Housing Bubble Blog

[speeder]

Janus, I would hazard a guess that you are not the only one.

[Wrecked944]

Originally posted by speeder
Janus, I would hazard a guess that you are not the only one.

More Porsches for everyone!!

[grudk]

You are not alone. I am waiting this one out, and sitting on a generous and increasing downpayment. I guess I am one of the few who believe in living within your means. I loathe taking out loans.

I can't believe how my friends and coworkers have taken out interest-only mortgages/ARMs, etc.. Some have dipped into equity to buy second homes to flip, etc. Home improvement projects are on par with Louis the 14th. 100K on kitchen cabinets? ('It's special wood'!!!!!). Every jackass in the supermarket line is talking about their investment ppty. We're all going to be rich by selling ppty (to each other) !!! It's the pets.com IPO all over again.

[JeremyD]

Originally posted by grudk
Every jackass in the supermarket line is talking about their investment ppty. We're all going to be rich by selling ppty (to each other) !!! It's the pets.com IPO all over again.

I'll agree with you there...

[Evans, Marv]

House of cards.

[JavaBrewer]

The entire economy is a house of cards. I have to admit the market is definitely slowing down here in San Diego. Homes are taking a lot longer to sell though nobody seems to have dropped their prices much. However they ARE selling, and the investment folks would be wise to sell now. I think by close 05 the real estate market will flatten, probably dip.

Every jackass in the supermarket line is talking about their investment ppty. We're all going to be rich by selling ppty (to each other) !!! It's the pets.com IPO all over again.

Only a jackass if they hold for greater prospects while being over leveraged and financed with ARMs. The sky is not falling just yet, and I know several people who recently sold their investment homes are are now sitting on $200K++ cash. Not bad for 1-2 years of marginal risk.

[grudk]

Hey, more power to anyone with realized gains. But too many I know just keep buying more and more real estate. They envision little empires, I guess. But when interest rates rise and credit tightens, game over.

[turbo6bar]

Janus, you're not alone. I don't anticipate buying unless the price is dirt cheap. I prefer properties in awful shape, because it weeds out the wannabes from the real investors.

Pay down debts, reduce expenses, and wait patiently. Cash is king!!!

[CamB]

Some have dipped into equity to buy second homes to flip, etc.

"flipping" is such a scary concept to me (I am an investment banker) - buying in the expectation of being able to sell at a higher price in the near term.

That is the definition of a bubble!

Are these homes which are "flipped" occupied?

[grudk]

Some are. A good number are not, or are rented out.

In 'vacation' areas (Vegas, Palm Springs), the primary purchaser often does not occupy the home. Even in L.A. proper, about 15-20% of new home buys are not occupied by the buyer at this time.

An anecdote: Friend buys a condo five years ago for 300K in Venice. Now appraised for 600K. Draws equity out, and buys a second ppty for 1.2 million, moves in and rents the first. Mind you, these are near the beach, but also near high crime areas. When I lived there in the mid 90s, my neighbor was shot and killed while walking home from the market. Not exactly 'lifestyles of the rich and famous.'

Now, in my book, this real estate move is a risky and speculative. The buyer is highly leveraged, and if property values drop even 20%, she could really get hurt.

Now, a single story means nothing, but this kind of thing is COMMON now in CA. In a bull market, everyone is a genius.

[teamgomez]

I, too, am sitting on the sidelines in San Diego, partially feeling like I'm watching my net worth freight train go screaming by while I rent. On the other hand, after reading "The Coming Crash in the Housing Market", a lot of good points were raised by an economist with parallels drawn to the leveraged buyouts problems. Also, you'll notice that the mortgage industy hinges on the success of an institution (Fannie Mae) which governs itself (poorly, I might add, if you've read the news lately. They got busted huge and the author of "coming crash" saw it coming all along). I believe the business model concerning max debt (remember- it used to be around 32%??) was there for a reason. With so many mortgage companies now thriving and competing, they've forgotten the basic rules as well as the sting of the tech boom fallout ("DUDE- Buy JDL for $200/share- its going to the moon!!!!!" now trading for what, 4.50???).

The bottom must be fed, and with 10% not able to afford to get in, nobody is going to feed those moving up. When the economy burps, the real estate market could vomit. Who can afford to get in a $750k property and risk even a 10% lull in prices if they're a short term/med term buyer?

And all of us in SD are asking- where in the hell is all the tax $$ going now that all new homeowners pay around $1,000/month in taxes!

Yeah, I've been burned in the last 4 years- sold a house I owned for 10 years for ZERO gain, bought in '02 and had to sell 9 months later after getting furloughed from the airlines, and now that person is selling the house 26 months later for $200k more. Timing is everything, but how does it go, "burn me once, shame on me...."? The business model for zero down ARMS is ludicrous right now and will catch up, sooner or later....

[RickM]

This the bubble that was going to bust for the last ten years? Glad I didn't sit on the side lines. The value of my house has far surpassed the effectiveness of what I would have saved for a down payment. I could not easily purchase my current property today....and my salary/compensation has gone up quite a bit.

As long as this continues investors are losing out on investment potential. "New Homes Sales Climb 9.4 Pct. in Feb." http://story.news.yahoo.com/news?tmpl=story&cid=580&ncid=580&e=17&u=/nm/20050324/bs_nm/economy_homes_dc

[widebody911]

There's a guy at my work that's a PC tech. He and his wife have 'leapfrogged' (for lack of a better term) a couple time now, trading up their housing based on the equity of the one they had, and taking on more mortgage at the same time. He's now in an almost $600k house making ~$35k a year (don't know what his wife makes). Un-frickin-believable.

[turbo6bar]

Originally posted by RickM
This the bubble that was going to bust for the last ten years?

Last 10 years???

[CarreraS2]

Yeah, I don't get the "last 10 years" thing.

10 years ago (1995) prices were down low (relative to incomes), houses weren't easy to sell, even here in California. The high in California was hit in '89/'90, and declined every year from there well into the late 90's. There was a huge drop in prices from 89/90 to around 92 or so. Then the decline slowed, leveled off and started moving up again around 97 or 98.

But the rise was fairly slow (but steady) from the late 90s until only a few years ago, and it wasn't artificially speculator-driven. The truly speculator-driven, artificial bubble has really been rampant only in the last few years.

[RickM]

Ok, I exagerated to make a point.
Perhaps the "Bubble" is driven by speculative buyers in CA or LV but it seems to be driven here by primary residence homeowner demand.

[turbo6bar]

What created this primary residence homeowner demand, RickM? Are there conditions which create this demand? What if these conditions are removed? Are you arguing double digit appreciation, eclipsing the growth of personal incomes, is the sign of a normal market?

While there is likely lots of appreciation still to come, there is no doubt, in my mind, there will not be some form of correction. Savvy stock market investors dumped their holdings in 1998, 1999, and 2000, leaving some future gains on the table. I wasn't one of those savvy investors in 1999, but I am selling off investment properties now. Sure, I will leave some gains on the table, but I'll still capitalize on some nice appreciation the past few years.
just the way I see things,
jurgen

[CamB]

Originally posted by RickM
I could not easily purchase my current property today....and my salary/compensation has gone up quite a bit.

Unless your neighbourhood has gentrified around you, then something is wrong with this statement - Jurgen is right.

If nothing other than house prices has changed, and people in your area could no longer afford the houses if they bought now, then prices are too high in the long run - it is not sustainable.

[RickM]

Ok, you got me...???? The percentage of appreciation has well outpaced my percentage increase in income. What's wrong with this statement?

And when did I ever argue that "double digit appreciation, eclipsing the growth of personal incomes, is the sign of a normal market?"

IMO, there will be a correction....however it will be a relatively small one. The market will then stabilize and at some point start to rise again (as it always has). So, in other words, this bursting bubble will let less air out than is being suggested....that's all.....that's my opionion.

[clarelaw]

I bought in LA in December of 93 and sold in 2001. The guy that bought my house sold it a year later for $100,000 more. Can this continue? No of course not. The market cycled hard in LA in 92-94 and it will again. It will also happen anywhere else the income can't support the market. Don't forget that interest rates at 5% have a signinficant affect on the market. What is affordable at 5% is a long way from what is affordable at 9%. If interest rates for long terms housing start to climb, real estate rates will drop like rocks. Those with adjustables won't be able to keep up with the interest rates, foreclosures will hit the market and drive down the prices. It has happened before, it will happen again.

Just my 2 cents.

Follow the cheap land young man.