Are we in a bubble or is this market permanently changed

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Are we in a bubble or is this market permanently changed

Account Closed
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?

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Michael Manchester
Member since 2021 · 22 posts · 63 votes
5y

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.

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  • Dan Rowley
    Investor · Cary, NC · Member since 2012 · 218 posts · 196 votes
    5y

    @James Edward

    there will always be economic cycles and there is no constant/ permanent state. Predictions are everywhere, but just know things will change and just make sure you are prepared and have not overextended

    4Reply
  • Anthony KingPro Member
    Investor · Charlotte, NC · Member since 2020 · 239 posts · 247 votes
    5y

    @Justin Thorpe herpes is permanent.

    5Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    I think some things are in a bubble like TSLA stock and bitcoin. But real estate not really and due to so much demand and the high cost of creating an increase in inventory (new construction) I don't see the trend changing. The average house is still way cheaper then cost to build in majority of US. Interest rates will stay low for at least 2 years after that we may see a mild decline IF interest rates do rise. 

    2Reply
  • George Hayek
    Real Estate Investor · Strongsville, OH · Member since 2017 · 5 posts · 2 votes
    5y

    Many interesting points above. To echo what many have already said, exceptionally low interest rates coupled with notably low inventory have increased appetite to purchase and pushed prices up. The increase in prices - increase in equity - will damper foreclosure numbers. Prices will likely continue to increase in 2021 with some cooling off due to affordability and future supply. Socio-economic trends, like flight from urban to suburban and downsizing will certainly have their impact on how the future unravels.

    2Reply
  • Account Closed
    Fort Collins, CO · Member since 2017 · 110 posts · 69 votes
    5y

    I’m just smart enough to know that I have no idea what the future holds. Call me crazy.

    12Reply
  • JJ P.
    Real Estate Agent · San DIego · Member since 2019 · 177 posts · 185 votes
    5y

    Inflation will not cause prices to decrease. Rather, they will increase as the value of a dollar is reduced. I think scooping up any long term housing now is the best idea. Anyone who is on the fence about long term buy and holds vs. BRRR or flips should factor in all the current conditions. This is a time to hold on to everything. Interest rates are low, so leverage has never been more appealing.

     It's all cyclical and what goes up will come down, inevitably.    Interest rates are going to have to rise, and the dollar is going to have inflate.   When, not if, is the question.  My best guess is 7-10 years from now, but I have no real clue.  

    3Reply
  • Jennifer S.
    Investor · Wakefield, MA · Member since 2019 · 31 posts · 73 votes
    5y

    I think the bubble in urban areas already "popped" last year as people are moving out to the suburbs (and other cheaper places to live). So the question is whether or not these formerly cheaper places are undergoing a bubble - not so sure. Interest rates are low and will continue to be as long as economy fundamentals are poor. As the pandemic drags on, more and more companies may offer permanent remote work and/or people may decide to move. As long as people from places like the Bay Area, NYC, Boston with the higher salaries continue to demand housing in LCOL/MCOL areas, this is probably going to continue for a while. 

    I think we're in it for the long haul. An equilibration of housing prices across America has long been overdue with housing bubbles in VHCOL areas having popped or in the process of popping (namely Bay Area and Manhatten). When prices drop in some areas, prices go up in others.

    3Reply
  • Paul Shannon
    Rental Property Investor · Fishers, IN · Member since 2016 · 337 posts · 470 votes
    5y

    Every asset is in a bubble.  Interest rates are artificially low.  Margin debt is at a peak.  Money is being printed and flooding the markets.  Banks are eager to lend that money and have a risk-on appetite.  When the FED pumps the breaks and/or treasury yields rise in a meaningful way, the party will stop.  

    Real estate is a safer place to be than some assets, though.  Inflation protection and income are attributes of rentals that can help you weather the storm, as long..... as you aren't over leveraged.  

    What are your other options?  Cash?    

    5Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    5y

    RE is so market-specific.

    If you have a house that comes vacant, I'd encourage you to at least get a value estimate or CMA.

    My area normally has about 200 listings in season, it currently has 30.  PP/LP (99%) with low DOM (30). It's a supply/demand issue.

    Buy and homework vs just blind buy and hold.  Know your market and the dynamics that are driving it.  

    Don't be afraid to sell into the exuberance. If enough cash in some chips, supply will rise and prices should come down but I don't see that happening in my market at least through Oct.  

    What are the listing dynamics in your market?

    4Reply
  • Ujwal Velagapudi
    Investor/Agent/Entrepreneur · Dallas, TX · Member since 2016 · 464 posts · 564 votes
    5y

    If interest rates rise (even though they said they'll remain untouched till 2022), it could start to lower asset values. 

    I'm not sure what a bubble is anymore, I thought a "bubble" & crash/hard correction was imminent since 2017. I've still made a few investments (non-RE) since then, and continuing to do so, but just with a very weary look and a more stringent underwriting process for the specific deal. 

    2Reply
  • William Jenkins
    Real Estate Broker · St. Louis, MO · Member since 2014 · 206 posts · 194 votes
    5y

    My own opinion.....  Owner occupied properties and neighborhoods are probably not in bubble territory (high yes...bubble no).  Values have been on a tear, but people don't buy a home based on price, they buy based on payment.  Cratering interest rates and increased values still lead to the same monthly payment and that is ALL people care about.  I think lower to lower-middle income neighborhoods could be an exception as you really could see job impacts from COVID (think restaurant and hospitality workers, etc.). 
     
    I think investment properties are in bubble territory, and I think it applies pretty much across the board (from small SFR homes, strip centers, office buildings, and the list goes on). The returns that people are purchasing assets for and the leverage they are using is absurd. Either cash flow from those assets (rents) needs to rise substantially, or prices need to fall. I just don't see rents rising in this market which leads me to believe we will see asset prices fall.
      

    4Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    5y

    @Jennifer S. good point.  Prices have "dropped" in some of the most unaffordable areas in the whole country, like San Francisco.  But this is only a tiny portion of the market.

    2Reply
  • Alexander Y. Peter
    Developer · Charlotte, NC · Member since 2016 · 14 posts · 10 votes
    5y

    The question is what is an RE bubble? For me, that is when there is a lot of speculation in the RE market without underlying value and healthy market conditions. No.1 reason for such unhealthy market conditions could be low interest rates that were characterized as "artificially" low by someone.  In reality, though, interest rates are not "artificially low" if you look at them over the centuries. Interest rates were highest in the 14th century and going downhill ever since (with spikes thereafter but still downhill). Hence, no one should expect for interest rates go up significantly near and midterm (up to 5-10 years). Many macroeconomic reasons and political incentives speak against that. Furthermore, the lack of housing and the still strong desire to immigrate to the US will keep housing prices in general high near and midterm. That being said as others mentioned, some RE areas are and will be in "distress" near to midterm, i.e. urban centers like San Francisco and NY and shopping centers and partially offices due to the near- and midterm ramifications of Covid. So no bubble for residential real estate in most markets. Nevertheless, the landscape has not permanently changed. Residential real estate prices could be dragged down by the Treasury's printing press and hypervaluation of Tech companies like in the dotcom bubble in the longterm. But, as David said, nobody is clairvoyant and we'll not be able to predict the future; the longer the time lying ahead of us the more it's pure speculation.  

    2Reply
  • Justin Thorpe
    Member since 2020 · 437 posts · 675 votes
    5y

    @Anthony King

    No experience on that one - sorry!

    1Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    actually, it's permanently changing since 2018 when gov. is pushing more for Quantitative Easing.
    10 years from now there's no more Cash flowing market.

    2Reply
  • Jagger Gran
    New to Real Estate · Abilene, TX · Member since 2021 · 1 post · 1 vote
    5y

    I am no expert but I don't see the market as a bubble. Perhaps each state and local area might experience differing levels of the sellers' market we're in but there is nothing I see that should cause panic.

    1Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    5y

    It's just a lack of inventory. Theres no distress in the market. The natural level of distress is gone. No foreclosures. No short sales; etc. 

    I think we lose this Covid bump eventually and go back to pre-covid pricing, but I don't think it's a massive bubble that will drop below pre-covid pricing.

    Also in many of the markets that I've invested, while prices have gone up 40-60% in the past few years, rents have also gone up between 20-25%. 

    2Reply
  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    From the data, it seems within four years cash-flow market will have a caprate declining by at least 1 percent, most notably Atlanta. Meanwhile for the appreciated market, it will be stagnant and slow growth, only 1-2 pct price increase with 0.1-0.2% caprate decrease.

    1Reply
  • Beth Hollin
    Real Estate Agent · Fort Worth, TX · Member since 2020 · 4 posts · 2 votes
    5y

    I have to assume we're in a bit of a bubble. Like so many others have mentioned, the low interest rates have a lot to do with the current market and they can't stay this low forever. 

    As a potential home buyer myself, I'd like to see a turnaround in the market, if only to not be competing with every other buyer out there!

    1Reply
  • Rob Hakes
    Murray, UT · Member since 2016 · 162 posts · 166 votes
    5y

    As long as we keep getting free money from the government popping into our bank accounts every few months, then yes things have changed as we know them.  

    1Reply
  • Dan DiFilippoBusiness Member
    Real Estate Broker · Fayetteville, NC · Member since 2020 · 251 posts · 244 votes
    5y

    In a sense, I think we are.  Or I've heard it described as the obverse of a bubble.

    It's going to depend upon what market you're referring to. I think that certain markets are wildly overvalued.  I have a broad thesis outlining retiring of millions of Boomers likely having a sustained depressive effect on home values in the urban and suburban areas where they work and have worked for four decades.  This is compounded by, for example, the fact that COVID demonstrated that we *can* work remotely, causing many commercial businesses to rethink their real estate needs.  After this, we have to ask what the states/cities will do if tax receipts decline commensurate with flagging property values.  They would be forced to either increase borrowing, cut programs, or increase their local taxes in order to remain solvent.  And each of those three options only make the problem harder to deal with later on.  Municipalities are already having trouble with this and they are presently financing on low interest terms.  If rates were permitted to rise, it would make deficits an immediate problem.  And this applies to a record number of private companies and also the federal government.

    The net effect of all of this is that I think home price is about to start really mattering to people in ways that it hasn't in a way.  Essentially, a value play in real estate.

    [email protected]910-745-6972
    Brookdale Property Management
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    2Reply
  • Michelle Fenn
    Real Estate Agent · Cleveland OH · Member since 2015 · 216 posts · 275 votes
    5y

    I bought my first home in the  79.   The housing market was hit with 2 curveballs,   1 high interest rates around 10% and woman's earning now had to be considered by banks when applying for a mortgage.   Result was was a sellers market and increased home prices in spite of high interest rates.    

    2.75% interest is amost free money.   Rents are high, and a large percentage of the workforce can work at home and thus has income.    If history is any guide,  sellers markets can exist in strange circumstances.   Until interest rates go above 4-5% and inventory increases substantially this will continue to be a sellers market.  

    6Reply
  • Travis Jacobs
    Rental Property Investor · Chattanooga, TN · Member since 2020 · 30 posts · 18 votes
    5y

    Real estate is local. Some markets will get hit harder than others and some are actually performing bad right now, believe it or not. But overall in the U.S. we are in a real estate bubble, but that doesn't mean it will "pop" soon. Remember, real estate is a hedge against inflation. Compound that with low interest rates, inflation and pent up demand from no inventory, we have an exacerbated problem. Not to mention a high volume of people leaving high taxed states or expensive states into cheaper cost of living states. Larger cities may get hit harder in the short term, or what I call cyclical markets. If interest rates rise too fast and the market gets saturated (which it may this year or next) you will see declining prices gradually over the next few years once that happens. That's what I see and some other macro economists. 

    1Reply
  • Laura Williams
    Kansas City MO · Member since 2014 · 357 posts · 349 votes
    5y

    The cost of materials is going up super fast. Just in the past year wood is 30-50% more expensive I'm being told as well as other building supplies. So if I had to guess I think we are in a new normal. I highly doubt prices in general will ever go back to where they were 5-10 years ago because of the replacement cost being so much higher now. Although I think some densely populated areas of the country the RE will take a while to recover from covid shut downs killing off the small businesses & these lefty leaders who are letting crime get out of control & horrible at attracting business/jobs to the area...like NYC.

    Plus we have the government pumping trillions of dollars into the economy which is going to make everything more expensive. And the Biden Administration is making policy changes which will make the price of oil/gas go up which will also make all things more expensive.

    Covid and the new movement to work from home has also increased demand for housing and people wanting bigger homes so they can work from home. I think alot of businesses will probably not go back to working from an office and some of this demand will stay even after Covid goes away. 

    So my crystal ball says generally RE prices will stay the same or go up ...probably not any giant gains like what we've seen past few years. I think flat to slightly positive is my best guess.

    Should be interesting to read this post again in a couple years to see if my prediction was right lol. 

    3Reply
  • Ricky L.
    Investor · Millburn, NJ · Member since 2015 · 2 posts · 4 votes
    5y

    @Laura Williams I agree with you completely. 10 years ago, I bought a double sink for $200+ from IKEA. The same sink now cost $500+! It’s inflation!

    3Reply
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