What exactly is the housing bubble?

[scotandrsn]

@Balthisar

But what’s the bubble now? The market has cooled big time. But prices haven’t dropped – there’s just not a lot of movement of properties. Has the bubble burst and sellers are just being stubborn/desperate? It really is not a seller’s market at all. But it’s not a buyer’s market, either. What the heck is going on? And is it just SE Michigan, or more generalized?

It’s happening in LA, too:

@LA Times

If this is a bubble, it’s sure taking a long time to pop.

For the first time, the median price of a Los Angeles County home topped the half-million-dollar mark last month, data released Wednesday showed.

Four years ago, the median was half that. By doubling in such a short period, it’s no wonder Los Angeles County appears on many lists of the nation’s most-overvalued home markets.

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In March, the median hit $506,000, up 15% from a year earlier and 3% above the prior month, according to DataQuick Information Systems, a La Jolla-based research firm that analyzes property transactions.

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To buy a house at the median price, a household would need an annual income of at least $120,000 to qualify for conventional financing with a 20% down payment. The county’s median household income: about $47,000.

And half a million doesn’t exactly get you a castle. Don’t even think about Beverly Hills. Try Norwalk, South Los Angeles or Panorama City, where the median price buys 1,500 square feet with three bedrooms and two baths.

Want something bigger? Head to Palmdale[read: while still in LA county, head north from the city into the desert way the hell far from anything except Palmdale - s], where $500,000 gets you 2,200 square feet and two stories. Want ocean breezes? There’s a two-bedroom condo in Playa Del Rey, built in 1971.

[Walloon]

@muttrox

A bubble is a term for when the market has overpriced something wildly relative to it’s actual value.

The market determines value.

[Sam_Stone]

@iamthewalrus(:3=

You get to live in the house over that time, too. How did the interest on your mortgage compare to the price of renting a similar house?

Our first mortgage was at 11%. We paid significantly more in mortgage payments than we would have paid in rent at the time. When we renewed our 5yr mortgage, the rate went down to about 8%, and we thought we were in heaven.

This is why I shake my head when people try to claim that we’re in a bad economy. In 1991, everything was worse. Deficits were higher, interest rates were higher, unemployment was higher, and ‘The Japanese were taking over’.

[jimmmy]

One obvious point hinted at but not explicitly pointed out in this thread (Sorry if I missed it) is that any bubble burst will likely be local and/or uneven. A sudden interest rate rise could conceivably bring the Nation-wide market largely to a downcyle - but even then it will probably be uneven.

Saying as every market has grown unevenly, not every burst bubble will be equal either (examples meant to be illustrative not meant to be serious numbers) As we see the stories in the thread the one year downturn could be:
10% in TX, 8% in LA, 12% in DC, 20% in Fla

but beyond that even:
25% in Miami Condos, 12% in Dade County single family homes, 2% in Dade townhouses Etc.

[Johanna]

@Sam Stone

You’ll notice something about the places where real estate prices are really crazy - they are all places where, through either geography or zoning laws, there is no space to expand the city. So there’s a fixed supply with increasing demand, which is driving up prices. In areas where cities can grow, the price increases are much more modest.

That’s obvious in the geography of a place like San Francisco, but here in western Fairfax County just outside DC, the buildable areas have pretty well filled up through the eastern part of Loudoun County, which has passed very strict zoning laws to keep immigrants out of western Loudoun, which remains mainly rural. The zoning laws there also specify no one is allowed to live there unless they drive a pickup and wear a baseball cap. So anyone feeling Fairfax and eastern Loudoun are too crowded needs to leapfrog Virginia entirely; now the eastern end of the state of West Virginia is starting to fill up with commuters who drive two hours one way to DC–hey but at least they can afford to buy there. The housing market around here has been artificially squeezed up by Loudoun’s weird zoning, as you said.

[HMS_Irruncible]

@Sam Stone

Our first mortgage was at 11%. We paid significantly more in mortgage payments than we would have paid in rent at the time. When we renewed our 5yr mortgage, the rate went down to about 8%, and we thought we were in heaven.

This is why I shake my head when people try to claim that we’re in a bad economy. In 1991, everything was worse. Deficits were higher, interest rates were higher, unemployment was higher, and ‘The Japanese were taking over’.

Low interests rates are not exactly rosy. Japan has had interest rates hovering around zero for near on a decade now, and I don’t think anybody would accuse them of having a strong economy until just the past year.

[Sam_Stone]

@Brain Wreck

Low interests rates are not exactly rosy. Japan has had interest rates hovering around zero for near on a decade now, and I don’t think anybody would accuse them of having a strong economy until just the past year.

Not just low interest rates, but 4.7% unemployment, 4% GDP growth, 2 million jobs created in the past 12 months, an expanding manufacturing base, high consumer confidence…

[elmwood]

@asterion

Real estate speculators (mostly from California, it seems like) are doing a number on prices here in New Mexico.

I’m really hoping the Cruces bubble pops. I’d like to retire there, but the real estate prices there are creeping up to what would have been Santa Fe-like prices several years ago.

Here in Cleveland … nothing, at least in my neighborhood (stable middle-class inner-ring suburb). Prices are rising a bit faster than the normal slow appreciation rate in neighborhoods that are experiencing revitalization, but that’s about it. Still, I wonder how a nationwide pop would affect us.

[DougC]

• • • In the area that I live (in IL, east of St Louis MO) there are an astonishing number of new subdivisions going up–but pretty much all the homes being built are 3 - 4+ bedrooms. So in roughly 15 years, all these kids are going to move out, the parents aren’t going to pay to heat and cool these big houses. There’s going to be a glut of big houses on the market, and not a lot of smaller 1-2 bedrooms.

…-Or maybe not. A few of these big subdivisions are being built on floodplains…
~

[muttrox]

@Walloon

The market determines value.

IMO, the market continually refines estimates of value. To simply assert this leaves you in the position that the value of housing in some areas of the country is really five times what it was a few years back, with no change in the fundamentals. Or is there a better word you’d like to substitute in?

BTW, what is it that Warren Buffet means we he believes a stock is underpriced? It can’t be value, apparently - although he is commonly known as a value investor. You think he’s just lucky?

“Warren Buffett descends from the Benjamin Graham school of value investing. Value investors look for securities with prices that are unjustifiably low based on their intrinsic worth. When discussing stocks, determining intrinsic value can be a bit tricky as there is no universally accepted way to obtain this figure. Most often intrinsic worth is estimated by analyzing a company’s fundamentals. Like bargain hunters, value investors seek products that are beneficial and of high quality but underpriced. In other words, the value investor searches for stocks that he or she believes are undervalued by the market. Like the bargain hunter, the value investor tries to find those items that are valuable but not recognized as such by the majority of other buyers.”

[Diceman]

You might be interested in a recent article by Bill Fleckenstein about this very subject.
Apparently, home sales have tanked across the country, even in the “hot” markets. People aren’t lowering prices because they don’t want to lose money, but Fleckenstein thinks that it’s only a matter of time before they’re forced to cut prices and take what they can get. A lot of people are going to lose a lot of money.