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1. Dallas folks are still very interested in proving that Dallas is a "real city," regardless of how subjectively another poster is defining "real city."
"When I go to NYC or Chicago, it feels like a big city, and Dallas doesn't."
"Not true! We have four major sports teams and X number of Fortune 500 companies!"
2. Some people think that because Dallas is undergoing fundamental changes in the housing market that it can't also be in a bubble. Similarly, some people think that because the same market forces that caused the last bubble aren't at play today, we aren't on a bubble. I don't think either of those are true. I have no idea if we are on a bubble -- I suspect we are -- but it is entirely possible that Dallas is undergoing fundamental change and is on a bubble. It's also possible that an entirely different set of market forces (incredibly low rates during a time of economic expansion artificially inflating buying power) could be driving a possible bubble. Who knows.
Have you tried to get a loan or refi lately? If you had, you would know that today's lending environment is completely different than 2007.
No joke. When we bought our first house (in early 2008) the requirements were having held a job at some point in my life and having a pulse. When we bought our current house (2015), I was having to write letters explaining notes on my credit report from 2002.
Housing price peaked in 2007. If your number is correct, $146k in 2007 would be $167k in 2016. It's way less than current $210k. Keep it in mind, in 2007, even a stripper can buy several houses with several loans. It doesn't make any sense that current housing price is way higher than last peak.
Yes, there are some jobs moving here but RadioShake is bankrupted, JCP will be the next. Oil companies are not doing good either.
Dude, come on.
Think of it this way. The stripper bought several homes at leverage levels available to absolutely no one in Texas today. She and other unqualified buyers simply could not cover payments when real estate appreciation fell below certain levels. 0, 1, 2% down loans were available sometimes with the ability to finance what little down payment was required. I haven't read the story in years , however, IIRC the stripper inherited a home from her parents that appreciated significantly form roughly 2002-2007. Using her newly appreciated equity she was able to cover most the down payments for her 2, 3, and 4th home. And then she did similar with the combined equity from all of her holdings. As the bust set in she had plans to acquire dozens more homes.
To boot in Florida, Las Vegas and some other places there was illegal real estate flipping going on. Two or more entities get together and sell land or homes to each other and sometimes back to the original owner, agreeing to drive up prices a certain percentage. The idea is to set off local real estate inflation using fraud and conspiracy.
All of that equals speculation and an unhealthy portion of overall demand. The strippers activity, and similar economically bad actions on the part of many other, drove prices higher and higher until the market got top. Then because there was so much leverage and so little cash to cover obligations things imploded.
Her we have very heavy and well funded demand from several sources. Investors often putting 50% down. Many homeowners putting 20, 50 and 100% down. Much of the demand is being driven by well paid executives and managers buying 1 house not slippers trying to buy dozens. There's just not much in common between Dallas now and the bust cities in 2007/8/9.
Stipulation, this all depends upon time horizons and assuaging things like looking at an asset from a mark to market accounting perspective - there were many days when assets were worth nothing during The Great Depression. However, in aggregate from peak to trough real estate only fell 30% during The Great Depression.
No idea about houses, but I think rent prices are in a bubble. There has to be a point when people will no longer pay over $1000 for a crummy 1br apartment in Arlington. Rent at my current place was $200/mo cheaper just three years ago. I doubt many people are flocking to Arlington to rent a 1br apartment.
Acutally, now that I think of it, housing prices are sort of in a bubble as well. There are some homes which increase $30-50K in a single year. I find it hard to believe that this super fast rate of appreciation will continue. This essentially means that a home that cost $200,000 in 2010 would cost $450,000 in 2018. I highly doubt this will ever be the case.
I doubt the bubble will burst, but I think that the appreciation rates will decrease. We might only see $25/mo rent increases instead of $50-100/mo. We might only see 5% increases in home values instead of 10%+
Like I said before, appreciation rates like this aren't healthy for the economy.
There has to be a point when people will no longer pay over $1000 for a crummy 1br apartment in Arlington.
As of July, the median price of a 2 bedroom apartment in Arlington is less than $1000, so no people aren't flocking to Arlington to rent crummy apartments. Arlington's appreciation is currently pretty high, but drop too much off the median rent and you are in rust belt/BFE pricing and Texas' economy is not equivalent to the Rust Belt/BFE. If it is or is about to be, then Arlington shouldn't be spending money on baseball stadiums and should be hunkering down for a serious loss in taxable real estate income.
Median apartment rents are more expensive in every major metro in the US except for Phoenix than Dallas - way more expensive.
So if this is what a bubble looks like, then every other city in the US is seriously screwed.
But we aren't in a bubble. Pricing Jesus is not going to come down and strike down home & rent prices back to "where they should be" - because we are in an environment constrained by supply, not by demand.
Last edited by TheOverdog; 07-18-2016 at 10:43 AM..
1. Dallas folks are still very interested in proving that Dallas is a "real city," regardless of how subjectively another poster is defining "real city."
"When I go to NYC or Chicago, it feels like a big city, and Dallas doesn't."
"Not true! We have four major sports teams and X number of Fortune 500 companies!"
I don't think anyone on here was arguing that the "city feel" of Dallas is the same as Chicago or NYC. There was one poster that compared Uptown to Firewheel Outdoor Mall, which is absurd. I don't think Uptown has that big city atmosphere yet, but it's much closer to an urban neigborhood than a randomly plopped outdoor mall off the freeway.
As of July, the median price of a 2 bedroom apartment in Arlington is less than $1000, so no people aren't flocking to Arlington to rent crummy apartments. Arlington's appreciation is currently pretty high, but drop too much off the median rent and you are in rust belt/BFE pricing and Texas' economy is not equivalent to the Rust Belt/BFE. If it is or is about to be, then Arlington shouldn't be spending money on baseball stadiums and should be hunkering down for a serious loss in taxable real estate income.
Median apartment rents are more expensive in every major metro in the US except for Phoenix than Dallas - way more expensive.
So if this is what a bubble looks like, then every other city in the US is seriously screwed.
Sure, there are plenty of places to live in Arlington for $600-700/mo, but many of them aren't safe.
Median rent prices factor in the slum places too; places that no sane person would ever live. Unfortunately, about half of the apartments in Arlington are really sketch looking. 3 out of 5 complexes I see look old, run down, and don't look very safe.
1. Dallas folks are still very interested in proving that Dallas is a "real city," regardless of how subjectively another poster is defining "real city."
"When I go to NYC or Chicago, it feels like a big city, and Dallas doesn't."
"Not true! We have four major sports teams and X number of Fortune 500 companies!"
2. Some people think that because Dallas is undergoing fundamental changes in the housing market that it can't also be in a bubble. Similarly, some people think that because the same market forces that caused the last bubble aren't at play today, we aren't on a bubble. I don't think either of those are true. I have no idea if we are on a bubble -- I suspect we are -- but it is entirely possible that Dallas is undergoing fundamental change and is on a bubble. It's also possible that an entirely different set of market forces (incredibly low rates during a time of economic expansion artificially inflating buying power) could be driving a possible bubble. Who knows.
3. EDS must be a big hit at parties.
3). Usually I am a big hit at parties. Thanks.
2). I am one of those contending the area is going though a fundamental housing related adjustment, there is no solid counter argument that I've heard from anyone. Right now it's classic supply and demand and little else. Further, a run up in prices within a asset class or the price of a product does not necessarily equal a bubble*.
For centuries we've seen city by city real estate price runs ups and many of them held into the long term. Some permanently so far.
To your point about unforseen circumstances. Playing off a comment from Keynes long ago, there is always risk of economically ruinous cataclysm alien attack, comet/astroid impact, nuclear accident/attack, a biblical flooding event, a 9.0 earthquake etc. However, the risk of any of those things happening in a particular year is very low. History shows way less than 1%. There is always risk of other market breakdowns and failures. These happen regularly and for various reasons - war, government stupidity, banking and financial missteps top that list.
For me the takeaway is within the investment classes I participate in what are the best guess chances of a price breakdown that year.
I don't know what you think but I'd peg the chances of a local housing price breakdown at less than 1% for the balance of this year. Maybe 2 or 3% next year and as Keynes said, "in the long run we are all dead" 2018 is too far away.
I believe it's much more likely we will see a orderly decrease in the rate of increase over the next few years and prices will hold.
Things that are the most likely to prove me wrong in reverse order of likelihood:
3. Increased belligerence from China and Russia.
3a. Implosion of the Chinese economy. China's economy is a house of cards - empty cities, widespread fraud etc.
1 and 2 are related. Banking meltdown in Europe and the Islamification of the Turkish government. Considering the region Turkey has built a decent economy and was trending towards being more of a European state now it is trending towards becoming a version of Afghanistan with a better economy. Turkey circling the drain could be a catalyst putting more pressure on an already very poor banking situation in Europe much of which is already trending towards or in recession. With Greece, Italy, Spain and Portugal in terrible fiscal shape for the long term and even Switzerland and Finland in bad shape short term and Turkey as a wild card the chances of a broad Eurozone recession are high.
All that is to say if there is a bust in Europe it may spread here with enough intesnity to damage housing prices in DFW - but that's unlikely as well in the short term.
1). A city that has the 9th largest population among cities and anchors the 4th largest MSA in the country is axiomatically a real city. Anyone whose "subjectivity" leads them to another conclusion should be corrected.
*If we put every economist on Earth in a warehouse and polled them about what a bubble means maybe 5 or 7% would use the term as it has been used in this thread.
2). I am one of those contending the area is going though a fundamental housing related adjustment, there is no solid counter argument that I've heard from anyone. Right now it's classic supply and demand and little else. Further, a run up in prices within a asset class or the price of a product does not necessarily equal a bubble*.
For centuries we've seen city by city real estate price runs ups and many of them held into the long term. Some permanently so far.
To your point about unforseen circumstances. Playing off a comment from Keynes long ago, there is always risk of economically ruinous cataclysm alien attack, comet/astroid impact, nuclear accident/attack, a biblical flooding event, a 9.0 earthquake etc. However, the risk of any of those things happening in a particular year is very low. History shows way less than 1%. There is always risk of other market breakdowns and failures. These happen regularly and for various reasons - war, government stupidity, banking and financial missteps top that list.
For me the takeaway is within the investment classes I participate in what are the best guess chances of a price breakdown that year.
I don't know what you think but I'd peg the chances of a local housing price breakdown at less than 1% for the balance of this year. Maybe 2 or 3% next year and as Keynes said, "in the long run we are all dead" 2018 is too far away.
I believe it's much more likely we will see a orderly decrease in the rate of increase over the next few years and prices will hold.
Things that are the most likely to prove me wrong in reverse order of likelihood:
3. Increased belligerence from China and Russia.
3a. Implosion of the Chinese economy. China's economy is a house of cards - empty cities, widespread fraud etc.
1 and 2 are related. Banking meltdown in Europe and the Islamification of the Turkish government. Considering the region Turkey has built a decent economy and was trending towards being more of a European state now it is trending towards becoming a version of Afghanistan with a better economy. Turkey circling the drain could be a catalyst putting more pressure on an already very poor banking situation in Europe much of which is already trending towards or in recession. With Greece, Italy, Spain and Portugal in terrible fiscal shape for the long term and even Switzerland and Finland in bad shape short term and Turkey as a wild card the chances of a broad Eurozone recession are high.
All that is to say if there is a bust in Europe it may spread here with enough intesnity to damage housing prices in DFW - but that's unlikely as well in the short term.
1). A city that has the 9th largest population among cities and anchors the 4th largest MSA in the country is axiomatically a real city. Anyone whose "subjectivity" leads them to another conclusion should be corrected.
*If we put every economist on Earth in a warehouse and polled them about what a bubble means maybe 5 or 7% would use the term as it has been used in this thread.
Are there reliable ways to estimate what % of any particular market is dominated by cash sales to Chinese/Russia/Middle East/other foreign buyers? I'm guessing that a further implosion in China will hurt most major cities in the US, DFW included. The market there has already begun to significantly deteriorate, which is why the pace of people trying to get their money out of the country into relatively safer assets abroad has held strong so far. I also personally believe that as things get far, far worse in China, the Communist party will greatly increase its capital control program.
Are there reliable ways to estimate what % of any particular market is dominated by cash sales to Chinese/Russia/Middle East/other foreign buyers? I'm guessing that a further implosion in China will hurt most major cities in the US, DFW included. The market there has already begun to significantly deteriorate, which is why the pace of people trying to get their money out of the country into relatively safer assets abroad has held strong so far. I also personally believe that as things get far, far worse in China, the Communist party will greatly increase its capital control program.
1. I do not know of a reliable metric that describes the percentage or dollar value of local housing purchases. I do have a friend who very wired into the Plano RE markets - I'll ask her.
2. IMO there are two ways to look at China, ME or Russia collapsing vis a vis US real-estate.
A. Continued economic slippage in those countries may causes wealthy locals to look even more vigorously for safe-havens. It seems to me US real estate has become a rich foreigner's play similar to foreign govs. and businesses buying US Treasuries in times of economic stress. It could be that contained-deterioration overseas helps our RE markets.
B. Things go totally to pot in China - I'd put the odds of that at over 30% in the short term and over 50% that China more or less financially folds within the next 10 years -, ME or Russia so quickly and decisively that people can't or won't invest as much in US real estate........obviously that would put a damper on things here. I'd also agree the Chicoms won't go away without a fight - literally.
Your specific point about the Chicoms shutting the door to capital outflows is a good one.
A good friend of mine lives in Zug Switzerland. The Swiss have been overrun with cash money from the ME, China and especially Russia - apparently Putin has made moves to make these outflows much more difficult. The Swiss, in this case only most likely, don't care as they are awash in so much cash it makes doing business difficult. I read a story last year about a Russian industrialist who deposited $300M US equivalent into a Swiss bank at minus 1.25% per with an agreement that the money stayed in place for 3? years or penalties would be enforced. It's an odd world right now.
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