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Thanks for the article, t'was an interesting read and an interesting perspective.
Can't say that I agree though and he conveniently leaves out the bit about housing already being overpriced based on historic averages. So in essence he's saying that something that's already priced above average (in regard to historical averages) will not only remain at that level but will increase. Even while it becomes more expensive (more interest expense). I dunno it still seems counterintuitive to me. Also, I understand that what's being discussed is national averages and the Austin market may be different.
Guess we'll just have to wait and see. We might be buying in Austin in 5 years or so. So I have some interest in the matter but not being there now I only get the outsiders view. Lower prices would be good for me because we'll have plenty of cash for a down payment and we'll be able to pay extra each month so the interest rate business will even itself out for us. But I can certainly see why you'd hope for the other option.
All good points, the most exact of which may be "Guess we'll just have to wait and see".
With regard to home prices, there are a lot of different ways to measure whether they are "high" or "low", but in Austin it's generally agreed that we don't have a bubble, never did on a macro level, though there were plenty of custom builders and sellers who got caught on the wrong side of the downtown.
A common measure is the percentage of people earning madian income who can afford a median priced home. In Austin and Texas in general, our ratios are well within historic norms.
Another measure of home values is replacement cost. That is, can a builder build a home comparable to the average 2,000 sqft Austin home for far less than the average/median value of those existing homes. At present, builders can undercut existing home sellers in most areas, but at very slim profit margins. Once our lot shortage takes hold, and higher lot prices are priced into new homes (or cheaper finishouts), existing prices will rise along with the increase in builder prices.
But, this is all theoretical speculation and presumes that the government will stop interfering in the markets and that the foreclosure hangover will eventually run out and everything returns to "normal".
As a potential buyer in this market, I know that if interest rates rise, my buying power will diminish. Not only will I be able to afford less, I will be approved for less.
Yes, I understand, but the argument about falling prices being directly proportional to rising interest rates presumes that the seller from whom you ultimately buy will agree to sell to you at a lower price than he would have before your rate went up. That's not how it works, as history proves.
Let's say you were looking in the $200K-$225K price range after you were originally quoted a 4.125% interest rate in Nov 2010. Later, let's say late summer 2011, at 5.125% (we're already back to 4.6%), you decide to lower your range to $180K-$200K.
You've simply changed the price range you are looking in, not the prices of the homes in that new range. In fact, maybe a lot of other people suddenly drop down in range to sub-$200K, causing more demand in that range, and you end up paying more for the same house than you could have purchased in Nov 2010 at 4.125%.
Lower interest rates always work out better for buyers than lower initial purchase price. Run the math and it proves out, especially for those planing to keep their homes 5+ years.
All good points, the most exact of which may be "Guess we'll just have to wait and see".
With regard to home prices, there are a lot of different ways to measure whether they are "high" or "low", but in Austin it's generally agreed that we don't have a bubble, never did on a macro level, though there were plenty of custom builders and sellers who got caught on the wrong side of the downtown.
A common measure is the percentage of people earning madian income who can afford a median priced home. In Austin and Texas in general, our ratios are well within historic norms.
Another measure of home values is replacement cost. That is, can a builder build a home comparable to the average 2,000 sqft Austin home for far less than the average/median value of those existing homes. At present, builders can undercut existing home sellers in most areas, but at very slim profit margins. Once our lot shortage takes hold, and higher lot prices are priced into new homes (or cheaper finishouts), existing prices will rise along with the increase in builder prices.
But, this is all theoretical speculation and presumes that the government will stop interfering in the markets and that the foreclosure hangover will eventually run out and everything returns to "normal".
Steve
Of course its a bubble in many areas of the metro area. There are large sections of the area where 1 in 50 people are being foreclosed on or walking away from their homes in a given month. There is a huge amount of excess inventory in many areas.
This bubble in the metro area exactly mirrors giant bubbles like Houston in the 80's. Its more of a bubble based on excess volume and overbuilding and prices are not dropping on the scale or at the pace they did in California.
However obviously prices are dropping relatively heavily in the areas suffering from the foreclosures and it remains to be seen fully how this will effect the prices and volume in other parts of town. Obviously its just a question of the degree this contagion spreads not whether it will spread or not.
Also given that events like the massive State budget cuts are just going to stack more volume on an already over saturated market one has to wonder how many years it will before the volume begins to be soaked up and what the catalyst driving that will be?
Of course its a bubble in many areas of the metro area.
OK, define "bubble" and state your criteria.
Quote:
There are large sections of the area where 1 in 50 people are being foreclosed on or walking away from their homes in a given month.
How does "1 in 50" compare to historic norms, and the number of foreclosures in a non-bubble normal market?
Quote:
There is a huge amount of excess inventory in many areas.
Which specific areas have excess inventory, and how do you define "excess"?
Quote:
This bubble in the metro area exactly mirrors giant bubbles like Houston in the 80's.
Really? In what ways? The 1980s real estate markets in Texas were driven by 1) booming oil business, 2) S&L Lending practices (not dissimilar from sub-prime), and 3) Tax Rules ( government interference) that made it profitable for high income earners, such as groups of doctors and lawyers, to own money-losing real estate investments on purpose, which drove up values.
Draw your comparisons to how that "exactly mirrors" the bubble you say currently exists in Austin.
Quote:
Its more of a bubble based on excess volume and overbuilding and prices are not dropping on the scale or at the pace they did in California.
However obviously prices are dropping relatively heavily in the areas suffering from the foreclosures and it remains to be seen fully how this will effect the prices and volume in other parts of town. Obviously its just a question of the degree this contagion spreads not whether it will spread or not.
Sorry, but your assertions are gobbledygook, lacking any data or stats. You can't have it both ways. If you claim we are in a bubble, then by definition that is a period during which demand is driving prices upward for reasons not justified by rational thought. If you say the market is cratering and in freefall, that might be an after-effect or consequence of a bubble, but the two cannot be happening simultaneously.
How does "1 in 50" compare to historic norms, and the number of foreclosures in a non-bubble normal market?
Which specific areas have excess inventory, and how do you define "excess"?
Really? In what ways? The 1980s real estate markets in Texas were driven by 1) booming oil business, 2) S&L Lending practices (not dissimilar from sub-prime), and 3) Tax Rules ( government interference) that made it profitable for high income earners, such as groups of doctors and lawyers, to own money-losing real estate investments on purpose, which drove up values.
Draw your comparisons to how that "exactly mirrors" the bubble you say currently exists in Austin.
Sorry, but your assertions are gobbledygook, lacking any data or stats. You can't have it both ways. If you claim we are in a bubble, then by definition that is a period during which demand is driving prices upward for reasons not justified by rational thought. If you say the market is cratering and in freefall, that might be an after-effect or consequence of a bubble, but the two cannot be happening simultaneously.
Steve
I'm not getting in a ridiculous and endless point by point with you Steve. Its a well known fact that you believe that this real estate market is not a bubble. Its also probably a well known fact by many that I believe it is a bubble.
I suggest anyone on the fence on the matter pop up the map view in RealtyTrac.com and peruse the area and look at all the homes for sale and foreclosed and make up their mind for themselves. I also advise comparing the difference between prices of foreclosed homes and those put on the market by sellers. There is usually quite a wide gap. Which even Steve would admit is not a positive sign.
Eanes ISD, 4bdrm/3bth+, 3500sq ft+, on at least 1/3 of acre (this is still pretty small, not exactly "acreage"), without any "strange" situation..i.e. backs up to major road, has a radio tower in backyard, etc. , not in need of major repairs for less than $600k. Maybe there are a couple out there, just saying the population from your 43 becomes a fairly small list, my only original point.
Re: the posts about bubble, rates, market, etc...for what it's worth, we studied this fairly extensively and decided that for us, the time to buy is right now. Rates are already ticking back up. We dont want to time this market... we will be in the high 4s right now on jumbo, a killer deal historically speaking. We think, great time to be a buyer, have decided not to play around with whether or not we are at the very bottom in terms of price/rate...
I'm not getting in a ridiculous and endless point by point with you Steve.
I accept your surrender.
In other words, if asked to defend your position and assertions by answering a few simple clarification questions, you are unwilling or unable to do so and suddenly become a pacifist.
I don't mind if you disagree, but I'd like to better understand why you think we are in a bubble (we're not, by any definition), what constitutes excess inventory (Austin is below 7 months, which is not high), more about your specific area expertise (expired/withdrawns are spead very evenly across all areas in Austin at present), and why you think 1 in 50 foreclosures is high (it's not). Also, how 1980s Houston is an "exact mirror" of today's Austin real estate market. Remember Austin tanked in the late 1980s also, so why not use Austin itself as the example since it and Houston were impacted by the same economic forces at that time.
In other words, if asked to defend your position and assertions by answering a few simple clarification questions, you are unwilling or unable to do so and suddenly become a pacifist.
I don't mind if you disagree, but I'd like to better understand why you think we are in a bubble (we're not, by any definition), what constitutes excess inventory (Austin is below 7 months, which is not high), more about your specific area expertise (expired/withdrawns are spead very evenly across all areas in Austin at present), and why you think 1 in 50 foreclosures is high (it's not). Also, how 1980s Houston is an "exact mirror" of today's Austin real estate market. Remember Austin tanked in the late 1980s also, so why not use Austin itself as the example since it and Houston were impacted by the same economic forces at that time.
Steve
No it just that I dont negotiate with terrorists or biased real estate agents. Its a hard and fast code I live by I'm sure you understand.
Okay, 4-6 bathrooms, 3-4 full baths (not counting half baths),a third of an acre or more, 3500 sq. ft., not on any major roads or having anything else "weird" like backs to major road, etc., (unless you find a swimming pool or a guest house "weird"), not appearing to be fixer-uppers on the MLS, anyway, I found 5 that are on the market today (or pending taking backup offers) that fit those specs. A couple of others that need cosmetics only (one came with an estimate for everything that needed to be done to it to "update" it - things like painting, throw in the obligatory granite, etc.).
Dang you, Steve, you do insist on bringing up pesky facts and asking pesky fact-based questions. You are so obviously biased in favor of using facts instead of hyperbole and name-calling. SHAME ON YOU!
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