How to deal with suddently "Hot Area"?

[GumbyPickles]

I was about to buy a home in 2014 when the area I was looking in the Southern U.S. suddenly became "HOT".  I mean, 15% annual returns hot over 2013.  Every offer I made ended up being rejected for offers going way over asking price.

"This can't last" was my thought...but nothing has joined the market to keep up with demand.  It has since jumped another 20% since last year, so any efforts I had toward savings for a house seemed to completely fall apart around me.  Now I'm frustrated , stuck renting in the area, and feel like I could be kicked to the curb at any time.

Is there such a thing as local housing bubbles?  I can't imagine the small city I'm in causing this type of market, it's simply amazing.  +$100K over estimates in 2011.  Now I have my entire housing downpayment stuck in a 1.1% savings account just rotting.




Gross Salary/Wages: $90,180
Pre-tax deductions: $22k 401k, $3,300 HSA
Qualified Dividends & Long Term Capital Gains: Wanted to buy property near my current area
Taxes: ~$13,000 :(
Curent expenses: $1,500/mo.
Assets: $52,000 401k $6,000 HSA $8,000 IRA $50,000 Savings Acct $12,000 Vehicle

Liabilities: No Debt

Current rent: $1200 for 3br duplex
Current 3 bedroom/1bath house: ~$300k
3 bedroom/1 bath house 2011: ~$200k


Thoughts?

[waltworks]

With rent @$1200 for a $300k house, you are doing just fine. Keep renting.

-W

[GumbyPickles]

With rent @$1200 for a $300k house, you are doing just fine. Keep renting.

-W

Sorry, forgot to specify I'm in a duplex.  Half-duplex made condos typically sell for $200k.

And it is frustrating to see my potential investment from last year keep increasing at obscene rates, so I wonder if it's worth it to jump on the gravy train now as there is no end in sight.

[iamlindoro]

And it is frustrating to see my potential investment from last year keep increasing at obscene rates, so I wonder if it's worth it to jump on the gravy train now as there is no end in sight.

The problem is that the end is never in sight.  Then one day it happens and you get destroyed.  I bought a one bedroom condo in 2007 for 406K with two mortgages, 0% down (11.125% on the second mortgage!) because "property values are just going to keep going up and you'll get priced out of the market!  You're throwing money away renting!"

Only now, 8 years later, am I finally break even on that debacle.

[waltworks]

If you have this sort of hindsight-focused investing attitude, you will be miserable your whole life.

Think of it this way: you need to purchase housing. Well, maybe not "need" per se, but let's assume you want to live indoors in relative comfort.

Right now, in your area, you get a $500+ per month discount for not having a piece of paper that says you own the dirt under the place you live. Does that sound like a good deal? If I said to you, "Hey, you can't paint your bedroom black, and it's vaguely possible that you'll have to move next year, but I'm going to pay you $500 (or maybe $1000) every month to suck it up and deal with that.", what would you say?

House prices do not exceed inflation as a general rule. This time is not different. I'm just closing on selling off my last rental property now because prices have gotten out of control. I fully expect to someday buy rentals again, though, when they crash again.

-W

[Poorman]

Low interest rates have distorted values across many different asset classes, not just real estate.  People are starting to pay insane prices for all kinds of investments because there is too much capital chasing too little yield.  This is a worldwide phenomenon. 

My advice is to be patient and wait until it makes sense to purchase a house again from a monthly housing cost perspective (i.e. the monthly PITI is more or less break even with renting).  You haven't missed out on anything.  If people are content to overpay for assets, let them, and wait for a market where houses are fairly priced once again.  It could take years for that day to arrive, so you need to be patient, or if you just have to own, then you will need to content yourself with overpaying.  Your market may or may not be in a bubble, but there's a good chance that demand is being pulled forward due to low interest rates.  Let the interest rate environment normalize somewhat over the next year and see what effect that has on the market.

[dragoncar]

Is there such a thing as local housing bubbles? 

Hmmm...