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I've been wondering, with the dramatic appreciation we've been seeing over the last couple of years, especially last year, is the real estate market overbought? In Pittsburgh, where I live, depending on where you are, home prices are increasing quite a bit; there is incredible demand and a fairly short supply. I expect the story is the same throughout much of the country. So, if the market is indeed overbought, which I strongly suspect it is, when do you think there will be a bit of a pullback or correction--that is, less demand, a greater supply of homes for sale and motivated sellers, and a decrease in prices? I ask because I'm actually in the market to purchase, but I hate to buy in a strong sellers' market (it doesn't make sense to buy anything that's overvalued); I'd rather wait until it's a good buyers' market (as well as until the right house comes along) before I make my move. I appreciate any input!
The RE market is probably much like the stock market - and while it is probably slightly more predictable, it also takes more time to buy and sell. In any case, everyone wants to buy at the lowest price and interest rate --- and sell at the peak. But, predicting exactly when those conditions exist is more complicated than most folks can fathom.
In addition, every house in a finite area doesn't suddenly shift up/down in a rhythmic fashion whenever the "market" dictates. Therefore, most people simply buy the house they want to live-in at the best price and interest rate they can negotiate. In fact, many suggest that buying a residence as an investment - is probably not 'good business.'
Are we on the cusp of another RE bubble? Who knows, but, it is highly unlikely. IMO, the 'market' (and housing prices) in many areas is going to simply drift higher for another year or so; then there will be a short correction, while things level-out a bit ... and then it will continue to drift higher. However, in some areas, the market will remain relatively flat. (Of course, if there is any MAJOR good or bad news, the "market" will probably react differently).
I'm of the same mind you are. Most of the economists that saw the historic bubble coming and warned about it and are now warning about the echo bubble, google recent articles referencing Robert Shiller, Peter Schiff or even the relatively optimistic Karl Case. Very few markets over corrected from the historic bubble based on housing prices as a multiple of income, which is a better indicator than on a monthly payment basis (many markets only touched their historical norm on the monthly payment basis before going back up) Keep in mind that low interest rates and low sustainable rates of housing appreciation are highly correlated, both are caused by low inflation and low wage growth. Current values in many markets have been propped up by an influx of institutional speculators flush with low interest rate cash that did not seek traditional mortgages, even if your local market hasn't the overall phenomenon has probably influenced local values.
Well, I don't know if it's a bubble, but it's definitely overbought. As a previous poster said, the real estate market is much like the stock market. Sometimes people go absolutely crazy buying stocks, which results in an overbought market; stocks are overvalued and are ripe for a pullback, or even a correction, at this point. (Following the correction, a buying opportunity is usually presented.) Well, I think people have been going crazy buying houses lately. For example, in many cities all across this country, when houses come up for sale, there are multiple offers, all in the same day. Bidding wars start. This is mad, it's seriously mad. Anyone who buys in such a market should have his head examined because he surely has more than a few screws loose. It's not always this dramatic, but when the market is this irrational, even prices in less fashionable neighborhoods, places you wouldn't expect, really begin to pick up. Hell, even prices in the ghetto go higher. So, the market's sky high movement has been irrational, because people have behaved irrationally (and stupidly) buying in great numbers impulsively, and this is why it's ripe for a correction.
Way it used to work
Homeowner had issues and either short sold or bank foreclosed.
Bank called RE agent and house went up for sale as repo and people put in their bids highest bidder won.
People had the ability to choose to buy repo, new construction or a preowned house. Plenty to go around. The only houses that got a bid war were really desirable houses.
Fast forward
Banks can now simply not accept a short sale or flat out not foreclose letting the homeowner squat for years until the market gets better ( in the banks favor) all the bank cares about is selling the same old pile of sticks and mortar for whatever amount they made the loan that failed so they can balance their books. You can add whatever hocus pocus woodoo black magic you want but bottom line politicians and banks changed the rules in their favor. Banks can borrow money at 0% or damn close to it. And since the rules are changed and they don't really have to kick out the old homeowner and have the ability to choose WHEN they want to foreclose they won't do it until its favorable for them. Since they can literally control the flow of the "used" ( for the lack of a better word) houses they basically created a shortage and everyone is fighting for those houses. And overpaying. Banks are ok with it because they get some other person on the hook to make that payment. And if that person stops there is someone right behind them signing on the dotted line to take on that debt. All the banks are really doing is long term land lording because most people don't stay in a house long enough to actually pay it off and live out from under the banks thumb.
Houses are overpriced from a combination of demand, bank withholding properties and investors pounding the hell of the foreclosures and doing all cash offers.
The banks can create another bubble. All they have to do is squeeze the politicians to start relaxing the loan standards and were back to ARM, interest only loans or whatever harebrained loan they invent next.
Right now there is no competition for the banks. Joe Steady Homeowner isn't moving up so his house is off the market, investors are renting theirs so those are off the market and new construction has been dead for 4 years or more so its gonna take a while for that to ramp up to be a contender.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Our home prices are already back to what they were before the bubble burst. Despite new developments being built again the location with access to high paying jobs, and great schools mean a shortage, with multiple offers above asking price for the last year. In order to maximize your equity for a better home in this market people have to either get a big pay raise, or move farther out to where prices are lower but face a longer commute.
Way it used to work
Homeowner had issues and either short sold or bank foreclosed.
Bank called RE agent and house went up for sale as repo and people put in their bids highest bidder won.
People had the ability to choose to buy repo, new construction or a preowned house. Plenty to go around. The only houses that got a bid war were really desirable houses.
Fast forward
Banks can now simply not accept a short sale or flat out not foreclose letting the homeowner squat for years until the market gets better ( in the banks favor) all the bank cares about is selling the same old pile of sticks and mortar for whatever amount they made the loan that failed so they can balance their books. You can add whatever hocus pocus woodoo black magic you want but bottom line politicians and banks changed the rules in their favor. Banks can borrow money at 0% or damn close to it. And since the rules are changed and they don't really have to kick out the old homeowner and have the ability to choose WHEN they want to foreclose they won't do it until its favorable for them. Since they can literally control the flow of the "used" ( for the lack of a better word) houses they basically created a shortage and everyone is fighting for those houses. And overpaying. Banks are ok with it because they get some other person on the hook to make that payment. And if that person stops there is someone right behind them signing on the dotted line to take on that debt. All the banks are really doing is long term land lording because most people don't stay in a house long enough to actually pay it off and live out from under the banks thumb.
Houses are overpriced from a combination of demand, bank withholding properties and investors pounding the hell of the foreclosures and doing all cash offers.
The banks can create another bubble. All they have to do is squeeze the politicians to start relaxing the loan standards and were back to ARM, interest only loans or whatever harebrained loan they invent next.
Right now there is no competition for the banks. Joe Steady Homeowner isn't moving up so his house is off the market, investors are renting theirs so those are off the market and new construction has been dead for 4 years or more so its gonna take a while for that to ramp up to be a contender.
Actually (regarding your first paragraph). "The way it worked". There were never any short sales. Stupid mortgage and forgiveness act brought short sales to the fore front. And because of govt intervention lots of shady peeps took advantage of short sales and cause further decreases in the market
It's ridiculous how expensive houses are these days. Many are to blame for this, no doubt. I don't pretend to be an economist, but I suspect investors, flippers, bankers and mortgage companies, politicians, and the Federal Reserve are all to blame. Homes cost a fortune in most in places, and that's why no one really owns their home anymore. Think about it. Most people have huge mortgages. When people buy houses in our day, they typically put down 3.5%, 5%, or maybe 10%. They're burdened with these huge 30 year mortgages, which they typically don't pay off; they might think they own there homes, but in reality, they are really nothing more than renters with a little bit of equity, because the banks are the true owners. Banks own the vast majority of homes in this country because nearly everyone has a mortgage--and a large one at that. Remember, you don't truly own your home unless you own it outright. Now back in my grandparents' generation (I'm in my early 30s), a large percentage of homeowners owned their homes outright. Truly owning your home wasn't unattainable for the ordinary middle-class, and even working-class, family--and on one income, too! (but that's beside the point). And in the generation before, my great-grandparents' day, the majority of homeowners owned their homes outright. In generations past, home ownership was much more affordable, and much more attainable, for ordinary people. Simply put, a working stiff could actually outright buy a decent home; not a luxurious home, mind you, but a nice place to live and raise his family. This goes to show you how screwed up society has become. No one seems to notice, no one seems to care, but that's how things were then, and this is how horrible they have become, and it's all been unnecessary. People think this is the way it has to be, that mortgages are a necessary evil, and that if they want a home they have to borrow tens of thousands (or hundreds of thousands); well, they fail to recognize that years ago, it wasn't this way. Homes were fairly priced, and if you were the same person working your very ordinary job, earning your average wage, you could afford to actually purchase that home and truly own it, and hot be saddled with the millstone around your neck that's commonly known as a mortgage.
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home prices are increasing quite a bit, LOL
