April 19, 2015

Does ‘It’s Just A Boom’ Still Hold True?

A weekend post on bubble recognition. The Seattle Bubble, “Housing Bubble 2.0: The Perma-Bears Respond. “Ben Jones, who has been blogging about the housing bubble from down in Arizona since late 2004 at The Housing Bubble Blog linked to my ‘Welcome to Housing Bubble 2.0′ post yesterday, prompting an interesting discussion in the comments. Here’s a selection from the conversation that ensued: Comment by Ben Jones - ‘I’ve called this the ‘it’s not 2000-pick your year’ excuse. Sure, house prices are up up UP! There are people camping out for pre-construction houses, multiple offers over asking, investors running wild. Shortages, man, shortages! But; there are not the exact circumstances of the pick your year. The bubble is in the minds of the participants, and it couldn’t be more clear. All the proof you need is in the prices. It doesn’t matter how you get there.’”

“I disagree with the premise that ‘all the proof you need is in the prices.’ If that were true, then New York and San Francisco have basically been in a perpetual housing bubble since the middle of the twentieth century. There is a lot more to recognizing a housing bubble than just the prices.”

“For perspective on where Ben and most of his commenters are coming from (and to explain my use of the term ‘perma-bears’), in early 2012 when I was saying that ‘I suspect that we’re basically at ‘the bottom’ for home prices,’ here’s what Ben was saying: ‘It’s difficult to understand where we are with the global housing bubble, because the media ignore it. So anyone interested has to glean what they can from various sources. IMO, many countries or entire regions are either at all time highs, or just barely off the peak. I don’t have time or space to post them all…’”

“‘I read the NAR economists saying prices were up in the US in almost every state. I don’t know about that, but even if it’s true, they are up in Jakarta too. So what? What should matter is are house prices too high. Are lending standards where they need to be. Again, if ‘affordability is at an all time high’ as the NAR says, how come the govt is doing all the lending at under 4% with little to nothing down? I don’t see how this situation isn’t ringing alarm bells around the world. I guess it is, but not many are listening.’”

“The focus of Ben’s blog is typically on the ‘global housing bubble,’ which he seems to believe is still going strong. I’m not making any particular claims about anything global since the focus of my blog is local, but I do try to do my best to stay aware of what’s going on in the big picture.”

“To reiterate my point, I do think we are currently in the beginning stages of another housing bubble. However, I think that it is building up very differently than the one that inflated 2004-2007, and will therefore have a very different outcome than the last one. I don’t yet know what that will look like (no one does), but I strongly suspect it will not include a dramatic increase in inventory, a flood of foreclosures, and rapid decreases in home prices.”

Then a couple of days ago there was this: ‘Warning: New Housing Bubble Ahead.’

“This comment left by Ryan strikes me as a clear warning sign of another housing bubble inflating in Seattle. ‘Just pulled the trigger on buying a townhouse in Fremont for $745k. Haven’t closed yet so don’t want to link to the MLS. Thought I would share my thinking on why I bought and what the situation was like. List was for around $650k. Property had multiple offers, most within a few $k of the accepted price. List to accepted offer in about 7 days.”

“‘Three quarters of a mil for a townhouse seems insane but we feel good about the purchase for a few reasons: My office is on the same block as the unit, can’t beat that commute. I’ve lived in Fremont for years and want to stay for the long haul both a resident and business owner. The unit was unusual in a number of ways, all good. Exceptional build quality. Units sold nearby with same square footage for similar price that are absolute garbage. We wanted a house but didn’t have the capital to buy and then remodel, most things in our geographic range needed work.’”

“‘I felt good about the potential future appreciation of the property due to being so close to all of the major tech employers.’”

“‘On the downside it’s definitely on the high end of what anyone paid for a townhouse in Fremont and there is no way around the fact that it’s insane amount of money. If tech is in a bubble it still feels like the early stages of the bubble and we didn’t see the situation improving. Mid term (5 year range) it seems that traffic will get drastically worse as everything under construction comes online, so it seemed smart to set up our lives not to have to leave the neighborhood.’”

“‘Just one perspective from someone helping to inflate both the tech and housing bubble.’”

“Here’s what concerns me the most: $745k for a townhouse. In Fremont. The home sold for $100k over list price with multiple offers at that level. The buyer cites that he ‘felt good about the potential future appreciation’ as partial justification for paying so much.”

“I still don’t think we’re likely to see another big price crash (yet) but stories like this one definitely scream ‘housing bubble’ to me.”

From an article I posted in the comments yesterday, “Matthew Gardner remains comfortable with these steeply rising housing prices. The long-time Seattle economist — who does a lot of work in the housing market — thinks the dramatic price increases will continue this year and possibly for the next few years because inventory remains tight. But he notes that the really big jumps are mainly in “close-in Seattle” — particularly places like Queen Anne and Capitol Hill. Across the metropolitan area prices haven’t and won’t climb so steeply. Those locations are in fact still affordable, he said.”

“Well, these close-in price hikes are starting to get into OMG territory so Crib Notes asked Gardner, who is principal of Gardner Economics, and some other experts to answer this question: When does this stop, and how? These increases can’t keep going. It’s not natural, not sustainable. A huge question on a lot of folks’ minds is: Will this end with a ’soft landing’ or something more like a slam down? You know, like something bursting?”

“Crib Notes wrote a year ago: People, it’s a boom, not a bubble, because there isn’t the crazy-bad lending, appraising and non-regulation now that stoked THAT bubble. But dang, does ‘It’s just a boom’ still hold true? How about that recently headline saying Seattle’s median home price rose 18.9 percent from March to March, to a hefty $535,000. Really, 18.9 percent!”

“Gardner made a key point: The crazy lending that fueled the last big bubble and burst is not happening this time. ‘There isn’t any subprime now,’ he said. The science of it starts with income levels. If incomes climb enough to support the higher monthly house payments created by these big fat house prices, then they are sustainable. If prices rise too high, then the market corrects.’”

“‘We forecast close to 48,000 new jobs in the metro area this year,’ he said. ‘Seattle remains one of the best locations relative to potential growth in 2015. We still have some potential for prices to move higher without a bubble forming.’”

Bits Bucket for April 19, 2015

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