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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Name:Ben Jones
Location:Northern Arizona, United States
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Bubble 2.0 is cresting. What is your plan B? I don’t have one. I just realized I never really had a plan A, either.
Ha-ha, yes, it IS cresting. Someone mentioned City Data forum on this blog, and you can see the signs of another market lock-up when you read threads about people having difficulty getting the price they want for their home, or even getting offers. You know something’s happening when potential sellers start complaining about potential buyers. When the seller-buyer standoff happens, look out below!
Back during the late spring of 2005, Tucson’s leading daily fishwrap ran a story about the buyer-seller standoff. It all started when the mean ole appraisers could no longer justify the lofty local home prices.
This meant that buyers had to bring more money to the closing table. Or that sellers would have to drop prices.
Cue up the standoff.
That summer, there was an amazing proliferation of “for sale” signs. Happened very suddenly, and it followed several years of tight inventory.
Methinks that the same scenario is about to repeat.
What is your plan B?”
sell at the peak rent again
sell at the peak rent again
My prediction is that every time we repeat this cycle the peak comes faster and more unpredictably. Until suddenly something really big and bad happens. Like the wobbles of a spinning top that continues to slow.
How about like the wobbles of the front wheel on the Semi that is about to come off. Timing it is tricky, but imagining the result is easy.
Not cresting in the DC metro area…probably not until the fed stops juicing stocks.
For far too many, Plan A is also their Plan B. And if today’s CDC findings are to be believed, increasingly Plan C is a 12 gauge cartridge and a good strong thumb. More Americans now die of suicide than in motor vehicle crashes.
This is no time to be stuck with a mortgage.
Discuss the good stuff/prime property vs typical vs junk… Price trends in boom and bust.
I find the junk (far out, no real attraction/jobs nearby meaning within 30 mins, or slum/ghetto/barrio,run down trailer park, high crime) falls quickly upon any sign of weakness. Average,typical suburb or in town condos weaken a bit later… there is too much of this kind of stuff around at prices people cannot afford. Finally, the good stuff, great schools/areas in nice places in great cities; or higher end recreational areas hold up better but still will fall if they get way out of whack. This is what I saw in Austin TX from 1985 - 1990. Ref: Old West Austin (Enfield/Pemberton), vs the Millburn subdivisions by IBM vs East Austin and Georgetown/Kyle/Buda.
Coming back out of the bust, the good stuff and /or cash flow rentals will firm up first; followed by typical stuff, followed by junk / condos (in most areas). When they are waiting in line for condos, you know the boom is just about up. Saw this in Austin from 1991-2000 (though I was just a visitor to Austin by the latter part of that period).
I don’t want to get drawn into a long discussion today but part of my theory on housing costs has always factored in the fact that the “best areas” (the very best, the true 1%, such as Potomac or Potomac or West Friendship or Roland Park in Maryland) have a far-above-average % of houses that are owned. No mortgage. And people live in these areas not to make money on their “housing investment” but from proximity to spheres of interest and other movers/shakers. So there is less than average of the typical American stress over housing prices. I’m not saying there is zero, but I am saying that of course this affects housing costs.
On the flip side, I actually think that middle class housing is going to be hurt the most. These home values are most susceptible to demographic shifts and broad economic trends like globalization or automation. And, as RAL says, run of the mill housing like this is not difficult to build in most of the country - of course we can argue on exact price, but I definitely believe it can be built cheaply and quickly. If home prices ever do pick up again in earnest, builders will be out in force undercutting used housing prices.
builders will be out in force undercutting used housing prices ??
Assuming there is inexpensive available land to build on…
I don’t doubt they can build such that the new houses are cheaper (or similarly priced) to depreciating older houses, even poorly maintained older houses.
We can argue about land costs but it’s hard to argue that the new houses won’t come in cheaper or at least similarly priced such that used houses are a bad value.
Land can be had in all 48 states for under $1,000 an acre. There’s plenty of “inexpensive available land to build on.”
You’re not going to get to your Debt-Junkie prices because of land. Find another excuse for me to eviscerate.
I think the mix of price points of the inventory including rental vacancy and pricing vis a vis the mix of jobs / incomes in an area influences which values hold more firmly.
New hospital goes up (like the new Children’s Hospital) the custom builders in the burbs are singing. Lockheed feels more confident about their contracts, and workers are earning promotions, the higher niches in the area get a bump. If retail is the only game in town for your job search, and rentals are all full except for expensive options, people start nibbling at the entry level starter homes. Our town has very few rental vacancies and that fact alone impacts housing costs. The town boards are full of people who benefit from keeping rental options low.
Plan A could be to get out of debt and to stay out of debt. Low interest rates is cheese on a mousetrap. Plan B could be don’t buy stuff now that you cannot pay for now.
Plan C is to leverage yourself to the hilt buying actual assets with the free money at fixed interest and wait for inflation to make your repayments easy. (never said it was a good plan)
Only the future will tell.
Commie talk!
We have a co-worker, 30-ish, married, 2 kids, who “owns” a $400K and change debt dump in Aurora. She had a recent maintenance emergency with having to replace her water heater or some such nonsense, and it was a genuine hardship for her to come up with the $1,500 for that. Sad…
If she paid $1,500 for a water heater she is getting ripped.
If she paid $1,500 for a water heater she is getting ripped ??
Depends on the difficulty in replacement…$1100.-$1300. around here for a replacement…
I think the Texans have a saying for this: “Big hat, no cattle.”
Good water heaters can be had for under $500. Even with installation it should be under half the price she paid unless pipes needed to be moved or she switched from an electric heater to nat gas (or etc). Maybe her expansion tank blew up or something? 1500 is alot (sic).
“or some such nonsense”
We don’t know the specifics, because as a renter, we don’t have these problems. And we don’t care to have these problems. We blew that much cheese on our A/T ski setup and avalanche gear, and we paid CASH for it.
Renters = no kids, just money
Loanowners = broke-a$$ loosers
Technically the bank owns the loans and they’re not l00sers, they’re TBTF. But I get what you mean.
Actually, check that, the bank owns the loan? Ha ha ha. I must’ve been thinking back to some textbook situation from decades ago. Silly me. The taxpayers, via implied guarantees to GSEs, own the loan.
Even with installation it should be under half the price she paid ??
I see such BS thrown around here…Okay Joe…Give me your cost-breakdown for this $700. water heater replacement…
Electric vs gas I suspect. Electric units are cheap to buy and install and $700 sound reasonable. I hope she got a gas unit for the price she paid.
I had my water heater replaced a year ago, I paid a little over 400 with taxes included. And I paid approx $150 or 200 for installation. I don’t remember the amount exactly, but it was in that range. Mine was a straight-up replacement though, the expansion tank was in good shape, the piping was all in good shape. He had the tools, he had everything he needed to do the job quickly.
Of course, this was not an emergency situation, I did this proactively so I shopped around a little and used a handyman I’d recently used for some other things (e.g. sump pump, hanging some artwork and mirrors, mounting my TVs) and I let him do the work whenever had had a free day with nothing to do. I just gave him the receipt # from Sears and called ahead to make sure they pulled it for him the day he did it.
Our biggest housing dilemma is deciding whether to sleep in a tent or in the back of the CR-V at the National Forest campground tonight.
National Forest campground tonight.
Campground?? “Dispersed camping” is permitted in most of the National Forest lands—much quieter, with fewer annoying neighbors.
who “owns” a $400K and change debt dump in Aurora
In Aurora? That’s Denver’s armpit.
Areas near 6th, Colfax, and anything west of I-225 are a bit gritty. These co-worker debt dumps are mostly south and east.
The biggest problem with Aurora and the East Side in general is that it is the East Side, which is the opposite direction of all things outdoor fun (unless you like golf or shooting prarie dogs for “sport”). Jim Morrison was right: “the west is the best”.
I know there are newer nabes in Aurora … but it’s still Aurora. Why pay 400K for a dump there when you could get something nicer on the west side.
they want mountain views more than they want proximity to the mountains. and the west side is pretty much built out now. but the amount of undeveloped land on the east side is incalculable.
colorado is a nice state with alot going for it, but having to actually navigate the sprawling blob that is the metro denver front range brown cloud zone on a daily basis is increasingly becoming a nuisance. just imagine how bad the traffic will be when there are 10 million people living here.
just imagine how bad the traffic will be when there are 10 million people living here.
Try imagining them not having any water. I don’t see how Colorado could sustain twice the current population, unless we replace our bluegrass lawns with something less thirsty, and even then I have my doubts. More like we’ll have to replace the lawns with gravel.
I have heard predictions that the Denver metro area will eventually reach Ft. Collins.
Phoenix seems a place which needs to worry about water, yet every time I visit there the sprinklers are running 24/7. Unreal.
Rental Rates in Phoenix Cratering YoY, QoQ and MoM
http://www.zillow.com/local-info/AZ-Phoenix-home-value/r_40326/#metric=mt%3D48%26dt%3D1%26tp%3D5%26rt%3D8%26r%3D40326%252C
This doesn’t load for me what’s it show
Falling rental rates in Phoenix. Check it out.
http://picpaste.com/pics/bfb158a3d9efbdcc088ed2882aea6b6d.1367604992.png
I see green shoots — of inflation.
Bulletin U.S. nonfarm payrolls rise stronger-than-forecast 165,000; jobless rate 7.5%
May 3, 2013, 8:15 a.m. EDT
Gold futures rise ahead of U.S. jobs data
By Barbara Kollmeyer and Carla Mozee, MarketWatch
MADRID (MarketWatch) — Gold futures pushed higher on Friday, lining up for a weekly gain of nearly 2% ahead of U.S. monthly jobs figures that could impact the outlook for further monetary stimulus by the U.S. Federal Reserve.
Gold for June delivery (GCM3 +0.46%) rose $6.80 to $1,474.40 an ounce in electronic trading on Globex. Gold prices are on track for a rise of about 1.8% for the week. They finished 4.2% higher in the prior week.
…
What’s this Talk of a New Housing Bubble?!
What’s This Talk of a New Housing Bubble?
By Morgan Housel
April 30, 2013
There was great news for the housing market this morning.
Or terrible news, depending on how you interpreted it.
Nationwide housing prices grew 9.3% in the 12 months ended February, according to the S&P Case-Shiller Housing Index. That was the biggest annual gain since 2006, when the housing bubble peaked.
This is excellent for homeowners, especially those underwater on their mortgages. But it’s scary for those who think it signals a return of the housing bubble that did so much damage to the economy. And there were plenty of them.
“The Second Housing Bubble Continues to Inflate,” wrote Business Insider.
“Presenting: The Housing Bubble 2.0,” wrote the blog Zero Hedge.
Please. Calling this a housing bubble is dangerously premature.
…
@goon - I think I remembered you recommending a beer from this fine brewery, so I tried one out last night w/ dinner
http://picpaste.com/pics/V3y5RqLZ.1367588894.jpg
http://picpaste.com/pics/70Km3vBl.1367589103.jpg
We have no shortage of micro breweries in the Centennial State. New Belgium has grown so much that it’s technically not a “micro” anymore.
New Belgium is what I call corporate beer.
They are #8 overall and #3 amongst craft brewers.
Their stuff is good. I am fond of Fat Tire.
Their stuff is good.
+1.
Some of the micros-turned-nationals have lost their quality-of-product in the transition; I don’t consider New Belgium to be one of them. Their beer is good, in my book…
I drank (and posted) a Brekenridge Beer ale. I don’t see a lot of places around here carrying New Belgium but perhaps will try that sometime.
The squad’s beverage of choice is Modus Hoperandi from Ska Brewing out of Durango, CO. The Breckenridge is ok, we like their newest *location* more than we like their beer. All the pretty young things hang out there, sit across from each other at tables, play with their smartphones and not talk to each other.
http://www.alehousedenver.com/
Looks like a cool place…I like Denver….I have had a blast there every time I have gone…
It seems like there’s a new brewery opening every week here. The current trend of new beer venues is a “tasting room” adjacent to the brewing area. These serve beer only and no food, but there’s usually a food truck nearby on weekend nights. We were at this new one last night:
http://www.hogsheadbrewery.com/
All the pretty young things hang out there, sit across from each other at tables, play with their smartphones and not talk to each other.
Probably fiddling with their booty call apps.
I sometimes wonder if I should download grindr to see if I ever get pinged by a closet case congressperson when walking by capitol hill. Then I can show up in the stall at Union Station with a camera crew and use the footage for blackmail
Looks great.
A poster said last week it was pedal to the metal until it blows and others asked what it would look like when it blew up, and when it would blow up. I’m curious about what it looks like, when people think it will happen and how to make money off of it’s impending arrival.
Short treasuries but know when to exit. The ultimate black swan is if the bond market collapsed because the equities crashed. Goes against every economic model so “nobody could have seen it coming”.
Sounds like a great way to lose your shirt, at least to me.
Treasuries typically strengthen whenever equities falter, as the fear leads to a flight-to-quality.
Why would you expect otherwise in the future? Please elaborate.
“how to make money off of it’s impending arrival”
Once I saw how many people profitted off the last market crash I realized some of the people “warning us to get out” were attempting to steer timing, talking their book. Many of those insiders doing the sharing pre-crash disappeared never to be heard from again once the markets entered their spiral. Can’t help but think at least some of them were the profiteers.