A lot of cities are having housing crises, and property values are skyrocketing. In 2008, after years of rising, real estate prices collapsed. Is it going to happen again soon?
Around here, real estate prices are generally falling. There may be some localized bubbling going on but I don’t think it’s nation-wide.
A resounding ‘yes’ here in Portland. Prices have rocketed, with most houses only selling after a bidding war, with cash as king. Small, unimproved homes are going for $400K or more. Problem is, the wage/salary levels don’t support the home prices, so most first-time buyers are heading for the fringe communities around Portland. Same goes for renters, as rents have also risen dramatically, with many people being forced to vacate. Seeing opportunity, a lot of people are dumping their less-than-desirable properties, which are often being snapped up by developers looking to erect apartment buildings, or out of state investors wanting rental property. Our small bungalow has gone up in value to over $500K, an increase of $150K in the past six years since we bought it. When the bubble pops, there are going to be a lot of folks in financial trouble, I’m thinking.
What happened in 2008 isn’t likely to happen again anytime soon, but another real estate bubble is possible in certain areas of the country where demand exceeds supply. In most of the country housing has been slow to recover and prices may even be falling. You can’t make a blanket statement that will apply to all parts of the US.
Parts of the SF Bay Area are booming as wealthy young people in Silicon Valley trade up to bigger houses in better neighborhoods. Housing in San Francisco itself continues to rise steadily. Does that portend a housing bubble and subsequent crash in the near future? Not many experts are predicting that, but then again very few predicted the 2008 crash. Caveat emptor.
In the UK it has become a great deal harder to get a mortgage in the first place. It is possible to borrow more than 80& of the value, but you will pay more interest. Lenders have to do extensive checks to establish that you can afford (and will be able in the foreseeable future) to keep up the payments.
There was a boom in buy-to let which was pushing first time buyers out of the market, but the government have tweaked the rules on tax and offered subsidies to first timers to redress the balance.
In general, and outside London which is a special case, house prices are still rising ahead of inflation.
I’d be more worried about a stock market bubble, than a real estate bubble.
I was under the impression that Portland had a chronic housing shortage … y’all can’t build them quick enough to satisfy demand. You’ve built your cultural free community in a spectacularly scenic place, there’s people all over the world trying to move in.
Again, just looking in from the outside, it appears people will pay those prices and are basically in line for the privilege to do so. Maybe you’re seeing more of a market correction rather than a bubble.
House Flipping Is Back Again, writes Fortune magazine.
But Money magazine throws in a big caveat: You Can Lose a Lot of Money Flipping Houses.
Flipping was a - not the only - cause of the last bubble. Way too many people, both those looking to make it a business and individuals who thought they would be moving anyway and so looking for short term gains in a hot market, sank too much money into houses and did it on extraordinarily onerous mortgages.
Apparently some people are trying that again, but the market isn’t hot enough to sustain that the way it did in the mid-2000s.
My guess is that some small areas will see bubbles, but the demise of the predatory lending industry will make a national bubble almost impossible.
What happens at the end of a local real estate bubble? My hunch is that there might be slower deflation. After all, if the banks are still giving out mortgages, people who have been renting in the area or living on the outskirts will be able to move into the deflating market once more reasonable prices are reached. I’d think a major local collapse would have to be triggered by a loss of jobs or some other external factor.
The Community Reinvestment Act is still on the books, encouraging lenders to make loans that would ordinarily be deemed too risky.
Left-of-center economists have published studies indicating that the CRA did not contribute significantly to the 2008 crisis.
Right-of-center economists have published studies indicating that the CRA did contribute significantly to the 2008 crisis.
Some cities have rapidly rising house prices. Notably the large West Coast metro areas. But compare, for example, to NYC where this has been going on longer.
During the last bubble, it was foreshadowed by some cities having fast growing prices. Then it spread to more of the country. This hasn’t happened yet. Around here, the last of the doldrums have not yet been shaken off. But it’s coming soon.
When you see rapid increases in “mundane” metro areas, then you can worry.
Even if, for example, Portland has a price collapse, this might not affect other cities much if at all. The dominoes are not yet lined up for a large scale bust.
One thing holding a lot of places back is the overall economy is still weak. Job growth (esp. income growth) is poor. To have a good old fashioned bubble of any sort requires more people with nice incomes looking for places to invest.
There is reason to be worried. I sold a fourplex in Las Vegas. Sold it for $185.000. The buyer put $5,000 down. With closing costs his loan was for $182,000. Loan to value is 98%. If the buyer does not take care of the property and falls behind in payments the bank will loose a lot of money. Before the last bubble burst investment property loans were 75%. So the banks are back to making junk loans.
The market never really collapsed here like it did elsewhere in 2008. The current trend is very recent. Local realtors that we talk to (we go to open house events in our 'hood) are happily astounded at the prices they’re seeing. I saw a statistic recently that said something along the lines of “if everyone in Portland were to stop selling houses today, the inventory would be gone in 30 days”. Yeah, housing is not plentiful. The Urban Growth Boundary is partly to blame for that. It means that developers need to start building up instead of out. The result is that we’re seeing a lot of multi-family buildings taking the place of old Craftsman homes.
Since this requires speculation, let’s move it to IMHO.
Colibri
General Questions Moderator
Housing prices are skyrocketing in Boston, as are rental prices. The 2008 collapse definitely caused a dip and slowdown here, and plenty of foreclosures, but not really a bust. According to a recent report on rental prices: “In Boston, you can expect to pay an average of $2,821 per month for a two-bedroom apartment. In order to comfortably afford that rent, under SmartAsset’s definition, you’d need to make a household income of $120,900 per year.” That’s insane, considering that almost half of Boston residents make less than $35,000 per year.
We bought a condo in Boston in 2010 at arguably the low point of housing prices and the estimated value has risen by almost 150% in 6 years. (This is based on the selling price of the condo above us, which sold less than a year ago). It’s not sustainable.
I’ve been in the trenches of SF housing the past two years as we were getting outbid on house after house even when putting 40% cash and 25% above asking price. But, we just moved into a place about a week ago that we were finally able to buy. Definitely feels like there was a downshift in the past few months. Open houses were not nearly as crowded. We were one of two offers on the place we bought instead of one of twelve.
I don’t think there’s going to be a crash, but a lull.
Besides I bought my last SF place at about the height of the boom in 2007. Sold in 2014 for a substantial profit. Even if prices go down around here, they don’t stay there long.
It’s pretty obvious why the seller would like 25% over asking price, but why would the size of the down payment make them more likely to accept the sale? Obviously the lender cares about that side of the deal, but I don’t see why it would influence the seller towards you more than 20% would.
Certain parts of Dallas/Fort Worth are really hot, but I don’t think it’s a bubble per-se; just localized market heating based on the desirability of certain parts of town, like Lake Highlands.
The Economist has an index of housing prices to value in various countries which it includes in the magazine time to time. There’s a version in this link. It says US house prices are around 95% their long term average measured against incomes and 108% measured against rents. The pre-crash peaks were 126% and 139%. The current UK levels are ~130% and 150%, Canada’s 138% and 194%.
AFAIK most other measures agree with that, for example the burden of mortgage debt payments relative to income now in the US is also fairly low. A housing generated bubble/crash in the US nationally doesn’t appear likely now. Of course though housing prices might decline significantly if there’s a serious economic downturn caused by something else.
Particular markets might be overpriced. OTOH I live in NY area and IME people from almost everywhere else in the US always think NY real estate is overpriced and must correct, but it keeps not happening. The housing crash of 2008 was milder here than most places in the US and now prices in absolute terms are higher than ever. But people with money want to live here (something else non-NY Americans often find difficult to believe) and you can’t create more land close to the City, and can only build upward so much, and at great cost.
Saying what’s in a bubble or going to crash is extremely difficult before the fact, especially if you hold yourself to any standard of useful timing in the prediction.
It’s not a bubble, it’s a readjustment. Locally, we can’t put $100,000 homes on the market fast enough before they are snapped up. $700,000 homes, not so much. And the $700,000 homes were priced at $999,000 last year.