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.
Did we forget inflation is a monetary issue and that fed is printing money like candy? How would you blame someone from buying ANYTHING at 2.5%, 3% o 4% when any economic theory should point towards a period of inflation? USA is not Japan.
Here in Northern NJ there is no bubble. Its what I call the perfect storm with some extra fuel which is Covid-19.
The perfect storm:
1- Low Interest rates
2- Low Inventory
3- NO Land to build new construction
4- Location right outside of NYC
5- Enormous household Incomes in area
6- Covid-19 (the fuel to the storm)
7- Large population of people looking for living outside of the NYC (aka suburbs)
The surrounding NYC suburbs have roughly 286 households per sq mile. These suburbs includes NJ, CT, Westchester and Long Island. The island of Manhattan has roughly 27,000 households per sq mile. Normal suburban migration is 1-2%. Covid has pushed the migration to 10-15%.
There isn't enough inventory for a 1-2% migration let alone 10-15% so this housing/ inventory issue is going to be around for a long time.
Also put in perspective that the majority of Manhattan residents exiting have 1-3 kids so the suburbs are real appealing. These residents currently own apartments in NYC that are 2-3bed, 2bath worth 1.5-4mil. Most are making there moves to the suburbs and they keeping there million plus dollar apartments. So they are raising all the pricing in the suburbs because they are over paying by a lot, they are extremely liquid and well qualified.
So if your in a market outside of a major city let me know if things are the same in your market
@James Edward it’s slowly on the down slide. The public isn’t convinced. Prices are up but so are days to sell. Look at how many homes in hot areas have a larger number of days on the market.
I think the notion that "inventory is so low" and thinking that this means there can't be a crash is really lacking. I can't quote numbers, but I'm pretty sure people were saying the exact same thing in 2005-2008. Inventory is low when demand is high. Demand is incredibly high right now because we've had decreasing interest rates for several years (just had a big drop in the spring of 2020) and everyone with assets feels rich because all asset prices are rising every day. The minute the music stops, suddenly the demand decreases. A decrease in demand means and increase in inventory.
Another thing that I think is leading to decreased inventory is the lack of foreclosures. And this isn't just due to the fact that home prices are increasing which increases equity and makes foreclosures less of a risk. This is due to mortgage forbearance and banks deciding not to foreclose for a time. I'm assuming this will end some day and we'll see somewhat of a surge in foreclosures which will help to decrease home prices.
If you see the G4's Central Bank Balance Sheet position and M1/M2 Dollar cash position circulating in the market you will understand what does it mean by "permanently changed"
One thing for sure: 10 years from now, there's no more cash-flowing market and ratio between owner and renters will be huge.
@Chuck Patel how are interests low I been shopping around and including quicken loans is giving me a 3.7% interest rate on a vacation home with 10% down credit score in the 800s
Not sure if it’s true, prior to the crash in 2006, there was no problem of low inventory. For a crash to happen, there were plenty of supply, people just stopped buying.
If the value of the dollar is decreased due to inflation and increased currency available why would the prices of real estate drop?
When the interest rate goes UP the price of real estate goes DOWN due to the simple fact that now the borrower is paying MUCH more over the duration of the loan.
When you spend some time with an online mortgage calculator you'll quickly realize the large difference paid in interest even between a 2.5% loan and a 3.5% loan.
I’ve been seeing prices drop locally in Tulsa just this month. It may be that people were pricing so far above the market and they weren’t getting anything, and now having the realization of needing to drop, or the administration, or the COVID concerns lowering with vaccines. All I know is that I’m seeing prices drop.
Don't worry about that. Look for deals that fit your budget, criteria, and risk tolerance, and I'd say add a little more reserves for good measure. You cannot control nor time the market, so don't worry about it =)
I predict interest rates could continue to drop, possible to sub 1%, just take a look at Canada for example. Usually when a progressive cabinet comes in, we model after Canada. Who has low low lowwww rates.
@Sean MacLeod - Are you seeing prices actually drop (closed transactions) or just over priced listings reduce price back in line with market?
Just curious. In St Louis, We have not seen a drop at all. There are some sellers that were shooting for the moon that have come back down to the stratosphere, but year over year closed is still higher.
Where are the markets you are referring to? I’d be curious to know.
For the markets I’m interested in, there are still on going bidding wars and most of the decent houses reasonably priced go under contract in a matter of a few days......
Hard to say, I think the change or shift in the market will be more gradual than a bubble pop, more like slowly deflating a balloon. When interest rates start to climb more and housing inventory increases, it shift back the other way.
@Sean MacLeod - Are you seeing prices actually drop (closed transactions) or just over priced listings reduce price back in line with market?
Just curious. In St Louis, We have not seen a drop at all. There are some sellers that were shooting for the moon that have come back down to the stratosphere, but year over year closed is still higher.
I’ve seen a little of both, but in the price range and area I’ve been monitoring it’s been dropping to just below current market. So while it’s still inflated to say 1.5 years ago, it’s been at it slightly below some of the current market. I’ve been watching the South Tulsa / Bixby / Jenks areas.
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?
An important point to remember is that some 80% of builders / developers went under in the crash of '07 / '08. Housing starts all but stopped for almost three years. That means we were three-plus years behind in putting up new houses and apartments before COVID came along.
We're in a housing shortage right now.
Demand is being stoked both by lending rates and new couples / families being established, and existing families outgrowing their current living quarters.
Twelve years ago, economists were predicting that it would take until 2025 to catch up. That did not take COVID into consideration because no one had heard of it yet.
There's multiple layers to the current housing situation. We need to look past the old paradigm of a housing bubble and look at the current factors as well as factors from the previous event.
Interesting, I think you have too many firsts in terms of unique variables we have not seen before that do not have a history; this makes the question challenging. For example, folks who can work remotely who have been minimally affected by the market, have plenty of cash saved up who can move where it makes the most sense as those jobs are already shifting to permanent WFH. The majority of folks are hurting financially or do not want to move until the pandemic ends. The result is we have low inventory and remote workers with lots of cash (no vacations for the past year and ready to leave the big city), artificially pushing up prices. When the pandemic ends, and folks are not scared to sell and move, and remote workers can move anywhere, it will be interesting. I am beginning to think that smaller markets with a big city's amenities and excellent broadband will be the markets to look at. See these two articles that have influenced my response: