Housing Bubble ~ Real Estate Bubble ?

[hyegirl]

How has the housing bubble affected your plans to buy or sell a home ?

[Armat]

How has the housing bubble affected your plans to buy or sell a home ?

What bubble There is no bubble,prices are not going to go down.My house doubled in price in four years.Bubble is refered to something which has no foundation.Actually real state is the most solid investment now.

[Azat]

Well... It has not effected me in any way, but I can tell you that I can not purchase my own home today tat I was more than qualified to purchase 5 years back. After purchasing I spent about 20K to make minor improvements like maple floors and very basic other stuff and today it is priced more than double what I paid for it And even though my salary has gone up about 25% in this 5 year period, I still will not qualify to purchase my current home.

[vava]

...And even though my salary has gone up about 25% in this 5 year period, I still will not qualify to purchase my current home.

Well don't sound sad about it! Rejoice!

 

But be careful - history tells us that there's always a 'down' after a long period of (seemingly exponential) growth in the housing/real estate sector. I see many parallels right now, to 1989, when we had a terrible housing crash (at least here in Canada) and following recession that we didn't get out of 'till 1992 - and then we didn't start seeing the effects of the turnaround until 1995.

 

In some cases, people who purchased right before the drop, didn't see their homes attain the value they paid for them until almost 10 years later. They say but low, sell high - right now it's pretty damn 'high'... not the time to buy (IMO).

[gamavor]

Hint! How come prices are ever high and the interest rates are ever low?

 

Buying a house in US is good business, but if I have to pay my house in lets say 30 years.....its roughly 4 time the original price.

 

I'm stupid and I would rather buy somewhere else on the globe.

[hyegirl]

A real estate bubble is very possible. I will give you a scenario that will probably happen in overly inflated markets before anywhere else. Interest rates rise and only a select few can qualify for the $500 - $700K home prices, which is the average price of a home in my neighborhood. It's called supply and demand - simple economics. Hold on to your money for about 2 to 3 years. The bubble will burst, but probably only in overly inflated markets.

[gevo27]

the interest rates are very very closely wathced, as in how hi or low they should fluctuate.. Mr. Greenspan has been doing a great job.. to bad he almost gonna die.. lol.. the guy is too old.. but he is smart.. the current prime rate i think is around 1.25 still been like that since 9-11... but the real estate companies better collect there riches while they can, its gonna go waaaay down in the near future.. house prices will drop.. so dont worry if you cant afford your current house right now.. you will be able to soon.. lol.. we baught our current house 5 months ago.. for 625K and now its worth over 800K.. its rediculouse.. lol.. the house beside ours sold for over a million they moving out now.. lol.. My sister works in real estate.. and they are waay to happy with all the money they are making. but they gonna search and scrounge for jobs soon.. the "bubble" will burst and it will creat a dramatic impact.. rates will go up, prices will go down

 

thats because the historical penjulum will swing back to its previouse state once again and then again. and again.. we never learn.. lol... ok this was the longest post in a while.. phew...

[hyegirl]

Hold on to your cash. If you buy now you are throwing your money away. There aren't many people left in this job market who can afford the houses at this incredibly hyped up prices. It's not the problem of supply. The problem is demand. Lamborghini (sp?) is a great car...few in the market...super expensive...but how many people are able to buy it? But it's a car that deserves the price tag. Now think how many would buy an Accord if it were sold at Lamborghini price. Why would you make a foolish investment like that? Supply and demand only applies only if the demand can be backed up by the ability to pay. The only thing that is supporting the latter is low interest rate. And now the Feds are in deeeeep "sh*t" with all the mortgage debts that they themselves have basically co-signed. There's no way the Feds can raise interest rates without bursting the biggest housing bubble in the century. Keep your money for two more years. There will be abundance of houses from people selling their "worth less than half of what they paid for" houses in panic once the news hits that it's becoming harder to sell houses. One thing is for sure.....people panic....and SELL SELL SELL.

[Armat]

Hold on to your cash. If you buy now you are throwing your money away. There aren't many people left in this job market who can afford the houses at this incredibly hyped up prices. It's not the problem of supply. The problem is demand. Lamborghini (sp?) is a great car...few in the market...super expensive...but how many people are able to buy it? But it's a car that deserves the price tag. Now think how many would buy an Accord if it were sold at Lamborghini price. Why would you make a foolish investment like that? Supply and demand only applies only if the demand can be backed up by the ability to pay. The only thing that is supporting the latter is low interest rate. And now the Feds are in deeeeep "sh*t" with all the mortgage debts that they themselves have basically co-signed. There's no way the Feds can raise interest rates without bursting the biggest housing bubble in the century. Keep your money for two more years. There will be abundance of houses from people selling their "worth less than half of what they paid for" houses in panic once the news hits that it's becoming harder to sell houses. One thing is for sure.....people panic....and SELL SELL SELL.

Maybe true other states but not here in Boston.Boston has actually housing shortage even for renting due to many universities around here and prices keep going up here.If anything they will level off but not go down.I hope you are right though I would not mind buying a house for investment and collect rent and relocate to Armenia.Shhhhhhhhhhh. my little dream...

[hyegirl]

Armat, your dream may be coming true soooooon

 

 

 

 

The Housing Bubble in New England

 

By Dean Baker[1]

January 5, 2004

 

In the last eight and a half years, the country has experienced an unprecedented run-up in home prices. Over this time, the rise in home sale prices has been more than 40 percentage points higher than the overall rate of inflation. Typically home prices have risen approximately in step with the overall rate of inflation. Neither the great boom of the sixties, nor the demographic surge created by the baby boomers forming their own households in the seventies and eighties, led to any substantial increase in home prices, adjusting for overall inflation.

 

The New England region has been at the center of this run-up in home prices, experiencing an increase in home sale prices that exceeded the overall rate of inflation by more than 70 percentage points over this period. The run-up in home prices in New England over this period was more rapid than in any other region of the nation. The table below shows the increase in home prices (adjusted for the overall rate of inflation) in the United States as a whole, the New England region, the Pacific Coast region (which had the second largest run-up in prices), and each of the six New England States.

 

Table 1

 

Inflation Adjusted Increase in Home Prices 1995-2003

 

United States

34.7%

 

New England

59.6%

 

Pacific States

49.4%

 

 

 

 

Connecticut

36.4%

 

Maine

44.9%

 

Massachusetts

73.5%

 

New Hampshire

67.8%

 

Rhode Island

53.3%

 

Vermont

26.1%

 

 

Source: Office of Federal Housing Enterprise Oversight and Bureau of Labor Statistics.[2]

 

While the most obvious explanation for this increase in home prices is that it is due to a real estate bubble that paralleled the stock bubble – as happened in Japan -- some analysts have attributed this run-up in home prices to fundamental factors affecting the supply and demand for housing. This list of factors includes:

 

1) an increasing population due to immigration,

 

2) limited supplies of urban land,

 

3) environmental restrictions on building,

 

4) growing incomes of homebuyers.

 

The problem with these explanations is that none of them are new to this period – if these factors explain the current run-up in home prices, then they should have also led to rising real home prices in prior decades, when many of the factors (e.g. rising incomes) would have played a larger role in pushing up home prices.

 

At a more basic level, if these fundamentals were to explain a run-up in home prices, then they should also be driving up rental prices. If higher home prices are due to an insufficient supply of housing, then the effects in the sale and rental market should be comparable. While rents did originally outpace overall inflation in the period from 1995-2002, they did not rise anywhere near as much as home prices, increasing approximately 10 percentage points more than the overall rate of inflation. More recently, rental inflation has slowed. In the last year and a half rents nationwide have risen slightly less than the overall rate of inflation. In some bubble markets, such as San Francisco and Seattle, rents are actually falling. This pattern is completely inconsistent with a run-up in home prices that is driven by fundamental factors, rather than by a speculative bubble.

 

If the run-up in home prices in New England and elsewhere is attributable to a speculative bubble, then it will inevitably burst. Like the stock market crash, a collapse of the housing bubble is likely to be a serious blow to the economy. It will virtually ensure a second dip to the recession. It is also likely to be devastating to the personal finances of millions of families, whose home is their largest financial asset.

 

Unfortunately, few families realize that much of the wealth in their homes could disappear in a collapse of the housing bubble. As was the case with the stock bubble, the vast majority of economic analysts have failed to recognize the housing bubble. Families have been encouraged to treat housing as a secure investment that can only appreciate in value. This view from experts has led homeowners to borrow in record amounts – the ratio of equity to value is at a post-war low among homeowners, in spite of the record appreciation in home prices.[3]

 

If home prices move back toward their pre-bubble levels, many families will find that their mortgages equal or exceed the market value of their home, leaving them with no equity. For aging baby boomers who are nearing retirement, many of whom have recently lost much of their savings in the stock market crash, such a blow may destroy any hopes of a financially secure retirement.

 

While some of the increase in home prices is likely to be real – just as some “new economy” stocks have survived the crash, it is likely that the regions experiencing the largest run-up in home prices will see the largest fall during the crash. For this reason the New England region is especially vulnerable to a downturn in the housing market.

 

Table 2 shows the real increase in home sale prices over the last five years in the major metropolitan areas in the New England region. The last row shows the real increase in rent in the Boston metropolitan area, the only metropolitan area in the region for which the Bureau of Labor Statistics publishes a rent index. As can be seen, the real increase in home prices vastly exceeds the increase in rents in Boston in every city on the list. As is the case nationally, the rate of increase in rental prices has slowed dramatically in the Boston area. Over the last year, rent in the Boston area has increased by 3.6 percent, compared to increases of more than 7 percent in the prior two years. This pattern of slowing rental inflation is consistent with the run-up in home prices being explained by a speculative bubble instead of underlying factors in the regional housing market.

 

 

 

Table 2

 

Inflation Adjusted Increase in Home Prices 1998-2003

 

Barnstable-Yarmouth, MA

79.2%

 

Boston, MA-NH

55.0%

 

Bridgeport, CT

40.9%

 

Brockton, MA

63.3%

 

Burlington, VT

26.3%

 

Danbury

34.3%

 

Fitchburg-Leominster, MA

55.3%

 

Hartford, CT

25.1%

 

Lawrence, MA-NH

53.4%

 

Lowell, MA-NH

54.2%

 

Manchester, NH

54.9%

 

Nashua, NH

61.8%

 

New Haven-Meriden, CT

33.3%

 

New London-Norwich, CT-RI

36.4%

 

Portland, ME

41.1%

 

Portsmouth-Rochester, NH-ME

50.2%

 

Providence-Fall River Warwick, RI-MA

52.0%

 

Stamford-Norwalk

42.8%

 

Waterbury, CT

24.5%

 

Worcester, MA-CT

51.1%

 

 

Boston – Rent Index

 

12.0%

 

 

 

Source: Office of Federal Housing Enterprise Oversight and Bureau of Labor Statistics.[4]

 

The public should be calling on presidential candidates to address the issue of the housing bubble. The failure to recognize the stock market bubble was the major cause of the current recession and the resulting job losses. While it may be too late to prevent a sharp decline in house prices, the next president should be prepared to offer a program of economic stimulus to counter-act the recessionary effects of the bursting of the housing bubble.

 

 

--------------------------------------------------------------------------------

 

 

 

 

 

http://www.cepr.net/New_England_Housing_Bubble.htm

[gevo27]

Hyrgurl jan.. you follow this stuff so closely?? lol.. You wana buy a house to

[-=VAHE=-]

My Boss is in the real estate bussiness and actually makesa a big profit from it and I really will take his word for real estate. He told me us that the prices will drop in a year so did my teacher a Real Estate Agent. Just be carefull guys wait a year before buying any houses.

[Sasun]

Folks, what do you think? Is there a housing bubble that will burst, or the current high prices on homes are a normal pattern? I have been hearing about a bubble but it does not look like the prices are going down.

[ED]

It is Sasun Jan, and it’s a huge bubble, the only sector of the economy which is still holding this country from sliding into recession, but eventually and very soon the bubble will burst, then all hell will break loose

 

I'm putting my house up in the market

[ExtraHye]

I'm putting my house up in the market

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Do you need a realtor?

[MosJan]

Folks, what do you think? Is there a housing bubble that will burst, or the current high prices on homes are a normal pattern? I have been hearing about a bubble but it does not look like the prices are going down.

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Sasunb JAn yes menakmi ban gitem or mardiq tsiyr @ tsiyrin en aprum

mijin TAn arjeq@ iysor $420,000 ~$500 LA - 1 kam 2 Hogi ashxatogh unetsogh tun @ shat djvarutyab e vjarum iys tan hamar

xosum eyi barekamis het ov Washingon MUtual collaction department e ashxatum - asum er or verjin 6 amsva mej mardiq ov chem karogh vjarel avelatsel en 25% yev avel de hiam du indz asa te iys arjeqner@ esopes mnalu en te voch

[MosJan]

It is Sasun Jan, and it’s a huge bubble, the only sector of the economy which is still holding this country from sliding into recession, but eventually and very soon the bubble will burst, then all hell will break loose

 

I'm putting my house up in the market

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putting your house up in the market will not solv your problem

if you dont get a new house in next 6 months you will pay %32 tax so most of whom i know who has sold a house - getting ready to get a new one since no Armenia will pay A TAX en el %32

[Sasun]

The housing market is very hot as of now. How come people are paying big money to buy a home? If they expected a bubble it would not happen. I understand the rates are down. There is a theory that if most people are not expecting a burst, then it will not burst because people will continue buying homes at high prices.

[Anileve]

Do you need a realtor? 

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Amy jan, you got into real estate? Awesome! If you play your cards right it can be a very profitable business, but you must put yourself out there and socialize until you are blue in the face. I thought of doing that at some point, my ex used to do that for a living. He would hit a few closing at once and get a hefty $10,000 and I got to spend some of it. Congrats.

[ExtraHye]

Amy jan, you got into real estate? Awesome! If you play your cards right it can be a very profitable business, but you must put yourself out there and socialize until you are blue in the face. I thought of doing that at some point, my ex used to do that for a living. He would hit a few closing at once and get a hefty $10,000 and I got to spend some of it.  Congrats.

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I was thinking of getting into the business, but I met a guy who's a realtor instead So he gets to do all the fun, and guess who helps him spend it?

[Anileve]

I was thinking of getting into the business, but I met a guy who's a realtor instead   So he gets to do all the fun, and guess who helps him spend it? 

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You are a model girlfriend.

[Azat]

Is there a housing bubble? Absolutely and it is not because home prices are up 15% since the beginning of the year or that in the last 5-6 years home prices have tripled in some areas it is because as of last week only 17% of California families can afford a home. 12% in San Fran and Orange County areas. Similar figures in NY and Mass and other coastal areas.

 

Families are not getting into the traditional loans(15 and 30 year fixed). People are getting 1% loans or interest only loans and other loans which are bound to go up as the Mr Grenspan looks for ways to increase the long term interest rates.

 

All those combined is a proof that we are in a bubble.

 

I know many real estate offices and mortgage companies are starting to staff up in people who specialize in for-closures.

 

Is the bubble going to burst. Yes. Some regions will feel it more that others but in general do not expect for home prices to decline in 50% or something crazy like that. maybe 10-20%. But all those who are on interest only will suddenly realize that they are paying for a mortgage that is worth 100000, 200000 even more than their house is worth.

 

I personally took the opportunity of the low interest rates and refinanced my home and shortened the term, unlike most of my friends and family who refinanced and took out 100s of thousands of dollars to pay off cars and credit cards and and and... I have a feeling in the long run I am going to win.

[Sasun]

The following article comes to confirm that there is at least a moderate bubble in some regions.

 

http://news.yahoo.com/s/ap/20050524/ap_on_bi_ge/economy

 

Last week, Fed Chairman Alan Greenspan acknowledged concerns about "froth" in the housing market. "We don't perceive that there is a national bubble, but it's hard not to see that ... there are a lot of local bubbles," he said in remarks to the Economic Club of New York.

 

I wonder if my area is one of the local bubbles that Greenspan is talking about.

 

One thing I want to understand, if the existing homes are selling so high, what are the sellers buying? New homes? Or moving to cheaper homes because the market is hot and/or they could not afford their existing homes? What is the trend?

 

One other point, I am figuring that if one has to buy a home now, the best option is a fixed 30 year option. My reasoning is, the rates move in the opposite direction with home prices. If the prices go down and rates go up the least one can do is right now secure a low fixed rate.

 

Another thing one can do is buy a multi-family house and rent part of it. The reasoning is rents too move in the opposite direction of home prices. So if your home depreciates it can be offset by increased rental income.

 

Any thoughts on that?

[Sasun]

Is there a housing bubble?  Absolutely and it is not because home prices are up 15% since the beginning of the year or that in the last 5-6 years home prices have tripled in some areas it is because as of last week only 17% of California families can afford a home. 12% in San Fran and Orange County areas.  Similar figures in NY and Mass and other coastal areas.

 

Families are not getting into the traditional loans(15 and 30 year fixed).  People are getting 1% loans or interest only loans and other loans which are bound to go up as the Mr Grenspan looks for ways to increase the long term interest rates.

 

All those combined is a proof that we are in a bubble.

 

I know many real estate offices and mortgage companies are starting to staff up in people who specialize in for-closures.

I agree, it's a convincing case. About percentage who can afford a home, what was the norm before it became 17%?

 

I personally took the opportunity of the low interest rates and refinanced my home and shortened the term, unlike most of my friends and family who refinanced and took out 100s of thousands of dollars to pay off cars and credit cards and and and...  I have a feeling in the long run I am going to win.

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That would seem the rational thing to do. Those folks who chose to take the cash in essense borrowed money whose interest rate is likely to go up. I just don't get why many people don't see something simple as that. Or they get fooled by mortgage companies? Or why would anyone have an interest only mortgage if they can afford paying the principal too?

[Maral]

Best thing to do in this type of market is either what Azat did or sell and get out of this state!