Definition: Bubble...

[Milu]

Origniated early 18th century in England with the South Sea Bubble.

[RANDY P]

Yup. Hope some of those guys have some pretty hefty savings accounts. You'll be locked up for a few years..

Thank God for inflation.

rjp

[RANDY P]

how's this for definition? Even the banks are guessing it's coming to a close.

if you dont' have equity now, figure it'll take you 2x as long to get out vs. 1 year to break even. - Equity gains are almost cut in half.

Remember, figure about 10% off the top between realtors, excise tax (?) and seller concessions to sell your property.

Economist Sees 8% Home Sales Drop
Home sales will decline by about 8% this year and housing starts will drop more than 10%, according to Diane Swonk, chief economist of Chicago-based Mesirow Financial. In the April issue of Themes on the Economy, Ms. Swonk also forecasts that home price appreciation will slow to 7% this year, down sharply from "the almost unbelievable and unsustainable" 12.8% pace of 2005. "Speculation played a much larger role than we would like [in 2005], with mortgages used for investment purposes rising to a record-breaking 12.1% of the market in the fourth quarter," Ms. Swonk said. "This leaves us worrying about the magnitude of a market correction, now that cancellations for new homes -- largely condos -- are on the rise and speculative investment appears to be cooling." Mesirow can be found on the Web at http://www.mesirowfinancial.com.

[RANDY P]

Hope you have a thing for fat girls who can sing..

Lenders Now Say Housing Bubble Exists
Two-thirds of lenders nationwide believe a real estate bubble exists, and half believe it will burst within six months, according to a quarterly survey by Phoenix Management Services, Chadds Ford, Pa. A housing correction would result in a decline of 10%-20% in real estate prices across the United States, according to 93% of lenders polled in the company's Lending Climate in America Survey. "In the minds of lenders, the housing bubble has moved from 'Loch Ness monster' myth status to an economic reality that could have a significant, negative impact on the lives of many Americans," said Michael E. Jacoby, managing director and shareholder of Phoenix. "A year ago, 46% of lenders believed we were in a housing bubble. Today, that number has climbed to 66% -- and many of them believe a correction is imminent and could lead to a drop in housing prices of up to 20%." About 30% of the 92 participating lenders said the housing bubble has already begun to burst, while 20% said it would occur in the next six months, Phoenix reported. When asked which region is likely to be most affected by a housing correction, 30% named the Northeast and 27% named the West Coast. The company can be found online at http://www.phoenixmanagement.com.

EDIT:

Random thought:

One thing, when they talk about property depreciating "housing prices up to 20%", it has to be sold first for that to happen. As long as the local economy holds up, people continue to hold on, and simply sit tight you won't lose. You just will be keeping it for awhile.

Inflation, and a good robust local enonomy are your friends now..

rjp

[turbo6bar]

I believe the 8% fall in home sales is grossly underestimated. NAR recently released a report for 2005 which stated 40% of existing home sales were for investment purposes or second home purchases. I believe 12% were for second homes, leaving 28% for investors. I feel the 40% mark will fall to 20% as the market tightens. 8% decline is hogwash.

Homeowners will feel the burn as rates continue their ascent. Inflation won't help us as long as wages stay flat. It really is different this time because past housing booms landed in a falling interest rate environment. This boom is sailing directly into rising rates.

I can't even keep up with all the articles at http://thehousingbubbleblog.com
Another fave is http://globaleconomicanalysis.blogspot.com/

My play on this market is put options on ETF XHB. This ETF is heavy on big name homebuilders.

[Moses]

I think if you live in stable but unremarkable community the prices will be pretty solid. The problem is the price of houses in the white-hot areas like the bay area and coastal southern California. Quite simply, the price of homes has outpaced the wage profile of the vast majority of homeowners. What kind of income do you need to get into a million dollar fixer-upper starter home? It's absurd. In response to the housing market rocketing beyond the "normal" families grasp, the markets have responded with equity plus loans, interest only loans and other ill advised policys. The real estate market is walking a tightrope...while keeping a dozen plates spinning in the air. At some point it will all come crashing down and the margin players will get hurt.

[fastpat]

It's just one of the reasons I packed it in in Cally and moved back east, that and to invest in a permanent abode.

I have no intentions of selling this place, it'll be up to my wife who's likely to survive me, or our heirs if she does not.

I'm 'ere and 'ere to stay.

[vash]

my home is just like my fridge and washer and dryers, durable goods. i bought in dirt cheap. if i lose some equity, who gives a crap. still better than paying rent. i got a fixed mortgage, i put down 20%. i feel sorry for the people with the big homes and two payments. one idiot i work with took his home that he bought a long time ago, cheap, and refinanced to interest only, so he can buy stuff like trucks and ski boats. now that is dumb.

[sammyg2]

One day Chicken Little was walking in the woods when -- KERPLUNK -- an acorn fell on her head
"Oh my goodness!" said Chicken Little. "The sky is falling! I must go and tell the king."
Sorry, couldn't help it.

IMO Yes there is a slight bubble. Yes prices will fall a little only to rebound in a few years.
No, the sky is not falling.
If a person in So Cal had sold his house when the bubble warnings had first started circulating, he would have missed out on at least 30% appreciation on his house, maybe as high as double that (my esitmate).
Suppose the "bubble" drops prices 20% (which I doubt), he would still be ast least 10% ahead. My opinion? ride it out, but do it with fiscal reponsibility. Anyone foolish enough to get into a risky mortgage they cant afford deserves what they get.

Oh, and don't invest in financial institutions, they are going to get their hands slapped.
Oil stocks are the way to go.

[stevepaa]

Does any one really know someone who bought some real estate as a speculative venture?

[turbo6bar]

Originally posted by stevepaa
Does any one really know someone who bought some real estate as a speculative venture?

Is this a rhetorical question?

[fastpat]

Originally posted by stevepaa
Does any one really know someone who bought some real estate as a speculative venture?

I don't know them, but the folks that lived two doors down from us in Fremont sold their house (1100 sq. ft on 5000 sq. ft lot) that they'd lived in for 18 years for $540,000, and that was in fixer-upper condition. Those that bought it fixed everything and put it back on the market in less than six weeks for $630,000. It was still on the market when we left.

That was somewhat common last year, don't know what's going on now.

[stevepaa]

No, but if the bubble so obviously exists, someone should know someone who has bought speculatively. I don't and I bought last year and I bought for the long haul.

I live in San Jose and have not seen any speculative buying or flipping.

[Porsche-O-Phile]

Originally posted by Moses
I think if you live in stable but unremarkable community the prices will be pretty solid. The problem is the price of houses in the white-hot areas like the bay area and coastal southern California. Quite simply, the price of homes has outpaced the wage profile of the vast majority of homeowners. What kind of income do you need to get into a million dollar fixer-upper starter home? It's absurd. In response to the housing market rocketing beyond the "normal" families grasp, the markets have responded with equity plus loans, interest only loans and other ill advised policys. The real estate market is walking a tightrope...while keeping a dozen plates spinning in the air. At some point it will all come crashing down and the margin players will get hurt.

Absolutely 100% correct. I can vouch for this personally. I'm 35, work a professional job, my wife works and makes good money also. I own three Porsches but there's no way on earth we could afford a place right now. Even condos are going for $350k and up. Unless there's a major correction (as in 25% or more) I don't see how anyone can get into a place nowadays without some very creative (and dangerous) financing.

Edit: The above applies to first-time buyers like myself. If you own property, you can buy property but I'm mostly speaking of a "barrier-to-entry" that's becoming insurmountable for anyone not born into a trust fund.

[Dottore]

Originally posted by Moses
I think if you live in stable but unremarkable community the prices will be pretty solid. The problem is the price of houses in the white-hot areas like the bay area and coastal southern California. Quite simply, the price of homes has outpaced the wage profile of the vast majority of homeowners. What kind of income do you need to get into a million dollar fixer-upper starter home? It's absurd. In response to the housing market rocketing beyond the "normal" families grasp, the markets have responded with equity plus loans, interest only loans and other ill advised policys. The real estate market is walking a tightrope...while keeping a dozen plates spinning in the air. At some point it will all come crashing down and the margin players will get hurt.

Absolutely right.

Remember too that in this era of globalization many investors in really hot markets are financial investors - investors who buy solely for the anticipated appreciation (referred to in Waynes original definition).

These are often offshore investors (both individuals and funds etc) who will sell their investment at the first sign of less-than-anticipated returns. When that plug is pulled the bubble will truly burst - certainly in this town.

[turbo6bar]

A person who bought an investment property with negative cash flow is speculating. A person who buys a home with monthly costs far greater than the cost to rent a similiar home, is speculating. A person who buys a home with a risky adjustable rate mortgage, or negative amortization mortgage is more than likely, speculating. Any investor buying pre-construction housing is speculating. Speculation is not evil, but it does have risks. In the past few years, these risks have been minimized or ignored, but in a free market, risks are rarely eliminated.

[stevepaa]

Dottore, I don't think so. Offshore investors don't buy into the low end market. Million dollar fixer uppers are not low end.

Jeff. There has always been a barrier to overcome for first time buyers. You do what I did. You move to where you can afford to buy and commute. You have one car, each about ten years old, and you never eat out for quite some time.

Housing prices rise and fall, but mostly rise. Betting on the come is just that.

[thrown_hammer]

My company is relocating us to the OC. They are subsidizing our rent for two years. At first I really wanted a house but the more I look at the situation I figure in two years the market may correct, but if it goes up I couldn’t afford it to start with. Who knows maybe I will enjoy renting, Sitting by the pool and calling maintenance to go to my townhome and change the light bulb in the kitchen.

[stevepaa]

Originally posted by turbo6bar
A person who bought an investment property with negative cash flow is speculating. A person who buys a home with monthly costs far greater than the cost to rent a similiar home, is speculating. A person who buys a home with a risky adjustable rate mortgage, or negative amortization mortgage is more than likely, speculating. Any investor buying pre-construction housing is speculating. Speculation is not evil, but it does have risks. In the past few years, these risks have been minimized or ignored, but in a free market, risks are rarely eliminated.

yes, no, yes,yes. Most home buyers in for the long haul buy a home that costs far more than rent would take in.

[RANDY P]

Originally posted by stevepaa
No, but if the bubble so obviously exists, someone should know someone who has bought speculatively. I don't and I bought last year and I bought for the long haul.

I live in San Jose and have not seen any speculative buying or flipping.

The reason being is that all of CA came up to the NW and started buyng condos and houses in "Phase 1" developments.

Buy it, never move in, sit on it till the builder raises the prices, sell it.

rjp