Housing bubble

General Real Estate Investing
61

“The language that comes out is more significant than the rate hike since that’s already priced into bond futures.”

I understand…it’s already baked into the cake so-to-speak.

However, HELOC’s do affect investors/speculators who’d parlay the equity from one or more other investments to buy yet more investment properties. Moreover, if housing appreciation slows (as it has been in many markets), then there’ll be less equity (relative to past years) for homeowners to borrow against.

Many economist think the Fed could raise short-term rates to 4.5%…maybe 5%. It’s obvious the Fed’s been concerned about the housing markets & has been throwing water on the fire while walking that fine line between control & recession (they’ve blown it before…remember ‘99’).

Now…you’ve been arguing that increasing jobs/wages indicates people will have more discretionary income with which to purchase homes. However, increasing jobs/wages is an inflationary indicator (which could equate to continued rate hikes). And if American business’s start doing well…the stock market will begin to break out of the doldrums it’s been in for the past few years. You’ll then begin to see investors bail from the bond market back into the stock market to ride the wave. That’ll put downward pressure on bonds…thus home interest rates.

Again…I don’t think we’re going to see a Housing Bubble, but I do think that we’re going to see a continued slowdown in home appreciation in many areas throughout the US & increasing marketing times (a few noteable exceptions aside). It’s already taking place in fact. The last report was an anomaly…the next report will reveal this slowdown is in full effect.

I’m waiting for mid Feb-March. I’ll be keeping an eye on inflationary indicators, the stock market & the yield on the 10 yr. bond.

I know…I know…I’m a (how did you put it)…naive idiot (with 15 years experience). All I’ve got to say is…WATCH!!!

-Infowell

p.s. buy gold

62

The most interesting thing is that you’re arguing the same point that I’m contending. I’ve said since the beginning of this post that I don’t forsee a housing bubble bursting but that double digit appreciation is not sustainable and will cool down. What I don’t see is housing deflation. Hot markets will cool to sustainable levels, cooler markets will likely warm up a bit and some markets that have underperformed greatly will likely become hot. What is unlikely is large scale market deflation. That’s been my stance all along.

The stock market hasn’t exactly been in the doldrums as you suggest over the past few years. The DOW is up over 50% since mid 2002 when it hit 7400 (it’s currently 10,814). It’s up over 8% since May of this year which isn’t far off it’s historical average of 10%. That’s not to say that money won’t pour back into the equities market but I just wanted to clarify that this ‘recent doldrums’ idea isn’t entirely accurate.

Yes, with job wage growth there is more inflationary pressure. However, rising rates don’t by themselves keep individuals from buying homes. Hence my questions about historical reference to strong economy (associated with rising rates) and housing deflation (to which no one has been able to reference an occurence of this happening).

Here’s the basis for what we’ve discussed to date. Your contention, as I understand it, is that housing prices as a proportion of household income has increased at such a rate that if lending rates were to move upward this would likely have major implications on house prices going forward. My contention is that while housing prices have outpaced wage growth, and while historically low rates have offset this effect to a large extent, the wage growth will now begin to catch up while lending rates increase. If this is balanced out, you won’t see shifts in the housing market appreciably different than in the past because of that equilibrium.

Who is right? Who knows? The key is how well is the wage growth balances out with rising lending rates. As of this year, rates haven’t increased appreciably, while wage growth and job creation have been strong - this would indicate to me that the ‘housing bubble’ is less likely to burst than this time last year.

P.S. The FED did raise the Fed Funds Rate today, they didn’t remove ‘measured’ from the language but they did remove some of the language that indicates certainty of future rate hikes and the yield decreased on the 10 year bond (so mortgage rates tomorrow will be lower than today).

63

Yes…we have been arguing the same point…from different angles; I agree w/everything you’ve had to say in your 1st paragraph.

Take on the stock market, however, is slightly off. The market didn’t “hit” 7200 in ‘02’…it had plummeted from historical highs in ‘00’ & got blindsided w/the terrorist attacks 9/11. The DOW was near these highs, and fell off again. Quite frankly the stock market’s had a hard time getting legs…if that changes…home interest rates will surely rise. With the troubles in the stock market over the past years…investors have bailed from the stock market into bonds (flight to quality). That trend reverses (and I think it will) rates could rise to 7% by the latter half of next year.

“P.S. The FED did raise the Fed Funds Rate today, they didn’t remove ‘measured’ from the language but they did remove some of the language that indicates certainty of future rate hikes and the yield decreased on the 10 year bond (so mortgage rates tomorrow will be lower than today).”

I’m not debating short-term decreases in rates. I’m saying the days of being able to buy a property & ride the equity elevator appear to be at an end. It’s going to take more savvy as we move into ‘06’, and rising rates are going to price a lot of folks out of the market (there’s an online article–Inman News–that’s speaks of this today). I disagree that wages will catch up to these markets which have been blistering hot these past few years…globalization is not over.

See you next year,

-Infowell

64
I disagree that wages will catch up to these markets which have been blistering hot these past few years...globalization is not over.

I must agree with Infowell here. I am not an economist nor do I have any data to prove or disprove my opinion. What I do know is that I have a full-time W2 job that has lagged in wage increases for the last 5 years. I do not see any chance of a significant wage increase to offset the rising cost of good that I have personally experienced within the next 1-3 years. I suspect that on average the wage increases will be on the order of 2-4% depending on your industry/region and other factors. Again I say average. I know that individuals may experience significant increases, however I suspect this will be related to items such as promotion in current position or job/industry change. This is a different measure than general wage increase.

Of course, my experience may be unique and I suspect not necessarily in-line with the national or global average.

65

“I’m not debating short-term decreases in rates.”

“See you next year,”

:party: :party: :party: HAPPY NEW YEAR!!! :party: :party: :party:

Flash Foward March 2006;

  • Fed continued raising short-term rates

  • Stock market found some legs

  • Home interest rates are up

  • MORE economist NOW believe 7% rates for a 30 yr. fixed are likely

  • HELOC’s are down

  • Refi’s are dead

  • Many formerly hot markets are experiencing SIGNIFICANT slow downs (stagnant prices, increased marketing times, over supply of product).

  • Builder’s are offering MORE incentives

  • Prices in some formerly hot markets are in a slow decline

  • I reside & do business in one of the hottest markets in the country…yet…wages are lower than in 2002!!!

Sometimes…I feel like a prophet :biglaugh:

All-in-all…I think my predictions, and debate were spot-on. Not too bad for a “naive idiot”…huh :boink:

-Infowell

66

What market are you in Info?

67

“What market are you in Info?”

The State of WA - Greater Puget Sound Region (from Everett north to Tacoma South, w/Seattle in between).

The NAR’s Senior Economist was quoted in the Seattle Times a couple weeks ago, “The Greater Puget Sound Region could see 30-40% home price appreciation over the next couple years.”

Many experts (myself included) think 40% appreciation is extremely optomistic, however, consider the following;

In 2003 - 20,000 people moved to this region / 2005 - 50,600 & the States Chief Demographer estimates we’ll see 80,000 or more moving here this year. By 2010 she’s estimated over 100,000 a year moving to this region, and has indicated that maybe a conservative figure based on Fall’s K-12th grade school enrollments. WA State is now forecast to increase by nearly 1 million people over the present decade.

Simultaneously, we’ve seen a significant lack of listings of existing product (people are staying put). New home construction is barely keeping pace w/demand.

Population growth is the direct result of employment opportunities (we’ve relatively good jobs, and the most educated people per capita in the U.S. right here in the GPS region). Washington’s economic growth began in June ‘03’, and we continue to exceed the economic expansion in nearby states and the nation overall. Over the last year Washington added 85,000 new jobs-a 3.1% increase. Compare this to a national job growth of 1.7 percent over the same period.

Employment growth is critical to the housing markets. Research indicates it takes 1.7 new jobs to create demand for one new housing unit. Washington is among nine leading states that posted employment growth of 2.5 to 6.4 percent from July 2004 to July 2005. For the same period, the U.S. overall saw a 1.4 percent gain. Employment growth spurs demand for housing – and employment growth drives price growth.

Looking for the next gold rush? Go North young men & ladies…more specifically…Northwest! This region has been one of the most ‘underpriced’ on the West Coast for quite sometime. It should be several years before affordability becomes an issue as it has in some other formerly hot markets around the country.

-Infowell

68

“P.S. The FED did raise the Fed Funds Rate today, they didn’t remove ‘measured’ from the language but they did remove some of the language that indicates certainty of future rate hikes and the yield decreased on the 10 year bond (so mortgage rates tomorrow will be lower than today).”

Ooooooh…Ouuuuuch…

March 28th, 2006; FED raised rates aaaagain today. Rate hikes have continued, the yield on the 10 yr. bond has continued rising, and so have mortgage rates (mortgage rates CERTAINLY aren’t lower today than they were back then, and most experts expect rates to continue to rise towards 7%…rather than falling back to new lows).

Anybody getting pay raises significant enough to offset rising mortgage rates & higher home prices? ???

I’ve two Calif clients who’ve had to lower their asking prices significantly. One by $80,000…the other by $90,000. They certainly had enough prospective buyers through both their homes, but buyer’s sense that the markets have shifted…it’s no longer a seller’s market in these neighborhoods. Simultaneously, marketing times have been increasing significantly.

Watch as it spreads to other formerly hot regions of the country.

-Infowell

69

Info,
You are correct. It is definitely not a Seller’s market. You can still find some pockets here and there where the Seller can get what they want, but for the general market, that has gone. I am starting to price drops, seller concessions, down-payment assistance, and other creative ways of getting the deal done. And to think just 1 year ago, you had to fight just to get a listing agent to acknowledge they received your offer.

70

If you look at a historical chart of nationwide inflation adjusted housing prices, you’ll see that it normally takes 2 years for prices to reach the bottom. Furthermore, the typical price drop after a boom is 20% and it takes 10 years to reach the previous price level.

So, if history repeats itself, we should reach bottom in early 2008 and see these prices again in 2016!!!

There are going to be some GREAT deals out there!

Mike

71

“You are correct. It is definitely not a Seller’s market.”

Appraisal Principle of CHANGE

This thread got sidetracked. I only brought it back to life because I’d stated, “let’s see what happens by Feb-March.” I gave my opinion back then, and was promptly trounced upon (the worst of which came via Private Messages)…happens a lot here.

I still don’t believe in the sensationalist media’s so called ‘Housing Bubble.’ Market’s simply cycle…always have…always will, and ‘disaster’s not just around the corner’ (unless of course…you watch CNBC).

I locked in my Heloc’s a long time ago, and while I’m considering buying yet another investment property…I’m much more hesitant than I was this time last year!

There’s NO WAY wages are going to, or have…kept pace with rising interest rates, or high home prices. Some areas of the country will see slight declines, others will go stagnant, while yet others will still offer opportunity to the investor. It’s going to take a lot more savvy from this point on though…simply buying a home, any home, anywhere, and riding the equity elevator is over. From now on…it’s going to take an understanding of market fundamentals…it’s going to take talent.

I don’t know where DF Dub’s gone off to, but the Underwriter’s I know are a little worried. They’ve been watching Mortgage Brokers losing their jobs recently, and their workload ‘ain’t what it use to be.’ Refi’s are dead, HELOC’s are dying, and sales are slowing significantly. No doubt though…he’s nothing to worry about. :wink:

-Infowell

72

2008 Hmm. I seem to remember that topic coming up in other posts…

http://www.reiclub.com/forums/index.php?board=29;action=display;threadid=8385;start=msg35723#msg35723

I agree, 2008ish will be a “bottom”. I am not saying we are going to get there in a day, but we will see a decline due to many factors. Now you just need to decide if you buy now or wait and save.

73

Bubble or no bubble houses are always selling as people will always need a place to live .If you buy right it will profit you well regardless of the times.

74

Here, Here!

Educated Investors Make Money In Good times!

Educated Investors Make Money in Bad Times!

The point is get educated on what interest you the most and TAKE ACTION.

Stop reading all these post and get out there and BUY something! :wink:

75

“It’s jobs, jobs, jobs…people will do anything and pay any intererest rate as long as they can own the American dream, and get a tax right off.”

A number of months have passed since this debate began, and we now have the luxury of some interesting numbers;

Just this morning I heard, 'the U.S. unemployment rate is the lowest it’s been in 3 decades…anyone who wants a job nowadays can find one." “These jobs are paying more on average (nationwide) than in previous times.”

So we have jobs…good paying jobs…yet…

The housing markets continue to slow in many areas around the nation (we’re hearing it here first hand from investors around the country). I just spoke to an investor yesterday who purchased a home last year in Phoenix. He told me the home quickly appreciated $100k, but has since depreciated some $50k from there (still a tidy profit, BUT…).

It should be apparent to everyone by now that buyers won’t (indeed can’t) “pay any interest rate to own the American dream.” Sooner or later…affordability due to rising prices & rising INTEREST RATES becomes an issue.

‘Proof’s in the pudding.’ While I don’t believe in a ‘Housing Bubble’…the market’s are definitely in a State Of Change. It’s going to take a lot more knowledge from this point into the foreseeable future to earn a living by investing in real estate.

Lenders are probably beginning to see an increasing number of refi’s from those who’d previously purchased using ARM’s.

-Infowell

76

There seems to be some insightfull and talented people posting on this subject and I would like to field a question to all of you related to this subject:
I live and invest in lower mid - Michigan (Midland, Bay City,Saginaw area) This area has seen steady, if not spectacular, value appreciation long term with prices bumping up yearly in the 5 - 10% range , usually closer to 5%. We have NOT experienced anything remotely resembling a price bubble. Michigan, for the most part, does not have the dynamic economic base enjoyed by states elsewhere, such as the NW. This holds true especially for the I -75 corridor of Michigan, home to the auto industry.Unemployment here is well above the national average but housing remains very affordable to most,especially in the M/BC/S area. My question to all of you is this:

Given the circumstances of the area I live and invest in , and with the housing dynamics prevailing now in the country overall, what would you expect to happen to prices in this area?
My guess is that we will continue to plod along , with valuations inching up at about the rate of inflation. Am I on the mark here?

77
So we have jobs...good paying jobs...yet...

I guess it all depends on what you consider a “good paying” job. While unemployment rate has decreased, the jobs that I have seen created have not been high paying jobs. In my neck of the woods they have been retail sector jobs for the most part. What does a high paying job in retail pay you? Management might get $10-$15/hour if they make really good money. Most other workers get minimum wage up to $10.00/hour.

Don’t get me wrong, jobs are great and the pay is good for the job that you perform. The increase in pay that I have seen occurring has been the increase in the lower end paybands. The higher end pay bands (executive management not included) have been basically stagnant to mild when compared to past years.

Overall the increase in family income is a good thing, but it still requires that both parents work to struggle to make ends meet. Housing prices in the NW, Florida, and California are outrageous and when you combine the increase in energy costs (about 75-100% increase for me over the past 2 years) the increase in wages and jobs really has no affect. Any extra income I have earned in the last 2 years has been quickly consumed by infaltionary pressures.

So what is my point. Housing will continue to fall. Not chicken little fall, but fall to normal levels. I expect a steady slowing in the rate of year-year appreciation with some negative in there before leveling back to “normal”.

The national average will probably slow, but not dip dramatically. As investors in the Phoenix and other hot markets begin to dump their properties (which they already are) the markets there will begin to cool and the investors will bring in the profits to invest on the Dow Jones.

78

MikeHgl,

I’m not real familar with MI geography, but I have done some studies of markets in the Washington DC and its impact on pricing in VA (that’s where I’m from originally). Interesting I found what I would call a “halo” effect that radiated out for DC for >100 miles (beyond commuting distance to jobs DC).

So, with that said, the turmoil that will continue in the auto industry could cause a similar (but opposite) effect in MI and surrounding states. Also consider age demographics and popluation growth or decline. Housing prices are juiced by rising incomes and increasing demand/ competition for available supply. Rising interest rates will definate put a damper on the market even if the other two factors are present. Another thing to mention is icnome may be rising, but I know my raise for the past 2 years have been chewed up and spit out by increasing health cost/co-pays etc. I make pretty decent money; people lower on the pay scale get crushed by this type of thing.

79

My so - called wage increases have also been eaten alive by increased health care costs. In fact, I’m sure that on a inflation adjusted basis ,I have probably taken a pay cut over the last few years. But ,hey, I got a steady job and decent pay so I’ll put a cork in it.
Carlittle - you bring up some good points about demographics in this state. Can you hear that sucking sound? The old motto from the 80’s was "Will the last person in Michigan please turn out the lights before you leave."However, I’m here for the long term (forever is more like it) and there is oppurtunity in any market, right? The economy in this area of MI is better than other parts, worse than some too. I’m just hoping that housing prices remain stable here. I really cannot see them dropping drastically as this is one of the most affordable areas to live in the nation already.

80

Oops sorry bout’ that. Those comments were from aak5454, not carlittle. Just don’t want to mis-represent…