Contractor · Mickleton, NJ · Member since 2020 · 114 posts · 112 votes
Prices keep rising... it's a sellers market... signs of a bubble are pervasive but.. is it a bubble or has the market changed permanently.... thoughts?
To follow up on that, we have to remember to invest in deals, not markets. There is good and bad no matter where you look, deals to be made and avoided everywhere.
I really don't think that we're in a bubble. Rates are cheap and there is a lack of inventory which keeps things hot. The lack of inventory in many markets is worse than a lot of people are really acknowledging.
To follow up on that, we have to remember to invest in deals, not markets. There is good and bad no matter where you look, deals to be made and avoided everywhere.
@Jessica Wygal -- I definitely don't hope for a bubble, which would mean a pop and crash, but I also definite hope the appreciation slows soon. This level of price rise is unsustainable -- a normal 3-4% appreciation would be fine.
@Michael Manchester -- Exactly! A good deal makes sense always. Period. To quote Buffett:
"Price is what you pay. Value is what you get."
"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."
"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."
@Yavuz Bayram -- agreed. Since I'm on a Buffett tear:
"If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes."
It's a bubble due to the fact interest rates are stupid low; interest rates can't remain this low forever. The reason they're so low is because the Federal Reserve is attempting to stimulate the economy, as the economy is weak (and Corona is not to blame - the economy has been pumped up for years).
When the interest rate goes up (due to inflation due to all this money printing and due to the rising cost of goods) the price of real estate will drop.
I agree with post above, we are in a bit of a bubble, but the correction won't be major. This will leave a lot of the current valuations in place. Government has propped up the market with unlimited money printing, which will weaken the dollar and we already see that the middle class is getting priced out of purchasing real estate. This will have lasting consequences.
I think housing prices in a general sense will pull back in the near term, but investments (multis vs. single family dwellings) and their respective locations have the opportunity to resist steep pull backs. If I was looking to buy now, i'd be very selective of the location, more so than before, due to the risk of down trend.
Another factor to consider is all the new apartment buildings/condos that have been built in the last five years. I don't know about you guys, but i feel like i see a new one being built every day! I bring this up as a warning to those looking to enter the "luxury apartment" market - I don't want to be competing with these developers for rental prospects after I've paid a premium for my investment. Look to purchase something that distinguishes you from the competition!
@Nicholas L. I agree, seems way overvalued. In areas where I could buy a 3200 sq ft home with pool and garage in a nice area for $350k just 2.5 years ago is now laughable for that price for the same home. Its hard to find what most would consider a 'starter home' for less than $250k it seems. Though of course it depends on area.
The inventory is at an all time low. It may stay that way for a couple of years but I don't believe it will be a "bubble". As @Dan Maciejewski said, that would imply a pop and crash. The loans being written today are nothing like the last bubble. Even if some people can't make their mortgage payments, the appreciation has helped very few of those people be underwater.
The market is dynamistic in nature, so I won't go as far as saying it has permanently changed.
Certain factors are playing a major role in the rising prices we are experiencing today such as the move to suburban from urban centers; however, these trends might be short-lived depending on how well people receive the vaccine, literally I mean.
So far we humans keep reproducing, which we will, the market will continue to follow its natural cycle. Just like how we saw prices plunge in 2008 - 2010 and now it's going in the other direction, the same must happen at some point in the nearest future.
The real question is when would that happen, no one except a clairvoyant can help us with that.
Low rates, immense labor shortage, high materials cost, increased equity means fewer foreclosures, increased money supply...lots of tailwinds, a few of these need to change for the market to gave a meaningful drop. Just had a potential client ask about my schedule, I'm booked out a year, so he is asking about spring 2022. The demand is solid
Price of materials is high, price of labor is high, rents are low compared to price in most markets and inventory is low, interest rates will be low for 3 or 4 years. I don't think this is a bubble.
Great question...I don't know if anyone truly knows what's going on haha. As people mentioned the rates are low, as well as the inventory. For Jersey specifically, there's a mass exodus coming out of NYC so they're all naturally coming here.
Also while a lot of sectors got hit hard during the pandemic, other ones like finance and healthcare (where salaries were decent to begin with) thrived. A good portion of those people took advantage of the stimulus checks and low interest rates and invested it.
Hard to say what will happen next but my prediction is that it will continue to be a seller's market for a good portion of 2021.
My husband and I started house hunting about 3 - 4 years ago and things back then were high (where we were, you had to off over the asking price). We finally purchased in 2020 and prices have only continued to go up so...?
@Account Closed I am not sure what you mean when you say "permanently changed", as from where I stand in real estate all that is going on is all that has happened before, only the details have changed.
Mass housing shortages, booms in price inclines, this sounds like the story my Grandfather told me of when he got back to the US from Japan with a fist full of war bonds in his hands, and bought his house for what at the time was an insane all time high price of $8,700.00. That house last sold for just under $200k some years ago.
All the talk of bubbles and where market is going yet it always seems to be discussing opinions and all but never facts and data. And most importantly, constantly forgetting how home prices keep going up over time, and have done this for hundreds and thousands of years.
There is 2 "anchors" when it comes to home prices; cost of unit construction, pegging the bottom anchor and demand which anchors upward "value" or market price potential.
Here is the thing, houses don't just sprout out of the ground, they are built and have inputs to create them. Regardless of what demand is, or what people "want" to pay, those costs ARE the costs, so either they WILL be paid and more units come into stock OR as we saw in 09,10,11, when there is not the demand or willingness to pay units STOP being built. Thus, looking to the hard data for cost of bringing new units to market is a reliable "anchor" point of prices basis to work from.
The NAHB (National Association of Home Builders) is "THE" experts of all knowledge in what's going on in the market. There data is rather well established, it is going to take years, many years, to catch up on the housing shortage and ramp up construction to parity (where pace of building meets demand at a net 0 factor). And this is if everything goes a-ok with no major disruptions to slow ramping up of construction. the cost of materials is going to keep going up, the cost of labor is absolutely going up because that's what happens when you raise tax's and basis wages, it gets priced into the product at a factor of $1.20 per $1 increase in hard costs.
In order for there to be a "bubble" there must be ability for pricing to fall. With significant housing shortage, declining stock of homes and ever growing costs of new stock, there is nowhere for prices to "fall" too, not for average "bread & butter" homes.
For any significant price declines either a few dozen too a hundred million people would have to up and die over night, cost of materials magically drop by 50%+ over night, or labor costs drop 50%+ over night. I don't see any of those 3 as remotely realistic or probable. Or if we could get 30-50 million people to select living in a tent vs a roof over there head.
And that's the biggest point, housing is NOT a choice, it's an absolute necessity and requirement, literally everyone NEEDS a home of some kind be it a house, apartment, bridge underpass or whatever, it's not a choice and all of the nearly 400million Americans NEED it. "But what if there is tons of foreclosures all of a sudden", simply put so what. Foreclosure changes nothing, those persons still need a roof over there head, all that changed is they became tenants somewhere, very possibly in a house that was foreclosed a month earlier.
In 08/09 we had an over-supply of homes, we were building more than demand. With the crash, we snapped to the other extreme and that's where we are today, and the rubber band of the market is pulling things up, and will continue to do so until we near parity.
We need to accept the reality that we enjoyed lower than value prices for some time, and this is a correction upward that we are in.
Yes we are in a bubble with multiple factors contributing towards this.
* The US Dollar is at risk to Hyperinflation
* The Crypto Market (whether you believe in it or don’t) is not only in a bubble territory but is a highly volatile segment
* 0% interest rates would also diminish the impact of central banks’ “printing of money and buying of debt assets,” and could also spur “real interest rates to likely rise because there will be disinflation or deflation resulting from lower oil and other commodity prices, economic weakness, and more credit problems.”
*Commercial Real Estate & Malls that are homes to several small businesses have struggling tenants to pay and afford their rent which then puts pressure on the banks who hold these mortgages.
*Have you noticed that everyone is a Day Trader now a days, and when people are trading on leverage and a pull back comes, margin calls will be coming in at an all time high.
We at some point have to go through a deleveraging phase and have to let interest rates climb high, which will bring down the prices of assets. When the Bubble will pop is the million dollar question. Printing money only keeps kicking the can down the road. It took about 5 years for the Dot.Com bubble to crumble. Ray Dalio (Who called the 08 Housing Crash) had been preaching we are in bubble territory back in 2018. Think about how much money the Fed has printed since 2018. 20% of American currency alone has been printed in 2020 alone.
I feel like it’s truly unpredictable and the best way to answering this is knowing the market will balance out again when interest rate goes back to the norm