Bubble rising/Bubble Poop
Charlotte NC · Member since 2015 · 37 posts · 12 votes
Bubble rising/Bubble Poop
Most Popular Reply
Asheville, NC · Member since 2017 · 170 posts · 242 votes
8yAnd here I thought I was going to learn about bubble poop. I had an image in my head of a little pink pile of poo. How disappointing.
29 Replies
- Lender · Denver, CO · Member since 2009 · 1k+ posts · 597 votes8y
Zero data to support a bubble in our market.
- 8yJames CarlsonPro MemberReal Estate Agent · Colorado | stan.store/JamesCarlson · Member since 2014 · 2k+ posts · 2k+ votes
Good question, and one a lot of people would like to hear a certain answer on. Unfortunately, I don't see a bubble. Consider these numbers:
In 2006, we had roughly:
- 24,000 homes on market at any given time
- 19,000 new homes being built
- 19,000 net migration into Denver
In 2016, those numbers were:
- 4,500 homes on market at any given time
- 9,000 new homes being built
- 38,000 net migration into Denver
Supply has plummeted and demand has increased. I'm not an economist, but I see those and think prices aren't going down.
I guess there's the idea that home prices are far outstripping the rise in incomes so at some point people won't be able to afford the homes. And there's rising interest rates, which should at some point put downward pressure on prices, so the rate of increase in prices may slow a little.
But at least anecdotally -- and beware anecdotes -- we're seeing a lot of clients come to us from San Francisco and Chicago and Seattle and New York. And those people still think Denver's not a bad deal. As long as those people are around, I also don't see prices going anywhere.
I'd love to hear from some of the glass-half-empty folks about this.
- 8ySeth WilcockBusiness MemberLender · Nashville, IN · Member since 2016 · 138 posts · 84 votes
It's not a bubble. There is far too much demand in Denver, and lack of inventory, and hardly any affordable housing being built. Economics 101 states that when there is more demand chasing fewer goods, prices will increase. That's exactly what we're seeing right now. The quality of mortgages in place right now have the lowest default rates that we have ever seen. Wage growth is on the rise currently, which will start to offset the increasing interest rates and finally catch up with home prices. Wages are increasing due to the lowest unemployment rates that we've seen in 40+ years. Employers are starting to pay their people more for retention, and to attract new talent, because employment rates are high, but talent is still in high demand.
Home prices in Denver have been increasing at a pace of about 10% year-over-year for the past 5-6 years. While I do think 10% market appreciation is unsustainable, and we will probably see a slower appreciation rate as interest rates increase, I certainly don't see home prices turning around and going backwards. No data supports that would happen. Even a recession (which we will probably see in about 18-24 months), home price appreciation will level off and flatten out. Once we're out of the recession, home prices will start increasing again. If the 10% appreciation rate continues, that means a $300,000 home in Denver will be worth $330,000 next year, or $30,000 appreciation in one year. That's $2,500/mo in market appreciation.
If you're simply waiting to enter the market because you think home prices are over-inflated you're going to completely miss the boat. If you're waiting for other reasons, let me know. One of the most common reasons people wait to purchase real estate, is the down payment. I provided a few options and details below as reference.
- Conventional financing allows for as little as 3% down payment. Many people wait to buy until they have 20% saved, but in a rapidly appreciating market (like the one we're seeing in Denver right now), that is a losing strategy. It's nearly impossible to save as quickly as homes are appreciating. The only reason people do 20% down instead of a lower down payment is to escape mortgage insurance. That being said, if the cost of mortgage insurance is only a couple hundred dollars per month, and homes are appreciating at thousands of dollars per month, would you rather delay buying to save a couple hundred dollars in mortgage insurance, or buy sooner to start realizing gains of thousands per month? I'll trade a few hundred dollars per month to generate thousands in market appreciation all day long. Mortgage insurance is one of the best investments you can make in this market.
- FHA = 3.5% down payment (no income restrictions, and usually your best bet with poor credit)
- VA = 0% down payment (for eligible veterans only)
- USDA = 0% down payment (subject property must be located in an eligible area, and income restrictions may apply)
- CHFA down payment assistance provides either a 4% grant or 5% silent second to go towards your down payment. If you can get seller concessions towards your closing costs, it's possible to purchase with as little as $1,000. CHFA is subject to qualifying income limits.
- Borrowing against a 401K or TSP is a possibility for down payment funds. If you can borrow at 2-3% against retirement, to earn 10% market appreciation, this is a win.
- If you're a first time home buyer per IRS definition (no homeownership in the past 3 years), you may be able to pull up to $10,000 from an IRA penalty free (not necessarily tax free).
- Gift from a family member
- Borrow against a cash-value life insurance policy
- 8yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Originally posted by @James Carlson:
Good question, and one a lot of people would like to hear a certain answer on. Unfortunately, I don't see a bubble. Consider these numbers:
In 2006, we had roughly:
- 24,000 homes on market at any given time
- 19,000 new homes being built
- 19,000 net migration into Denver
In 2016, those numbers were:
- 4,500 homes on market at any given time
- 9,000 new homes being built
- 38,000 net migration into Denver
Supply has plummeted and demand has increased. I'm not an economist, but I see those and think prices aren't going down.
I guess there's the idea that home prices are far outstripping the rise in incomes so at some point people won't be able to afford the homes. And there's rising interest rates, which should at some point put downward pressure on prices, so the rate of increase in prices may slow a little.
But at least anecdotally -- and beware anecdotes -- we're seeing a lot of clients come to us from San Francisco and Chicago and Seattle and New York. And those people still think Denver's not a bad deal. As long as those people are around, I also don't see prices going anywhere.
I'd love to hear from some of the glass-half-empty folks about this.
I was out there in November stopped into bP world headquarters.. but my friend took me to his country club for dinner it was East of down town kind of out by the airport.. it was a lennar project.. and it was a KILLER value compared to even Portlandia..
your numbers are not so different than portlandia as well.. from 92 to 2007 we were building 12k new doors a year. in 09 we pulled 700 permits yet people kept in migrating same scenario. and price compression in the bad times for median only went down about 20% at the worst of it.. NOW super high end got killed.. but we are right back to highs again.. and I think many market will now make new highs I mean really property goes up every decade what you could buy a home for in the 90s is more in the 2000s and was more than in the 80s and its higher now.. its a natural progression I think ?? so why folks are freaking out about the market coming back to 06 or 07 price points not sure why they are .. ... people make more money now too..
Plus there are WAY more investors than there was in the 80 s and 90s I mean its a huge section of real estate. if there were no investors the rust belt cities and other really old mid west areas that got so depressed would have really cratered.. but folks are chasing cash flow .. and only cash flow they are not looking at the other things that sustain value in real estate.. and for whatever reason they all now thing cash flow is the only smart play and anyone who invests for appreciation is a bozo and a gambler.. which I don't get.
- Investor · Taylor Mill, KY · Member since 2016 · 2k+ posts · 964 votes8y
@Austin Carr No one knows. The market(s) will correct and have a downturn. Guessing when is just that, a guess.
- Cambridge, MA · Member since 2017 · 268 posts · 247 votes8y
This is the text book definition of bubble. 500k over asking price. Sure there are many Silicon Valley millionaires with soaring stock options. Sure there is a shortage of housing. Sure it seems like it can only go up. But when the average person is not able to buy a house, then there is only one way to go .. down.
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The competition for real estate is staying hot in San Francisco. Between the start of the year and the end of May, 79% of single-family homes in the city sold for above the asking price due to low inventory, according to data from Sotheby’s International Realty.
In the same period, 9% of the single-family homes sold for their asking price and 12% sold for less than their asking price. Meanwhile, at the same time last year, 70% of homes sold for more than their asking price, according to the data.
MORE: Frank Lloyd Wright-Designed Minneapolis Home Hits Market for $3.4M
The analysis is based on the San Francisco Association of Realtors MLS closed sales data.
The over-bids are highlighted by one specific sale in the affluent Pacific Heights neighborhood at the start of May, according to the data. The Grand Victorian on Scott Street was asking $7.995 million when it hit the market in April, and changed hands for $9.6 million, a whopping 120% of its asking price, listing records show.
Noe Valley, meanwhile, has been the most competitive market in San Francisco this year. So far this year, 10 homes sold there for $500,000 or more above the asking price. In Bernal Heights, nine homes have sold this year for $500,000 or more over asking.
“The lack of inventory overall is the major contributing factor to homes selling over market,” said Janet Feinberg Schindler of Sotheby’s International Realty, the listing broker of the Scott Street house.
- Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes8y
My barber in Pensacola moonlights as a real estate investor and tells me people from the Northeast come to Florida to buy homes for cash and are willing to pay a few thousand more than the asking price to get the deal.
When I lived in high-cost California, promoters would stop by regularly to advise us to consider states such as Nevada, Arizona, and Texas for investment because we wouldn't believe how cheap house prices were in those areas.
All of this is anecdotal, but it points to people selling high in high-cost areas and buying low in low-cost areas.
- 8yChris LopezPro MemberReal Estate Agent · Denver, CO · Member since 2015 · 1k+ posts · 858 votes
Look at these slides:
They are the best graphs that I've seen that shows supply and demand. There is so much demand. Plus, when the market does turn, it doesn't happen over night. It takes a while, with false bottoms as well. Look at Jan 2010.
Who the hell knows what the market will do! Just because prices seem high (it's relative), doesn't mean that they can't go higher.
- Developer · Chicago, IL · Member since 2016 · 82 posts · 88 votes8y
Originally posted by @James Carlson:
Good question, and one a lot of people would like to hear a certain answer on. Unfortunately, I don't see a bubble. Consider these numbers:
In 2006, we had roughly:
- 24,000 homes on market at any given time
- 19,000 new homes being built
- 19,000 net migration into Denver
In 2016, those numbers were:
- 4,500 homes on market at any given time
- 9,000 new homes being built
- 38,000 net migration into Denver
Supply has plummeted and demand has increased. I'm not an economist, but I see those and think prices aren't going down.
I guess there's the idea that home prices are far outstripping the rise in incomes so at some point people won't be able to afford the homes. And there's rising interest rates, which should at some point put downward pressure on prices, so the rate of increase in prices may slow a little.
But at least anecdotally -- and beware anecdotes -- we're seeing a lot of clients come to us from San Francisco and Chicago and Seattle and New York. And those people still think Denver's not a bad deal. As long as those people are around, I also don't see prices going anywhere.
I'd love to hear from some of the glass-half-empty folks about this.
Not to nitpick, but Chicago prices are WAYYYYY lower than Denver prices. My sister just bought a duplex in a gentrifying area South of Downtown Denver along I-25 and it was almost $700k in totally unupdated condition. The Chicago equivalent is a brick two flat (stacked apartments not side by side) and $700k could buy you an unrenovated unit in all but the nicest parts of the city where it's beyond gentrified. I just bought a two flat, a four flat, and two vacant lots literally adjacent to the elevated train 15 minutes from downtown Chicago for $150,000. They needed to be gutted, but still, Denver is way out of Chicago's league when it comes to prices.
- Rental Property Investor · Vancouver, WA · Member since 2015 · 112 posts · 142 votes8y
There is a ton of building going on here in the Portland/ Vancouver area and I know also in Denver. NO WAY is this the height of the market. Portland and Vancouver still are the cheapest markets on the West coast and with Seattle and San Fran continuing to climb, my guess is that we will too. The question will then continue to be centered on supply as Interest rates rise so will cap rates on these commercial loans for the land and the building. Vancouver, WA with new rail lines,deep water ports and land might deserve a second look for overall investment in the future but the challenge of providing affordable housing options across each of these cities that are becoming less affordable to so many is real and has got to be addressed. Bottom line, is it a bubble? No! Is there money still to be made in each of these cities. Absolutely. However, is there a significant problem related to affordable housing in these super hot markets? YOU BET!
- Contractor · PNW · Member since 2017 · 58 posts · 48 votes8y
I like your enthusiasm Paige, I must confess seeing “bubble poop” is what brought me here.
- Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes8y
Originally posted by @Lauren B.:
And here I thought I was going to learn about bubble poop. I had an image in my head of a little pink pile of poo. How disappointing.
hahahaha -- I didn't even see that till you pointed it out
Second City Real Estate4.821 Reviews - Real Estate Agent · Pensacola, FL · Member since 2014 · 379 posts · 307 votes8y
@Account Closed so does mine, wonder if we have the same barber?
Your barber is right. I sell a lot of 2-4 unit multifamily in Pensacola and Gulf Breeze and the buyers I've worked with or have purchased my listings this year were from: Virginia, California, Colorado, Military stationed overseas, Illinois, and 1 local. I'm working with several local investors as well and they are often outbid by out of the area investors because a low ROI here still looks really strong to someone from a high priced market.
- 8yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 833 posts · 798 votes
@Account Closed - when you start getting real estate tips from your barber, it might be time to exit the market...
http://www.exploringmarkets.com/2014/11/how-joe-kennedy-avoided-stock-market.html
- Contractor · Pensacola, FL · Member since 2017 · 311 posts · 156 votes8y
Originally posted by @Matt Jones:
@Account Closed so does mine, wonder if we have the same barber?
Your barber is right. I sell a lot of 2-4 unit multifamily in Pensacola and Gulf Breeze and the buyers I've worked with or have purchased my listings this year were from: Virginia, California, Colorado, Military stationed overseas, Illinois, and 1 local. I'm working with several local investors as well and they are often outbid by out of the area investors because a low ROI here still looks really strong to someone from a high priced market.
I've been outbid on 3 straight offers on REO properties. I was already bidding at MAO. I don't see how the winning bidder is going to make any money on the deal. These were intended as flips.
I may change strategies to buy hold, perhaps I could bid more and still cashflow. But as of right now, people want too much money for the properties. Contractors want too much money to work on them. Lenders want too much money to finance them. However, ARV has not changed much in Pensacola.
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes8y
@Vinay H. What econ text book did you use in school that says the price of a good must go down when the average person can't afford it? The average person can't afford a Rolex but their prices keep on going up.
Sure, price growth in SF is the second highest in the US. 1. SF Prices have always been volatile and 2. SF prices have little to no impact on prices in Denver or anywhere else in the country. Prices are a reflection of underlying supply and demand characteristics and systemic constructs. Supply and demand are locally driven and fairly isolated.
The data that @Seth Wilcock and @James Carlson provided suggest Denver sits on a solid foundation. As for systemic issues, like we saw with credit and home ownership issues in 2008, few of those exist today and not with the lollapalooza tendency of ten years ago.
- Cambridge, MA · Member since 2017 · 268 posts · 247 votes8y
Originally posted by @Chris Lopez:
Look at these slides:
They are the best graphs that I've seen that shows supply and demand. There is so much demand. Plus, when the market does turn, it doesn't happen over night. It takes a while, with false bottoms as well. Look at Jan 2010.
Who the hell knows what the market will do! Just because prices seem high (it's relative), doesn't mean that they can't go higher.
This picture tells it all. The inventory is tightest since 1985!!! A 30 year low of inventory. I know they are not making more land but it's not like a volcano destroyed all the land either. The imbalance does not bode well. It will need to revert to the mean soon.
- Cambridge, MA · Member since 2017 · 268 posts · 247 votes8y
Originally posted by @Bill F.:
@Vinay H. What econ text book did you use in school that says the price of a good must go down when the average person can't afford it? The average person can't afford a Rolex but their prices keep on going up.
Sure, price growth in SF is the second highest in the US. 1. SF Prices have always been volatile and 2. SF prices have little to no impact on prices in Denver or anywhere else in the country. Prices are a reflection of underlying supply and demand characteristics and systemic constructs. Supply and demand are locally driven and fairly isolated.
The data that @Seth Wilcock and @James Carlson provided suggest Denver sits on a solid foundation. As for systemic issues, like we saw with credit and home ownership issues in 2008, few of those exist today and not with the lollapalooza tendency of ten years ago.
First theory: People cannot afford, but price will keep going up. Rolexes, Ferraris keep going up.
They go up only because there is a perception that they can be resold for higher. They are often purchased with leverage. This works well for investments and collectibles but not with a primary home. A primary home is a cost of living in a region for people who work there. The higher the cost, the higher the wages will need to be. The higher the wages, the higher the taxes will need to be. The higher the wages, the higher the interest rates will need to be. Eventually, something breaks and breaks badly.
If real estate were collectibles, then collectors could hold them for ever and only sell them when needed. But real estate is living and breathing. It needs tenants, buyers, sellers, landlords, cash flow. One group cannot profit indefinitely. If there are only buyers and no sellers, then the buyers give up. We are where oil was in 2007. We were saying there is only so much oil and every one needs oil. North Dakota was producing more jobs than California. Look what happened 5 years after. People adjusted, prices came crashing, producers over-spent. The $200 a-day man camps are gone.
Another example is real estate in London. London is essentially priced out. Living in London is like buying a rolex... only few people can afford it, the market is illiquid.....
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House prices in parts of London that were once at the epicentre of the UK property boom have fallen as much as 15% over the past year in fresh evidence of the impact of the EU referendum.
Figures from Your Move, one of the UK’s biggest estate agency chains, reveal that the average home in Wandsworth – which includes much of Clapham, Balham and Putney – fell by more than £100,000 in value over the last 12 months.
Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDeskBut property prices have surged in the north-west of England, with Blackburn recording the highest growth rates in the UK.
Homes in the London borough of Wandsworth were fetching an average of £805,000 in January 2017 but this has now fallen to £685,000.
Other London boroughs are also showing steep price falls. In Southwark, south London, the average price has dropped from £666,000 to £585,000 in 12 months, while prices have pegged back in Islington, north London, from £750,000 to £684,000.
Wandsworth and Southwark are home to huge speculative property developments facing on to the River Thames – including the Battersea Power Station development – but the market for £1m-plus one-bed properties has shrivelled in recent years.
Your Move said that across the capital average prices were down 2.6% over the year, and have now fallen for the last three months in a row. “This is the steepest annual rate of decline in London prices since August 2009, during the last housing slump, which was itself associated with the banking credit crisis of 2008-09,” it said.
The north-west of England has now replaced the capital as the fastest-growing property market in the UK. Top of the league for price growth is Blackburn, which recorded average prices ahead by 16.4% over the last 12 months.
Warrington is also seeing double-digit growth, with prices up 10.3%. “The north-west’s major conurbations are also performing strongly; Greater Manchester prices are up 4.3%; in Merseyside prices have increased by 8%,” said Your Move.
Nationally, prices grew by 0.5% on the month, but annualised rate of change has fallen to just 0.6%.
“While there have been monthly increases in house prices for the last two months, the annual rate of growth has slowed in England and Wales. Although its beginnings were in London, this has now spread to the south-east and north-east too. All three have seen prices fall on an annual basis,” said Your Move.
Last week figures from Halifax also highlighted how the UK property market is slowing. It said the annual rate of house price growth has fallen to 1.8%, its lowest level for almost five years.
With the most recent official data showing earnings growth averaging 2.5%, that means that unusually, wages are currently outpacing house prices.
Buyers will adjust. Buyers will rent, buy smaller, move further, live in high rises.
- Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes8y
Originally posted by @Thomas Rutkowski:
@Account Closed - when you start getting real estate tips from your barber, it might be time to exit the market...
My barber in San Jose moonlighted in real estate (his wife was a licensed real estate broker [now retired]) and I got insight into the Santa Clara County real estate market. He also had discussions with his clients who were moonlighting in real estate (some successful, some not so successful).
I take the trust-but-verify approach no matter who or where I get my information. If I'm going to be one heart beat away from poverty, I want it to be my heart beat and not someone else's. When someone with long-time skin in the game talks with others who have skin in the game ("The Wealthy Barber" or BiggerPockets), the source is informed (and credible) and the information is worth my time to investigate further.
https://en.wikipedia.org/wiki/The_Wealthy_Barber
My barber in Pensacola has been investing for a few years and tells me he owns three homes (I know he recently sold one for a nice profit). He also tells me he believes Pensacola proper is developed (little upside potential) and the areas surrounding Pensacola today are where Pensacola was 15 years ago. I don't know if he is right, but the information is a good starting point for my market due diligence.
- Cambridge, MA · Member since 2017 · 268 posts · 247 votes8y
Sydney, Australia suffered same issue. in 2016, houses could not stop rising. People kept saying the same thing ... Sydney is so great, people want to move there, rich investors are buying
“Prices have been declining mostly due to tightening credit policies, especially for investment loans,” Mr Lawless said. “It now looks like many of the banks are beginning to loosen those policies and are starting to lend to investors again, so the market is finding a floor,” he said.
SQM Research director Louis Christopher agreed that investors were likely to re-enter the market.
Most banks were well-below restrictive investment lending targets set by the Australian Prudential Regulation Authority and had room to start issuing loans to investors again, Mr Christopher said.
Investors accounted for nearly 60 per cent of the Sydney properties purchased over 2016 and were one of the main drivers of the earlier boom in prices, he added.
- Investor · Boston, MA · Member since 2015 · 1k+ posts · 3k+ votes8y
1. Are we talking about people or average people? If people couldn't afford the property, then none would change hands. Basic supply and demand. Since properties are selling, then obviously someone is buying them. In the case of SF properties, they many not be "average", but it seems the goal post has shifted a bit.
2. You have the causality of what drives prices backwards. Wages mainly drive the cost of the homes, not the other way around. Per Capita Personal Income for Cleveland MSA: $48,968. For Denver $56,982, SF $84,675. Housing prices in Denver go up because there is a demand for it housing. Housing prices in Cleveland don't rise at the same rate because there isn't the same level of demand.
3. Landlords have profited off of tenants since the first caveman let another cave man sleep on his rock in exchange for some woolly manmoth steaks.
4. Comparing oil to housing is disingenuous. For one, oil is a commodity that does not produce a recurring income stream. Also, there is no foreign cartel that can control the supply of US housing.
5. Higher wages don't cause higher interest rates, the rough driver of mortgage rates is the 10yr treasury coupled with the borrower's ability to repay.
6. You know what happened in London that didn't happen in the SF? Brexit. Companies must relocate high paying jobs from The City to other parts of the EU. AKA, increased supply, decreased demand.
- Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes8y
I am investing (a lot) in value add cash flowing real estate in good locations with prudent leverage so that I don't have a poop bubble burst in my own pants.
- Lender · Pensacola, FL · Member since 2017 · 658 posts · 626 votes8y
Originally posted by @Jeremy England:
Originally posted by @Matt Jones:
@Account Closed so does mine, wonder if we have the same barber?
Your barber is right. I sell a lot of 2-4 unit multifamily in Pensacola and Gulf Breeze and the buyers I've worked with or have purchased my listings this year were from: Virginia, California, Colorado, Military stationed overseas, Illinois, and 1 local. I'm working with several local investors as well and they are often outbid by out of the area investors because a low ROI here still looks really strong to someone from a high priced market.
I've been outbid on 3 straight offers on REO properties. I was already bidding at MAO. I don't see how the winning bidder is going to make any money on the deal. These were intended as flips.
I may change strategies to buy hold, perhaps I could bid more and still cashflow. But as of right now, people want too much money for the properties. Contractors want too much money to work on them. Lenders want too much money to finance them. However, ARV has not changed much in Pensacola.
I hope these credit unions know what they are doing because they appear to be helping to pump air into any bubble that might be forming:
(1) One local Pensacola credit union (Gulf Winds) is currently offering 100% financing on mortgage loans.
(2) One of the national credit unions (Alliant) is offering 0% down for "well qualified" first time home buyers and 3% down for non-first time home buyers. It also offers a "cash back rebate program" for buyers and sellers.
DISCLOSURE: I'm a member of both credit unions.
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