Monmouth County, NJ

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"Go yell at an M&M"

I currently own a "vacation" home in Michigan. Real estate above 400K is just not moving. There was never a bubble, but somehow it's gotten worse. Surely, we won't have to carry two mortgages (and two homeowners' insurance policies; two electric bills; two gas bills; etc.) forever??????



Anyway, have fun with your new home.

I don't think I've ever seen the cost of homes decline for any length of time on the west coast anywhere. In a generally desirable area like SF you might see a hiccup but, over the long run, real property has always been upward.

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Jay

Housing has been very reasonable here for years, but that's starting to change. I bought a 1900sf house on a 100x200' lot in 1993 for $93k (probably would've gone for 250-300k on the west coast at that time). It appears to be worth $190-210k now. Of course, any gains I'd make from selling it would just get wrapped up in a replacement house, but it sure looks nice on paper! Since hurricane Ivan, people have been buying lots with destroyed homes on them for more than they were worth before the storm, then paying to tear down the old structure and build a new house. I figure we are about mid-bubble right now because (a) there's a drastic housing shortage due to Ivan and (b) people are clamoring for "deals" as other people decide to move away from waterfront.

Norman, OK - one the least expensive places in the country...

newer, excellent condition, nice design, 3bd with 2 ACRES of trees - $150K.

I figure in San Diego it would be worth about $750K in Seattle maybe $400K, maybe more due to the lot size.

The good news is this area is growing quickly and the economy is excellent. Should be good years ahead.

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Justin in Austin, get it? :)

Cool races:
- Redman
- Desoto American Triple T

I'm your neighbor 90 miles to the east in Placer County. No bubble here. In fact I think we are leading the state in outrageousness. Bought my house new for 360 and change a year ago. It's now worth 500+. The new houses start at 470 now but the SQ footage is much less then I have so I got a great deal. Another year I will sell again and move up again. Capital gains tax is the only thing keeping me in this house now. On second thought maybe I'll rent this house and use the escrow to buy the next house...

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"The great pleasure in life is doing what people say you cannot do."

I bought a house in San Ramon at $455,000. It worth $850,000 five years later and that is with one down turn in the market. If there is a correction I do not expect prices on my house to drop more that $100,000.

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Saddlesore

Life in the OC - 2 years ago in at mid 500's. Now the same is selling (if you can find one, that is) in the mid 800's. I don't think we'll ever be upside down in the loan on this one, especially with the down payment. We're planning on paying it off.

Life before the OC - 3.5 years ago north of the OC - in at the 130's, still in at the low 300's. We're planning on paying it off.

I hope there's no bubble, but even if there is........we've got a long way to fall before we bottom out.

As an added, bonus to the thread, the WSJ reported that the Silicon Valley is an upcoming area for aparments to be built, due to the shortage of RE in the area and the rebound of the employment outlook....

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Relax2dmax

"Just remember there is only 2 letters difference between STUD and STUPID." Heard on the course of the 1998 Lost Boys Ultramarathon

I guess I don't understand the math. If you sell your house for $500+K and then want to move up, won't any house worth moving up to cost more than $500K potentially a lot more.

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Justin in Austin, get it? :)

Cool races:
- Redman
- Desoto American Triple T

Chicago's doesn't seem that bad, but there is ALOT of new construction going on the market.

Also, there are coversions of 40+ story rental apartments to condos (roughly 500 units each) - apparently the owners of these buildings (who should know more about real estate than I do) feel that now is the time to get out.

I was in Western Michigan a few weeks ago - tons of "for sale" signs. In many cases, a farmer had carved out a lot next to his house and built a house and was selling that.

I live in NYC, which has gone up like a rocket for the last 10 years.

I think it has elements of a bubble here, but the housing market here is very unusual, probably not dissimilar in some ways from San Francisco, but I think only SF and NYC are like that in the US. That is, since Manhattan is an island, they're not making any more land (except for Battery Park City in 1970). And since housing stock can't really increase here measurably, that has a real impact on prices. In addition, the demand side of the equation is so screwy compared to the rest of the country, the housing market elsewhere could blow up, but NYC could be fine. That's because we're so reliant on Wall Street bonus money, the fact that crime has been really low for awhile now, and that we're also a magnet for foreign investment money. Also, as the NYT pointed out yesterday, Manhattan has an unusually large percentage of owner/occupiers, because we have so many co-ops here versus condos.

Living on an island is a pain, but I guess it has its advantages. My place has quadrupled in value in 10 years, which makes me nervous. But like I said, I've come to realize that living in Manhattan is like living in a different country, on a number of levels, including the fact that our economic base is unlike any other in the country. SF is probably similar given how little high-rise construction there is, and may be possible I suspect given its seismic issues. I find the prices in the city there high, but not nearly as scary as out in Palo Alto or Los Altos Hills. That makes Greenwich and Westchester here look relatively affordable.

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"They who would give up an essential liberty for temporary security, deserve neither liberty or security" - Benjamin Franklin
"Don't you see the rest of the country looks upon New York like we're left-wing, communist, Jewish, homosexual pornographers? I think of us that way sometimes and I live here." - Alvy Singer, "Annie Hall"

Yes and No...

Fort McMurray, AB, Canada. We mine oil from sand and the Oil companies are literally spending multi-billions of dollars a year expanding their operations. Expansion requires construction workers and new oil production facilities require new employees. To state that there is a housing shortage is a significant understatement.

We bought 6 years ago at $165K CDN and thought that that was somewhat high. By the end of 2004 it was worth $320K and we needed a bigger house so we pulled the equity out and bought another house at just over $400K. (The rental income from the 1st house is comfortably paying the mortgage payments on the 2nd house.) Since then the city has announced that they have no more room in the sewer or water systems so they will not be releasing any more land for development (at least in the near future). So, as best we can estimate from comparable real estate listings, the value of our houses has jumped 20% in the last 5 months.

We're not sure what to think. I know that we're not going to lose in this deal, as the worst case scenario is that we'll end up with what we started with: a house to live in... But every year for the past 5 years we've looked at the rising house prices and said to ourselves that they can't possibly keep going up. What I've learned is that somehow they will keep going up and up and up.

Ultimately I'm giving it 3 or 4 more years - at which point I want to liquidate and arrange a company paid move to another location (likely Calgary) closer to family and with a moderately more stable real estate market! (Well, maybe it's not more reasonable or more stable, but at least there's a greater selection of houses on the market to choose from!)

So, am I in a housing bubble: definitely "Yes"; but all clues indicate that the bubble is made out of extra stretchy bubble gum that's got lots of life left in it!

Clay

Yes , If you sell you need to move , to a cheaper location

In southern Ca. home prices decreased in the mid 90s about 30% for a few years. With most average homes in southern Ca. at the 450 - 650K ,,, insane . You can drive east a few hundred miles .New Homes starting the mid 100s to 220K, you just have to live the 110 degree heat.

Don't worry about bubbles unless your a speculator , buy / sell in a few type.

Bubble? Maybe, but you gotta live somewhere. Other options are not really options. I probably wouldn't invest in spec real estate around here (Basking Ridge, NJ), but I bought a house last December since I didn't want to live in a rental...if the value goes down, it only hurts if you gotta sell. Sucks, but what can you do?

Montgomery County, Maryland - I don't fear the bubble bursting since I bought my house 4 years ago for $235,000 and could sell it tomorrow for $575,000. I'm glad I live in the affordable part of the county.

Orlando, our small condo near downtown has been getting unsolicited offers for almost 2x the price we paid 4 years ago.

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Marty Gaal, CSCS
One Step Beyond Coaching
Triangle Open Water Swim Series | Old School Aquathon Series
Powerstroke® Freestyle Technique DVD

Don't think I live in a bubble but I feel very fortunate. Bought my house in VA for $115k and put about $20k into it...3BR 2ba brick cape, 1750 sq ft...built in 1948...all brick, stucco walls, hardwood floors throughout and tile bathrooms. In a good school district and I'm getting postcards in my mail offering $225k for it...

Have thought about selling it but for me to move to an equal or better house I'd have to pay more money or otherwise move into a cheaply built new house with vinyl siding, doors, and vinyl floors.

I'm on the east coast of Florida and property values are skyrocketing in the past two years... However housing is still pretty reasonable (nice 3 bed 2 bath with good sq footage for 120-200K). So I think at least in this area things have got a long way to go be a "bubble"

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Can't think of anything to write......

I've been hearing that nonsense ever since I bought my first house (just east of 101 and a block south of Coyote Point) for $23,500 in December of 1969. Heard it from a guy from New Jersey in 1987 when I was selling 3/2 houses in Los Altos for $325-375,000 and he thought they were worth about half that, because of the pricing on the east coast.

Most expensive RE in the USA is SF Bay Area, primarily because of prices in SF and on the peninsula. They've run out of land, so prices are skyrocketing and will continue to do so, barring a 10.5 earthquake or nuclear war.

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Cousin Elwood - Team Over-the-hill Racing
Brought to you by the good folks at Metamucil and Geritol...

"Property for Sale $300,000 - Prime Location"

Palm Beach - 1925

I don't think that was a bubble then...huh?



"La Jolla 1200 sq. ft. home - $400,000" - 2004

"La Jolla 1200 sq. ft. home - $500,000" - 2005

You do the math...

La Jolla 1200 sq. ft. home - $1,350,000 - 2008 ????



Quote from Greenspan regarding 90's - Technology stock markt bubble - case of "irrational exuberance".

He was correct.

Quote from Greenspan regarding 2000's Real Estate market "bubble" - described as "frothy".

I wouldn't bet against this opinion.

Regional Real Estate bubbles do exist... question it is whether it will be a burst or slow leak. Either way prices will decline or maintain there value for years to come (i.e., without value increases). Bubbles are indicative of speculative spending without intension of adding value to the assets. Bubbles simply survive as a result of inflated pricing scheme.

And, for those who think otherwise... I say take EVERY plug nickle have and all available credit you are capable of getting and buy homes... you should be a multi-millionare before the decade is over. Sounds simple to me.

History has shown that ALL assets become over valued at one time or another... the question is how much they become overvalued and when does normal market forces take over to eliminate excesses. I predict the real estate supply and demand imbalance will become normalized at demand subsized as a result of increasing long term interest rates.

FWIW Joe Moya

I'd definately agree that bubbles exist.

My question would be isn't there some way to find out how "bubbled" the property is?

seems that if you figured out the actual "replacement cost" of the house you'd be left with nothing more than the the cost of the land. The land is what, in my completely uneducated and purely guessing, mind is what gives rise to a "bubble".

We rarely have "bubbles" in the midwest outside of some major urban areas because we have oodles and oodles of the same flat, faceless land that can be had for nothing over and over again.

That being said figuring out how much the land is worth in "poor economic conditions" seems like a feasible idea. Add the "poor value land" to the "replacement cost" and you have what the house is worth when teh bubble pops. Compare that to what it's selling for now and you have how big of a bubble you're on.

Seems liek someone out there must specialize in something like this.

~Matt

The value of something is what someone is willing to pay.... while the price of something is what someone can pay.

Sometimes these two concepts are simular - value and price. Sometimes they are far off. Value has a sense of future worth built into the equation. While price is simply what current supply and demand will bear.

When it comes to homes, there is an anomally that occures because of it's utilitarian value that is somewhat very subjective. In other words, people live in them and place a higher value on them than markets seems to reveal. This means that (as an asset class) homes don't have traditional supply-demand curve like elasticity.

What is common is this.. when prices of homes go excessively high, most home owners don't sell. When prices of homes go excessively low, most home owners don't sell. People buy and sell homes when things in their lives changes. The motivation to sell a home is based on life changes rather than market driven reasoning. In general, this makes home values and prices not typically driven by normal market forces of supply and demand.

But, to answer your question... appraisal values tend to be driven by both current prices of home sells and replacement value. While current market prices being the dominant method when compariable homes can be used as benchmarks to determine a homes market value. Replacement value is more typically used when no compariable home can be used as a benchmark.

Both methods have limitations... and, the key one is determining the idea of future value based on current market values. Sometimes they hit the mark and sometimes they don't.

I think the key point missing is this... the effect of asset devaluation to the lending institutions. The federal reserve has more interest in the lending institutions liquidity than in the value of homes (although they are strongly correlative). When value of homes decline at such a rate that the asset values effect the balance sheet of a lending institution, then the ability of that lending institution to lend more money is drastically decreased (in an exponential fashion). This leads to a liquidity crunch. And, that leads to futher declines in homes values because of a lack of financing. This becomes a spiral of failures and foreclosures that reduces overall economic growth relative to what portion of the home's value represents an individuals net worth. And, in the US that is a significant portion of the average persons net worth. This typically means that housing bubbles have more of an impact on economic growth than a simular bubble in the stock market (...although it is not near as much of an issue as it was some 30-50 yrs ago).

Bottomline, finding a floor to property values is very subjective... and, quite honestly I believe homes are worth what a person thinks it value is... but, that's pretty irrelavant since most wouldn't sell regardless of whether or not it was currently excessively over or under valued based on current prices. There seems to be no urgency to sell during dramatic real estate market bubbles.... only when cash flows are reduced (i.e., unemployement) to the point they can not make payments occurs do home owners then try and unwillingly sell.

FWIW Joe Moya

It always strikes me as funny how people refuse to learn from the past. Its a different market now, dividends aren't important. There is only so much land, it can't go down for long, it will bounce back and go up.

We marveled at how rich Japan was and then their market crashed.

Our market was different, till it started to crash. So much of our economy has been financed with debt and yet we think its different with us. For the last 25 years the interest rates have decreased. Which means it is cheaper and easier to borrow money and buy stuff. What will happen when it gets tougher to borrow money?

The Japanese real estate market has declined for 14 CONSECUTIVE YEARS! And yet they have the same amount of land they had 14 years ago.

It was reported in the newspaper that in Washington DC 58% of all mortgage loans are interest only/about 38% for MD & VA. These loans will get more expensive as the interest rates go up, which they will. How many people will be able to stay in these houses that they can't pay for? As the interest rates go up less people will be able to qualify for the loans to pay for the house. As these problems mount banks will require more money down, taking less risks.

If your real estate has gone up in value lately it will go down in value. Don't sell and you won't have a loss, just like if you don't sell you won't have a gain. Its all imaginary money until its in your hands or your writing the check.

$350k in 12 months is certainly very gloomy(and highly doubtful), but I hope you put money down and aren't in an interest only loan. I remember one friend having to write a check to sell his place 7 years ago, he was not happy about that.

Home prices in the Madison (WI) area have increased to the tune of 8%-10% a year for about the last 12 years. While that sounds mild compared to the insanity of certain parts of the country I guess that in my mind it becomes a real problem because for most Americans their income just isn't keeping pace. For most of us the gains in income are offset by increases in taxes, health costs, energy costs etc.. How will the coming generations afford a home unless their boomer parents die and leave them a house or large inheritance? I suspect that many of the posters on this forum pay more in income taxes annually than I earn so maybe this isn't seen as a problem by most of you. My wife and I found an older, 4 bedroom house in a quiet small "city" of 10,000 for $80,000 9 years ago. Yes it has increased in value by about 30% but so has every thing else here and our dreams of a small place in the country are all but gone due to the sky rocketing cost of land and the fact that 1/2 the state of Illinois has purchased second homes in Wisconsin. The number of buyers jumping on the interest only mortgage traps should scare everyone IMO. This housing market will have to correct itself at some point and the economy will suffer as a result.

Santa Monica, CA. I felt like a schmuck when I bought my house 4 years ago b/c I was convinced we bought at the top of the market. Shows you what I know. Prices would have to go down 50% now before I'm in the red. Not bloody likely, I think.

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What a drag it is getting old. -- Stones

An interesting thread on the subject, particularly in CA.

http://forums.kiplinger.com/showthread.php?t=1869&page=1&pp=15

~Matt

Real estate is a great long term investment but a short term crap shoot.

This is nothing new. I've seen huge crashes in the early 80's and early 90's. Seems to go in ten year cycles so we're overdue. The surest sign that a crash is coming is when everybody is jumping into the market and feeding the frenzy.

I read a very interesting article about how a potential killer flu (oriental bird flu, SARS, ect.) and if one of these takes hold how it dramatically would crash the economy and real estate prices. Very realistic possibility. Other factors such as rising gas prices, demographics, etc will effect house prices.

A big crash is coming. It's just a matter of when.

"...Not bloody likely, I think. " Famous last words...

While you may be right about the 50% drop in value... I think the real issue is this...

What if you have 50% drop in value AND an increase of payment by 30% because of increasing interest rates. This is the case that will happen for those that have variable rate mortgages. It not just about market value decreases.

What happens when you have a combination of significant decrease in market values combine with a cash flow crunch (i.e, higher interest rates plus loss of capital/asset liquidity)... You get an inability for the Real Estate markets to supply liquidity into the system. As this occurs, regional economic stress becomes very relavant. And, if the cycle works it way toward regional liquidity cruch because of loss of capital reserves... you have heavy regional unemployement. This means you now could have a home worth less than half the amount of the mortgage and with a significant increase in payments... all the while you are either unemployed or with no chance of pay increases. This is called a hyper-disinflationary economic environment... the anti-thesis to hyper-inflationary economic environment.

This is precisely what happened to the energy income dependent regions of the US. In particular the Western Part of Texas... during the "oil bust" of the early 80's (resulting in the collapse of the Savings and Loan Industry). Another analogy could be made using the more recent Silicon Valley Real Estate market decline. This list is long...

You may be right... but, history doesn't seem to indicate that it is not possible to see drops as much as 50% or greater in instances where Real Estate values are hyper-inflated. So, feeling like a schmuck will only come when you need to sell your house at a loss....hopefully, you will not be one of those individuals. The key to surviving these hyper-disinflationary markets is to have job security - you need a source of cash flow for a period of time that will allow for markets to adjust.

FWIW Joe Moya

El Paso, $200,000 for 2500sqft in a nice area (upper valley)...guess some are getting screwed here! :-)

Ah look at this way... you won't see a 50% drop in value....

Second owner homes here only 3 months ago wer going for about 50-60 dollars a sq. ft. in a nice neighborhood...

The house I own now went for $120 per sq. foot in 1980.

Sold 4 yrs. later for $80 per sq. foot...

Sold 2 yrs. later for $40 per sq. foot...

I bought it for about $50 per sq. foot about 17 years after it was built.... 1997.

Market price only 3 months ago... about $65 per sq. foot. - I know because I bought my neighbors house.

There are homes going up for about $140 per. sq. foot right down the street... that's over a hundred percent increase in 3 months! Same house in San Diego would go easily for about $500-$600 per sq. foot.

There is no way that will be maintained... I'd say the screwing is about to happen. In my world, that will occur when the price of oil drops back below $45 per barrel and long term interest rates climb back to about 6.5-7.5% range.

Joe Moya

that's why i just closed last week on my re-fi -- switched from fully adjustable to fixed. 3% was fun while it lasted. but you're right, some people are going to be SOL.

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What a drag it is getting old. -- Stones

Yup, refinance to a fixed also... just don't see the interest rates will remain so low.

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Jay

What really sucks is for a single guy like me, with a decent job, can't afford to buy a place (at least in San Diego). I don't want a condo with no closets/storage place (ie, too many bikes) and with houses at 500K median, forget about it...

It's enough to bring a guy down ;(

if nothing changes dramatically in the next 6 months, it may be time to head back east.

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TheBikeRacer.com

One of the things going on here in S Fla, is folks can't afford to sell. We bought our 5 br for new for $300k two years ago. Now the new 3 br in our area are starting at $600k. One of my neighbors put his house (same model as mine, but crappy lot, not on lake) onthe market for $570k. There is no "starter home, sell and move up in five years" anymore. Plus the taxes on a new home would kill us. For us to sell, we either have to move out of state or move into a trailer.
I talked to a real estate agent who said that people are starting to move here from Ca. and buying houses sight unseen via the internet.
It's crazy. One guy in Ft/ Lauderdale put a sign in his yard Sunday night. When he got home from work Monday, there was 30 messages on his machine, several with offers.
As long as there is demand like that, I don't see how the bubble can burst. But how are these people paying for it?

"I don't see how the bubble can burst"

Just keep watching... Joe

Yes, indeed it is funny how people don't learn from the past. Euphoria, denial about the market crashing, and the fact there there are plenty of speculators out there are all indicators. It's difficult to teach something about the market to optimistic people. It was difficult in the past, is difficult at the moment, and will be again in the future :)

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�The greater danger for most of us is not that our aim is too high and we miss it, but that it is too low and we reach it.� -Michelangelo

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