Mary & Dick's Blog

The Anatomy of a Bubble

I remember our bemusement with other areas of the country as they went through the boom/bust cycle associated with real estate bubbles. "How does that happen?", we wondered. "Tsk tsk", we said smugly, shaking our heads.

 

We've had higher and lower rates of appreciation, and times of stagnation, but prices were never driven to levels that generated a collapse of home values when economic conditions changed. We were immune, and we congratulated ourselves on our good sense.

 

Now, I'm sitting here watching a bubble form, and it's like watching a slow motion train wreck. High demand from a strong regional economy and job growth has collided with low inventory brought on by a lack of consumer confidence and a disinclination by potential sellers to re-enter the market as buyers, post-sale. Prices are climbing rapidly, as the law of supply and demand would suggest.

 

What makes this a bubble is that it is probably unsustainable. Price increases are driven by unsound practices, as buyer competition generates offers with waived appraisals and inspections, for prices well over listing price. So far in 2015, 33% of home sales in the affordable category - under $250K for our market - have been for cash. But we're also seeing waived appraisals in loan sales, with the buyers making up any differences between sales price and appraised value. Values are ratcheting up, since every closed deal like this creates a new and higher comp, and the cycle continues - with no slowdown in sight.

 

Here's what has been happening in two typical - and homogeneous - neighborhoods representing what were entry- and mid-range homes:

 

Brown Farm Bubble

 

English Ranch Bubble

So we're generating a lot of value in the housing stock. But this value is, in my opinion, very fragile. A bump in the economy, regional job losses, any kind of financial crisis, or your choice of many other factors, could put these new homeowners at risk. And so could higher interest rates, which we're all reasonably certain we'll be seeing in the future. Higher rates will decrease the buyer pool for homes in each and every price range.

 

A drop in demand is going to cool the market considerably, and if it's large enough, the bubble will collapse, prices will begin falling, and homeowners may find themselves upside down in a buyer's market.

 

The only way to be optimistic about this is to assume constant growth and continued good economic news. You can draw your own conclusions about the likelihood of that.

 

So, here's the question we're grappling with: How do we protect our business while protecting the interests of our clients?

 

In regards to our clients, we're vigorously counseling good sense in making offers, and strongly advising against waiving contingencies while noting that, in the midst of heavy competition, that's not generally a winning strategy for a particular home.

 

But we're also racking our brains looking for a strategy that will help our clients, and our business, benefit both now and if things start to turn ugly. There's always money to be made when market conditions change - we're trying to find a few that work first for our clients - doing that will take care of us as well. And any suggestions from you folks in BubbleLand would be greatly appreciated.

Mary & Dick

Mary & Dick Greenberg
New Paradigm Partners LLC
2601 S. Lemay Ave. #41
Fort Collins, CO 80525
970-689-4663
www.maryanddick.com

 

Data Source: IRES MLS

Comment balloon 121 commentsDick Greenberg • May 27 2015 09:10AM

Comments

it's tough to watch a bubble form Dick much like watching a car wreck in slow motion unfortunately all you can do is prepare to minimize the damages when it eventually pops

Posted by Bob Crane, Forestland Experts! 715-204-9671 (Woodland Management Service / Woodland Real Estate, Keller Williams fox cities) over 3 years ago

I'm very concerned about the same issues here in Seattle Dick Greenberg ... I'd love to live in Seattle, but seriously at my age I'm not about to take such a costly plung and put myself so thinly on the line. Though here in Seattle we've had an influx of new well paying jobs in the bio-medical and technology sectors. Yet for those of us plodding along who have lived here for many years are now in a way displaced when it comes to purchasing power. I not only remember 2007 but remember the dot com bust of 1999 - 2001 and it eerily feels similar. Now many who would like to purchase homes in Seattle are going south (about 35 miles) to Tacoma. This may or may not be moving the challenges of affordable housing until it too rises out of reach, but I know one thing for sure. I'll be spending a lot more time sitting on the Freeway into Seattle with them. 

Posted by Rene Fabre, Marketing in the Digital Age (First American Title) over 3 years ago

Finally!  I now get it.  I've been struggling to understand the "bubble" since I started hearing stories about it again.  Thank you for explaining it in terms I can understand.  I didn't think it was possible with the lending and appraisal practices today, but if it is a cash transaction then of course.  

Posted by Sarah Cole, Strategic Social Media Consultant (Strategic Digital Marketing Consultant - http://www.coleconnectmarketing.com) over 3 years ago

Hi Dick --  Although it is out of the scope of his specific knowledge(and the fact he's no longer with us)...what do you think Isaac Newton would say on this subject?  He does have a theory I have often used to describe real estate markets in general.  Asking for a friend, Professor. 

Posted by Michael Jacobs, Los Angeles Pasadena Area Real Estate 818.516.4393 (Coldwell Banker Residential Brokerage) over 3 years ago

Dick,

I read an article last year in the Los Angeles Times predicting this for several "hot" markets.  Given the Fed's reluctance on raising rates, the economic data from the first quarter, and the second quarter results  not looking all that positive when it comes to jobs.

Inventory is low here, but no one is overbidding or waiving inspections.  Our wine country market has inventory and is moving slowly.  It is ideal for those who can work anywhere.

I think jobs is the real driver. Strategy is important both for you and your clients.  The important factor that few have talked about is the fact that spending habits have changed from what they were 8 years ago.  Our values have changed, we all want more for our dollars which explains why many are unwilling to move.  

Good post, and I hope it is featured.  A

Posted by Ron and Alexandra Seigel, Luxury Real Estate Branding, Marketing & Strategy (Napa Consultants) over 3 years ago

Dick if we could answer your question we would not have to worry about housing bubbles.  Trying to predict this is kind of like trying to predict what interest rates will do from one day to the other.  Unfortunately there are uncertainties in life and in business and this is one of them.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) over 3 years ago

Dick, I love Michael Jacobs ' comment and totally agree! Unfortunately it is like gravity and there's not much we can do about it. In our area we have strong job growth which might help mitigate a little. We work with a lot of buyers and they want to buy--now. We caution them that they are probably "over paying" but they want to make an offer that will get them the house. A dilemma.

Posted by Tom White, Franklin Homes Realty LLC, Franklin TN (Franklin Homes Realty LLC (615) 495-0752 or www.FranklinHomesRealty.com) over 3 years ago

Our bubble happened in 2005-2007 - I watched it with awe and trepidation.  It was scary watching people behave irrationally.  Other than counseling buyers to wait it out, there doesn't seem to be much we can do.  

I also remember seeing the market start to crack (or deflate since we're talking bubble.)  That was even scarier.

Posted by Margaret Goss, Chicago's North Shore & Winnetka Real Estate (Baird & Warner Real Estate) over 3 years ago

Dick - you are wise to understand that.  There are certainly regional bubbles as there was a national one.  I know you urge caution.

Posted by Grant Schneider, Your Coach Helping You Create Successful Outcomes (Performance Development Strategies) over 3 years ago

A house came on the market a few weeks ago. A small 1,650 SF bungalow priced at $250K. Buyers were lining up down the street for this one. The last I knew the house had over 50 showings in 2 days. The house sold for cash at 20% over asking. Contingencies were waived. This house sold for much more than the comparable homes. It's frightening the loss these buyers will take if they try to sell in a down market. Thankfully, our buyer walked away from this one. However, what are we supposed to do when buyers insist on throwing out good common sense?

Posted by Tammie White, Broker, Franklin TN Homes for Sale (Franklin Homes Realty LLC) over 3 years ago

Dick, I agree it's definitely bubble time. The numbers on your charts prove it. It would be foolish to say house prices can only go up. Recent history has shown us otherwise. I don't know about where you are, but where I am we need more affordable housing. I'm happy to see builders building again, but prices, jobs, income stagnation all play in to affordability. There are 1.3+ million Californians out of jobs, still looking for jobs. 

Posted by Pamela Seley, Residential Real Estate Agent serving SW RivCo CA (West Coast Realty Division) over 3 years ago

Dick -mt retired builder/ husband, while not as old as Sir Issac Newton, subscribes to the "goes up,comes down " theory. There's little you can do but watch as the bubble pops over your head, and have a hefty umbrella ready. I've spoken with some younger buyers who do not want to make the mistakes their parents did and buy more than they can handle it need.

Posted by Kathy Streib, Home Stager - Palm Beach County,FL -561-914-6224 (Room Service Home Staging) over 3 years ago

Dick,

Glad the AR gods listened and featured this post, and I hope that more people read it.  A

Posted by Ron and Alexandra Seigel, Luxury Real Estate Branding, Marketing & Strategy (Napa Consultants) over 3 years ago

Doesn't sound sustainable and sounds very similar to our own market.  My biggest worry with our local economy is the Federal government actually getting serious about our budget.  That would practically destroy our market since our workforce is mostly all federally funded.

Posted by Chris Ann Cleland, Associate Broker, Bristow, VA (Long and Foster REALTORS®, Gainesville, VA) over 3 years ago

We are seeing it as well.  Crazy prices on what used to be "affordable homes". But people are going to do what people are going to do.  And sometimes that is paying too much for a house!

Posted by Jeanne Gregory, The most important home I sell is YOURS! (RE/MAX Southwest) over 3 years ago

I feel so bouncy after reading your post.  It is just plain silly out there right now.  Affordable home buyers just don't have a chance.  There are still the few who think because a home has been on the market for 10 days, they can low ball an offer.  Cash Smash - its all the same to the seller at the end of the day.

Posted by Belinda Spillman, Colorado Living! (Aspen Lane Real Estate Colorful Colorado) over 3 years ago

I'm old enough that the around the block thing is my drive to and from work scenery. The economy will always fluctuate up and down, it's up the common folk to use good sense (lol yea right) to know when to buy or not. It's a pattern that I've seen repeat for many many years. Just CYOA and try to instill this knowledge in your customers.

Posted by Captain Wayne - Rowlett Real Estate School, Rowlett Real Estate School / Owner and Instructor (REcampus Fully Accredited Florida ONLINE & Classroom Training in Destin, Pensacola Florida) over 3 years ago

Dick, I feel your frustration.  Well done post today and congratulations on the feature. I have had buyer clients recently loose 3 deals in a row because they were not camped out on the door step of the seller and offering above asking price and no time to think about it.

Posted by Noah Seidenberg, Chicagoland and Suburbs (800) 858-7917 (Coldwell Banker) over 3 years ago

Great post Dick and I agree with you 100%. It is rather scary to see what is transpiring right now 

Posted by Dan Spencer, Your Colorado Home Source (Aspen Lane Real Estate) over 3 years ago

Now Dick Greenberg that is an  interesting perspective on the boom and bust .  I also feel your frustration

Posted by Paul S. Henderson, REALTOR®,CRS,, Tacoma Washington Agent/Broker & Market Authority! (RE/MAX Northwest.) over 3 years ago

Good insights from many of you here.  My wife started in RE back in 2002 and I didn't get started until 2010.  We bought a brand new home in socal in 2003 and by 2005 I already had my doubts about what might or might not happen.  Depending on what source you studied it appeared southern California  middle class SFRs went up about 89% in 5 years by 2007.  I was ready to jump ship in 2005 and rent as soon as we had 2 years of occupancy and could avoid some tax liability.  The other half wasn't willing to sell and pocket 6 figures.  I wanted to avoid the eventual outcome that greately affected our 2 industries.  Years later when our resources were eventually depleted by a market we didn't adapt to quickly enough we became renters.  It is very obvious now that the Commodities, Futures, and Moderinzation Act of 2000 and the regulatory end of the Glass Steagle Act of 1933 contributed greatly to the 2008 market decline and the delicate boom period we are currently in.  New regulations have kept the RE industry a bit retarded in certain ways since that boom period.  All I can say is pay cash if you can because you never really know with absolute certainty what will happen, however, you will always need a place to live.

 

Posted by Ted Osmundson, Century 21 Wright Temecula, CA over 3 years ago

Dick I hear you and get 'it'.  I too was very concerned a last year or so about yet another bubble happening here in the valley. What happened at some point the buyers said - ENOUGH - and quit buying especially in the affordable home bracket. I was glad to see that (even thou that meant less biz going on). We're now back to a more normal rate of appreciation. I sure hope that happens in your area and others as well.

Posted by Anna Banana Kruchten CRB, CRS 602-380-4886, Arizona's Top Banana! (Phoenix Property Shoppe) over 3 years ago

This hurts my Bubble Brain.....

Posted by Roger D. Mucci, Lets shake things up at your home today! (Shaken...with a Twist 216.633.2092) over 3 years ago

Dick, I appreciate your insights. I have a client who has rental property in that area. It might be a great time for them to sell.

Posted by Mike Cooper, Your Winchester, VA Real Estate Sales Pro (Cornerstone Business Group Inc) over 3 years ago

I am getting my investors lined up to pick up the pieces. My.market is.also.headed that way but.yours may be 6-12 months ahead.of.mine.

Posted by Mike Frazier, Northwest Tennessee Realtor (Carousel Realty of Dyer County) over 3 years ago

Life coaches we are not Dick Greenberg and while we like to inform our clients great information, we don't have a crystal ball. We don't know when that bubble will burst and what will come next. In their eyes they want to buy now and the future is always somewhat of a mystery.

Posted by Janis Borgueta, LIC RE Salesperson (Key Properties of the Hudson Valley ) over 3 years ago

Dick - You aptly illustrate the anatomy of a bubble, which will having us experiencing Deja Vu all over again!

That being said, different areas of the country are reacting differently to their market circumstances.  Those with low inventory and soaring prices seem the most prone to a bubble.

Posted by Myrl Jeffcoat, Greater Sacramento Real Estate Agent (GreatWest Realty) over 3 years ago

Dick Greenberg     people in my area are not waiving appraisals or paying more then homes are worth in fact quite the opposite

 

Posted by Hannah Williams, Expertise NE Philadelphia & Bucks 215-953-8818 (Re/Max Eastern inc.) over 3 years ago

See, I do not see a bubble. I see relatively low unemployment, low interest rates, people still under water, and high demand with low inventory. Plenty of cash buyers. I do believe when rates are increased, and they will go up, it's just a matter of when, it will put a damper on the market, but so many things are different about today than the way our economy was moving in 05-08 that a bubble is the wrong word. At least not in Sacramento. We don't have double digit appreciation.

Posted by Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents, Put 40 years of experience to work for you (Lyon Real Estate) over 3 years ago

We aren't seeing this in my market yet, but you have me concerned. I just ran the numbers. We still have a ten month supply of inventory and homes are selling for 95% of asking price. 

Posted by Debbie Laity, Your Real Estate Resource for Delta County, CO (Cedaredge Land Company) over 3 years ago

I am hoping this is not a "real" bubble.  I am hoping for a continued slow, healthy recovery.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 3 years ago

If there is a bubble, and I agree there is, not far away will be greed.  I am not sure they can be separated from each other.

Posted by Charles Buell, Seattle Home Inspector (Charles Buell Inspections Inc.) over 3 years ago

I have had similar thoughts but the biggest difference I see now is the fact that virtually NONE of these sales are FAKE investor deals (not discounting true investor sales from qualified investors) as that combined with any and everyone getting a loan based on what they SAID they made and not verified as what they ACTUALLY earned for income. I think we are fine for a good number of years, barring any significant event like you mentioned but from a self inflicted wound I am not seeing it

Posted by David Shamansky, Creative, Aggressive & 560 FICO - OK, Colorado Mtg (US Mortgages - David Shamansky) over 3 years ago

Dick - I would say it's the cyclical nature of real estate, but then I have to wonder if we ever learn.

Posted by Christine Donovan, Broker/Attorney 714-319-9751 DRE01267479 - Costa M (Donovan Blatt Realty) over 3 years ago

I have not seen it happening in my market area. Homes are selling quickly if priced right.

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) over 3 years ago

Bubbles burst.

 

Posted by Lenn Harley, Real Estate Broker - Virginia & Maryland (Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate) over 3 years ago

Great post.  My concern, if I have one, here in the Bay Area of CA is that a lot of the qualifying for mortgages to finance our high price points is done with bonus income.  A lot of that bonus income is driven by hi tech company performance and increasing stock price.  A lot of that stock price is supported by low interest rates.  So, you can see where I'm going with this --- if the bloom comes off the stock market rose, either by way of company performance or declining stock price, those borrowers could see the bonuses diminish.  While not a repeat of the collapse, that would certainly mitigate the current run up.

Posted by Rob Spinosa, Vice President of Mortgage Lending, Marin County (Guaranteed Rate, Marin County, CA) over 3 years ago

One thing that stands before, after and during any Real Estate shake-up is the famous...LOCATION repeat 3X's. There is always a demand for a prime offerings. If this is not obvious and at work, I recommend caution. Let each one assess

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) over 3 years ago

I am seeing a similar pattern, we had a slow winter due to the massive amount of snow, the spring market came early with pent up demand and everything i had listed sold. Now new listings have slowed to below a crawl. Buyers are still out there wanting to take advantage of the still ultra low rates and jump in new listings. But my bank owned listings remain high, many people who got loan mods as the government bail out and now still cant keep up with payments now that the grace period 5 years later is up,. 

Posted by Scott Godzyk, One of Manchester NH's Leading Agents (Godzyk Real Estate Services) over 3 years ago

Our high prices, multiple offers, and waiving of any and all contingencies makes me nervous, too. I'd love to see a more balanced market.

Posted by Lottie Kendall, Serving San Francisco and the Silicon Valley (Compass) over 3 years ago

I like your analogy of the slow motion train wreck. It's a painful thing to watch something like this and feel helpless. I'm not an agent and would have no solution. But it's interesting to read the other comments!

Posted by Sharon Tara, New Hampshire Home Stager (Sharon Tara Transformations) over 3 years ago

"...brought on by a lack of consumer confidence and a disinclination by potential sellers to re-enter the market as buyers, post-sale." Correct, Dick Greenberg  We find next to nothing being said about a lack of consumer confidence in the main stream media. There will be the usual handwringing when it happens. And it will happen. 

Posted by Gerhard Ade, Real Estate with Confidence (RSVP Real Estate) over 3 years ago

Gosh, that's a dilemma... You can't be holding your clients' hand and be more cautious than them, as they want to buy, and when you make it harder, they would stop listening to you.

But you are looking into the future and you see how it may hurt, and it is your conscience that makes it harder on your...

Dilemma...

Posted by Jon Zolsky, Daytona Beach, FL, Buy Daytona condos for heavenly good prices (Daytona Condo Realty, 386-405-4408) over 3 years ago

Hi Dick,

Jon Zolsky, Daytona Beach, FL is right..it is a dilemma. Lenn Harley is right..bubbles burst and you want to be around to pick up the pieces!

Posted by Dorie Dillard CRS GRI ABR, Serving Buyers & Sellers in NW Austin Real Estate (Coldwell Banker United Realtors® ~ 512.346.1799) over 3 years ago

I also have no Crystal Ball. Barely lived thru the last bubble. The world is a scary place. Just have to deal with the facts at the time.

Posted by Bill Reddington, Destin Florida Real Estate (Re/max Southern Realty) over 3 years ago

Dick, I am not happy about what's happening in my market either.  Yet, what's causing the low inventory and high escalating prices is different than what caused the last bubble.  I'd love to see a more balanced market.

Posted by Kathleen Daniels, San Jose Homes for Sale-Probate & Trust Specialist (KD Realty - 408.972.1822) over 3 years ago

Dick, I have to admit that sometimes things look a bit bubbly around me. This comes from my experience in Phoenix- which has actually been more calm in pricing than in times past. But other parts of the country definitely have the makings of a bubble for sure.

Posted by Chuck Willman UtahHomes.me, Utah Homes (Utah Homes) over 3 years ago

Too much money chasing too few homes/ apartments have resulted in HUGE price increases in Clintonville and Central Ohio that probably will not be sustained. I see a bubble and a bubble popping in 2016.

Posted by Joe Jackson, Clintonville and Central Ohio Real Estate Expert (Keller Williams Capital Partners Realty) over 3 years ago

What are you guys Smoking? We have a modest growth of 2% to 3% here in KC. No Bubble as far as I can see.

Posted by Bob Travaglione over 3 years ago

My gut tells me we have bubble neighborhoods in my area. I live in one. I think homes in my home town are selling at unsustainable prices. Prices have skyrocketed.  Low inventory in surrounding areas is making  homes sell fast and at reasonable prices. Other areas are selling way below what one would expect, just like we were still in the midst of the housing collapse. These areas are not bubble areas.

Posted by Dora Griffin, NMLS 6380 (D A Griffin Financial.LLC) over 3 years ago

The words that one always hear in the growth of a bubble are, "things are not the same this time or it is different in our area".  The one difference in a real estate bubble vs. a commodity or stock bubble is real estate is very regionalized.  Did I just read that the nation's economy was revised downward to negative .07%, that number alone is a daunting precussor, "of what".  We will find out, but things are different this time.

Posted by Jim Miner, Loan Modfication & Short Sale Specialist (Miner Noh & Associates) over 3 years ago

Dick, Your post makes sense and I have already had 2 clients cancel their home buying because they can no longer afford to purchase. New construction is pushing the price of home into the upper range, which is also pushing resales up and leaving very little on the market that would be considered affordable. 

Posted by Wanda Kubat-Nerdin - Wanda Can!, So Utah Residential, Referral & Relocation REALTOR (Prado Real Estate South) over 3 years ago

The banks have very much tightened up on what they will lend.  That gives me much more comfort that they are not making stupid decisions on loaning out the money on risky schemes.  At least for now. 

Posted by Rob Arnold, Metro Orlando Full Service - Investor Friendly & F (Sand Dollar Realty Group, Inc.) over 3 years ago

What are you guys Smoking? We have a modest growth of 2% to 3% here in KC. No Bubble as far as I can see. Some parts of the metro are selling fast such as Johnson County, Kansas and Lee's Summit, Missouri but that is where the good jobs are.  Other areas are OK but not booming.  Great Deals with little competition can still be had in our "Neck of the Woods"!

Posted by Bob Travaglione (PLATINUM REALTY - Broker/Salesperson in Missouri & Kansas) over 3 years ago

no bubble here in Chicagoland.  (except for some pockets of high end neighborhoods).  It is important to evaluate the market by seller type.  when you evaluate the traditional sales median sales price is flat since 2012 (actually a small decline).  While there is a 10% increase in median sales price for REOs.  I am looking forward to improving prices based on a good indicator of months supply of homes.  Months supply for REO (3 months) and traditional (5 months) are both way down.  

Posted by Synthia Noble (RE/Max "10" New Lenox) over 3 years ago

Thank you for this post because I have believed for a while now we are facing another bubble and soon! Once the FEDS raise interest rates it will takes many buyers out of the market and prices will have to stabilize. Most smart investors have already moved on. My only suggestion is to start tucking your money away now.

Posted by Sandra Early, Sandra Sells Castles In Paradise (World Impact Real Estate) over 3 years ago

Hi Dick Greenberg   I am seeing that in our area as well.  We have a somewhat isolated market here in Kearney, NE and that is putting a lot of pressure on pricing.  I am not sure how a first time buyer can afford to buy anymore unless both are working and making good income.  Thanks for an honest and frank article!!

Posted by Mike McCann - Nebraska Farm Land Broker, Farm Land For Sale 308-627-3700 or 800-241-3940 (Mike McCann - Broker, Farmland Broker-Auctioneer Serving Rural Nebraska) over 3 years ago

Honest conversation on a troublesome topic. The NYT had an article last week about VC's and their breathless pursuit of ever fewer deals. They called the phenomenon by the acronym FOMO (Fear Of Missing Out). Most of the home buying public is in that state of mind. We need to be thinking about how to counsel our sellers as the market changes, not to overprice, stay on the market too long, and chase the market with price reductions.

Posted by John Sieling over 3 years ago

Something similar is happening in our area of MA but I don't believe it's an actual "bubble". My biggest concern is the bank appraisers are appraising many properties too high. Much higher than the homes could possibly be sold for. I'm dealing with one short sale in which the sellers bought the house 2 years ago for much more than the home was worth. It was appraised for their purchase price. Frustrating!

Posted by Nina Rogoff, Sells Real Estate! (RE/MAX Executive Realty) over 3 years ago

Lenn, is right..... "bubbles burst"!   Just "when", will be the question!  Any quesses?

Posted by Dan Hopper, Denver Realtor / Author / Advocate/Short Sale (Keller Williams Realty Downtown LLC) over 3 years ago

I agree with everything you've said; however, we don't have a crystal ball. Just as we were following prices down, we are now following prices up! I do believe we have to work with the conditions we are given today and provide proper counsel for each particular situation.  

Posted by Kelly Cantwell (Street Sotheby's International Realty) over 3 years ago

Thank you for bringing to light this troublesome topic. I'm seeing the same bubble rapidly inflate here in the Raleigh NC area. My clients and their financial futures are my primary concern, and yet, I watch my clients insist on offering 10k over ask on a home not worth it. Yet against my advice they do so, claiming, "We can't lose this one." So, lose your shirt in the long run?!!! When will we ever learn?

Posted by Trish over 3 years ago

In the DFW area, the housing market it HOT. Average DOM is around 30 days in desirable areas, with many homes receiving multiple offers in hours or a few days, at or above listing price. There aren't enough homes to satisfy buyer demand, which is approximately the same as 2006.

Unlike previous "bubbles," the current market conditions do not have the typical ingredients necessary to create one. Bubbles normally occur when the economy is booming, but that's not the case now. The overall national economy sucks, by traditional economic models. Today's news report of 1st quarter GDP shows a NEGATIVE 0.7%! (two consecutive quarters = recession) In spite of that, home sales are strong, but the underlying factor in the current market isn't sales volume, it's lack of inventory.

The reason that a lot of current homeowners (especially those looking to move up) aren't selling is their lack of confidence in the economy. They're aren't willing to commit to  a higher mortgage payment, and the hassle of moving. Couple that with the pent-up demand of first-time and other buyers who are looking for a home, and we have a houing shortage.

Anybody who has studied economics understands that prices are driven by a simple principle: supply and demand. Look at oil and and natural gas prices - way down from a few years ago due to a glut of both now available. The simple fix for today's "impending bubble" would be for more homeowners to put their homes on the market, creating more supply. Problem solved.

I first entered the real estate business in 1980, when the ecomomy was entering a serious recession, with high interst rates, inflation and unemployment. We've experienced various market ups and downs since then, but this one is unique. Rates, inflation and "official" unemployment are low. The real truth is that the economy is just limping along, with declining wages, labor participation and job growth.

Fix the economy and "bubble talk" will go away.

 

 

Posted by Phil Amodeo ABR,CRS,e-PRO,SFR, Carmel, Fishers, Geist, Indianapolis North (C21 Scheetz) over 3 years ago

Couldn't agree with you more, Dick.  What concerns my typically-postive frame of mind is the global economic house of cards upon which the bubble is resting.  If just one card gets pulled out... terrorist event, etc, then all bets are off.

 

Fortunately for those of us that have been in the business for a long time and have seen good times, and bad times, we'll all do our best to adjust and make the very best lemonade possible.

Posted by Tim Lamson, MBA (Better Homes & Gardens Move-Time Realty) over 3 years ago

Great post. Our market definitely feels the bubble and median prices for single family homes has shot up over 40% in a year. I particularly liked Rob's post (#37). The likely pin prick that changes things won't come from inside. People are too focused on things being different this time and think that because we aren't seeing sub-prime mortgages pumping the market up we aren't in a bubble. Thanks again.

Posted by Todd Anderson, Park City | Deer Valley Real Estate (You In Park City group - KW Park City Keller Williams Real Estate) over 3 years ago

Las Vegas is going through the roof - $30,000 to $50,000 increases in asking prices in 3 months. We are at it again! Our foreclosures are up also (but in a trickle these are homes that have been sitting for 3-5 years vacant) and we're back at #1. Talking about not knowing where the market is going (except up) for now. The various Hedge Funds are leasing properties without the tenants even looking at the properties for 3-10% more year/year. We have hoards coming from Illinois, Michigan, Wisconsin, etc. (escaping the sever weather) and, of course, Californian's trying to escape from the drought thinking our job market has improved and that they'll find jobs. Well guess what - not that many jobs and they're generally pay far less than they're accustomed to. If you google "The next Trillion Dollar Meltdown" you'll see that Invitation Homes is having a BILLION $$ structured securitization offer tomorrow, properties are scattered throughout various parts of the US. But talk about an unstable market here. Very scary.

Posted by Joan Bennett Realty 360 over 3 years ago

Your postings reflect the South Florida market where the inventory is so low that as soon as a new listing becomes available the same cluster of Buyers appears withing a couple of hours and one lucky one gets an offer accepted-over asking price. Frustrating for the Buyers-especially those who are qualified for financing but get trumped by cash.  With all the variables that can effect our "not-a-bubble" conditions, the biggest one for our state is looming beginning June 1st. Pray weather doesn't blow the rug out from under our pseudo hot market.  

Posted by Teresa Coldwell (Coldwell Properties, Inc.) over 3 years ago

As we know, real estate is VERY local. And the right conditions can create a "bubble". We have a little of that here. But it will change, it always does.

Posted by Jon Quist, Tucson's BUYERS ONLY Realtor since 1996 (REALTY EXECUTIVES TUCSON ELITE) over 3 years ago

That's a frustrating and difficult situation to be in Dick. I wish I had the answer for your market but I don't. As long as there are buyers willing to keep driving up the prices so that they can secure a home, there's really nothing you can do. As an agent you can educate them about buying in the midst of this frenzy and what that means if the bottom ever drops out but if they are still willing to pay and chase the market then you have to offer for them. 

Posted by Nicole Doty - Gilbert Real Estate Expert, Broker/Owner of Zion Realty ZionRealtyAZ.com (Zion Realty) over 3 years ago

Unlike the recession, which was caused by artificial Buyer demand due to sub-prime loans), Buyer's who were doomed to default, the current situation is just the usual Roller Coast Ride we're all used to.  The key for aggressive Buyers is to be in a position financially to ride out any downward adjustments and wait for the next upturn to sell and that's what I've always advised.  The truth is, even if they buy at the top, if they wait long enough they'll benefit from the excellent appreciation we've all seen over time.  That is, unless they idiot politicians don't try to bring back sub-prime loans.

Posted by Derk Simonson, Ex-builder, long time Realtor (ReMax Coastal Properties La Jolla and Pacific Beach, San Diego) over 3 years ago

I appreciate your article. I am frequently amazed by the prices people are willing to pay for homes in the more affordable price ranges. In Kauai, that means under 500k and when I say you get a piece of "junk" in that price range, I am not kidding. I share the concern for the fiscal wellness of my buyer clients. In the last run up, very few of us in my  markets  were  thinking about the inevitable downturn which created so many short sales and foreclosures in what is, in big part, a 2nd home market. Caveat Emptor, or something like that.

Posted by Ronnie Margolis, Kauai Realtor - CDPE, ABR, RA - On Top of the Aloh (KW Kauai) over 3 years ago

Great post

Posted by Shevy Akason (Evergreeen Realty) over 3 years ago

Might not agree with you, BUT basing my views on my market ( Miami - Fort Lauderdale )

a) Run-up on prices .... Most non water front property run up has been a yield play. so we are now down to 4% to 7% ( which means value of the asset's have increased in value.)

b) 80% plus of most transactions are cash, so again validating the parking of funds for a return

I recall the run up of 79 to 87, that was another type of beast ( if you road that wave you went from 60K to 184K) , and it was in the north east ( Honestly I can not say if it was in other markets ) with interest rates of 12% to 19% and you still got yield.

 

I noticed that you did not mention yield so I got to ask? What the yield?

Posted by Michael Rasch, Michael Rasch 305-741-1819 (Florida Home Sales and Investments ) over 3 years ago

We had a bubble the formed in the early 2000's, and burst in 2006 in the Washington DC region.  The bottom was hit in 2012.  We're back to 2006 prices, and above in some segments of our market.  The rise in prices has been gentle.  Folks are not waiving inspections or removing appraisal clauses.  Gentle growth is the path we have been following.

Posted by Erick Blackwelder, Text or call Erick now at 703-677-1120. (Cell: 703-677-1120) over 3 years ago

Agreed Dick Greenberg the bubbles are upon us as we speak.  As far as I know, bubbles do POP!

Posted by Bruce Hicks, Your Lifetime Friend/Helper! (Best Homes Hawaii) over 3 years ago

We are seeing some increased activity and multiple offers on homes that are priced right and in good condition. 

Bill

Posted by William "Bill" and Karen Farragher, SFR (EXIT Blue Water Realty, Matawan, NJ 07747) over 3 years ago

I agree that a new bubble is forming. It's a bit scary.  Prices are going up very fast, and some buyers get caught up in the emotion, rather than focus also on the business aspect of the decision.  Not enough good inventory--prices go up!

Posted by Mary Hutchison, SRES, ABR, Experience Agent in Kansas City Metro area (Better Homes and Gardens Real Estate-Kansas City Homes) over 3 years ago

Notice the absence of responses from California! What does THAT mean?

Posted by Dick Dennis over 3 years ago

They're sneaking out of California to Nevada to drive the prices up even more? They come here to gamble and forget where they live! When you look at their 55 year old homes and how much work they need, their traffic - takes 2 hours+ to go 60 miles (one way) in the LA area and $3200/mo rent a on a run down 55 year old 1600 sf home in Anaheim and the drought ... My son deals with it every day.

Posted by Joan Bennett, Realty 360 over 3 years ago

100% there is an adjust,met going on. To know if there is a bubble let's use 20 years of builder permits to look at it. I say this, because in the boom we sold x years of inventory in two or three years. Then we did not really build from 2008 to 2014. Since 2008 we had x deaths, y births, z immigration, a home buyers be foreclosed on buying, b etc etc. we do not have negam nor I/O loans, so times are different. Can we lead into a bubble? How unhealthy is our inventory of ownership now rent price vs mortgage price, and our purchase cap rates for our investors?

Posted by James Sanson - Ranked in the TOP 1% of Arizona, Homes for sale in Maricopa AZ (Keller Williams Realty Phoenix) over 3 years ago

So interesting to follow the comments here and see how conditions vary from one city to another. I'm with you in feeling concern about the bubbles forming - if for no other reason than that a crash in real estate affects so many other industries. A real estate crash is an economy crash, and this economy is already on shaky legs.

Posted by Marte Cliff, Your real estate writer (Marte Cliff Copywriting) over 3 years ago

To prevent a bubble or to control it will be on educating our buyers and Rockies investors. My highest cash in cash years I do is 12 years. I will cry at 12. This is a cash purchase, divided by net rents or net annual rents. I only use 9 months per year for rent to offset vacancy and repairs. If you go over 12 your money might be better in Wall Street.

Posted by James Sanson - Ranked in the TOP 1% of Arizona, Homes for sale in Maricopa AZ (Keller Williams Realty Phoenix) over 3 years ago

Dick,

It appears that you know your economics. Without jobs, our business becomes a mess. California has proven that the employment pinch can go deeper. High tax rates seems to have forced many employers to leave the state some time ago taking the jobs with them.

I suggest that the "affordable segment" was significantly more heavily impacted than the higher value segment. I believe that in this area, the brokers/agents that may be coming back more strongly are those dealing in the higher price properties.

Your conditions sound like what we went through mid decade in CA. I am not being flippant when I suggest that one strategy may be to sharpen skills in handling short sales and to renew your contacts in the banking industry, confirming contacts, practices, policies and proceedures.

Posted by Brad Rachielles, REALTOR, CDPE, Upland, CA (CENTURY 21 Peak, Ca BRE# 01489453) over 3 years ago

Hey Dick, great post and too large a topic for an easy response.

"How do we protect our business while protecting the interests of our clients?"  Just take listings and forget about buyers, at least until your market settles down.

Or, explain your concerns to buyers and let them decide.  Popped bubbles recover, albeit slowly.  If a buyer stays put for 8-10+ years, they should be fine. 

We had 20% appreciation in both 1978 and 1979 without a subsequent drop in prices even when mortgage rates hit 16.5% in the early 1980s because unemployment stayed low.  

Our only bubble was created by loosey-goosey financing.  No down payment loans, negative amortization adjustable interest rate loans with deeply discounted teaser rates, using stated -not verified-income.

With so many cash purchases in your area, I doubt it's a bubble.  Those buyers won't walk.  But what do I know.

Posted by Lloyd Binen, Silicon Valley Realtor since 1976; 408-373-4411 (Certified Realty Services) over 3 years ago

Around the Sacramento CA region, agents claim no inventory, but how many properties does a customer need to make a choice? So, "Sell them"! Buyers are asked to up their bid, waive inspections and appraisals, and let the appraiser justify the over-price - there's no line-item for "Lack of inventory premium"!

Posted by Truett Neathery Appraiser over 3 years ago

People who bought in 2008 and 2009 most likely should have never foreclosed on. If us realtors educated them that they bought at a fair price and should stay our short sale market would not have went so deep. Then if the governments required new permits could only be for owner occupants in 2004 going forward we could have controlled things. If lenders removed stupid loans, and did the simple cash on cash roi and did not lend to investors u Tio the down payment equalled 12 or less years. There are a zillion things. I do not want another bubble.

Posted by James Sanson - Ranked in the TOP 1% of Arizona, Homes for sale in Maricopa AZ (Keller Williams Realty Phoenix) over 3 years ago

Increased prices usually leave investors behind and we are back to owner occupant buyers. They want to buy and take advantage of the low interest rates. As long as the time horizon is in place for them they should be OK plus benefit from tax write offs. An economic crash could cause a housing crash but hopefully the loan industry won't be the culprit and all those cash buyers are not going to loose their homes. I don't see a 2007 event.

Posted by Ron Buck, Associate RE Broker at Keller Williams Realty (The Ron Buck Group) over 3 years ago

I don't really foresee a "bubble" as much as I foresee us plateau-ing.  Latest projections I'm reading about forecast 2017 as the year we will plateu.  Here in Los Angeles there are still so many new people coming to the city that the demand for housing is what's supporting the market.

Posted by Ralph Gorgoglione, Hawaii and California Real Estate (800) 591-6121 (Maui Life Homes / Metro Life Homes) over 3 years ago

I also work in an area of high demand/low inventory thus super over bidding.  The Bay Area, especially the East Bay where I work, was hit extemeley hard with foreclosures.  However, when looking at today's transactions, most every clients has 20 to 30 percent down payment.  They have 775 plus credit scores, and a super low fix interest rates.   When you look at their alternatives to buying they don't have many - rents averaging $4,000 in San Francisco and a bit lower in Oakland but still super high and rising.   I don't see a repeat of 2007 due to more controls in the lending arena.  These are very qualified buyers.

Posted by Ann Wilkins, Oakland, Berkeley, Piedmont CA (Golden Gate Sotheby's International Realty) over 3 years ago

 

Great and timely post! Although we are still a long way from the market highs; we are quickly closing the gap. Entry level homes are selling for as much as 2.5 times what they sold for just 3.5 years ago. Due to a bidding frenzy, listing agents are calling buyers agents, asking for final and best. After being out bid 3 or 4 times, buyers feel compelled to make a ridiculous offer; only to have the appraisal come in for less than the contract price.

 

Posted by Doug Kaller (Academy Mortgage, Reno, NV) over 3 years ago

I think there will always be ups and downs, but I do not know if we are ripe for a collapse like the last one.  The loans are more secure.  No Neg Am and Very few "Stated Income" or "NO Doc" loans.  

Posted by Gene Riemenschneider, Turning Houses into Homes (Home Point Real Estate) over 3 years ago

Great PostWe ALWAYS have to worry about a NAR which is situated in Chicago & a Fed that listens to them. The Zero interest rates that the Fed lends to FNMA & FNMC make the bubble blow quickly as between 2005 & 2008.

Posted by Tom Waite over 3 years ago

As a 30 year plus veteran of the industry, my observation is that you are missing a key element that makes a bubble: acceleration, where properties begin to turn over at a rate of twice or three times yearly.  That said, there are always factors in individual areas driving property values. Strong cash sales indicates investment activity. Wall Street investment banks are syndicating large funds as they cannot get any decent yield in the markets for their high$ clients. This is happening nationwide. In places like San Francisco, you have Silicon Valley money-HUGE money--plus Overseas economic refugees, mainly Chinese, but also Indians, and Singaporeans. Ft. Collins has it's own investment drivers- legitimate marijuana farmers and the money they bring is a huge economic stimulant.  So Cal has crazy money in the entertainment industry, and our own tech and biotech money.

All this said, this looks like a strong cycle that will ultimately slow as credit tightens.  This creates a "plateau" which might actually show a 3% decline in values from here, as we bump along at this level for a couple of years. I don't know about a crash in prices, it seems to be more like the 1980-85  but the wild card in all this is climate change. 

But this looks a lot like the 80-86 cycle. Things slowly deflated from the highs about 1-3% per year , then the new cycle surpassed the old highs and went on to even higher highs.

Posted by Michael Hickerson, Sellers Choice! (Coldwell Banker) over 3 years ago

I'm not clear on your neighborhood charts (2012-2015) Does the chart represent 12 months each 2012-2014 and 3-4 months of 2015? Or is it first 4 months (Jan-Apr) of each of the years ('12-'15)? Or, something else? Thanks for clarifying.

Posted by Ronald Gombach over 3 years ago

I have done a lot of studies on economics and how it relates to real estate and the books are changing. We are definitely not just regional anymore. Water front properties or beach properties are no safer these days than the ghetto except some areas have more room to fluctuate on price.  We are becoming a global market as the feds and stock market demonstrate. what affects one market is going to affect another unlike our past. just a quick twitter feed can globally affect markets which amazes me.

Posted by Doyle Lee Austin Davison Iv, 28+ years serving Investors/Banks/Buyers/sellers (Surf City Realty 714-968-6767) over 3 years ago

Economics is a tough sport & it's not our job to 'foresee' where the market will go. Every market is hot then cold - you're just lucky that you are recovering & some areas are not as of yet.

I can only control what is right now with limited knowledge of the market. I think things are good overall & don't see a cloud on the horizon but others are prognosticating just that.

Posted by Lyn Sims, Schaumburg IL Real Estate (RE/MAX Suburban) over 3 years ago

Excellent post!  Your experience in Northern Colorado is reflective of our market in Bozeman, Montana.  Consumer confidence is lagging.  I'm reminded of the generations that came before us whose families endured and survived the Great Depression, they were afraid to spend a nickle for a beer on a hot August day, true story!  Our recession has had a similar, although milder, effect on our collective outlook.  Buckle up, save your money.

Posted by Dennis Erickson, My Best..., Always! (Berkshire Hathaway Home Services Montana Properties) over 3 years ago

Ahhhh, our dear Colorado Sensei! Looking to be a grasshopper at the end of your post??

I loved this start to finish, and saw the title briefly in The Daily Drop, but have had no moments to check it out. Now I know at least one GREAT POST that was included!

One of your best, I must say. And how ironic that I put up my post (that's been in draft and haven't had time to go pull a photo for Friday's Fotos, so I threw that one in today)about the almost-sale type of year that I'm having. Just got a lease-option pulled, as the buyer wants to get rid of the lease "gobbledy gook" and just wait til he has cash (in about a month) and then will proceed to just BUY THE DARNED HOME. In the meantime, everyone's happy and I put it back on the market. I think it's very wise...and I could have grumbled, but this is SOOOOO much easier! 

Posted by Gayle Rich-Boxman Fishhawk Lake Real Estate, "Your Local Expert!" 503-755-2905 (John L Scott Market Center) over 3 years ago

If history repeats itself ? we survived by spending less, putting aside more, working harder with non traditional sales that  presented themselves from the fall out of a bursting bubble (short sales, BPO's, ). Find a need and fill it.

 

Posted by Jeff&Grace Safrin, SpousesSellingHousesTM (F.C.Tucker 1st Team Real Estate) over 3 years ago

I don't believe there's a bubble yet, at least here in the Sacramento area. I watch the Housing Affordability Index and 10 years ago it was staggeringly low, people were only qualifying because of risky loans. That's not happening now. At least that's my opinion.

Posted by Dave Hymes (RE/MAX Gold) over 3 years ago

Dick, I just visited Denver & Ft Collins and learned about your bubble. I think your best buy is to make sure your buyers understand what is happening, and I'd suggest the Schiller index showing how bubbles do burst. If there's a similar type of chart you can create on the local economy with things like unemployment which affect the housing market, that will also help buyers guage what they should/shouldn't spend.

Posted by Tina Gleisner, Home Tips for Women (Home Tips for Women) over 3 years ago

Things are getting stronger and stronger but you can see there is an issue brewing in the distance. I think each area has a unique storm based off how their market went the past 8 years. Any agent would be wise to be prepared. 

Posted by Tammy Adams ~ Realtor / Podcaster, A Maricopa Agent who Works, Lives & Loves Maricopa (Maricopa Real Estate Co) over 3 years ago

Doomsayers have been saying that our market here in Sydney is a bibble and it's about to burst, that was 3 years ago and it continues to spiral skyward and buyers are paying unrealistic prices year in and year out. Everyone says it won't last but will it burst or just go flat? Every market is different but as long as you have more buyers than sellers and stock is hard to get then the market is the market and it continues to grow, but I am glad not to be a buyer myself right at the moment.

Posted by Geoff Grist, Author of Sold Above Market book (Mosman Neutral Bay Realty, Sydney Australia) over 3 years ago

I find it very hard to understand how the appraisal industry  can justify  there work. They will keep appraising house higher and higher, and say well that's the market.  No the market is not what someone is willing to pay! People are always willing to over pay and the appraisal  is there to stop the lenders from making the loans that are undervalued  or help the buyers know the true value of what they are paying cash for.  

Posted by Chuck Mixon, Cutler Bay Specialist, GRI, CDPE, BPOR (The Keyes Company) over 3 years ago

It is a bit of a precarious time.  You raise some valid questions and there are no easy answers.

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) over 3 years ago

Dick & Others,

As 2007 and 2008 were unfolding a small group of agents that I met with weekly were watching the local & national market closely. In February of 2008 it became obvious that the consumer had hit the wall. In Texas, sales tax collections had been running along with double digit increases and then plunged to a double digit loss. Yes, Texas is just one state but this trend was matched pretty much nation wide. The second thing we noticed was that a large disparity had materialized between home price increases and inome increases (in a negative way). This was a more localized issue than a nation wide issue. As it turned out this was the most common factor in almost every market that crashed hard. Bad loan practies began to rear their heads and excalated over the next few months. The "fincial crash" hits in October that turns lending on it's head. Yes, there were varying factors here there and yonder.

Remember every market is local. Watch your market. I was asked this week by a client if they were buying at the top of the market. I said yes at the top of today's market.        

 

Bill Austin ~ Realtor ~ Team Price Real Estate

512-790-6343 ~ bill@teamprice.com

Austin Texas Metro

Posted by Morris "Bill" Austin, Exceptional service is my standard expectation. (Team Price Real Estate) over 3 years ago

Unless my client is an investor, the primary purpose to buy a home is simply housing, so buying versus renting regardless of the circumstances in the economy would yield the same consequences, wouldn't it? So, unless my client transfers from place to place without any employer housing benefit, that's the only time where an exit strategy should be considered in buying a home and therefore, L3 is extremely important. 

Posted by Kimo Jarrett, Pro Lifestyle Solutions (WikiWiki Realty) over 3 years ago

Dick, you pose an excellent question.  I wish I knew the answer. In the Dallas area, appraisals are lagging behind.  Although we have the cash sales you reference in your post,  our property value increases are more modest than other metro areas. There are a few neighborhoods that have experienced higher increases than other areas.  They are areas that lost more value during the recession.  I just read the Austin comment above.  Dallas is a very different market.  If only we had a crystal ball!

Posted by Sharon Parisi, Dallas Homes (United Real Estate Dallas ) over 3 years ago

Hello from Florida!! LOL

Posted by Chris Lima, Local or Global-Allow me to open doors for you. (Atlantic Shores Realty Expertise) over 3 years ago

Great post - veterans in the industry have a better eye than most to spot change long before it is reported.  When it is finally reported - its too late!

Posted by Jim Crawford, Jim Crawford Atlanta Best Listing Agents & REALTOR (Crye-Leike REALTORS®) over 3 years ago

One has to understand the mechanisms generating each cycle. Your data suggest the appreciation has a diminish return and it will reach it asymptotically. Then the next momentum will either push it up, making it flat, or expenentially decay(reduce). Small towns like Ft Collins one major arrival or depart will significantly impact people with specialization.  

In San Mateo County, CA median used homes price is $1.3 m making 17% high tech workers (highly compensated) afforable for a mortgage. For last 40 years critics have been saying home prices there can not move up anymore.  Today, not a single person worries about a bubble. If anything residents like Jobs, Zukerburg, Ellisison do not worry about their RE fortune.... Go out hire another 2,000 high tech workers.

Posted by Sam Shueh, mba, cdpe, reopro, pe ( (408) 425-1601) over 3 years ago

Sustainable appreciation must come from a local paradigm shift in the economic environment.  Arizona is not a boom and bust market, but this last one was based on all kinds of pie in the sky theory vs local DTI buying power. 

If google, paypal, etc come to town with higher paying jobs then we should expect to see a sustainable increase in home values. If not, and loan programs change to increase values then expect the market to crash. Right now our loans are simple full document 30 year PITI loans. 

Builders and governments and banks should work together to build homes based on true organic demand. They should use investor ratios to know if it is a logical investment for investors and themselves. If it is not a good investment then they should not lend until the buyer puts enough down. 

Our real estate market is control able. Real estate should not be a get rich quick system. Once it becomes one then we will balloon and pop. 

Posted by James Sanson - Ranked in the TOP 1% of Arizona, Homes for sale in Maricopa AZ (Keller Williams Realty Phoenix) over 3 years ago

I don't have any experience with the Northern Colorado real estate market so I guess I'd be have more questions than opinions.

If the current trend of bypassing inspections and waiving appraisals is true of every price point in your market then there is probably good reason for concern. If it is only happening in the most affordable homes then I'd be less concerned about a market bubble.

In the Phoenix Metro area active listings of single family detached is continuing to fall but overall demand is weak, except in the most affordable price points.

Cash purchases which had slowed over the past couple of years have increased again for the first quarter of 2015 by investors looking for more rental inventory as rental prices continue to increase faster than home values.

Most buyers look at property value increases or decreases on an annual basis and that helps to smooth out some of the monthly fluctuations but even if a market has a annual appreciation that is out of line historically there are always market forces that will bring those valuations back to earth, provided the game isn't rigged as it was in the run up.

The law of mean reversion says that financial markets that go through periods of rapid price appreciation or depreciation will, in time, revert to a price point that puts them in line with where their long-term average rates of appreciation indicate they should be.

Prices in the housing market follow the same law after periods of rapid price appreciation (or depreciation), they revert to where their long-term average rates of appreciation indicate they should be. Mean reversion can be rapid or gradual. Home prices might fall (or rise) quickly to a point that puts them back in line with the long-term average, or they might stay constant until the long-term average catches up with them. The Phoenix Metro market is a perfect example, from 2008 until 2015 we're a text book case.

There really is only three options for housing, own, rent or move back in with Mom n Dad. If you over pay for your home it may not be quite the investment juggernaut you'd hoped for but given the current housing market it may be better than the other alternatives.

Just my inflation adjusted 2 cents.

Posted by Nancy Laswick, Your REALTOR® For The Valley Of The Sun (United Real Estate) over 3 years ago
Great post. As I read your comments I kept going back to two economic principles: 1) In a free market economy market conditions will stabilize over the long run. 2) Supply and demand will determine prices. The biggest question for your market is are builders coming into the market and if so will this additional inventory start to stabilize market prices? If builders are not building you are right to be concerned that this is a short term bubble.
Posted by Thom Disch, Our Broker Dynamix System generates quality leads (Broker Dynamix) over 3 years ago

Great post. I am an economics junkie (listen to bloomberg all day long)

Does anybody have thought about waterfront property in Bal Harbor?

I have a place there on the beach and a little worried long term.

 

Posted by Nurit Praeger (Nurit's Naturals) over 3 years ago

 I too have been hearing the war drums beating in the distance. Common sense has to tell just about anyone with an ounce of sound logic that this whole economy, not just RE, is walking on marbles.

In all actuality we've never recovered from the '8 recession no matter what the media, financial gurus and politico would like us to buy into. This is the biggest ruse in our young Country's very brief 240 year history. It's like a small band-aide trying to stop the bleeding of a severed carotid artery.

Unfortunately our society has been, by design, severely dumb-ed down by certain segments of our political establishment and educational system over the past several decades and so many of our X'ers and Y'ers are trying to figure out how they're going to pay off over 1.2 trillion dollars worth of college debt (our next big bubble BTW).

All while living at home with their parents and not buying into that great "AMERICAN DREAM" let alone even beginning to think about getting married, starting a family.

Sorry about the departure and rant but you indeed hit a huge nerve. This was a very informative, knowledgeable and realistic post. In fact I believe it has inspired fodder for my next post. Big Thanks!!

Posted by John DL Arendsen, Crest Backyard Homes "ADU" dealer & Contractor (CREST BACKYARD HOMES, ON THE LEVEL GENERAL & FACTORY BUILT HOME CONTRACTOR, TAG REAL ESTATE SALES & INVESTMENTS) over 3 years ago

I agree with you, John Arendsen, about the "smoke and mirrors" aspect of the current political  powers that be. The general national economy (just look at the most recent NEGATIVE GDP report) is shaky, although Texas is generally booming, even with falling energy prices.

As I commented previously, there are significant differences between today's underlying factors and influences compared to 2003-2006, when speculation and easy mortgage money was driving the market. It doesn't take advanced, statistical analysis to figure that out.

Here in the Dallas-Fort Worth area, homes in virtually all price ranges are in short supply. That wasn't the case 10 years ago, when we had a "perfect storm" of falling interest rates, easy mortgage financing, a lot of speculation, and surging prices in some markets. Although there are "institutional investors" out there, owner-occupant buyers, not investors and flippers, are driving most of the demand, because they are genuinely looking for a place to call home.

After losing out on 2-5 homes because of multiple offers, many buyers are upping the ante with offering prices over list, not asking for as many seller concessions, allowing the seller to temporarily stay in the home for a few days after closing, and in some cases, actually offering to pay some of the seller's typical closing costs. That's what happens in a free market. What a huge reversal from a few years ago!

Bottom line: the market will play itself out and stabilize like it always does, but my crystal ball isn't clear enough to predict when that will happen. IMNSHO, there are many more safeguards in place to minimize the chance that we'll see another meltdown. Only time will tell.

 

Posted by Phil Amodeo ABR,CRS,e-PRO,SFR, Carmel, Fishers, Geist, Indianapolis North (C21 Scheetz) over 3 years ago

You are right we have not recovered. Home values have, but that is it. People have not received waged and manny of them have pay decreases.

Posted by James Sanson - Ranked in the TOP 1% of Arizona, Homes for sale in Maricopa AZ (Keller Williams Realty Phoenix) over 3 years ago

Ya'll have nothing to worry about in Colorado, your growing dope legally and attracting an endless supply of th Haves, of course there are some have nots in the mix. The endless supply of minimal production maximium salary trust fund big adult kids is not going to dwindle anytime soon. Make hay.
Texas

Posted by Sean over 3 years ago

..here in the Palms Springs, CA area, our entry level is also increasing beyond first time buyers ability to buy.  I lived the bubble, did Shortsales for the four years after, and do NOT want that to happen again!  We shall see...

Posted by Kimberley Kelly, SFR, HAFA, GREEN, I do Real Estate like I played polo-to WIN! (HK Lane, Christie's International Affiliate, 760-285-3578) over 3 years ago

I lived through the Bubble.  It was good while it lasted.  Glad it is over and things are getting back to a more stable normal.

Posted by Ginger Harper, Your Southport~Oak Island Agent~Brunswick County! (Coldwell Banker Sea Coast Advantage) over 3 years ago

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