Housing Bubble 2.0

7 Replies

http://www.businessinsider.com/housing-bubble-2-ha...

Interesting article. The Dallas magazine cover is also very catchy. 

Overall, we are seeing Fed interest rates so low and for such a long time, that it has never happened before if I am not wrong. Interesting times we live in.

Home ownership rates declining. Hence rental vacancies declining too and rents rising. While wages  stagnate. 

The outlook for buy and hold (particularly sfh and quads or smaller ) is looking good in my opinion. We have low interest rates and people are renting more than ever with low home ownership rates. Unfortunately for many we also have stagnant wages. I think this is likely to keep people renting and vacancy rates low. I hope that wages increase with inflation so we can see rent increases along with "lower" debt because of inflation. That theoretically would give us greater noi over time along with a low vacancy rate because of the market.

agree with Tom Brooks. If you're a buy and hold, it'll be a good time for you. Unless wages go up, i see house prices dropping once interest rates rise. We will never be a country like we were in the 70s in which much more people owned homes, we're a renter nation now and will stay that way for the foreseeable future. 

Originally posted by @Fred Conway :

agree with Tom Brooks. If you're a buy and hold, it'll be a good time for you. Unless wages go up, i see house prices dropping once interest rates rise. We will never be a country like we were in the 70s in which much more people owned homes, we're a renter nation now and will stay that way for the foreseeable future. 

Fred,

I'm a little confused.  Can you expand on your comments above?  How can it be a good time to buy and hold when wages are supposedly not going up, and you see home prices dropping once interest rates rise?  When was the last time that interest rates rose and home prices dropped in our country?  How much more people owned homes in the 70's compared to now?  I'm not old enough to know what happened in the 70's.

Hersh, which indicators do you see that suggest we have a Housing Bubble 2.0?

Thanks.

I'm not convinced there is another bubble...yet. Most of the SFR purchases the past several years are investors paying cash, or homeowners with at least 20% down. I have started to see some 5% down payments lately but that is only for people with high credit scores and history. The subprime lending practices in the mid 2000s really fueled the first bubble. We dont have that now. Foreclosures are low too. With interest rates expected to rise later this year we may see things start to cool a little, but rates will still be historically low. Also construction of new SFRs is low, helping fuel the demand for existing homes and the prices. They just done seem to be building many SFRs at this point, seems like they have been concentrating more on multi family units and apartments.

@Minh Le

As per the article, prices are higher than or atleast approaching 2006 pre-bubble highs in several places across the country. Ofcorse, take everything with a pinch of salt. Its best to do your own homework. :) And bubble does not necessarily imply that things will start going down.

Since I am trying to get familiar with real estate market cycles before jumping in, I find all these stats and opinions very interesting. 

One thing that somewhat confuses me is if rates are at historic lows and are expected to go up, shouldn't people start buying and hence home ownership rates should go up? Somehow, things dont make complete sense fundamentally speaking. I am not sure one could justify it by including several more factors like demographics, wages, etc but still something seems to be missing. But people with more experience here would be able to comment. 

Originally posted by @Tom Brooks :
The outlook for buy and hold (particularly sfh and quads or smaller ) is looking good in my opinion. We have low interest rates and people are renting more than ever with low home ownership rates. Unfortunately for many we also have stagnant wages. I think this is likely to keep people renting and vacancy rates low. I hope that wages increase with inflation so we can see rent increases along with "lower" debt because of inflation. That theoretically would give us greater noi over time along with a low vacancy rate because of the market.

I agree.  The outlook for buy and hold investors is ALWAYS looking good!  We make money in increasing rents / cash flow as rates rise and people choose to rent, instead of buy OR we make money on appreciation when rates are low and people want to buy what we already own.  Multiple sources of wealth generation my friends!

I think we will experience area specific bubbles in housing. There will be a few boring years of slow gradual growth overall within the typical business cycles. Home ownership will continue to decline as people are living longer and downsizing is becoming more popular across generations. I am concerned about increased government involvement in housing due to declining home ownership rates. The gov can drastically change profit margins and the way we do business. As for general economic outlook, I believe we will have economic issues because 8 percent average annual returns on the s&p isn't sustainable. With lower returns on retirement savings and increased life expectancy people will work longer. This along with more automation and outsourcing will leave the next generation in a tough spot with even larger student loans and an education bubble.

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