Housing Bubble: Why it may be worse than previously thought
Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes
Housing Bubble: Why it may be worse than previously thought
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votesNot everyone gets to own a home.. so the median rents.. those that rise above the median buy homes. and a lot of folks are in the move up mode.. LOTS of cash to put down driving down the need for massive incomes.
I know when I look at my sales of new construction here on the west coast last 5 years and its a small sampling I think we have built and sold about 100 homes.. I would say 10 to 15% were sold for cash.. Oh and price ranges 300 to a million is were we deal.. and I will lump Charleston SC in there since we have been quite active and that is a expensive market relative to local median income.. Any way back to sales data... gone is the day were Everyone put nothing to minimum down.. So don't see the median income affecting the new home prices as much as one might think..
If I think back to my pre 08 days were we were flipping 75 plus homes a year as a retail flipper.. 97% sold for minimum down and I can't really recall a cash sale I am sure we had one but it would be an outlier.. But now its totally flip flopped at least from my little slice of the world. Lots of cash sales.. MOST sales are 10 to 30% down and small sampling is FHA or VA.
WE will bend over backwards for VA ( lot of folks won't deal with it because of time lines and such but we feel its our duty to help our Vets get into our homes)..
199 Replies
- Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes9y
Originally posted by @Account Closed:
Originally posted by @Jon Q.:
Originally posted by @Account Closed:
Originally posted by @Jon Q.:
Originally posted by @Account Closed:
A housing bubble is a run-up in housing prices fueled by demand, speculation and exuberance. ... Speculators enter the market, further driving demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices — and the bubble bursts.
If this is the definition of a housing bubble according to investopedia.... LA may be heading into some serious trouble.
Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)
Income required to qualify = $125,000 (0% down, 4.5% mortgage)
Income required to qualify = $118,000 (5% down, 4.5% mortgage)
Median LA household income = $54,000 (argue accuracy of data with census bureau)
How much home can a household buy with $54,000 = $260,000
Primary factor driving LA prices = Speculation (may also argue demand)
All real estate markets move through real estate market cycles, so how would you compare and contrast a peak in the market cycle with a "bubble"?
The reason I bring this is up as that many people confuse a "bubble" with a market peak, which is what I think you may be doing here. I don't really blame you because the national news regularly write articles that confuse a market peak with "bubbles".
If you'd like to do further research on real estate market cycles, I suggest googling "Dr. Glenn Mueller". He's written extensively on the subject.
Usually an asset typically has an intrinsic value... stock, real estate etc.... when the dispersion between asset prices and its intrinsic value widens dramatically, you have a bubble. Bubbles just dont spring out of the market abruptly but can gradually form within a certain time interval. Are you familiar with the various phases of a bubble?
I don't agree. Typically the pricing of an asset results from supply and demand my friend. In addition, with regard to real estate, there are many other variables that affect pricing. Real estate demand is most strongly determined by population and job growth and forecasts of population and job growth in a market.
I've been investing throughout the United States in more than five cities throughout several market cycles.
Dont agree with what? We werent discussing what determines the price of an asset so just stating the obvious seems irrelevant. You can browse to the first page of the thread where I mention what is driving LA prices.
It's very relevant. Read my response in regard to what determines pricing with regard to real estate.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Austin Unger:
Supply and Demand is determined by underlying factors of population growth, job growth, and historical vacancy. Certain markets have peaked, and supply has finally caught up with demand, and some markets are currently still under supplied, but as long as these underlying key indicators remain as strong as they have I don't see a "bubble". Just the market cycling as it has done since the beginning.
Well, about supply in LA, it requires distinction. There is the supply of listings on the MLS for instance or FSBO where owners list to sell. There is also supply from the standpoint of availiable housing stock. My understanding is that new builds is strictly regulated if not prevented currently in LA. Both of these have an effect on what is LA's price on the supply side. But these arent the only issues driving price. There is speculative activity.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Jon Q.:
Originally posted by @Account Closed:
Originally posted by @Jon Q.:
Originally posted by @Account Closed:
Originally posted by @Jon Q.:
Originally posted by @Account Closed:
A housing bubble is a run-up in housing prices fueled by demand, speculation and exuberance. ... Speculators enter the market, further driving demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices — and the bubble bursts.
If this is the definition of a housing bubble according to investopedia.... LA may be heading into some serious trouble.
Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)
Income required to qualify = $125,000 (0% down, 4.5% mortgage)
Income required to qualify = $118,000 (5% down, 4.5% mortgage)
Median LA household income = $54,000 (argue accuracy of data with census bureau)
How much home can a household buy with $54,000 = $260,000
Primary factor driving LA prices = Speculation (may also argue demand)
All real estate markets move through real estate market cycles, so how would you compare and contrast a peak in the market cycle with a "bubble"?
The reason I bring this is up as that many people confuse a "bubble" with a market peak, which is what I think you may be doing here. I don't really blame you because the national news regularly write articles that confuse a market peak with "bubbles".
If you'd like to do further research on real estate market cycles, I suggest googling "Dr. Glenn Mueller". He's written extensively on the subject.
Usually an asset typically has an intrinsic value... stock, real estate etc.... when the dispersion between asset prices and its intrinsic value widens dramatically, you have a bubble. Bubbles just dont spring out of the market abruptly but can gradually form within a certain time interval. Are you familiar with the various phases of a bubble?
I don't agree. Typically the pricing of an asset results from supply and demand my friend. In addition, with regard to real estate, there are many other variables that affect pricing. Real estate demand is most strongly determined by population and job growth and forecasts of population and job growth in a market.
I've been investing throughout the United States in more than five cities throughout several market cycles.
Dont agree with what? We werent discussing what determines the price of an asset so just stating the obvious seems irrelevant. You can browse to the first page of the thread where I mention what is driving LA prices.
It's very relevant. Read my response in regard to what determines pricing with regard to real estate.
I dont remember having a question about what drives RE prices.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Jon Q.:
Originally posted by @Account Closed:
Originally posted by @Jon Q.:
Originally posted by @Account Closed:
Originally posted by @Jon Q.:
Originally posted by @Account Closed:
A housing bubble is a run-up in housing prices fueled by demand, speculation and exuberance. ... Speculators enter the market, further driving demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices — and the bubble bursts.
If this is the definition of a housing bubble according to investopedia.... LA may be heading into some serious trouble.
Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)
Income required to qualify = $125,000 (0% down, 4.5% mortgage)
Income required to qualify = $118,000 (5% down, 4.5% mortgage)
Median LA household income = $54,000 (argue accuracy of data with census bureau)
How much home can a household buy with $54,000 = $260,000
Primary factor driving LA prices = Speculation (may also argue demand)
All real estate markets move through real estate market cycles, so how would you compare and contrast a peak in the market cycle with a "bubble"?
The reason I bring this is up as that many people confuse a "bubble" with a market peak, which is what I think you may be doing here. I don't really blame you because the national news regularly write articles that confuse a market peak with "bubbles".
If you'd like to do further research on real estate market cycles, I suggest googling "Dr. Glenn Mueller". He's written extensively on the subject.
Usually an asset typically has an intrinsic value... stock, real estate etc.... when the dispersion between asset prices and its intrinsic value widens dramatically, you have a bubble. Bubbles just dont spring out of the market abruptly but can gradually form within a certain time interval. Are you familiar with the various phases of a bubble?
I don't agree. Typically the pricing of an asset results from supply and demand my friend. In addition, with regard to real estate, there are many other variables that affect pricing. Real estate demand is most strongly determined by population and job growth and forecasts of population and job growth in a market.
I've been investing throughout the United States in more than five cities throughout several market cycles.
Dont agree with what? We werent discussing what determines the price of an asset so just stating the obvious seems irrelevant. You can browse to the first page of the thread where I mention what is driving LA prices.
It's very relevant. Read my response in regard to what determines pricing with regard to real estate.
and if you have a question about RE prices, shoot!
- Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes9y
Originally posted by @Account Closed:
A housing bubble is a run-up in housing prices fueled by demand, speculation and exuberance. ... Speculators enter the market, further driving demand. At some point, demand decreases or stagnates at the same time supply increases, resulting in a sharp drop in prices — and the bubble bursts.
If this is the definition of a housing bubble according to investopedia.... LA may be heading into some serious trouble.
Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)
Income required to qualify = $125,000 (0% down, 4.5% mortgage)
Income required to qualify = $118,000 (5% down, 4.5% mortgage)
Median LA household income = $54,000 (argue accuracy of data with census bureau)
How much home can a household buy with $54,000 = $260,000
Primary factor driving LA prices = Speculation (may also argue demand)
Here you go Mike (see below). This is the U.S. Census population growth forecasts to 2030. Notice California's ranking (13th). New York's ranking is 46th!
So now, you'll finally begin to understand what drives demand for real estate. Not only it's intrinsic value (location, concrete, wood, etc.), but also the population and population forecast for an area and jobs and job forecasts.
Guess what? New York and most northeast markets don't rank in the top 15. Primarily population and job growth now and in the distant future will occur primarily in the west, central, and southern regions.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Jon Q.:
Here you go...the problem you cant fix..... I get these sort all the time....
Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)
Income required to qualify = $125,000 (0% down, 4.5% mortgage)
Income required to qualify = $118,000 (5% down, 4.5% mortgage)
Median LA household income = $54,000 (argue accuracy of data with census bureau)
How much home can a household buy with $54,000 = $260,000
Primary factor driving LA prices = Speculation (may also argue demand)
- Investor · San Jose, CA · Member since 2017 · 343 posts · 102 votes9y
@Account Closed- Personally I do agree with you. I have seen two down turns and strongly believe there will be more down turns, next one certainly will not be last one. Today the folks writing about the strong market would write thesis on bubble bursts. International and wealthy CA investors have dumped money wherever they can, we will see how long they can keep the properties vacant.
My commercial lender from one of the market I operate reduced my LOC to 68% from 80% of value as they strongly believe the prices are not realistic. He further told me that he stopped responding to CA investors for fresh loans.
It does not matter to me if bubble continues, if it does not I will be keeping fingers crossed.
Good Luck
Vivek
- Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes9y
UCLA Anderson School said back in 2015 that LA was about 50% into its historical apprecation phase and predicted a return to more normal apprecation levels after that. It should be noted they accurately predicted the previous RE crash. Understand they have a whole dept who researches this stuff. I would say so far UCLAs 2015 prediction is spot on.
Novices on BP have said LA was in a bubble in 2013, 14, 15, 16, and now 17. It must suck to be 100% wrong for that many years.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Tom Chen:
Personally, I don't see it.
The 2008-2009 housing bubble was caused by too loose lending practices.
I don't see that today...
Think about it... if median wage is half what its supposed to be, we are already seeing DTI bumped to 50%, and prices in LA is growing still at a rate that further widens the unaffordability margin, how exactly will the properties be paid for? We are already at a stage where just about every LA investor is saying certain rules do not apply to LA. Properties suddenly werent meant to cash flow, 1% rule etc... these work well elsewhere but not in LA. When investor start concucting new ways to skirt around fundamental valuation techniques, making exceptions so the numbers can work, you know there is an issue with the price level.
- Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes9y
Originally posted by @Account Closed:
Originally posted by @Jon Q.:
Here you go...the problem you cant fix..... I get these sort all the time....
Median LA housing price = $685,000 (zillow avg. of median home value & median listing price)
Income required to qualify = $125,000 (0% down, 4.5% mortgage)
Income required to qualify = $118,000 (5% down, 4.5% mortgage)
Median LA household income = $54,000 (argue accuracy of data with census bureau)
How much home can a household buy with $54,000 = $260,000
Primary factor driving LA prices = Speculation (may also argue demand)
Your numbers are off my friend. In addition, there are many other variables you're not considering that drive real estate pricing.
Source:
http://maps.latimes.com/neighborhoods/income/media...
Since you've not responded to my question about your real estate investment experience, I'm going to assume that you have none.
I'll no longer take this posting seriously.
I wish you the best.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Matt R.:
UCLA Anderson School said back in 2015 that LA was about 50% into its historical apprecation phase and predicted a return to more normal apprecation levels after that. It should be noted they accurately predicted the previous RE crash. Understand they have a whole dept who researches this stuff. I would say so far UCLAs 2015 prediction is spot on so far.
Novices on BP have said LA was in a bubble in 2013, 14, 15, 16, and now 17. It must suck to be 100% wrong for that many years.
Last time I checked, there are more PhDs in economics at the Federal Reserve who's job it actually is to know these things but who apparently didnt see the crash, because usually, its seen after it happens.... last I checked, they said it was a surprise but I am sure they knew about it.
- Real Estate Investor · Flushing, NY · Member since 2016 · 210 posts · 77 votes9y
@Account Closed, I understand the fear, and if banks were as loose as they were nearly a decade ago, there would be cause for concern. Banks aren't loaning money to people who can't prove incomes or don't have a good DTI ratio so the prices of the homes don't really matter.
The people buying these homes are people whose incomes can cover the monthly nut.
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
The neighborhood income data has been posted here quite a few times. You can compute what each neigborhood is able to afford from that list. Only about 23% can afford to buy at median prices.
- Investor · Berkeley, CA · Member since 2015 · 1k+ posts · 713 votes9y
It's called a market cycle. It is constant and never ending. Just because average prices are high and average incomes are not sufficiently high, does not prove that there is a "bubble". What is much more likely is you are in a peak of the market cycle, which I believe is what is occurring in Los Angeles (likely peaked in early 2016). Market cycles last from 5-7 years generally, although there are many variables involved that explain why the cycle may be stretched out or shortened (ex. international buyers, extreme population/job growth, etc.).
I live in the San Francisco Bay Area. The "average person" cannot afford to buy a home here either, but that doesn't prove there's a bubble. There is no bubble. There's a lack of housing (supply).
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Tom Chen:
@Account Closed, I understand the fear, and if banks were as loose as they were nearly a decade ago, there would be cause for concern. Banks aren't loaning money to people who can't prove incomes or don't have a good DTI ratio so the prices of the homes don't really matter.
The people buying these homes are people whose incomes can cover the monthly nut.
The difference with 2008 is that you had multiple asset bubbles amidst a wide scale economic downrurn affecting not just RE but the stock market globally. It doesnt mean bubbles often have to pop in tandem. Bubbles often form in different asset classes and independent of each other. Bubbles can also be market specific, regional or local. It doesnt alway occur in sync globally as it happened in 2008. Some people seem to be misled by looking for similar events, trends and patterns as in 2008. They'll miss it.
- Rental Property Investor · Rockford, IL · Member since 2014 · 4k+ posts · 2k+ votes9y
Originally posted by @Larry Zygon:
Yep.There's a bubble. Anyone who thinks otherwise has his head in the sand.
Actually, there is no "bubble", this time around, unless the lenders manage to re-establish the predatory practices which led to the last one.
The reason you're seeing a run up in home prices now is the housing shortage. We lost some 80% of builders and developers in the crash. Economists estimate we're some 5+ years behind the housing demand right now.
Only the relative dearth of lending is keeping housing prices in check by suppressing demand. Release that and home prices will launch into inter-stellar space.
- Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes9y
Originally posted by @Account Closed:
Originally posted by @Jack B.:
Maybe you should try understanding an article and keep the beligerence to a minimum
Ummmm...you're making up quotes in my name????? Someone ban this guy.
- Rental Property Investor · Seattle, WA · Member since 2014 · 1k+ posts · 1k+ votes9y
Originally posted by @David Dachtera:
Originally posted by @Larry Zygon:
Yep.There's a bubble. Anyone who thinks otherwise has his head in the sand.
Actually, there is no "bubble", this time around, unless the lenders manage to re-establish the predatory practices which led to the last one.
The reason you're seeing a run up in home prices now is the housing shortage. We lost some 80% of builders and developers in the crash. Economists estimate we're some 5+ years behind the housing demand right now.
Only the relative dearth of lending is keeping housing prices in check by suppressing demand. Release that and home prices will launch into inter-stellar space.
Yay, someone who get's it!
- Professional · Brooklyn, NY · Member since 2017 · 624 posts · 147 votes9y
Originally posted by @Jon Q.:
It's called a market cycle. It is constant and never ending. Just because average prices are high and average incomes are not sufficiently high, does not prove that there is a "bubble". What is much more likely is you are in a peak of the market cycle, which I believe is what is occurring in Los Angeles (likely peaked in early 2016). Market cycles last from 5-7 years generally, although there are many variables involved that explain why the cycle may be stretched out or shortened (ex. international buyers, extreme population/job growth, etc.).
I live in the San Francisco Bay Area. The "average person" cannot afford to buy a home here either, but that doesn't prove there's a bubble. There is no bubble. There's a lack of housing (supply).
Thats your view right? You are entitled to it... what I do know is that neither Ben Bernanke or a sea of economist af the Feds saw it in 2008.... they probably thought it was also another trough or peak in the cycle. For a bubble, you look for certain trends and patterns. The goal here isnt to discuss each element triggering a bubble per se. Price is growing at an unsustainable rate in LA compared to income level, that is the fact. It almost doesnt matter why (it does to solve problem) but what matters is in the absence of a reversal of the trend.. its going to pop.
- Rental Property Investor · Pawtucket, RI · Member since 2017 · 47 posts · 37 votes9yPeople let just be cautious and think twice at the moment of make investment, but I can tell there is something going on when I see people over paying for a lot of crapy houses
- Real Estate Broker · Redwood City, CA · Member since 2014 · 679 posts · 888 votes9yTo buy or not to buy, that is the question. I am buying.
- Real Estate Agent · Orlando, FL · Member since 2015 · 126 posts · 74 votes9yI cringe when I hear people talk about how median income levels can't support home values. That should not surprise anyone. in LA, homeownership percentages are somewhere around 47% now. Using that number, median person doesn't own a house! It would be better to use a number closer to 75th percentile of income to describe the median homeowner, not the median person. That number in LA is close to 100k, and guess what, the median home values aren't completely out of whack with the median income of homeowners.