My sister lives on the gulf coast of Alabama. When she moved down there more than 20 years ago, you could still buy a decent vacation house with gulf view/gulf access across the street from the beach for $50,000, or for the same amount you could get a decent smaller condo on the beach. Even five years ago you could buy a very nice beachfront condo for $150,000 furnished, but today that same condo sells for $450,000 unfurnished (and they’re actually getting it).
Ft. Walton/Destin are even worse as far as prices- the beachfront condo that you’d pay $1 million for in either wouldn’t seel for a tenth of that in most cities. Even Panama City Beach, once and not that long ago a pleasant family-get-away sort of place that became very quickly a nightmare of drugs, transients, and mile long stretches where you can’t even see the beach due to the non-stop and still being built townhouses, high rises and hotels, commands $600-$850K for a 2 BR condo in many places.
It is absolutely ridiculous how high and how quickly the prices have risen. I’m convinced that there’s going to be a major bubble burst in the near future and many many many people are going to be left paying mortgages whose balances are far higher than their condos could ever sell for (not unlike the great Miami disasters of the 1920s). But… I could be wrong.
Are there any indicators that usually can be seen before a major real estate bubble bursting? And, completely off topic, are there any places you know of that have had similar unbelievable property value explosions in recent years?
The Empire State building coincided with the end of the 1930s New York bubble; The World Trade Center was announced at the end of its 1960s counterpart. Based on these two cases, one could suggest that huge, ambitious, economically unviable projects are good indicators of a bubble’s immanent burst.
one thing to watch is number of transactions. Prices can rise very high on very few actual transactions. If you have a high price, and very little being bought or sold, then run for cover. If the price is high, and there’s a lot of turnover in the market, it’s probably a pretty healthy market and prices heading higher
Well literally y as asked in the OP “are there any signs” the answer is “yes, you can certainly point to signs of a bubble about to burst.” The number of speculators vary by region, but now may account for as much as 25% of the houses bought Nationally. It is a much, much higher percentage in the vacation home markets like the OP mentions. High levels of speculation, traditionally, are associated with bursting bubbles.
(greatest SDMB name EVER)Fear Itself’s link says among other things that this is a National phenomenon fueled by interest rates. I agree. Huge percentages of todays Mortgages are products like Interest only and ARM mortgages that are extremely sensitive to rising Interest rates. Rates haven’t risen like folks 2 years ago expected/warned – With that history I won’t swear we will be in a 8.X% Mortgage rate market on 5/13/08 - but that [or higher] is possible. Should that happen, I spin you a scenario of a bursting bubble
: expect GIGANTIC sell off as mortgages become unaffordable, and speculators begin dumping properties, and increasing inventory - all fueling a vicious cycle …
Will this scenario play-out? My WAG is that if it happens it will happen in localized places and not a true “bubble burst” nationally. It will happen, if at all, in the hottest vacation homes markets and the places (like Miami) that are attracting massive speculation today. Not saying its so, just saying that it is more possible than CNBC, Forbes, Money, Nat Ass. of Realtors and the “we have eliminated the business cycle” crowd is selling the public
For long-term market predictions, look at demographics. I believe that the real estate market is going to collapse in a few years because the post-war baby boom generation is going to start hitting 65 in 2010. As they retire, there’s going to be a huge block of people in this country looking to “cash out” on their investments such as stocks and real estate. The first few thousand will do fine but at some point the sellers will outnumber the buyers and it’ll stagnate. When this gets noticed the growing number of people who want to sell will start to panic and the dumping will begin.
Isn’t real estate fundamentally different then stocks in that the people who own it tend to use it in their day to day lives? I mean, they’ve gotta have a place to live, and these days 65 seems fairly young to be selling the home and moving into some sort of rented accomodation (like an assisted living community or a nursing home).
Yeah, but in order to sell your house in order to get the cash to move into a smaller place requires that there be a sufficient supply of buyers who can afford to pay your price. At some point, the market is going to run out of qualifying buyers. The “baby boom/bust” scenario assumes that qualifying buyers are going to run out more quickly because the generation cohort of the buyers is smaller than the generation cohort of the sellers (I don’t know whether this is true).
Two weeks ago, the Washington Post ran a story on the front page of the Sunday edition saying that sellers are pulling their houses off the market because they are afraid that even if they do sell, they won’t be able to afford to “buy up” because the rate of increase of buying prices is outpacing the rate of increase of selling prices. That indicates that the apparent rising value of real estate might be illusory.
I know several people who, if they sell their current residences, would not be able to afford to buy their own houses, much less something better.
I’d say be wary about certain places (like miami). Supposedly, there are 30,000 new condos under construction! people are actually seeling pre-constructed units! When you see a lot of reslling 9"flipping") be very wary-it usually means there is a bubble about to burst.
in addition to all the numbers, there is another side to this— plain ol’ human nature.
The professional analyists look at measureable numbers-- interest rates, population figures, etc. But there is one major factor that is unmeasurable–people’s stupidity, and willingness to follow the crowd.
Housing prices are basically determined by psychology, not by the laws of supply and demand( which play a role, of course, but a minor one).You bought your house for 80,000 15 years ago. But your neighbor sells his house today, for 100,000, so you ask for 110. Some sucker buys it, so 2 other neighbors ask for 120, 000. Now buyers see TWO houses are priced at 120, so they figure that must be the “correct” price.Some sucker pays 130. Then the newpaper reports a 30% increase in one year, and the boom is on. Sometimes as few as 3 or 4 people can drive the prices of an entire neighborhood.
It’s a self-fulfilling prophecy; As long as everybody wants to believe it, the boom can run for a long time, assuming there are enough buyers fleeing L.A. or NY, (who are used to paying 400 000, and think 130 or 150 or 170, 000 is a good deal.)
Rather like the 17th century tulip mania; it went on for years with people paying the equivalent of six-figures in today’s market for a single rare tulip bulb before somebody finally said “WTF? I just bought a *#$*ing flower for what I would have paid for a house!”, whereupon others said “WTF! So did we!” and the bottom fell out.
It depends on how you look at it. If you intend to stay in your house, the bust won’t necessarily affect you. For instance, I bought my 1500 sq. ft. house in a nice neighborhood in Arlington for about $190K 7 years ago. Currently, we could get almost $500K for it if we sold. Even if the market fell significantly, it wouldn’t affect me. It would have to plunge about 60% to theoretically hurt me. If that was to happen, the economic circumstances that bring that about would be worse than the loss of home value, i.e. no jobs.
The bubble bursting will not hurt people like you and me, but it will be a disaster for people that are paying too much now and are using such creative things as the “interest only” mortgage. If that person has just bought a $200K house and the market drops 20%, he/she has just lost $40,000. What about someone borrowing with a “varying rate” mortgage and the rate doubles? There are too many of these loans taken out by people who can only afford the lower rates and will be in deep trouble when the rates go up.
[sup]At the per square foot cost you paid 7 years ago I would be selling for $506,000. Don’t I wish that was a reality, but it does show that you could buy a real nice house if you sold and didn’t expect to live in a “hot spot”.[/sup]
The minute someone startsasking when the bubble is gonna burst is equal to the pebble tumbling past you on the mountainside, which will turn into a geographical disaster. IOW the first sign is when epople start saying WTF? The more people who do this, the closer the critical point we’ll get.
We have the same bubble here, and some specualtion is going on in the press about the wisdom of loaning the whole amount, and only paying the (3%) interest. We have election here next year. It’s midterm in the US and Senate and Congress elections might have some impact, leading the Fed to do something which might impact world economy.
I wouldn’t buy a house or apartment in the next 18 months without
A. Being totally sure that a doubled interest won’t hurt me and
B. Being able to plunk down a sizeable down payment of my own, not loaned, money and
C. Not being all that bothered if my new house took a (Short term) dip in the 20-50 % price range, since I’m planning to live there anyways.
Looking over really long stretches of time, buying your own home has never been bad business. My mom sold her house to a twentyfold increase last year, but it took 30 years to get there. Specualting in real estate right now feels about as safe an investment as buying a lottery ticket.
Well, I just couldn’t bring myself to say it’s worth over $500K (jinx!). It actually probably is, or if it’s not, it will be next week. ::knocks on wood:: But unless I wanted to move waaaaay out somewhere, I’m wouldn’t be able to buy anything even slightly better.
A lot of people just add on around here, since property values are such that moving is prohibitive. I could spend about $150K adding on to my house and it could go for as much as $750K, right now. But I have no intention of moving; we are in a nice neighborhood with good schools and a 15 minute drive to downtown DC, and prices certainly reflect it here.
Of course, the problem with buying before the bubble bursts is not merely limited to whether you intend to live in the home. We are thinking about moving to a new place (our “final” house). We would intend to live in it long term and be able to continue to pay the mortgage (I’m not an “interest only/leverage I can’t afford” kind of guy). I’m more worried about how many years I’ll be kicking myself if I’m locked into paying $X dollars to live in a Y square foot house for the next thirty years, when 18 months from now after a bust, the same $X dollars will buy a Y + substantial number square foot house with nicer woodwork, etc.
I think the problem a lot of people are having is that people have been talking about the “bust” for the last 5 years (I bought 4 years ago, I remember even then the talk about how there was no way the market would sustain for more than 12 months, etc.). A lot of fairly conservative people who “waited for the bust” 3-4 years ago are now finding that they will simply be paying out an extra $200,000 or so to get the same house they could have purchased 3-4 years ago.
What really scares me is the people who have say $30,000 net income and are paying 4% on a $500,000 loan. If the interest goes up to 8%, then they’re going to be owing more in interest than they earn.
The gentleman’s name has escaped me, but it was on NPR within the last month in the morning program. The speaker drew a number of parallels between the housing market and the stock market immediately before the dot-com bust, and borrowed a number of analyses from Fed Chmn. Greenspan when affirming that it’s gonna happen.
What? Where are these people? Assuming you’re talking about an interest-only loan, then they’re already paying 20,000 per year for just their mortgage. What the heck are they living on? There’s no way anyone would ever loan them the money for this.
I have a credit record that’s hard to beat, and make considerably more than $30,000. There’s no way in hell I could get a $500,000 mortgage from anyone, even interest only.