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When compared to affordability indexes, many area are most certainly in a bubble.
Historically, a 20% down payment and a monthly PITA of no more than roughly a third of your gross income was "affordable". That worked pretty well. The bubble through the 2000s was fueled by reducing those figures, and allowing people to buy with smaller and smaller down payments, borrowing the down, ARMs, etc.
Today, you can easily find areas where the median income isn't enough to afford the median house price. That's a sure sign that there is "magic" afoot, pumping fuel into the market to prop up prices. When, not if, that magic fails, the bubble pops, and prices retract. The "demand" that's driving prices is artificial. It's the same as your "demand" for a Lamborghini... wanting one isn't "demand", being actually in the market and able to afford one is. I could promise you a $300 a month payment for that Lamborghini, and you might rush out to buy it based on that. But the demand there is a phantom, and wouldn't exist if you read the fine print. As to why would I loan someone $400,000 to buy a car and expect $300 a month? Easy... it's because I anticipate selling that loan for $405,000, pocketing the $5K, and dumping all of the risk on someone else. When we run out of "someone elses" willing and able to accept the counterparty risk of someone who cannot actually afford a house, the game of musical chairs stops.
Median income vs median house price doesn't mean much when you look at the percentage of the population that own, all cash purchases, foreign buyers, people who have equity etc....
We aren't in a bubble. Every single purchaser qualifies today. They aren't giving loans out like candy anymore, i.e. stated income loans and all that other junk.
Median income vs median house price doesn't mean much when you look at the percentage of the population that own, all cash purchases, foreign buyers, people who have equity etc....
We aren't in a bubble. Every single purchaser qualifies today. They aren't giving loans out like candy anymore, i.e. stated income loans and all that other junk.
"According to the Fannie/Freddie annual reports for 2016, it is surely the case that subprime mortgage issuance is one force driving house prices once again — up by about 30% over the past four years and now about back to the elevated peak in 2006."
There is a huge difference between lower credit subprime and giving loans with no income verification.
People still have the income today.
Unless there are mass layoffs, we aren't going to see housing crash 30-40%.
Will it slow down, flat line, eventually it will for a little while, probably even go down 5-10%, but that could be 4-5 years away and it won't last long.
We just went through the largest housing crash in recent history and look how fast it came back.
Last edited by High Altitude; 03-17-2017 at 12:15 PM..
Seems more sane today. ~10 years ago I heard quite a few stories of people writing contracts on 5-10 houses (new builds), with no intention of ever living in any of them or even renting them. They were just planning to ride the market up while the houses were being built. That scheme worked for a while... until it didn't.
It's going to take a job loss recession to bring home prices down. Then, when it's over, they go back up. That's how cycles go.
And they go back up pretty quick. We just went through the biggest bubble pop in recent history and look how fast it came back.
The housing industry is set up to always keep supply in check with an ever growing amount of demand.
If demand goes down, builders stop building, so supply goes down.
Builders must make a profit or they go out of business, so they will only build what they can sell at a profit and don't want to over build, this curtails supply also.
At the same time land isn't being conjured out of thin air so you can't really expand that easy in desirable areas which keeps supply down.
More investor groups are paying cash and turning more and more housing into long term rentals with no desire to resell which brings down supply.
Lots of government red tape/costs which keeps supply down.
Population is continually increasing so demand is always rising.
Rich people from all over the world are now buying real estate in the USA so demand is growing from that.
It is funny when people think housing is going to come down so more people can afford housing. That isn't going to happen unless something very drastic happens and even then it doesn't last long. What will happen is supply will be built to accommodate those that can afford to buy houses that can be built and sold for a profit and the rest will just rent. And if you can't afford rent you will have to move to somewhere else less expensive/less desirable and/or double up on roommates and/or rent smaller places etc.....or if you are lucky, live in your family home where multiple generations of family will now live.
I live in a town that was GROUND ZERO for the housing crisis, small city version. Every crazy story you hear about the out of control real estate speculation? We had an example here. All the horrible stories you hear about the aftermath? We had it here.
For the 4 years 2002-2006 property values rose about 25% per year. In 2007 the rocket boosters fired and they went up another 70-100% in a single year. Builders went freaking gonzo. We had RV camps for construction workers, it was so insane.
Then it all went to crap. Values crashed 50-80%, $1 million dollar houses in 2007 were 250k houses in 2010-11. Mine was about $225k down to about $70k. Unemployment tripled from 4% to over 12%, nearly 20% in the hardest hit county. Short sales and foreclosures were EVERYWHERE, and from what I heard, the banks were quietly hiding the inventory they actually had to keep prices from going even lower. Permits pulled fell an astounding ~90% from 2007 to 2009, literally from 4 figures a year to 2. We lost 8-10% population almost overnight when all the construction workers, developers and real estate agents went back to where they came from. Landlords reduced rents 20-35% to try and keep tenants.
If there was going to be another bubble, this is where it would be.
What I'm seeing locally is that we've had a similar run up from 2013 to today as we did from 2002 to 2006. Building started to ramp up circa 2014. But prices have plateaued for the time being, not going into crazy bubble mode..... Yet.
What others have said about financing is true... you have to be qualified for a loan and it appears that last fall or so, prices hit a ceiling (except for the trendiest areas)...For now. Anecdotally I'm hearing about families spending 50% of their income on housing. It can't go higher unless lending loosens up or wages go up significantly.
It seems like we're on a precipice. There will either be modest pull-back or we will go into bubble territory.
Last edited by redguard57; 03-17-2017 at 11:12 PM..
Oh, you mean it's the truth. Do you hate the truth? Because I just see numbers. You see, people lie, but numbers don't. At least get familiar with the site before you dismiss everyone as crackpots.
Honestly, why even make a comment like that if you have no idea what you're talking about?
They publish a lot of brokerage firm research articles. Though they're interesting, I've never found their forecasts to be particularly accurate, especially the ones from BOA/ML and CS. Maybe it's because the research is sell-side reports intended for the general public as opposed to their inhouse trading. JPM's Kloanovic was the hot quant guy for about two forecasts in 2015 but has cooled off since.
Their economic reports are negatively slanted.
Their QE analysis in the past has been accurate. But there's not a lot of news in that area until there's policy changes.
If you like zerohedge, you'll like bloomberg. They aggregate a lot of the same stories which aren't covered by the mainstream media.
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