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Old 02-12-2018, 11:03 PM
 
Location: California
1,134 posts, read 954,741 times
Reputation: 2051

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We all know why the previous RE bubble burst. Easy money caused demand for housing. As a result more houses were built. When the easy money stopped, there suddenly was an oversupply of houses. New houses were competing with existing houses for sale. As a result prices started to drop. As prices dropped, more and more houses came up for sale at distressed levels causing even more price pressure. Repeat that several times.

So here we are in 2018. Most large urban centers (Seattle, San Francisco, LA, NYC, Boston, DC, Austin, Metro Atlanta etc) have experienced significant price increases. Some would say unsustainably so.

The baseline is that "this time is different" is usually wrong. I am sure there will be a correction AT SOME POINT. However a 15% correction after another 50% increase 5 years from now is not really going to do anything if you bought 2011-2019. And it is not really going to help you if you are sitting on the sidelines, trying to get in.

With that said, what is your view on the current cycle for these urban areas?

Some key differences I see
- credit is pretty challenging still
- a lot of the buyers in the major metros are very qualified - white collar professionals in areas, such as law, tech, finance, medicine etc.
- a lot of these urban areas have strict zoning requirements and/or limited land. There is a reason why Dallas RE is much cheaper than Austin is much cheaper than LA
- as a result, there is not a massive influx of SFRs keeping up with the demand
- demographics suggest that more and more people want to be near these urban centers and that's where the jobs are


So, I am wondering - where do you think we are going to be in 5 years? 10 years? I realize that one of the major cognitive biases investors have is to anchor, but I can't see a scenario in which I would be able to buy a charming 3 BD/2BA Bungalow in Hermiosa Beach or Coastal Orange County 25% lower from current levels.

There will probably a recession at some point. Most projections I see say 2-3 years. Houses will be sold at foreclosure. However, I feel that there is so much institutional money and private investors sitting on the sidelines, flushed with piles of cash that I imagine multiple bidding situations right off the bat.

Anyway, I realize nobody knows, but just an interesting topic to kick around.
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Old 02-12-2018, 11:36 PM
 
Location: midvalley Oregon and Eastside seattle area
2,866 posts, read 1,324,876 times
Reputation: 2410
We are tired in living in the suburbs. Gotta drive to everywhere.
We bought a condo and we can walk to everywhere.
As seniors, we put relatively low demands on public services and fill up unused sales time at public transportation, library, grocery stores, department stores etc. Love the $1 fare to anywhere the bus/lightrail will take me.

IMO, depopulation of the flyover states, except for their major metropolitan areas will continue.
Depopulation of the Coastal states continue in the rural areas.
We had a family (sister now possesses) coastal home in a popular tourist town. Its full time population remains the same after 30 years. Weekend and Summer population balloons. At one time in the GR, there were more BankOwned than full time residents.
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Old 02-13-2018, 06:47 AM
 
Location: Raleigh
6,907 posts, read 5,142,662 times
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To your point, the buyers tend to be well qualified, not the whole "stripper that owns four condos" example you saw in The Big Short.

A certain subset of aging boomers will look to the city as a wise next choice for living; being close to dining grocery shopping, public transit, medical care.

Also, those earning well and especially working in urban centers will also continue to want to live there.

Will the "bubble" pop? I don't think it will so much pop, as deflate a little...
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Old 02-13-2018, 06:58 AM
 
914 posts, read 396,947 times
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A market built on stricter credit and more sound financial practices will always be more stable in a given cycle than one that is not. That underlying cleaning up of lending practices, along with solid real wealth creation and general economic durability, means that whatever might happen with the housing stock should be buffered. The housing market will still see demand changes, but not such a huge pop and glut of inventory.

Last edited by Schmooky; 02-13-2018 at 08:04 AM.. Reason: Typos!
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Old 02-13-2018, 07:04 AM
 
Location: Raleigh NC
7,675 posts, read 6,070,978 times
Reputation: 6818
we'll definitely have a recession, just a matter of when, not if. That's economic cycles. There's a lot of people, that will be fueled by media reports (look at how the stock market has been reported the last 2 weeks), who only remember the last recession and assume they're all like that. But historically we have recessions every 8-10 years.

A recession is "a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters."
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Old 02-13-2018, 07:29 AM
 
Location: NC
6,078 posts, read 6,992,319 times
Reputation: 12052
Your observations though good, are incomplete. It was not the oversupply of houses that was the problem but the fact that unsuitable buyers were buying them due to poor lending standards, so many buyers could not really afford them and went into foreclosure. Meanwhile the bond market was tanking, the credit rating agencies were not keeping watch, and consumers were being duped on many fronts.

Up until recently, the mortgage requirements were tightened and the consumer protection agency helped divert fraud. That helped the climb out of the housing hole. During the recession new homes were not built and there became a growing need. Now we have many more people wanting homes than available so construction is going full tilt. Still not building fast enough for demand though, so prices are going up, up, up due to scarcity and competition. The economy is doing better than 10 years ago so interest rates need to raise a little which makes houses cost even more.

So what will lead to the next slow down? Affordability would be the natural cause. But reversal of regulations will bring an artificial, negative disruptive effect that will again damage the consumer and shorten the happy growth phase we have been in. So look for high interest rates, low mortgage requirements (again), and loss of regulations to lead us back to a recessionary economy.
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Old 02-13-2018, 07:30 AM
 
Location: Williamsburg, VA
1,642 posts, read 744,243 times
Reputation: 3464
FWIW, I've been following coastal real estate in California since the early 70s and what I've observed is prices sometimes dip a very small amount but never as much as 25%. When recessions hit, people (and banks) prefer to hold onto properties until the market improves, rather than sell low.

I don't know if this is true for the other cities you listed, but I suspect it's true for several of them.

I also think you won't see much of a price drop in hot markets that are built out already (thus not having a lot of homes from new developments flooding the market; if all you have are suburban developments that are 30 minutes away, that's not really competition).

Any city that is attractive to a wide variety of foreign investors will also avoid large price drops, recession or no recession. In my opinion, of course--I'm no expert, just an observer.
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Old 02-13-2018, 08:08 AM
 
Location: East of Seattle since 1992, originally from SF Bay Area
28,315 posts, read 50,385,198 times
Reputation: 28479
I suspect that the huge number of new condos and aprtments being built in Seattle will drive down rents some eventually, but there are very few new SFRs being built. Those are limited to surrounding suburbs, where in our city, 200 or more are being built and selling for 1 million and up. They are selling fast, and inventory on the more affordable existing homes in the $600-800k range will have the sign go up one day and a sold sign the next. Places where people are flocking in with cash in their pockets or new $150k+ jobs that want a house will keep prices high. Higher interest rates make little difference to people that are prepared to pay cash, and those are beating out the buyers with a good down payment and income, because they close faster. Even the recent Amazon layoffs here have no effect, because they are still hiring for other positions.
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Old 02-13-2018, 08:16 AM
 
Location: Fort Lauderdale, Florida
8,131 posts, read 7,437,437 times
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What you aren't factoring in, big markets like Miami, NYC, LA, San Francisco, more and more buyers are from other countries. I would guess that a large chunk of our market is owned by foreigners.

Comparatively speaking, the US dollar will always hold its value.

Here in South Florida we have entire companies that do nothing but buy up properties for foreign investors.

It's always sunny in Miami!
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Old 02-13-2018, 09:13 AM
 
Location: NC
6,078 posts, read 6,992,319 times
Reputation: 12052
Quote:
Originally Posted by blueherons View Post
What you aren't factoring in, big markets like Miami, NYC, LA, San Francisco, more and more buyers are from other countries. I would guess that a large chunk of our market is owned by foreigners.

Comparatively speaking, the US dollar will always hold its value.

Here in South Florida we have entire companies that do nothing but buy up properties for foreign investors.

It's always sunny in Miami!
Yes, this is half the reason that there is such high demand in the "more desirable" areas. Foreign money. These folks are only going to buy where they think prices will keep going up. If you are unable to follow the money, since it is behind the scenes, then follow the (foreign) investors.
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