What do you think about this article about the current housing bubble?

Question

This article came out today:

http://www.businessinsider.com/housing-bubble-2-ha...

I have some thoughts about it but wanted to see what you guys think first.

So what do you think?

Douglas Dowell · Answer

I think the talk of bubble is offbase.

Robert Schiller one of the few who warned of the subprime crises defines bubbles:

"I define a bubble as a social epidemic that involves extravagant expectations for the future. Today, there is certainly a social and psychological phenomenon of people observing past price increases and thinking that they might keep going."

The reason I think the current housing market is NOT a bubble is that is driven by supply factors.   My theory is that new land developments have slow to return to the marketplace in response to the demand preferences of millennials and boomers both choosing to rent versus purchase.  As rents continue to escalate I believe the land developers will be enitced to return to the game because some the rent sticker shock will exceed lifestyle presences at some price point.

Schillers definition contains an element of subjectivity.   However if  you look to data to support your bubble or no bubble I believe it is largely fundamental driven not IRRATIONAL EXHUBERANCE.

Jonathan Twombly · Answer

I wonder how long this can last.  Last week, I was talking with a friend who sells luxury apartments in Manhattan, and she was telling me that many condo boards and management companies search AirBnB every day to make sure that apartments are not being put out on the site.   Coop and Condo boards are writing anti AirBnB provisions into their bylaws.  Coming soon to a lease near you is a provision that will make it a breach of your lease to sublet on AirBnB, VRBO, etc.  Landlords of conventional market rate apartments are more than happy to kick out a tenant and get more rent on the apartment.  Some landlords are also using AirBnB as a way of taking back apartments from deadbeat tenants, who are notoriously hard to evict in New York.  When the landlords find the place on AirBnB, they rent it themselves, and take possession of the apartment while the deadbeat tenant is gone.  Many tenants think that the management companies and landlords aren't watching, or that they can disguise the apartments, but in fact this is very difficult when you are trying to market the apartment to a renter.

Roy N. · Answer

@Trevor Ewen

I've been waiting for the "bubble" in much of Canada to lose cohesion for about a decade, yet somehow it continues to defy economic sanity.

Roy N. · Answer

Douglas,  look up ... way up ... north of the 49th.  You have bank economists, politicians, and, of course, the media, talking about "the new normal" and any correction being a gentle "soft landing".

... sound familiar?

Jonathan Twombly · Answer

Depends on the secondary and tertiary market.  Charlotte and Greenville (SC) are probably overbuilt at this point.

Account Closed · Answer

Dont forget the fed has been holding interest rates down for years once rates start to rise prices will deflate .Here is some interesting stats

http://blogs.wsj.com/developments/2015/05/26/housi...

Account Closed · Answer

Based on the historical 'house price index', it would seem somewhat of an exaggeration by some although not impossible.

Roy N. · Answer

Under our lease, subletting requires our written consent.  We have recently added wording explicitly identifying that short-term re-renting of any portion of the premises under AirBnB or similar VRBO/rental service is a form of sublet and requires our written consent.  Violation is cause for eviction.

The local authorities here are not very happy with AirBnB and the time to handing out significant fines is short.

Douglas Dowell · Answer

I agree rates will go up a skosh but wth so much EU uncertainty and issues in China I see a moderate increase.   Just my take.

BTW for those interested the Urban Land Institute publishes a groovy consensus forecast.

http://uli.org/wp-content/uploads/ULI-Documents/2015-Spring-ULI-Consensus-Forecast.pdf?utm_source=reportspage&utm_medium=view&utm_campaign=smreport15

Douglas Dowell · Answer

I think that's the right way to frame it @Jonathan Twombly a cyclical issue versus a bubble.   I guess the real question what is the difference and how should we respond?

I believe the response is build if it make sense but have high equity and solid exit strategy lined out assuming the cycle turns in the middle of the project.

If you not interested or willing to take the risk of construction then it might be good to be very selective on what value add deals you buy and what markets you play in.   It seems to me that the 24 hour cities recovered very quickly.

Secondary and Tertiary markets seem to finally turning around a bit.  Probably better bets for new construction and value add deals.

What do you think about this article about the current housing bubble?

Most Popular Reply