How is this a housing bubble? (loans, insurance, expenses, real estate)
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I'm at a loss at understanding why the housing price increases over the past few months is being considered by many financial analysis a new housing bubble. For example here:
Wasn't the main cause of the last housing bubble the burst of mortgage loans and massive waves of foreclosures coming onto the market? How can this be the start of a new bubble when that problem is no longer there? A huge part of the price increases are low inventory due to cash investors. In addition to that, lending standards are lot more strict, so even for those who do have mortgages the risks are less and a lot of people are buying at much lower prices than they did in 2005.
So it seems to be, none of the components that were present in 2003-2005 are in fact NOT present this time. There cannot be a massive wave of foreclosures if the mortgages don't exist (cash investors).
I think there is a lot of pent up demand at the moment. qualified people sitting on the sidelines waiting for the economy to improve. There are a lot of qualified people who in a normal market, would have bought in 2009 or so, but because of all the volatility, have put it off until "the economy improves".
I do think there is a short term "pop" going on right now in some areas. But I wouldn't call it a "bubble".
Last edited by GiantRutgersfan; 03-18-2013 at 08:02 PM..
They are surmising that it is a bubble because the market improvement is driven by investor speculation and not by organic demand. Even the very little organic demand out there is supported mainly by ultra low interest rates and not by solid job and income growth.
When interest rates rise, and they will have to soon enough, things will turn south in a hurry.
Affordability in places like Southern California remains low and unemployment high... there is a mania right now by people who want to flip or rent but history tells us that these manias eventually fizzle out and take a few innocent people down with the ensuing carnage.
They are surmising that it is a bubble because the market improvement is driven by investor speculation and not by organic demand. Even the very little organic demand out there is supported mainly by ultra low interest rates and not by solid job and income growth.
They are surmising that it is a bubble because the market improvement is driven by investor speculation and not by organic demand. Even the very little organic demand out there is supported mainly by ultra low interest rates and not by solid job and income growth.
When interest rates rise, and they will have to soon enough, things will turn south in a hurry.
Affordability in places like Southern California remains low and unemployment high... there is a mania right now by people who want to flip or rent but history tells us that these manias eventually fizzle out and take a few innocent people down with the ensuing carnage.
For us it was cheaper to buy than to continue renting. We noticed the ever increasing rents especially with people loosing their homes. We also noticed that prices had dropped conciderably from where they ended up in 2007. The guy that owned our home had paid $560,000 in 2005. He refied and bought a new home in early 2007 when prices approached the $700,000 mark. By 2010 he had lost both homes. We bought our home for $310,000 and our exspenses were less than what it would have cost us to rent it. The fact is that we could rent it out today and make more than what it cost us to own it. (Or at least make a little more than the mortgage, insurance, and taxes.)
When we bought it we were looking to move from an apartment into a home. It just made more sence to buy.
Do you still think that things are over priced in So Cal? From what we see the price in our area is where it should be.
$310k is far below the median price in many middle class neighborhoods for an entry level home in Orange and LA county, perhaps you bought elsewhere? I believe the median now in OC is north of $500k.
For instance I was looking at some entry level townhomes in Orange, Fullerton etc. the asking price for 1600 sqft started at $450,000... anything less was unsavory inventory in disrepair.
$450,000 for a middle class neighborhood with a mix of blue and lower white collar workers does not seem rational to me.
They are surmising that it is a bubble because the market improvement is driven by investor speculation and not by organic demand. Even the very little organic demand out there is supported mainly by ultra low interest rates and not by solid job and income growth.
When interest rates rise, and they will have to soon enough, things will turn south in a hurry.
Affordability in places like Southern California remains low and unemployment high... there is a mania right now by people who want to flip or rent but history tells us that these manias eventually fizzle out and take a few innocent people down with the ensuing carnage.
You are forgetting that in places like California, a majority of sales are not the 5% down, give me that McMansion and some credit cards purchases.
The houses that are practically flying into the sold segment are those that are affordable for those buying them and those buying them are walking in with 30-40 or more percent down, have retirements set and did their planning.
This happens with every so called bubble. The dummies get caught up in it, the smart people sit back and wait and then buy in later. Then there is a rise of sorts but the people now holding the cards aren't the ones looking for jobs, trying to figure out how to buy groceries or buying everything on credit.
There aren't many flippers, you're watching too much TV. Those reality shows are just made for TV.
Most buying right now in hot markets are set. They aren't dependent on a job to make it, they've made it already. The market could drop 40% from here are most of them would be just fine.
There are always going to be those who look at prices right now and talk about affordability being high? Hardly. If you are working for a low wage or have high expenses and little room in your financial plans, yeah, it can be tough. That isn't everyone or nearly most.
Take a look at the stock market. Smart people already sold out into cash. The people sitting around waiting will get caught and then talk about a market bubble and woe is me. The smart ones cashed out last week or before and they have cash people, cash. Not a loan, not credit...cash. Those people are buying real estate. No, they aren't buying in hodunk to be sure but they are buying where people will always want to and need to live.
I have watched housing prices in SOME areas double in the last year. 5-9% increases every month in SOME areas......much of it is based on speculation and very, very, very cheap money policies.
They are surmising that it is a bubble because the market improvement is driven by investor speculation and not by organic demand. Even the very little organic demand out there is supported mainly by ultra low interest rates and not by solid job and income growth.
As long as people are living in the homes and can afford them, whether they're buying or renting, there is organic demand. The big difference now compared to 7 years ago is the 'marginal buyers' are now largely renting cash flow positive income properties from investors, not putting 0% down on an overpriced exurban tract home based on a low monthly payment that will rise sharply.
5+ years of recod low homebuilding, along with a massive degradation of housing stock - houses people stopped maintaining while underwater, has removed much if not all of the excess housing capacity. I don't see any widespread evidence of large numbers of vacant homes being bought for appreciation like there was in 2005.
You're right to be skeptical as the current market is hevaily manipulated and in no way normal - but this is a different kind of weirdness than what was going on years ago. I don't see people massively stretching their budgets to afford today's prices, and taking on loans they have no prayer of paying back.
I have watched housing prices in SOME areas double in the last year. 5-9% increases every month in SOME areas......much of it is based on speculation and very, very, very cheap money policies.
Where has it doubled in the last year? In even the hottest markets you'd be hard pressed to find more than 40-50% appreciation in specific areas.
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