2013-14 Housing Bubble is now WORSE than 2008 Bubble (mortgage rates, stock, buying)
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Here in west los angeles, there is definitely a "bubble". Or a precursor to one. You can tell by....
-Realtors tripping over themselves. My parents bought a home in LA in the late 70's and said there was maybe 2 or 3 realtors in their area. Now, there are perhaps 8 or 10.
-Home prices vs income??? Home prices can't go up indefinitely vs income. Real estate has to get back to income at some point.
-"It's different this time." Dangerous talk. That kind of mentality is bubbling up. "They don't make any more land". "You have to live somewhere". "Your home is your most valuable asset". The longer the list goes of "real estate is different this time", the more likely are bubble conditions.
-People forgetting about any downside. I think when 90% of people only see upside, you're frothy or overvalued. I wonder what will happen if we get another earthquake. The last one in '94 definitely scared long time LA residents away. People have forgotten all about that.
-Silliness on wall street, and private equity, etc related to real estate. I.e. rental income backed bonds??? Trying to turn something inconsistent like rental income into a neatly performing asset shows people are still too bullish on real estate.
I wonder what will happen when interest rates really go up (10 year to 6-8% or higher). Eventually real estate will get back to affordability. I don't see how real estate out performs incomes indefinitely.
Here in west los angeles, there is definitely a "bubble". Or a precursor to one. You can tell by....
-Realtors tripping over themselves. My parents bought a home in LA in the late 70's and said there was maybe 2 or 3 realtors in their area. Now, there are perhaps 8 or 10.
Take in consideration that population increased a lot also new development got increased
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-Home prices vs income??? Home prices can't go up indefinitely vs income. Real estate has to get back to income at some point.
More and more people coming with all cash. Thing is that in other part of world they don't have where to invest. So they invest 500-600k and they have no payment the only thing they need is job.
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-"It's different this time." Dangerous talk. That kind of mentality is bubbling up. "They don't make any more land". "You have to live somewhere". "Your home is your most valuable asset". The longer the list goes of "real estate is different this time", the more likely are bubble conditions.
No idea what you wanted to say :-)
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-People forgetting about any downside. I think when 90% of people only see upside, you're frothy or overvalued. I wonder what will happen if we get another earthquake. The last one in '94 definitely scared long time LA residents away. People have forgotten all about that.
If we get another earthquake that will be messy but that is "IF" and "WHEN". Who knows it might be 2090 and I don't really care.
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-Silliness on wall street, and private equity, etc related to real estate. I.e. rental income backed bonds??? Trying to turn something inconsistent like rental income into a neatly performing asset shows people are still too bullish on real estate.
Ok.
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I wonder what will happen when interest rates really go up (10 year to 6-8% or higher). Eventually real estate will get back to affordability. I don't see how real estate out performs incomes indefinitely.
Real estate price would rise even more due to more cash buyer's.
Zillow predicted 8% price increase for 2014 for my area. Also 2015/2016 can be good years as well. Nothing to worry about.
As long as the mentality/mantra "homeownership is cheaper than renting" continues, bubbles will keep emerging.
Post 2008, real estate borrowing costs have come down substantially! Rents should be stabilizing/coming down to correlate with the subsidies (ZIRP/other) & reflect the reality of the financial crisis.
This link describes the post-2008 windfall for LLs/real estate in the USA (http://www.marketoracle.co.uk/Article33136.html). There's no reason to expect cumulative rent inflation when handed deflation-mitigating gifts to keep balance sheets afloat.
Take in consideration that population increased a lot also new development got increased
That's true about population growth and new development. But there is still this, buy, buy, buy mentality. Everyone only seems to see the upside.
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More and more people coming with all cash. Thing is that in other part of world they don't have where to invest. So they invest 500-600k and they have no payment the only thing they need is job.
It seems like eventually, other areas of so cal, california or other parts of the world will counter balance this growth in LA (and growth in major cities like san francisco, nyc, etc). That's classic economics. Outsized annual gains don't go on forever. You get competition.
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If we get another earthquake that will be messy but that is "IF" and "WHEN". Who knows it might be 2090 and I don't really care.
I think real estate in la for the last 20 years has been helped by the fact that we haven't had a major riot, civil uprising, earthquake, or natural disaster.
I think in some ways we are kind of at the opposite of where we were in 1993 or 94. At that time, everyone was depressed and only saw the negative (i.e. the recession of 91, rodney king riots in 92, northridge quake in 94. The decline of aerospace and the decline of older, established industries).
Now....nothing has gone wrong for years, we rebounded from 08/09, strong investor demand, new entertainment, and tech industries. I don't know. If we get back to amateurs flipping houses in a day, or people camped out on lawns to buy a home, you know it's a bubble.
But what would happen to housing if interest rates were to double?
is it higher because money is being loaned into existance for this to happen? or is it the money printing from government to cover interest payments from debt forced rates higher while at the same time peoples income didn't rise much and rates went up pushing house prices down?
But what would happen to housing if interest rates were to double?
is it higher because money is being loaned into existance for this to happen? or is it the money printing from government to cover interest payments from debt forced rates higher while at the same time peoples income didn't rise much and rates went up pushing house prices down?
There are a lot of buyers using cash, at least in California. However, if interest rates doubled, I would still expect a very noticeable decline in purchases. Most loans I've handled have been fixed rate, but then again, I usually steer my clients toward fixed rate loans because it's much safer. If there are a lot of ARMs and interest rates double, it would send house prices down and increase payments, which could lead to another housing crash. I'm actually almost certain this will eventually happen, but it won't be as severe as 2008 because of the new regulations and guidelines from the Obama Administration.
There are a lot of buyers using cash, at least in California. However, if interest rates doubled, I would still expect a very noticeable decline in purchases. Most loans I've handled have been fixed rate, but then again, I usually steer my clients toward fixed rate loans because it's much safer. If there are a lot of ARMs and interest rates double, it would send house prices down and increase payments, which could lead to another housing crash. I'm actually almost certain this will eventually happen, but it won't be as severe as 2008 because of the new regulations and guidelines from the Obama Administration.
If rates doubled tomorrow or in a year it would be problematic but most ARMs have a 5% cap so the risk is mitigated such that they would be better off keeping their ARM in a doubling scenario
If rates double over the next 5 years the impact could be nothing at all
It's part of the scenario that you said played out in 2008.
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