Housing Bubble

[RLflutie7]

Here we go again. Another ponzi scheme soon to implode.

 

I've been reading articles on the internet about the housing bubble bursting. And it appears to be happening as I write this message.

 

It's hard to shift through some of this information because there's so much of it. But, I think I understand most of it. Some of it is just media hype, but most is not.

 

To start out with, I've never bought a house so I don't understand everything about owning a house. But I do understand a buy/sell market place because I sell tickets for a living.

 

I'll define what I think the problem is and then write if I think it's bad. In other words, if it's a real problem.

 

The things I notice about the housing market.

 

1. Housing is tied to the stock market. This is the biggest problem in the housing market today.

 

Gone are the mom and pop builders and in came the companies that are listed on the stock market. Beazer, Pulte, KB Homes, Toll Brothers etc. etc.

 

Fact: ten years ago the top 10 builders built 9% of the new homes on the market. Today they build 21-25% (probably more).

 

To me this causes the glut of inventory because Wall Street will always pressure companies for "growth".

 

Too many houses being built to prop up a stock price, thus pushing the price down (in the long run) because of too much supply. Plus causing suburban sprawl which is not PC.

 

2. Interest only loans: Huge problem.

 

Selling a home to people that should be renting because they can't afford it without the temporary lower payment.

 

This causes the increase in demand and pushes up the price. But this is temporary position. Most markets have not seen rental increases which has never happended before. Most of the time both go up.

 

Second, it causes people to buy a bigger home rather than something they can really afford, gambling on increasing value.

 

When more people can afford a larger home the price gets pushed up because of the increasing demand.

 

3. McMansions. This ties into No. 2. Fact: The average square footage in the last 10 years has doubled.

 

This is a good thing and it may be the saving grace of the housing market.

 

The average price in each market may have risen dramatically, because so many larger homes are being built and sold. Paying a higher price for more square footage makes sense.

 

Unless unqualified buyers are purchasing the larger homes. Which could cause prices of smaller homes to go down (eventually). Prices on smaller homes have gone up for now. But as more larger homes come to market the price is going to crash for smaller homes. I think the new larger home will maintain their market value more.

 

4. Tear downs: Replacing older/smaller homes with larger McMansions on the same lot.

 

This is another good thing.

 

Bringing new product to the market and getting rid of junk. Everyone benefits.

 

When I drive in older areas, I can't help but think the Wall Street home builders should be rebuilding more older neighborhoods because it would keep them "growing" and the inventory glut wouldn't happen. Plus suburban sprawl gets reduced.

 

5. Flippers: Bad genes and greed.

 

Fact: Anytime massive speculation enters into a market place a crash is sure to follow. Driven by hype and stupidity, flippers are now getting their just do. And flippers, once the builders friend, is now the enemy.

 

There are other things to consider. Thoughts?

[Albany,n.y.]

I wouldn't call the recent real estate market a bubble. It's more like flowing with interest rates. If mortgage rates continue to rise (they've gone up over a point this year already) you'll see a slowing of the real estate market, all other things being equal. However, if you're in an area of growth where jobs are being created, there won't be any bursting of a bubble-supply & demand. Without getting too detailed (I'd have to spend hours talking about it to get you to fully understand all the dynamics involved) I'll show you why mortgage rates are the leading factor in home prices after accounting for local economic factors which can cause a boom in a bust period locally & vice-versa. Also, the more interest only mortgages and variable rate mortgages there are among homeowners in an area, the less long term stability when rates change & equity doesn't increase exists-but that's local. Where I am the majority of mortgages are fixed rate. In California, most new mortgages are not fixed, so if a bubble is going to burst, California will be among the worst hit.

In rounded #s:

Say you can afford a $1,500/month mortgage for 30 years.

At 10% interest the amount you can borrow is $171,000

At 9% $186,000

At 8% $204,000

At 7% $225,000

At 6% $250,000

At 5% $279,000

At 4% $314,000

At 3% $356,000

 

So, if you look at the difference between 8% & 5%, $75,000, you can see why real estate increased so much when the rates dropped from around 8% to 5% in the early 2000s. A person can afford to pay an extra $75,000 +/- for a house because it's the same monthly payment. The big winner is the seller, who gets the cash. If the rates stay around 6-7% you probably won't see much of a crash. If they go to the 8-10% range, there will definitely be some "correction" in the market. For a 1st time buyer, it won't help much because the monthly payments will be just as high. The impact is a little less than shown because of income tax benefits as interest rates rise because more interest is paid, but for simplicity sake I hope this explains what's been going on & what might happen in the future. I can't type type well enough to explain things like I'd like to, it would take too long. If Pyrite Gal knows real estate you might be in luck.

[Wacka]

I wouldn't call the recent real estate market a bubble.  It's more like flowing with interest rates.  If mortgage rates continue to rise (they've gone up over a point this year already)  you'll see a slowing of the real estate market, all other things being equal.  However, if you're in an area of growth where jobs are being created, there won't be any bursting of a bubble-supply & demand.  Without getting too detailed (I'd have to spend hours talking about it to get you to fully understand all the dynamics involved)  I'll show you why mortgage rates are the leading factor in home prices after accounting for local economic factors which can cause a boom in a bust period locally & vice-versa.  Also, the more interest only mortgages and variable rate mortgages there are among homeowners in an area, the less long term stability when rates change & equity doesn't increase exists-but that's local.  Where I am the majority of mortgages are fixed rate.  In California, most new mortgages are not fixed, so if a bubble is going to burst, California will be among the worst hit. 

In rounded #s:

Say you can afford a $1,500/month mortgage for 30 years.

At 10% interest the amount you can borrow is $171,000

At 9% $186,000

At 8% $204,000

At 7% $225,000

At 6% $250,000

At 5% $279,000

At 4% $314,000

At 3% $356,000

 

So, if you look at the difference between 8% & 5%, $75,000, you can see why real estate increased so much when the rates dropped from around 8% to 5% in the early 2000s.  A person can afford to pay an extra $75,000 +/- for a house because it's the same monthly payment.  The big winner is the seller, who gets the cash.  If the rates stay around 6-7% you probably won't see much of a crash.  If they go to the 8-10% range, there will definitely be some "correction" in the market.  For a 1st time buyer, it won't help much because the monthly payments will be just as high.  The impact is a little less than shown because of income tax benefits as interest rates rise because more interest is paid, but for simplicity sake I hope this explains what's been going on & what might happen in the future.  I can't type type well enough to explain things like I'd like to, it would take too long.  If Pyrite Gal knows real estate you might be in luck.

717186[/snapback]

 

And at $350k you MIGHT be able to get a condo in the SF bay area.

[EC-Bills]

And at $350k you MIGHT be able to get a condo in the SF bay area.

717527[/snapback]

 

And if you are lucky, you might be able to get one side of a duplex in Hawaii.

[IDBillzFan]

And if you are lucky, you might be able to get one side of a duplex in Hawaii.

717554[/snapback]

There are some mighty fine single-wides available in SoCal starting in the upper $300s.

[erynthered]

There are some mighty fine single-wides available in SoCal starting in the upper $300s.

717843[/snapback]

 

 

Hell, In New Orleans, you get a double wide, a free School bus and 30 pounds of chocolate for $4,000!!

[IDBillzFan]

Hell, In New Orleans, you get a double wide, a free School bus and 30 pounds of chocolate for $4,000!!

717847[/snapback]

You're talking about New Orleans, which makes me wonder: when you refer to 30 pounds of chocolate are you referring to candy or a local two-year-old?

[VABills]

You're talking about New Orleans, which makes me wonder: when you refer to 30 pounds of chocolate are you referring to candy or a local two-year-old?

717871[/snapback]

Well unless eryn is channeling meazza he means candy.

[erynthered]

Well unless eryn is channeling meazza he means candy.

718015[/snapback]

 

 

Faith and begora, who's this?

 

The Ghost of VaBills, has returned.............

[Marshmallow]

And if you are lucky, you might be able to get one side of a duplex in Hawaii.

717554[/snapback]

 

 

There are studio apartments in Manhattan that go for over 1 mil.

[Crap Throwing Monkey]

There are studio apartments in Manhattan that go for over 1 mil.

718257[/snapback]

 

Nonsense. Housing in Manhattan is very affordable. It's quite easy to get a large 2-br apartment on a couple of meager salaries, say what a waitress or unemployed actor would make. I saw it on Friends...

 

Scary thing is, there's more than a few people who would think "I saw it on Friends, so it must be true." Is it any wonder the housing market's !@#$ed up?

[Albany,n.y.]

I still don't get the original post's title "I hope the market crashes". What benefit does RL get if the market crashes? Is he just a miserable guy who wants to see people suffer, mad at the people who have cashed in on the high prices, or hoping to pick something up cheap-which won't be any easier than now if higher interest rates cause lower prices? What is his point?

[Albany,n.y.]

Nonsense.  Housing in Manhattan is very affordable.  It's quite easy to get a large 2-br apartment on a couple of meager salaries, say what a waitress or unemployed actor would make.  I saw it on Friends... 

 

Scary thing is, there's more than a few people who would think "I saw it on Friends, so it must be true."  Is it any wonder the housing market's !@#$ed up?

718264[/snapback]

 

What makes housing affordable for tenants in NYC is rent control & rent stabilization. There are many people paying well under market rents because of these 2 forms of "afordable housing" measures. There are actual death watch people who are out there hunting down apartments of the recently departed because the rents on some of these units are low & can't be raised too much. Housing in NYC is much more affordable for some people than it is in the suburbs. As long as one is a renter instead of an owner, housing in Manhattan can in fact be very affordable.

[VABills]

I still don't get the original post's title "I hope the market crashes".  What benefit does RL get if the market crashes?  Is he just a miserable guy who wants to see people suffer, mad at the people who have cashed in on the high prices, or hoping to pick something up cheap-which won't be any easier than now if higher interest rates cause lower prices?  What is his point?

718331[/snapback]

Misery loves company.

[RLflutie7]

I still don't get the original post's title "I hope the market crashes".  What benefit does RL get if the market crashes?  Is he just a miserable guy who wants to see people suffer, mad at the people who have cashed in on the high prices, or hoping to pick something up cheap-which won't be any easier than now if higher interest rates cause lower prices?  What is his point?

718331[/snapback]

 

I'm sorry I didn't explain myself well enough. I wrote the message at 1:30 a.m so I must have been tired.

 

Back around 1999 I predicted, like many others, that the stock market would crash because internet stocks were BS. I used to watch CNBC all day back then and the total BS that was coming out of that channel was unbelievable.

 

And I knew it was BS at the time, yet most people, especially educated folks, seemed to go along with it. "It" being a ponzi scheme stock market. Accounting fraud etc etc.

 

Many people here said I was an idiot and a "Negative Nancy" because, according to them, the economy was "the strongest that it's ever been".

 

But over the course of time, I was right. The dot.com meltdown happened and the Enron and MCI worldcoms took many people to task.

 

I don't want that to happen in the housing market but I think it will. I don't think there's going to be a "soft landing" here. It won't hurt me directly, but it will in the long run. These prices hurt the family man and/or family structure and put them at risk. I don't have a family so it won't hurt me. All I'm saying is let's get it over with.

 

Basically I'm tired of the BS and this situation is going to be so painful for the average guy. Yea, you have winners and losers but the losers far outweigh the number of winners.

 

Back in 2001 I saw brand new homes in Las Vegas (by Sam Boyd Stadium) being sold for $70K. Now those same homes are about $300K. It's BS. Salaries in that area haven't gone up that much. And home prices don't go up 4 times in 5 years.

[finknottle]

I still don't get the original post's title "I hope the market crashes".  What benefit does RL get if the market crashes?  Is he just a miserable guy who wants to see people suffer, mad at the people who have cashed in on the high prices, or hoping to pick something up cheap-which won't be any easier than now if higher interest rates cause lower prices?  What is his point?

718331[/snapback]

 

Higher interest rates don't hurt you as much if you have plenty of cash on hand. If you are looking for a safe haven instead of an investment per se, it might make sense. When interest rates are high, investments which rely on capital (such as stocks) tend to suffer, making them a less attractive alternative.

[Crap Throwing Monkey]

Back in 2001 I saw brand new homes in Las Vegas (by Sam Boyd Stadium) being sold for $70K. Now those same homes are about $300K.

 

And home prices don't go up 4 times in 5 years.

718361[/snapback]

 

"Home prices don't go up 4 times in 5 years...except when they do!"

 

Statements like that are why many people here think you're an idiot.

[RLflutie7]

"Home prices don't go up 4 times in 5 years...except when they do!"

 

Statements like that are why many people here think you're an idiot.

718368[/snapback]

 

In a traditional sense, home prices don't go up 4 times in five years and maintain that price.

 

Is that better for you, you idiot.

[Albany,n.y.]

"Home prices don't go up 4 times in 5 years...except when they do!"

 

Statements like that are why many people here think you're an idiot.

718368[/snapback]

 

Staements like that cost John Kerry the presidency. "I voted for it, before I voted against it" -dumbest thing ever said by a presidential candidate.

[Albany,n.y.]

In a traditional sense, home prices don't go up 4 times in five years and maintain that price.

 

718370[/snapback]

 

When you're in the fastest growing state in the USA, yeah, they do. Supply & Demand. More people moving to Nevada, homes will cost more until enough are built or people go back to where they came from...or they all gamble away their $ and get foreclosed on.