will get bored and want to move back to the city again.  Prices may not drop down, because nobody likes selling "for less than what it's worth" and the new anchor is always the market peak, but if there's an inventory to choose from and less demand... maybe that'll make it easier for us to get a place?

Egocentric I know, but I can't help but feel like these people buying up these properties don't have the same skin in the town that I have...we've been going there for years (though don't own our own place obviously) and have a long-term appreciation for the town.  Whereas these rich newcomers just flippantly bought a SHTF bugout condo with their pocket change.  Somehow I'm more deserving since I've been saving up for so long.  LOL.  I'm crazy, I know.

Totally sympathize with that feeling. Here in Eastern WA/North ID, it is really hard not to feel resentment towards those who have moved in from high earning areas (California being the obvious example), and have done a lot to drive up prices out of reach for the younger generation that has grown up here.

[clarkfan1979]

That happened to all the mountain/ski towns, especially ones (like here) that kept their schools open. You should feel lucky prices only went up 20% there, it was more like 50-100% here (from a baseline of a $1 million median house!)

It'll be interesting to see if all those folks stick around. I'd trade my extra million bucks of equity for them to leave, honestly.

-W

The houses in my area of desire aren't quite that high, but still fairly pricy.  After much anguish and reflection I'm thinking I just need to take a step back for a while...the thought being that the frenzy will eventually die down, inventory will increase, and hopefully some of the people that "panic bought" a condo last year to escape the pandemic will get bored and want to move back to the city again.  Prices may not drop down, because nobody likes selling "for less than what it's worth" and the new anchor is always the market peak, but if there's an inventory to choose from and less demand... maybe that'll make it easier for us to get a place?

Egocentric I know, but I can't help but feel like these people buying up these properties don't have the same skin in the town that I have...we've been going there for years (though don't own our own place obviously) and have a long-term appreciation for the town.  Whereas these rich newcomers just flippantly bought a SHTF bugout condo with their pocket change.  Somehow I'm more deserving since I've been saving up for so long.  LOL.  I'm crazy, I know.

When I bought my personal residence on Kauai in 2018, my co-worker and best friend on the island told me to keep it a secret. I tried my best, but the secret got out. Among some, but not all, I was now considered to be an evil rich person that was indirectly denying locals housing opportunities. Some people completely cut ties with me because I was no longer "one of them." At the time our household income was around 85K/year. I guess that makes me an evil rich person. What about my hard work and sacrifice over the past 20 years?

On a similar note, many people on Kauai had to execute a 5-10 year plan to make the move happen from the mainland to Kauai. When they ask me why I moved to Kauai, I told them that I got a job offer and moved 6 weeks later. Before that, I had no intentions of moving to Kauai. Because it was easy for me and difficult for them, I'm the bad guy.

As a human being, I can understand emotional disappointment. However, I really struggle hearing the entitlement stories of why someone deserves x, y or z that does not follow any objective logic.
 

[cysewr]

It also seems that people may be rushing to buy RE as a hedge against inflation. There are plenty of theories on how all the stimulus will affect the dollar going forward, but if you feel that the long term outlook of our currency is bad, what better way to short it than by taking out a 30 year mortgage? Especially if you can find something that cash flows...

[cysewr]

That happened to all the mountain/ski towns, especially ones (like here) that kept their schools open. You should feel lucky prices only went up 20% there, it was more like 50-100% here (from a baseline of a $1 million median house!)

It'll be interesting to see if all those folks stick around. I'd trade my extra million bucks of equity for them to leave, honestly.

-W

The houses in my area of desire aren't quite that high, but still fairly pricy.  After much anguish and reflection I'm thinking I just need to take a step back for a while...the thought being that the frenzy will eventually die down, inventory will increase, and hopefully some of the people that "panic bought" a condo last year to escape the pandemic will get bored and want to move back to the city again.  Prices may not drop down, because nobody likes selling "for less than what it's worth" and the new anchor is always the market peak, but if there's an inventory to choose from and less demand... maybe that'll make it easier for us to get a place?

Egocentric I know, but I can't help but feel like these people buying up these properties don't have the same skin in the town that I have...we've been going there for years (though don't own our own place obviously) and have a long-term appreciation for the town.  Whereas these rich newcomers just flippantly bought a SHTF bugout condo with their pocket change.  Somehow I'm more deserving since I've been saving up for so long.  LOL.  I'm crazy, I know.

When I bought my personal residence on Kauai in 2018, my co-worker and best friend on the island told me to keep it a secret. I tried my best, but the secret got out. Among some, but not all, I was now considered to be an evil rich person that was indirectly denying locals housing opportunities. Some people completely cut ties with me because I was no longer "one of them." At the time our household income was around 85K/year. I guess that makes me an evil rich person. What about my hard work and sacrifice over the past 20 years?

On a similar note, many people on Kauai had to execute a 5-10 year plan to make the move happen from the mainland to Kauai. When they ask me why I moved to Kauai, I told them that I got a job offer and moved 6 weeks later. Before that, I had no intentions of moving to Kauai. Because it was easy for me and difficult for them, I'm the bad guy.

As a human being, I can understand emotional disappointment. However, I really struggle hearing the entitlement stories of why someone deserves x, y or z that does not follow any objective logic.

I see your point, but I don't think it is so much a feeling of entitlement (though maybe there is some of that), as frustration with the government manipulation of the system. Take forbearance as an example: many people definitely need it, and I think that it is a good thing for them to have access to it. But there are likely even more people taking it who don't need it, since no proof is required. I'm not saying I wouldn't do the same thing in their shoes, but the policy is causing a severe distortion in the housing market, and is (in my opinion) an injustice towards prospective first time homebuyers. Add to that the ongoing devaluation of the dollar, and those of us who have been saving for years to afford a downpayment are likely going to struggle with feeling resentment. I am trying to combat the feelings by doing what I can to increase my earning power, instead of focusing on what is out of my control.

[Captain Cactus]

That happened to all the mountain/ski towns, especially ones (like here) that kept their schools open. You should feel lucky prices only went up 20% there, it was more like 50-100% here (from a baseline of a $1 million median house!)

It'll be interesting to see if all those folks stick around. I'd trade my extra million bucks of equity for them to leave, honestly.

-W

The houses in my area of desire aren't quite that high, but still fairly pricy.  After much anguish and reflection I'm thinking I just need to take a step back for a while...the thought being that the frenzy will eventually die down, inventory will increase, and hopefully some of the people that "panic bought" a condo last year to escape the pandemic will get bored and want to move back to the city again.  Prices may not drop down, because nobody likes selling "for less than what it's worth" and the new anchor is always the market peak, but if there's an inventory to choose from and less demand... maybe that'll make it easier for us to get a place?

Egocentric I know, but I can't help but feel like these people buying up these properties don't have the same skin in the town that I have...we've been going there for years (though don't own our own place obviously) and have a long-term appreciation for the town.  Whereas these rich newcomers just flippantly bought a SHTF bugout condo with their pocket change.  Somehow I'm more deserving since I've been saving up for so long.  LOL.  I'm crazy, I know.

When I bought my personal residence on Kauai in 2018, my co-worker and best friend on the island told me to keep it a secret. I tried my best, but the secret got out. Among some, but not all, I was now considered to be an evil rich person that was indirectly denying locals housing opportunities. Some people completely cut ties with me because I was no longer "one of them." At the time our household income was around 85K/year. I guess that makes me an evil rich person. What about my hard work and sacrifice over the past 20 years?

On a similar note, many people on Kauai had to execute a 5-10 year plan to make the move happen from the mainland to Kauai. When they ask me why I moved to Kauai, I told them that I got a job offer and moved 6 weeks later. Before that, I had no intentions of moving to Kauai. Because it was easy for me and difficult for them, I'm the bad guy.

As a human being, I can understand emotional disappointment. However, I really struggle hearing the entitlement stories of why someone deserves x, y or z that does not follow any objective logic.

I see your point, but I don't think it is so much a feeling of entitlement (though maybe there is some of that), as frustration with the government manipulation of the system. Take forbearance as an example: many people definitely need it, and I think that it is a good thing for them to have access to it. But there are likely even more people taking it who don't need it, since no proof is required. I'm not saying I wouldn't do the same thing in their shoes, but the policy is causing a severe distortion in the housing market, and is (in my opinion) an injustice towards prospective first time homebuyers. Add to that the ongoing devaluation of the dollar, and those of us who have been saving for years to afford a downpayment are likely going to struggle with feeling resentment. I am trying to combat the feelings by doing what I can to increase my earning power, instead of focusing on what is out of my control.

Tell me more about this forbearance...not a topic I'm familiar with. 

For me, the fact that the my desired real estate market is on fire and everything is getting snapped up by wealthier people from HCOL area, thus driving up prices and taking inventory before anyone can even look at a property and digest it's candidature... for me it's entirely sour grapes because I wish I could do what they're doing when they buy a condo like I would buy a new push lawn mower...with seemingly little thought or consequence to my net worth.  LOL but not really LOL, but LOL. 

[anni]

I like these hosts' energy but I'm not satisfied with the depth of their arguments. As a young person it's really easy to get mad at the continually increasing difficulty of owning, but I would love to understand the facts a little bit better - is it really "BlackRock and Japan" buying 1 in 5 houses or is it more like individual rich(-ish) people looking to increase their wealth through landlording a couple of places that would otherwise be owner-occupied? I feel more strongly against the former than the latter.

I wonder all the time, if it's really Big Landlord© and/or wealth-obscuring schemes from Russia and China driving up real estate prices everywhere, won't those properties still eventually have to be sold? Older generations buying in cash still usually have to sell their old houses, and eventually they'll pass away and even more housing stock will be available, right? Or are already-rich families and companies just holding on to housing stock and converting it all to rentals to preserve wealth? If so, that sucks, but doesn't that mean rents have to stay low because there are too many rentals competing with each other for tenants? Or that construction supply for starter homes eventually has to catch up to ownership demand?

Unless some Housing Monopoly somehow comes into being, rent prices always have to at least stay competitive with purchase prices, right? Or is there already a Housing Monopoly that I don't know about? If more housing gets built, then rents will fall, and landlords will not want to hoard so many houses anymore because the math won't work out in their favor anymore, so house sale prices have to come down... right? Or will NIMBY zoning regulations become too strict in desirable cities and neighborhoods to reasonably increase nearby stock?

As for their "case study," in Silver Spring MD, I'm not swayed. It was probably a bunch of young DC families earning >$200K combined who had a >$100K DP saved up and were thrilled just at the possibility of owning a SFH in that area for below the national average home price that drove all those offers. That's my guess anyway. There's not a single listing on Zillow in Silver Spring for less than $300K right now, fixer-upper or not. It's a booming metro area anchored by highly stable government work so I'm not surprised investment banks got in on the action of just owning the land for that cheap, since they could afford to hold onto it and build something livable there once construction is cheaper.

Anyway, good grace those youtube comments are depressing.... I just have more questions now.

Very good analysis. I can't believe you are only 25 years old.

@clarkfan1979 I am just trying to convince myself that housing might eventually become a reasonably accessible investment for more people in my generation, LOL

[bacchi]

I like these hosts' energy but I'm not satisfied with the depth of their arguments. As a young person it's really easy to get mad at the continually increasing difficulty of owning, but I would love to understand the facts a little bit better - is it really "BlackRock and Japan" buying 1 in 5 houses or is it more like individual rich(-ish) people looking to increase their wealth through landlording a couple of places that would otherwise be owner-occupied? I feel more strongly against the former than the latter.

I wonder all the time, if it's really Big Landlord© and/or wealth-obscuring schemes from Russia and China driving up real estate prices everywhere, won't those properties still eventually have to be sold? Older generations buying in cash still usually have to sell their old houses, and eventually they'll pass away and even more housing stock will be available, right? Or are already-rich families and companies just holding on to housing stock and converting it all to rentals to preserve wealth? If so, that sucks, but doesn't that mean rents have to stay low because there are too many rentals competing with each other for tenants? Or that construction supply for starter homes eventually has to catch up to ownership demand?

Unless some Housing Monopoly somehow comes into being, rent prices always have to at least stay competitive with purchase prices, right? Or is there already a Housing Monopoly that I don't know about? If more housing gets built, then rents will fall, and landlords will not want to hoard so many houses anymore because the math won't work out in their favor anymore, so house sale prices have to come down... right? Or will NIMBY zoning regulations become too strict in desirable cities and neighborhoods to reasonably increase nearby stock?

As for their "case study," in Silver Spring MD, I'm not swayed. It was probably a bunch of young DC families earning >$200K combined who had a >$100K DP saved up and were thrilled just at the possibility of owning a SFH in that area for below the national average home price that drove all those offers. That's my guess anyway. There's not a single listing on Zillow in Silver Spring for less than $300K right now, fixer-upper or not. It's a booming metro area anchored by highly stable government work so I'm not surprised investment banks got in on the action of just owning the land for that cheap, since they could afford to hold onto it and build something livable there once construction is cheaper.

Anyway, good grace those youtube comments are depressing.... I just have more questions now.

Very good analysis. I can't believe you are only 25 years old.

@clarkfan1979 I am just trying to convince myself that housing might eventually become a reasonably accessible investment for more people in my generation, LOL

I'm seeing a lot of parents help out their Gen Y children. The house across the street was just bought by the parents of a 30 year old. I'm not sure if he's renting it (or "renting" it) from his parents or if it's an early inheritance.

[fishnfool]

Its becoming harder and harder to understand this crazy real estate market. Most people with common sense would not be buying a house right now IMO. Whether it is the lack of housing, low interest rates or high rents or ???, it is hard to fathom what is driving this any further. But if you are looking to unload a property for whatever reason, it is a great time to get it sold.

[joenorm]

I live in a rural vacation area not too far from Seattle but not that close either. People come here for the slow pace and beauty.

Since Covid properties have been going into contract as fast as I have ever seen. Currently there is LOW inventory and no house on the market under $500K. Double wide trailers are selling for $400-500K

A 720 SQFT one bedroom just sold for $530K and I noticed another one-bedroom is in contract for 1.3 million(a nice house but......)

That's all dandy for the sellers and millionaires but for all the young people who grew up here who'd like to come back from college or wherever to raise families it's getting more and more impossible. It's weird. I can't force what the affects of this will be. It's always been hard to afford property but now it just seems downright impossible. I am just happy I got in while I could a few years back but feel for those that did not.

[clarkfan1979]

It also seems that people may be rushing to buy RE as a hedge against inflation. There are plenty of theories on how all the stimulus will affect the dollar going forward, but if you feel that the long term outlook of our currency is bad, what better way to short it than by taking out a 30 year mortgage? Especially if you can find something that cash flows...

I teach at a community college without a salary schedule. Raises average 1% to 2% per year. However, to be competitive with hiring new faculty, starting salaries will keep pace with inflation (2.5%). It's not completing crazy for someone with 0 years of full-time teaching experience to get hired at a starting salary higher than someone who has been teaching at the college for 4-5 years. We call this "salary inversion" and it's not completely uncommon.

Because of my personal career choice, I have been buying RE as a hedge against inflation for the past 14 years. It's not possible for me to grind at work and get a raise. I get paid based on what the state budget allows. I work 1,000 hours/year at my day job and I put my extra time into my rental RE portfolio. I self-manage and look for ways to maximize rents and minimize costs.

Because my rentals do not meet the 1% rule, my path has been heavily criticized. I do not take it personally. They are arguing against "the path" or "overall strategy" not me. Rentals are not 100% passive and they are not for everyone. My rentals might require 100-150 hours/year of my time. However, I have the time available, so it's not a big deal. If you are making big bucks at a corporate job and already working 50 hours/week, the rental game might not be the best fit.

[waltworks]

Any RE investor did fantastic for the last decade+, even if they did nothing smart at all. I'm assuming the party is over going forward, but who knows. I personally would not buy a house right now if I was in the market. I definitely wouldn't buy an investment property (in fact I sold all mine a couple of years ago, which was apparently too soon, but whatever).

-W

[clarkfan1979]

Any RE investor did fantastic for the last decade+, even if they did nothing smart at all. I'm assuming the party is over going forward, but who knows. I personally would not buy a house right now if I was in the market. I definitely wouldn't buy an investment property (in fact I sold all mine a couple of years ago, which was apparently too soon, but whatever).

-W

Woot! Congrats GG!

On the flip side, we just sold rental #2 (1 left to go) within 6 hours with multiple offers - and got a tad over asking price. Rental #1 hits the market June 1st.

-W

By a couple of years, you mean May 2015, right? That was 6 years ago. Prices in my markets have increased around 50% since May 2015. Using zillow data, the national average looks to be around 42%.

You made your money and got out when it was best for you. Nothing wrong with that. However, there are some young people that are really struggling with this current problem.

Will there be a correction at some point? Absolutely. However, I don't see housing prices going back to May 2015 levels, ever again.

My Kauai tenant closed on a home purchase last week. He paid 895K for a small house with a car-port. It was a good move for him. He borrowed money at 2.875% to buy it. He can comfortably afford the payments. His PITI is $3,200/month and he has $1255/month going toward principle. He was paying $2,900/month in rent, but I'm raising the rent to $3,200/month after he moves out. His mortgage payment is about the same as rent. His house is smaller than my rental, but it's closer to the beach.

[waltworks]

We'll either see a very long stagnation, or more run-up followed by a crash. May 2015 prices were already not "affordable" by historic standards.

Again, I wouldn't buy a house right now. Worst case scenario (my crystal ball is just as useless as anyone else's, of course) is that you'll pay the same inflation adjusted amount for most houses in the US in a decade as you would pay today. Best case scenario you'll pay quite a bit less.

But we could all be turning into Sydney, tool, I suppose, and housing could double again. It's a terrible drag on all the rest of the economy and keeps people moving to start a new job and such, so I sort of hope we see a decline in some form. Hopefully a gradual one where houses become boring again (remember that?) and just a place to live.

If there's a violent crash I'll buy some rentals again. Maybe. At this point I don't need the money for anything so maybe it's not worth the effort.

-W

[waltworks]

Thanks for finding that old post, btw! It's an interesting test case.

I dug around and it looks like we netted about $200k after taxes from selling the rentals. That money went pretty much straight into VTSAX or similar index funds though I'll be damned if I'm going to go figure out exactly what went where.

Assuming I invested the money around July 2015, that $200k is now around $440k (all the dividends got reinvested) so I made $240k give or take. S&P total return over that time period was almost 14.5%/year!

Looking at those 2 properties on Zillow (which for SLC is at least reasonably accurate), I would have made roughly the same amount if I'd held onto them, but I would pay quite a bit more in capital gains if I sold them now, so I guess I didn't sell too soon (because I got lucky elsewhere, not because I was particularly smart). So even though the RE appreciation rate was much lower, the leverage/low mortgage rates made up for it.

I will say I haven't had to fix any broken appliances at any rental properties in the last 6 years, though, or stay up late worrying during a windstorm, which is pretty awesome, so I'll call it a win.

-W

[anni]

A DC friend shared this reddit thread today and I've been puzzling over these comments:

$750k @ 2.25% = $2867/mo

$650k @ 4% = $3103/mo

this is why people are paying so much more, when that rate goes back up it's going to kill prices, but you'll still be paying more per month

right, when the news keeps repeating "historically low rates" for months on end it sort of loses its impact.  but even 4% is historically a really good rate.  2.25% is as someone else said essentially nothing when you adjust for inflation.

for fun assuming a $250k house in 1980 (which is probably going to be a somewhat nicer house than $741k today) gains 30% value per decade, mostly from inflation.  There were several months in the early 80s where the rate was in the 17-18% range, which is closer to your default rate on a credit card when you miss a payment than to even regular credit card rates, let alone mortgages today.

Jan 1980 - $250k @ 12.9%  = $2746/mo ($8,827/month adjusted for inflation!)

Jan 1990 - $325k @ 9.9% = $2828/mo ($5,731/month adjusted for inflation)

Jan 2000 - $422.5k @ 8.4% = $3219/mo ($4,951/month adjusted for inflation)

Jan 2010 - $549,250 @ 5.0% = $2948/mo ($3,581/month adjusted for inflation)

Jan 2020 - $714,025 @ 3.6% = $3246/mo ($3,322/month adjusted for inflation)

today - $741,667 @ 2.8% = $3047/mo

​

so even though our price of the house has tripled, adjusted for inflation we pay less per month than any other time in the past 40 years (except the recent dip that bottomed out 2.68% in Dec 2020)

There's more discussion there. My brain hurts! The lower prices make entry easier (lower down payments) but payments higher? I would have assumed making a higher DP on a cheaper property would lower the total owed amount enough to make up for increased interest, but I guess over such a long time scale that's not necessarily true

[clarkfan1979]

A DC friend shared this reddit thread today and I've been puzzling over these comments:

$750k @ 2.25% = $2867/mo

$650k @ 4% = $3103/mo

this is why people are paying so much more, when that rate goes back up it's going to kill prices, but you'll still be paying more per month

right, when the news keeps repeating "historically low rates" for months on end it sort of loses its impact.  but even 4% is historically a really good rate.  2.25% is as someone else said essentially nothing when you adjust for inflation.

for fun assuming a $250k house in 1980 (which is probably going to be a somewhat nicer house than $741k today) gains 30% value per decade, mostly from inflation.  There were several months in the early 80s where the rate was in the 17-18% range, which is closer to your default rate on a credit card when you miss a payment than to even regular credit card rates, let alone mortgages today.

Jan 1980 - $250k @ 12.9%  = $2746/mo ($8,827/month adjusted for inflation!)

Jan 1990 - $325k @ 9.9% = $2828/mo ($5,731/month adjusted for inflation)

Jan 2000 - $422.5k @ 8.4% = $3219/mo ($4,951/month adjusted for inflation)

Jan 2010 - $549,250 @ 5.0% = $2948/mo ($3,581/month adjusted for inflation)

Jan 2020 - $714,025 @ 3.6% = $3246/mo ($3,322/month adjusted for inflation)

today - $741,667 @ 2.8% = $3047/mo

​

so even though our price of the house has tripled, adjusted for inflation we pay less per month than any other time in the past 40 years (except the recent dip that bottomed out 2.68% in Dec 2020)

There's more discussion there. My brain hurts! The lower prices make entry easier (lower down payments) but payments higher? I would have assumed making a higher DP on a cheaper property would lower the total owed amount enough to make up for increased interest, but I guess over such a long time scale that's not necessarily true

I can relate to these numbers. "High" sticker price, but low payment.

I moved to Pueblo West, CO in August 2019. We bought a home in November 2019 for 280K. Long term residents freaked out when they heard the price. I think the median price for the neighborhood was 250K at the time, but the house was 100% renovated from it's original build in 1998. Zero updates needed. It's all done. It now looks like a Joanna Gaines house. It's a ranch with a finished basement. It's 1250 sq. ft. upstairs 3 bed/2 bath. Downstairs it's another 1200 sq. ft. (2 bed/1 bath). Oversized garage (27 x 22) and a shed in the backyard. Yard is .28 acres. It's 5 bed/3 bath in total. I'm guessing the house is worth 310K to 325K. 

We refinanced in December 2020. Our new loan is $227,600 at 2.875%. Our PITI right now is $1156/month with $400 going toward principle. Doesn't that seem crazy low to you? It does to me.

[Jon Bon]

Fun with graphs! I am in.

I believe we are talking about two different things.

1. Is the reason for high prices, I think this has been pretty well established (interest rates, pandemic demand, lack of supply, QE, etc)
2. Is how long the party will continue? My crystal ball is just as defective as everyone else, but nothing lasts forever.

Personally I like the median home price chart, kind of a bit eye opening to me. Add in historical interest rates and QE. Well I think you get the point.

[PMJL34]

Jon Bon and others,

So inflation adjusted the median home prices are barely where they were in 2005-06? Plus now we have lowest interest rate ever? We have more money out there than ever and least amount of homes for sale than ever.

I don't see how this is a bubble.

But I do agree, nothing lasts forever.

[Jesstache]

Another data point:

We are preparing right now to put our house on the market in a couple weeks and are located about 45 minutes outside of San Francisco.  We bought 2 years ago for $630k (5 bed, 3 bath, 3 car garage, fully updated, pool, ~2700 sqft) and we were the winning bid over 5 other offers at the time.  We live in a development with many houses with the same floor plan.  A couple weeks ago a house went on the market a block from ours that is the same floor plan.  Actually, it had a "Coming soon" sign so I have been religiously checking real estate listings since it would be an excellent comp as it is also updated and has a pool (pools are huge selling points here in the hot central valley).  We went out of town for the weekend and when we got back the sign changed to "pending" without it ever hitting the market.  There are 0 houses currently for sale in the entire valley area where we live.

Talking with our agent, she said the price of the property is listed at $775k and she has a call in to see what the actual accepted offer is for (likely more since it never hit the market).  I'm not sad about it but I'm also trying not to count our chickens before they hatch.  She cited people moving from the center of the bay area to "more affordable" outer areas driving the price up, combined with the many people who recently lost their homes to fires last summer are now receiving their insurance settlements and are choosing to buy existing houses instead of rebuilding. 

This is all working crazily in our favor as we have 3 houses in OR that are currently rented and we will be moving back into the one we lived in before moving here (which is paid off so the net is all gravy).  The housing market there is actually even crazier than it is here since it's an outdoorsy, second home, remote worker dream area for a lot of people.  We have heavily considered selling one of our three rentals as each of them (worth at least $500k).  We also want our two children to be able to live in the town some day so hanging on to our two rentals (in addition to the house we'll be moving into) is a way to ensure that can happen and rent from the houses has increased substantially so is a nice income stream (plus we don't need the equity for RE).  One is close to being paid off, the other we are building a garage/adu on to add a rental unit (even at today's construction prices it pencils out). 

[clarkfan1979]

Another data point:

We are preparing right now to put our house on the market in a couple weeks and are located about 45 minutes outside of San Francisco.  We bought 2 years ago for $630k (5 bed, 3 bath, 3 car garage, fully updated, pool, ~2700 sqft) and we were the winning bid over 5 other offers at the time.  We live in a development with many houses with the same floor plan.  A couple weeks ago a house went on the market a block from ours that is the same floor plan.  Actually, it had a "Coming soon" sign so I have been religiously checking real estate listings since it would be an excellent comp as it is also updated and has a pool (pools are huge selling points here in the hot central valley).  We went out of town for the weekend and when we got back the sign changed to "pending" without it ever hitting the market.  There are 0 houses currently for sale in the entire valley area where we live.



Talking with our agent, she said the price of the property is listed at $775k and she has a call in to see what the actual accepted offer is for (likely more since it never hit the market).  I'm not sad about it but I'm also trying not to count our chickens before they hatch.  She cited people moving from the center of the bay area to "more affordable" outer areas driving the price up, combined with the many people who recently lost their homes to fires last summer are now receiving their insurance settlements and are choosing to buy existing houses instead of rebuilding. 

This is all working crazily in our favor as we have 3 houses in OR that are currently rented and we will be moving back into the one we lived in before moving here (which is paid off so the net is all gravy).  The housing market there is actually even crazier than it is here since it's an outdoorsy, second home, remote worker dream area for a lot of people.  We have heavily considered selling one of our three rentals as each of them (worth at least $500k).  We also want our two children to be able to live in the town some day so hanging on to our two rentals (in addition to the house we'll be moving into) is a way to ensure that can happen and rent from the houses has increased substantially so is a nice income stream (plus we don't need the equity for RE).  One is close to being paid off, the other we are building a garage/adu on to add a rental unit (even at today's construction prices it pencils out).

My step-sister has her own real estate brokerage in Fort Myers, FL (Lee County). She is reporting 20% increases in sales price over the past year and about 80% of her deals are cash with no financing contingency.

[Sid Hoffman]

My step-sister has her own real estate brokerage in Fort Myers, FL (Lee County). She is reporting 20% increases in sales price over the past year and about 80% of her deals are cash with no financing contingency.

Sounds about right. The latest (February 2021) release from the NAR shows prices up 15.8% nationally, which includes plenty of places far less hot than Florida. https://www.nar.realtor/infographics/existing-home-sales-housing-snapshot I guess the part that surprises me is hearing 80% of purchases being all cash. Is that all the New Yorkers fleeing the city/state and selling their million dollar homes to buy half-million dollar homes outright in Florida?

We'll see what the next few years holds for housing. There's so many moving pieces that we can only guess at which variables turn out to be the most important variables determining if we continue to see aggressive price growth, leveling, or declining from here to, say, 2025. Or if looking versus other asset classes, it remains to be seen if real estate or equities provide the best returns over that same medium-term time period. There's been plenty of good cases made in this thread and elsewhere for all sorts of outcomes.

[clarkfan1979]

My step-sister has her own real estate brokerage in Fort Myers, FL (Lee County). She is reporting 20% increases in sales price over the past year and about 80% of her deals are cash with no financing contingency.

Sounds about right. The latest (February 2021) release from the NAR shows prices up 15.8% nationally, which includes plenty of places far less hot than Florida. https://www.nar.realtor/infographics/existing-home-sales-housing-snapshot I guess the part that surprises me is hearing 80% of purchases being all cash. Is that all the New Yorkers fleeing the city/state and selling their million dollar homes to buy half-million dollar homes outright in Florida?

We'll see what the next few years holds for housing. There's so many moving pieces that we can only guess at which variables turn out to be the most important variables determining if we continue to see aggressive price growth, leveling, or declining from here to, say, 2025. Or if looking versus other asset classes, it remains to be seen if real estate or equities provide the best returns over that same medium-term time period. There's been plenty of good cases made in this thread and elsewhere for all sorts of outcomes.

My step-sister has always had a steady stream of retirees, mostly from the Midwest (Minnesota, Wisconsin, Illinois, Ohio). In my personal opinion, because of the pandemic she got 3 years worth of retirees calling her within 1 year. Anyone that had plans of retiring in Florida and was within 3 years of retirement decided to pull the trigger early.

[Jon Bon]

Jon Bon and others,

So inflation adjusted the median home prices are barely where they were in 2005-06? Plus now we have lowest interest rate ever? We have more money out there than ever and least amount of homes for sale than ever.

I don't see how this is a bubble.

But I do agree, nothing lasts forever.

Demand is a fickle as a teenager?

I mean in 2005 we had people sleeping in line to put deposits down on condos that were not even built yet right? That sounds like insane demand to me. But demand completely fell off a cliff in 2008. Its not like 10% of the population died or left the country or anything right?

At some point the only people that are going to be able to afford houses are the ones who already own houses you know? If I was a lifelong renter with 100k saved for a DP I'm not sure there is anything I would currently buy. However, I have several 100k in "equity" in my house, so if I wanted to trade up or down I could because I have a ton of unrealized capital gains sitting in my house. Wages did not move, but houses did. So unless you had a house that increased by 50% in 3 years how are you suppose to buy one when your wages might have gone up 15% in those 3 years.

So perhaps what ends this incredible run up is that we out of first time buyers and that starts to effect the 2nd home and forever homes downstream? Or perhaps inflation (I have heard of it, never seen it!) will actually start to show up at some point. The simple act of pushing interst rates into normal territory (5-6%) might knock home prices down very quickly.

I have no idea, and am not advocating for any of these. I just enjoy the exchange of ideas.

[Jon Bon]

New housing starts: Someone smarter than me tell me if we are underbuilt or overbuilt.

I am sure there is some ratio of population growth/Houses built.

[waltworks]

Our current building pace is about "normal" historically. It was well below normal for more than a decade. So we are underbuilt, and we should expect to see both SFH and multi starts up considerably for at least the next several years.

Calculated Risk does lots of good analysis of this sort of housing data if you're bored.

-W

[PMJL34]

I agree Walt with the analysis. Also, thanks for putting me on to calculated risk. I enjoy his blog.

[Fishingmn]

Another data point:

We are preparing right now to put our house on the market in a couple weeks and are located about 45 minutes outside of San Francisco.  We bought 2 years ago for $630k (5 bed, 3 bath, 3 car garage, fully updated, pool, ~2700 sqft) and we were the winning bid over 5 other offers at the time.  We live in a development with many houses with the same floor plan.  A couple weeks ago a house went on the market a block from ours that is the same floor plan.  Actually, it had a "Coming soon" sign so I have been religiously checking real estate listings since it would be an excellent comp as it is also updated and has a pool (pools are huge selling points here in the hot central valley).  We went out of town for the weekend and when we got back the sign changed to "pending" without it ever hitting the market.  There are 0 houses currently for sale in the entire valley area where we live.

Talking with our agent, she said the price of the property is listed at $775k and she has a call in to see what the actual accepted offer is for (likely more since it never hit the market).  I'm not sad about it but I'm also trying not to count our chickens before they hatch.  She cited people moving from the center of the bay area to "more affordable" outer areas driving the price up, combined with the many people who recently lost their homes to fires last summer are now receiving their insurance settlements and are choosing to buy existing houses instead of rebuilding. 

This is all working crazily in our favor as we have 3 houses in OR that are currently rented and we will be moving back into the one we lived in before moving here (which is paid off so the net is all gravy).  The housing market there is actually even crazier than it is here since it's an outdoorsy, second home, remote worker dream area for a lot of people.  We have heavily considered selling one of our three rentals as each of them (worth at least $500k).  We also want our two children to be able to live in the town some day so hanging on to our two rentals (in addition to the house we'll be moving into) is a way to ensure that can happen and rent from the houses has increased substantially so is a nice income stream (plus we don't need the equity for RE).  One is close to being paid off, the other we are building a garage/adu on to add a rental unit (even at today's construction prices it pencils out).

My advice - do NOT accept an offer before it goes live.

Your best option is to go "Active" for at least 3-4 days and wait for the offers to roll in. You will be more confident of getting the highest offer this way.

[Jesstache]

Thank you.  This is what was recommended by our realtor as well.  She's on it and knows the market well.  The "coming soon" sign is officially up as of Thursday at noon.  Our realtor, by Friday morning had already received 4 calls and we live on a pretty out of the way street.   

We did allow one early showing yesterday to a family where they currently have a set of twins and the mother is due in one week with another set of twins (yikes) and they are set on our neighborhood but are unsure of how easily they will be able to view properties once the babies are born (no kidding!).  Even if they were to make an offer, they'd have to submit it in May with everyone else.

We did find out the house down the street listed at $685k pre-market and accepted offer is $775k with seller willing to pay $75k over appraisal.   They never went on the market officially.  Another house in our neighborhood sold last week, it did come on the market for a couple days at $770k and just closed at $805k.  It is 400 sqft smaller but is on a court and has solar. 

A couple more houses have popped up but man, you can tell people that would normally have trouble selling are trying to dump their terribly maintained places while they can.  For example, the master bathroom in one has plywood flooring with a strip of what remains of the previous wall to wall carpet and visible water stains on the plywood in the listing photos.  Listed at $650k.

Meanwhile, we continue to get a continuous stream of post cards, letters and text messages (?) from investors, realtors, and hopeful home buyers about our houses in OR and are we thinking of selling (no).