A Look at Today’s Housing Stats: Are We Entering a New Bubble?

by | BiggerPockets.com

At what point do increasing home prices stop being a “recovery” from the last housing bubble and start becoming a risk of a new bubble?

One oversimplified answer is “when home prices reach their original bubble levels.” Which they’ve done. Sort of.

But this is not 2007, and today’s housing challenges are different from those that drove the Great Recession and real estate collapse last time. Here’s a jargon-free look at housing issues and risks in the United States today that you won’t need a Ph.D in Economics to follow.

Housing Recovery: Complete?

According Zillow’s Home Value Index, average U.S. home values peaked in spring 2007, at $196,000. At their nadir in December of 2011, they bottomed at $151,000. In February 2017, average U.S. home values once again reached $196,000.

via: Zillow.com

This doesn’t, of course, mean that every home in the United States has the exact same value today that it did 10 years ago. Zillow’s Home Value Index doesn’t adjust for inflation, so “real” home values are still lower today than they were 10 years ago.

It also doesn’t cover the diversity of home appreciation—or stagnation—seen across the country. Homes in many areas are still very much underwater. The housing recovery has been an uneven one, with homes in some cities worth more today than they were 10 years ago and homes in others still struggling to recover lost equity.

Metro areas in the South and West have disproportionately seen housing recoveries, while most of the Northern and Eastern markets in the United States have struggled to regain ground.

Related: 7 Real Estate Investors Discuss What They’re Seeing in Their Local Markets

But in raw nationwide numbers, real estate values have caught up to their previous high water mark.

Affordability in Broad Terms: Home Price to Income Ratios

Home affordability is a slippery thing. For example, someone who borrowed an adjustable rate mortgage back in the bubble might have technically had an affordable home payment—until their initial low rate expired and their payment shot up and started adjusting.

One easy way to look at home affordability is the ratio of home price to income (PTI ratio)—how many times higher the median home price is than the median salary. Freddie Mac looked at the last “stable” housing period, from 1993-2003, and found an average ratio of 3.5, considered by many analysts to be a healthy ratio. At 4.1, the ratio leaves the so-called normal range and starts entering what Freddie Mac calls “unusual” ratio levels.

During the last housing bubble, the ratio of home prices to income spiked up to 4.8. It then dropped in the recession, to 3.2 in 2011. At the end of 2015 (reliable median income numbers for 2016 haven’t been released as of this writing), the ratio was bumping up against the danger zone again, at 4.0.

And home values rose 7.2% in 2016—faster than incomes, according to most analysts. (See the Zillow home values links above.)

Take the PTI ratio numbers with a big ol’ grain of salt though. To begin with, they’re nationwide numbers, but more critically, this ratio gives only a small glimpse into the complex topic of housing affordability.

Credit Markets & Affordability

The ratio of home prices to incomes only tells part of the story. Another way to look at affordability is what percentage of a median earner’s monthly take-home salary is required to pay the mortgage on a median home. Actual monthly payments depend on factors like mortgage interest rates, property taxes and insurance rates. And monthly take-home salary depends on federal, state, and local tax rates.

Interest rates have been extremely low for a long time. Compare today’s interest rates, hovering in the 4-4.5% range, to interest rates in the 1980s, which at times surpassed 18%.

To put that in perspective, a 30-year mortgage for $200,000 at 4% interest costs $954.83/month for principal and interest. At 18%, the same loan costs $3,014.17.

The Federal Reserve has gradually started raising interest rates, so expect this artificially cheap borrowing environment to disappear.

Obviously, the cost of credit matters, but credit availability also matters. Credit markets in the 2000s were extremely loose, the market flooded with no-income documentation loans, extreme subprime loans, and other loans with minimal credit and income qualification requirements. That helped inflate the bubble in a superheated way.

In the aftermath of the housing collapse, credit markets tightened to a clenched fist. They’ve been gradually loosening since 2012, which is good news for homebuyers looking to qualify, but something to watch for bubble hawks. “Since 2012, there has been abundant liquidity in the market, making more dollars available to lend and pushing banks to hunt down more borrowers,” explains the U.S. Office of the Comptroller of the Currency.


Related: Markets Are Tough: Should We Brace for a Bubble or Continue to Invest?

Housing Mismatch

So why does it feel like housing is so unaffordable?

Because there’s almost no new housing being built for lower and middle-income families. In 2016, a shocking 85% of all new rental housing built fell in the luxury category. As for new homes for sale, only 28% of new housing today is built to sell below $250,000. Contrast that with 43% before the Recession.

Does that mean that all the demand is for luxury homes? Absolutely not. Trulia compared the number of home searches to the number of home listings and found a large shortfall in lower and middle-income home listings. Nearly 27% of home searches were for starter homes, yet only 21% of available listings were for starter homes. But for higher-end homes? They found a huge 11% surplus in listings compared to interest.

This gap is widening, too. Over the last three years, Trulia’s “market mismatch score” has gone from 5.6 to 6.0 to 7.4, as the supply of luxury homes sees a supply glut and the supply of starter and trade-up housing has been thin while demand has strengthened.

Why Are Developers Only Building Luxury Homes?

That’s a complex question, with many answers. One answer is that margins are higher for luxury homes, so developers have a greater incentive to build them. Some developers report that they cannot earn a profit building lower-end properties due to today’s high construction costs.

But consider location, too. Much of the demand for housing over the last five years has been urban, as Millennials and empty-nester Boomers search for downtown homes in walkable neighborhoods. Urban areas tend to have far more development regulations, and some cities restrict building density based on concerns that their (often aging) infrastructure can’t handle higher density housing.

In many cities, the land is so valuable and the regulations so tight that the economics of building new affordable housing just don’t make sense for developers.

The alternative location for building affordable housing is farther away from urban centers. But these un- and underdeveloped areas often pose a risk for developers, with no proven demand for housing there. Why gamble on low-margin projects in an area so far from the urban center that it may not sell at all?

So for the last five years, residential development has been all about luxury homes. Which begs the question who’s buying them?

The Distorting Impact of Foreign Buyers

In America’s largest cities, wealthy foreign (particularly Chinese) buyers have been snapping up luxury homes.

Specifically, Chinese buyers have spent $27.3 billion in buying U.S. residential real estate over the last four years. That’s more than the combined total of the next four largest foreign countries’ investment in U.S. homes.

When foreign buyers move into a local market in force, they change the entire economics of the real estate market. Instead of being based on the local economy and local incomes, home prices spike up based on completely unrelated external forces.

As local home prices become detached from local incomes, a massive affordability rift opens. It impacts all home values, not just the luxury homes being scooped up by foreign buyers. As luxury homes go up in price, local homeowners looking to trade up can no longer afford to do so; thus, they can’t list their own mid-range homes for sale. Suddenly, there is very little supply of mid-range homes on the market, which further distorts prices.

So, Are We Entering Another Bubble?

Home values in many areas in the country are returning to pre-crash, bubble levels. Compounding that problem, affordability is decreasing as home prices outpace income gains and interest rates rise.

Does that mean real estate prices are overvalued? Are we in another bubble?

“Bubble” is the wrong word. What we have is a serious imbalance in many cities’ housing markets, which are distorted toward high-end homes. What we don’t have enough of is lower and middle-income housing.

How to increase affordable housing supply is a massive subject in itself, but a good starting place is city governments working more flexibly with developers to encourage higher-density development with less red tape. Modernized infrastructure in older cities will help support higher-density building. Better tax incentives can encourage developers to build affordable housing. City governments can be more open minded to novel affordable housing ideas, like container housing or micro-housing. Some cities, like Vancouver, are experimenting with taxes on infrequently occupied housing to discourage foreign buyers looking for rarely-used second homes. And as the luxury home market over-saturates, developers will be forced to turn their efforts to more affordable housing.

If they don’t, they’ll find those luxury homes collapsing under their own weighty prices.

What are your thoughts on the current state of U.S. and Canadian housing markets? Is your market overheated or undercooked?

Give us a peek into your crystal ball for where housing markets are headed!

About Author

G. Brian Davis

G. Brian Davis is a landlord, personal finance expert, and financial independence/retire early (FIRE) enthusiast whose mission is to help everyday people create enough rental income to cover their living expenses. Through his company at SparkRental.com, he offers free rental tools such as a rental income calculator, free landlord software (including a free online rental application and tenant screening), and a free masterclasses on how to reach financial independence within 5 years.


  1. JL Hut

    Well written, I don’t think we have a bubble yet but higher interest rates will in time put pressure on price. I am not a buyer now unless it is compelling deal that wakes me up out of my slumber.

    Want to know when we have peaked? Watch the chart of home values, when we start making marginal new highs and it pulls back and it is struggling each time to make new highs its time to wake up and watch your back.

  2. “Recovery” was always the wrong term. If you have a fever, you are sick. Recovery means the fever comes down. The housing market had a sick fever. The so-called collapse was actually the recovery. Agents hyped low interest rates as the opportunity to buy more house. Instead, it turned out to mean that people paid more for the same house. Policies and media that incessantly promote a relapse to the sick fever while calling it a “recovery” are part of the problem.

    This framing is incorrect. “Metro areas in the South and West have disproportionately seen housing recoveries, while most of the Northern and Eastern markets in the United States have struggled to regain ground.”

    Metro areas in the South and West have seen housing relapse into a sick fever, while most of Northern and Eastern markets have avoided the unhealthy relapse.

    • G. Brian Davis

      Healthy markets are those where the housing supply and housing demand are balanced, at all price points, and where someone with a median local income can purchase a median local home with a monthly payment of around 25-35% of their take-home salary.
      My thesis, throughout this article, is that many markets across the US are not balanced and healthy (though for different reasons than we saw in the last bubble). But it’s nuanced and more complicated than “high prices = bad.”
      Until next week Katie! I know I can always count on you for some good old fashioned contrarianism 🙂

      • “…where someone with a median local income can purchase a median local home with a monthly payment of around 25-35% of their take-home salary.” I have used nearly those exact words to describe a healthy market so many times. In my market, even fixers do not meet these criteria, so I have qualified “median local” with “move-in ready.”

    • George Gammon

      Katie, bravo…probably the best comment I’ve ever seen on BP. The word “Recovery” has clouded more peoples minds than any other word in the last 5 years.

      If the word “recovery” was replaced with “re-inflating” the public at large would have a much better understand of todays real estate environment.

      • chris schu


        …and if we take it a bit further one could say that until the fever is GONE (back to 98.6 vs., say 100) “recovery” has not officially occurred, thus “Recovery means the fever comes down” is not a true recovery at all – the fever still exists, albeit a low-grade fever.

        • Paul Doherty

          I’m not totally sure I agree that these prices returning to 2007 levels (10 years ago!) is an indication of a problem. Houses should appreciate, and these are the same prices without any adjustment for inflation. IOW they’re still much less expensive than in 2007.

        • Katie Rogers

          People keep forgetting that house prices were in a sick fever in 2006. Recovery should mean the fever breaks and houses return to “normal” valuations based on the seven or eight metrics besides comparable sales used to evaluate the “true” value of a property. For some reason, the media has pushed the idea that relapsing again to a sick fever should be considered “recovery.” It is beyond bizarre. Various publication are again advising people to buy “before it is too late.” In my community, listing prices are exceeding “true” value by at least 20%, and often more,even taking into consideration normal appreciation..

  3. Robert Whitelaw

    So there is a TON we could chat about regarding this article, but lets start with one of the first points. I think it is incorrect to assume that the values of homes at the last peak is anywhere near rational. So it is not really correct to compare todays bloated number to an earlier bloated number.

    Just remember, it took about 7 years of really bad lending policy, stated income loans, 110% loans, etc. that artificially bloated the buyer pool which then caused prices to spike as we simply saw way to many buyers per home on the market.

    We see this in lots of different real estate news venues – particularly when they refer to “historically normal” real estate items and they are referencing that decade prior to the 2007 downturn – which WAS NOT historically normal since it was all through that time that the stage was set for the downturn through really bad policies.

    Subprime lending is what made the difference. The community reinvestment act from the ’70’s was finally given teeth in the mid-1990’s. Banks were put on notice that if they did not lend money to more challenged demographics (IE: engage in subprime lending), the federal government would stop them from acquiring other banks or opening new branches. THAT was when hardcore subprime lending was born – right around 1995. By 2000, everyone began to realize how subprime lending could be used and we were off to the races. It snowballed until it all came down in 2007.

    What is nuts, is that we are doing the exact same thing again. Instead of simply saying we should loan to folks with lower credit scores, we are tweaking credit scores to be artificially higher. Over the last year, this has been done twice. First, they started counting power bills, water bills, etc. through “Trending Credit” or “Non-Traditional Credit” sources as positive credit influences – even tho they are NOT instruments of credit and are among the last things people stop paying. Now, they plan to simply write off tax liens and judgements from credit histories starting on July 1, 2017. That will boost the credit scores of over 11 million people.

    Read any article on the intentions of regulations coming from FHA or any other GSE and what do they say? They talk about “opening the credit box”. Any reference like that should be considered code for “Subprime Lending”. Why? Because you don’t need to “open the credit box” for folks who already have good credit – so in every single case, these policies are aimed at enabling subprime borrowers. Of course, the other side of the coin is that all of this is directed at solving the wrong problem. The problem is NOT that we don’t have enough buyers – it is that there is not enough inventory. Why are we not hearing about moratoriums on fees for building affordable housing? Maybe a program that states if you build homes that are 10% below the current average price of a community you will get a tax break as a builder? Every policy being put in place just feeds the cycle of artificially boosting property prices.

    It appears that the folks driving this bus are not capable of learning from the problems of the past.


    • G. Brian Davis

      Thank you for the comprehensive commentary Robert. As you mentioned, it’s a complex topic, which is why I started with a look at the raw numbers, then went on to discuss why those numbers don’t tell anywhere near the full story.
      I agree that loosening credit score standards is a harbinger for trouble, but it’s not all one-sided. People who are bad with money are late on their utility bills all the time, and should be penalized for it on their credit reports. That knife cuts both ways.
      Likewise, my company SparkRental.com is about to launch a service that automates rent collection and reports those rent payments to the credit bureaus. It will help responsible people who pay on time build their credit, and will reveal the bad payment history of irresponsible people who don’t pay on time.
      But to your point, words like “opening the credit box” are definitely red flags, and those sorts of policy pushers should be watched carefully.

      • Credit reports are just one factor. They should not be used to measure the value of a person. What about tenants from other countries who have no credit report? How did we evaluate tenants before credit reports? Even US citizens who may have worked an extended period of time overseas, whether for the US government or in a private capacity come back to the US with the words “insufficient data” on their credit report. It can take years for these perfectly responsible people to develop a credit rating.

        • Dan Heuschele

          They will need to find a landlord that accepts this category of tenants but they will not be renting in my units.

          Dinging credit is one of the few weapons Landlords have in CA. Someone with no credit has nothing to ding. In addition, they have not demonstrated to the credit bureaus that they have a record of being responsible.

          So they will need to search harder for a place to rent. Not my problem. It would be my problem if I rented to them and they thrashed the unit, did not pay and I needed to evict or otherwise convince them to leave, or if they left without any notice.

        • \”…they have not demonstrated to the credit bureaus that they have a record of being responsible\” OR they have had no opportunity to demonstrate to the credit bureaus that they have a record of being responsible. Most landlords have found that foreign tenants tend to be very responsible.

          Maybe your policy works in a market with a healthy vacancy rate. My market has a 0.5% vacancy rate. This means landlords charge too much for poorly maintained units, and there is no competition to naturally remedy the situation. I once knew a single mom with a job offer at the local university who had insufficient data, but had purchased her little RV with cash because she could not even get a loan to help build a credit rating. It took two months for her to find an apartment that first summer because of landlords who looked only at the credit rating and not at the real person even though she was offering to pay six months in advance to cover the summer and the first term of her future employment at the university.

        • Dan Heuschele

          I am not stating that some people with no credit or bad credit would not make decent/good tenants. What I am saying is that because they have no credit or bad credit there is little consequences for them being a bad tenant and therefore I do not rent to them.

          Impacting credit scores is the easiest thing I can do if a tenant does not pay what they owe me. Small claims court is useless for those with no credit or bad credit and takes too much time for seldom collecting on the verdict.

          So it is not my problem that someone that has no credit or bad credit finds it difficult to find a place. They may need to rent a poor unit to build their credit. They may need to take some high interest loans to build credit. After they have decent credit they can apply for my units and if they get into one they are set as long as they are good tenant.

        • Nathan Walter

          I totally agree with you Katie. Actually our entire system is broken, the reliance on the all mighty “credit report” and these three bureaus who are loosely regulated yet have a massive impact on people’s lives. All a credit score is, is an attempt to predict the future based on the past. Let me use myself as an example of why that is totally useless. Back in 2006/7 I had a near perfect credit score and over 10 years of credit history, we are talking 800+. I was able to obtain a great loan, in an over heated market, and overpaid for a house… One I could actually afford. Unfortunately I got hit with a double whammy when the market collapsed in late 2007 and by 2009 my personal circumstances changed and I needed to move. I was forced into foreclosure, ruined my 800+ credit score and was barred from purchasing a house. 6 years past foreclosure I have a 700 score but and am still barred from getting any kind of mortgage due to incorrect and illegal reporting of the foreclosure yet being unable to actually do something about it and get the incorrect data changed. Yeah.. 3 years post foreclosure you should be eligible, I was told last month by no less than 5 lenders thanks but no thanks. In the mean time… I have managed to save my money properly and purchase in cash what is now more than half a million dollars in rental properties (thanks to the crash mostly) all of which are owned out right. With my regular job, my rental properties, and a few other income sources I now make more than $250,000 a year and have a half a million dollars of real estate wholly owned with no loan what so ever and no other debt obligations. I was turned down for a loan on a home of $250,000, with 20% down payment by several lenders. Due to now 6 year old information on my credit report. So.. In 2006 I had zero assets, a risky job and a perfect credit score.. I received a loan and ended up in foreclosure. In 2017 I have all of the above, two kids, a wife and desperately want to own a house near where my job is and not a single person will issue me a mortgage? And I know I am not the only one in this situation. So.. Please explain to me how this stupid credit reporting and scoring system we have works and is in any way a relevant way of predicting who will or who will not pay their mortgage? We need to dump this system and take a look at how credit is done in other countries. We would be shocked… because not only do they not rely on a system that is in any way similar to this crap.. but they have much lower default rates on mortgages, credit cards, etc. etc. Again.. proving that using the past to predict the future is a fallacy.

        • Dan Heuschele

          I would like to see your source that default rates are higher here than other countries. It mostly does not match what I believe I witness in the countries I travel to.

          Also I rent to people with 700 credit scores. I am leery of stating a minimum credit number because of the extenuating circumstances but I fear not using a hard number may open me to lawsuits. So if they ask what a minimum score is I tell them and they must have at least that score. But if they do not ask for our minimum score we look at things like how long ago were the issues. So if they do not ask they may be able to rent with a credit score below our stated minimum. Games we play due to the litigious environment in my rental market.

        • Dan Heuschele

          The problem with both those sources is that they are referring to a time when no doc loans were permitted. The first source explicitly indicates that the reason for the higher defaults in the US was the No doc loans (p. 8). This implies that the reason cited for the higher default in the US has already been addressed. The second reference indicates the difference in default rates is due to Europe loans are recourse loans such that you default on a house your debt is not forgiven.

          Neither report attributes higher defaults in the US back in the 2010/2011 time frame to use of credit reports or secured loans. Basically the reports seem to indicate the opposite. If you allow borrows to provide no evidence of income then you will get high defaults. Basically if you lend to subprime borrowers you will get high defaults. if you allow borrows to default with minimal consequences (i.e. forgiving the debt) you will have more defaults.

          So both references point to the value of having qualified, responsible borrowers. The way this is done is via income verification (no no-doc loans) and via credit reports. In Europe it is also done by having home loan defaults not result in the forgiving of the debt.

    • tim boehm

      Thank you for some excellent insight Robert! I watched this mess start snowballing and couldn’t believe it. I’m a builder and know costs from the ground up, in 2003 my wife and I were looking for a winter get-away place. Southern California and Arizona were on the top of the list, we would look at places and I would say “these people are out of their ********** minds what they want for these places” I knew things would hit the skids. Well we were looking in 2013 and I said “these people are out of their ********* minds, there giving houses away”
      I’m with you on your analysis, it was the easy cheap money that caused the mess! I always thought it was the banks who screwed us, not our own liberal morons!

  4. JL Hut

    Robert I agree completely. I might ad that part of the problem is mixing politics with what should be a free market. Politicians stance is if you can dream the American dream I should give you the American dream (House) in exchange for a vote. On the contrary our country was built on dreaming big and doing the hard work to achieve it. Like working hard, paying bills on time, taking risks and self sacrifice.

    Politicians step in the middle and try to insulate us from the punishment we deserve for bad choices and then rewards us greatly for mediocre behavior.

    The result is they train us to do less and expect more.

  5. Gregory Jackson


    Well-written post!

    I’m in Boston, and prices here are getting pretty crazy. When will they correct? Rub your favorite crystal ball. As you mention above, if interest rates start creeping up from these low levels, look out.


    • G. Brian Davis

      Thanks Greg, and the interest rate creeping is definitely upon us. Three rate hikes expected for this year, and another three planned for next. Doesn’t mean housing will collapse, but I think some particularly overheated markets are vulnerable

  6. David duCille

    Rates creeping up and the Trump administration is making buyers in the Tampa market slightly pump the brakes but not much. We just have miniscule inventory which is driving prices up and we also lack rental inventory as well so rents rising fast. Buyers are being forced to pay rising prices because paying your own mortgage beats paying the landlord’s mortgage. Overall, I still feel it’s a healthy market because Tampa as a city is doing a lot of good things and attracting people here bit it’s sure making it harder for me to find more rental properties as well as my next home for my family.

  7. Marvin Aboona

    You have not accounted for a big reason why there is a decline in low to mid range housing. Rentals are sky high especially in this category. So many of those homes that used to get bought and sold by owner occupants are now held in the hands of investors and they are simply renting. I’m not sure how that adds to the overall issue but its something to think about.

  8. Rob Barry

    A thought-provoking post. Whether or not this is a “bubble” we’re in, I do think that foreign buyers are creating *unrealistic* markets in many cities.

    In China, for example, a great deal of unsophisticated wealth has been created over the past decade or so. Popular uban centers, I’ve heard from numerous developers, have become one of the most popular places for these new rich to stash their assets – safe from the red hand of Big Brother.

    But many of these buyers are not cashflow-oriented, and perhaps only marginally capital-appreciation-oriented. Rather, it’s a way of stashing large piles of cash in what’s traditionally thought to be a safe asset. And look, it might make some money too!

    Big, unsophisticated money is a big problem for value investors of any kind. However, there has been so much luxury property built to service the luxury BUYER market that in places like London, supply has outpaced the demand for luxury rentals. This year, rents are actually DOWN for once (though not mine =/ ). An architect friend of mine in Boston said it’s not uncommon for some of the new luxury highrises to operate at 25% or higher vacancy…

    Personally, I wouldn’t touch that end of the market right now. I think we’re going to see a lot of inventory free up in the next decade from oversupply and the widening income gap. My money is on working class homes not far from urban centers. Not much tuhao sniffing around there.

    • The problem with Chinese buyers is they do not understand the market they are buying in and tend to overpay. Then real estate agents use that overpayment as a comp even though the comp is divorced from objective evaluation.

  9. Steven Ewers

    I live in Southern California and have noticed vacant lots in the middle of houses valued at 1 million +. The seasoned landlords of the area always talk about the lack of low-cost housing in the area. I an speaking specifically of beachside, North San Diego County. My questions to those following this thread (since you all seem extremely knowledgeable) is this: “What specifically needs to happen to promote new construction?” Brian mentions City governments “working more flexibly with developers.” Would anyone want to elaborate on this? It seems a shame for this trend to continue.

    • Dan Heuschele

      Fee in permits, inspections, etc. in San Diego to break ground on a new SRF approaches $100K. That is not including the cost of the land, cost of construction, etc.

      Land zoned for SFR is also costly. Building costs are high.

      This makes is very difficult to build a low end SFR as a decent profit for the risk.

      First thing that could be done is to reduce the cost to break ground as this is the one aspect that is not based of supply and demand as the city sets the fees as they desire as there is no other source (similar to a monopoly). I would think that if there was strong motivation the costs to break ground can be reduced by at least 50%.

      However, when I place offers on properties I know the cost of new construction and take that into account. If new construction prices come down it will trickle into the price of existing structures. Therefore any change should be done slowly.

    • Brett Eggiman

      I second Stevens question. I’m in the Portland market and some counties are charging 20k just to have a meter put on new construction. With the price of property skyrocketing and the county getting greedy it makes it tough for builders to build affordable housing. We’ve still managed to find a few good deals but it’s getting more difficult. Thanks for the article.

  10. Chris Field

    As someone who has done a significant amount of affordable development (google 8-30G) I can tell you the problem.

    Nimby and municipal opposition.

    No one likes or wants development the politicians just play lip service to it. Our entire real estate industry is based on the last one standing. Every person wants to be the last one to buy so their value goes up because of demand and to hell with everyone else.

    We get exactly what we want, affordable housing is just lip service I regularly get 100 nimbys with pick axes at every meeting.

    If they are serious about increasing housing inventory they need to make anti nimby laws. I.e. I should be able to sue the crap out of them if they hold me up. Also municipalities shouldn’t be able to pass burdensome regulations.

    • Steven Ewers

      I see this viciously in effect along coastal SoCal. I can see the point of view since “desirability” (the major player in value) disappears proportionately with new construction. However, to oppose this growth is tantamount to opposing population growth, which is the very thing that makes real estate such a safe bet.

  11. Erika Unhold

    Excellent article, definitely matches what I see in my market, Salt Lake City. I have focused on starter homes and small multi-families for the last 7 years. When I started, inventory was around 150 homes in my normal search price range (sfh up to $250 in 2015, up to $300 in 2016, and now up to $325K in 2017) and locations.

    Currently, inventory in that category is 40 homes. New homes are definitely coming on the market, 20-30/week, but most are selling in less than a week with multiple offers over asking, and lots of cash offers. Average number of days on the market is about 15.

    Don’t think we have much of an issue with the Chinese here, but we do have a fair number of out of state buyers (lots from California) buying vacation homes. Our skyrocketing home prices are still dirt cheap to many west coast buyers. I agree that it tends to drive prices a little higher overall, but higher end sales are on the market considerably longer, averaging closer to 120 days to sale.

    We have seen a long period of suppressed demand, combined with a pretty financially sound, business friendly state that has seen very low unemployment, high job growth, and an increasing population. The prospect of looming rate hikes has people trying to buy before prices and rates increase more, but there is simply no inventory: low supply, high demand equals high prices, particularly in that first time or lower end buyer group.

    I would also like to address Marvin’s point about a significant investor involvement in the current market. Speculation in home buying, just like speculation in stock markets can make the market erratic and unpredictable. Of course, homes are not as liquid, so the bursting of a bubble can be disguised for awhile. Personally, I think we are in bubble territory.

    In a solid, steady market, investors are riding the coattails of the industry. So ask yourself, Are the investors riding the coat tails of a solid base market, or has the market stopped abruptly and momentum has carried the coattails beyond the base? How do you know if you are following the base or have surpassed it? I don’t know, but I would start by looking at the buyers. Is it owner occupants or investors that is driving the demand?

    Steady growth fueled by people who actually live in the homes they buy is less likely to take a sharp dive, because they will not sell their home just because prices are dropping. They need a roof over their heads. Investors are more likely to cut and run if the market turns. They are looking to make extra money. If their investment does not produce, they sell to limit their losses.

    In my market, there is demand from owner occupants, but they are frequently less qualified than investors. Investors are often cash buyers, or at least better-qualified borrowers than first time home-owners. I am concerned that owner occupants are too slow to act in this fast-paced market, and they are rapidly being priced out, particularly with rising interest rates increasing monthly payments. They are willing and able, but they do not have the experience or the courage to jump in before the investors.

    I don’t know how it could be implemented, but it would be nice if, like REO sales through Homepath, all single family homes were open only to owner occupant buyers for the first 2-4 weeks after listing. Not as good for me as an investor, but there are still investor opportunities, and it would be better for the overall health of the market.

    If I gain profit for myself, but the whole world around me is bankrupt, have I really gained? We are all one country. We rise and fall together. We, as investors, need to be aware of and responsible for the consequences of our actions.

  12. Paul F

    I’m in Vancouver. 15% foreign buyers tax introduced last summer here has significantly slowed sales volume and lowered prices a touch on detached houses however condo and townhouse prices are still rising- $650/sq ft or more.

    Now Toronto is heating up wildly, as the foreign money has just gone there instead.

  13. Derek Okahashi

    I hope that he solution is not median income earners living in micro homes and container homes. It’d still be first world, but not the American reality we were all sold on.
    What about the adjustment to the market as baby boomers die? Sounds morbid and I love them (my parents for ex) but it’s a reality that is coming right?

  14. John Teachout

    A lot of good comments on this interesting article. While statistics can apply to large expanses of real estate, I agree with an above post about all real estate being local. I live in a small Georgia county south of Atlanta that has good schools and nearly a zero inventory of available rentals. Housing is moderately priced but rental inventory doesn’t exist. In an adjacent county I just signed a contract to sell a fixer up small house on a city lot with gas, water and sewer hook ups. $10,000 sale price. Just today I received a sales contract on a property I’m purchasing for $19,500 in the county with no rentals available. As soon I can get this property put in shape (yes, needs a lot of work) it will be rented.
    I also have property in a county north of me (closer to Atlanta) that rentals are in high demand but literally 2 miles from there, across that county’s line, properties are cheap and rentals are widely available because that county has lousy schools and no families want their kids in them. Same with an adjacent county to me. So, affordable housing sometimes becomes an issue of “desirable” more than affordable. Investment properties are harder to find but still exist albeit at a higher price than 4 years ago.

  15. The housing market has stalled and there are a lot of reasons. Inventory has shrunk not because people WON\’T sell, it\’s because they CAN\’T sell. Helocs, high prices in retirement areas, unexpected repairs, medical bills, poor retirement savings have left a lot of older folks sitting in a house that they can\’t take a reduction on. Several RE agents have said that Boomers make the worst sellers because their house is in need of a lot of repairs and they have unrealistic expectations for what their house is worth.

    Millenials are the kids of the 2008 bubble. If you were 16-20 years old in 2008 you more than likely saw first hand what it\’s like to live in suburbia and have friends or family lose out on the bust. Now fast forward that kid still to 2017 and they are now 25-29 years old, entering or in the workforce with fresh memories of what can happen if you buy at the wrong time. This is where I have a problem with older folks or agents scolding Millenials and asking \”Why don\’t they buy a house? They\’ll be broke renters forever!\”. Trust me, these young kids are much smarter than you think they are.

    As for me, I\’ve given up on the housing market here in NoVa until prices become much more realistic. Housing here is just insane. I\’m 40 and a renter, which people assume makes me a broke loser, but I also have no debt of any kind, $100K in the bank and $600K in retirement savings. Im happy with being a \”loser!\”

    • Elise Frappier

      You’re totally right. The whole concept that you MUST own a house in order to build wealth has been debunked in the last cycle. Millennials see and understand this, but boomers still believe what used to be the “fundamentals” of 20, 30, 40 years ago. Everything is different now. Credit is easy, but investments that are moderately safe don’t yield enough interests. Ask a millennial if he thinks he will see a penny in retirement money from the government… This is obviously a much bigger subject, but fact is the old saying no longer goes, and boomers didn’t catch on just yet.

      Where I live in Kingston, Ontario, a medium size town a few hours from Toronto, it seems expectations of high returns in the real estate market is evident. I run numbers and just can’t make investing work, even with overly high rents. People try to sell rundown places for exorbitant prices because of the university in the area and know they can rent lousy, badly maintained places to students for 500-600$ per bedroom.

      In my neighborhood, one of the better ones of the city, my neighbors are rebuilding a home that they tore down (asbestos) and was listed at 659,000$ in the fall of 2015. It was unrenovated, and they probably negotiated a decent price on the deal (plus probably insurance money from the asbestos). In the end, for less than a million, they will end up with a brand new house in the best part of town. This month, on the same street, another house, also unrenovated and in dire need of TLC (same owners for over 30 years), just listed theirs for 1,200,000$!!! Mind you, again, same street, neighbors just pulled their house that was listed at 995,000$ after not getting any attention for 6 months, and that house is much, much better and bigger (but does need some renos as well). Lots are all about equal size, same side of the street. We’re renting and quite happy to do so. We’d like to buy something in a year or two, but in Canada the bubble is insane, and as much as I want to buy into our neighborhood, this is just ridiculous and it won’t pop. My patience is wearing thin, but the idea of being the greater fool is just not something I will ever do willingly.

  16. Chris Low

    This is a really interesting read. There are a lot of factors at play, as you’ve described here. I’ve been wondering if we’re hitting a bubble also, but your analysis seems spot on that it’s less of an overall bubble or more of a market scarcity issue, at least for low and middle income properties (which happens to be what we specialize in.) Thanks again!

  17. Ashley Wilson

    The content of this posting was outstanding! I literally read this article twice to absorb all of the information. I think you captured a lot (if not all) of the factors that contribute to the economics behind the housing market. I know in our area (suburbs of Philadelphia), the cost of building new construction is so high, that it is leading to a lot of houses being renovated without demolishing the entire house. By doing so, the neighborhoods are increasing in price as it is almost comparable to new construction. Further expanding the divide between low and mid-income (starter homes). I previously read (I believe it was a WSJ article) that stated across the country, the average flipped home resale price is 9% higher than the value in that area. I find in low to mid-level price range houses that rate to be even greater (at least in our area). Thank you again for a great article!

    • G. Brian Davis

      Thanks Ashley! Much appreciated. I agree, the resurgence in flipping has definitely contributed to more higher-end properties hitting the market. It’ll be interesting to see what happens as the Fed gradually raises rates.

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