Anyone Worried About Today's High Housing Prices?

[Jason Merchey]

Meaning, in my city, prices have moved forward so aggressively that they have made up for all of the 2008-2010 losses, and there is still somewhat low inventory. Two things kind of concern me - one, the way construction is happening - is that going to lead to overbuilding and sinking rents? Second, as you know, one should "buy low and sell high." So even though mortgage rates are currently low, is it a concern to buy now due to housing prices being relatively high? To clarify, I am planning on buying two or three SFDs as rentals to hold for the very long term. However, I'd kind of hate to see a dip in prices in 2014 or 2015. I suppose if it's cyclical, and the worst doesn't come to pass with the stock market or the jobs/wage situation or government debt causing a meltdown, then I can just weather the storm of a 3-4 year price drop because I would still be paying down debt on an annual basis (and inflation would be helping me).

Thoughts on this? Would you buy now if you were willing to be a landlord for 20 years, or wait until prices fall for whatever reason? I would also worry that if x or y happens causing the housing market to fall, that banks might tighten lending criteria as well, putting a mortgage out of reach for a self-employed person such as myself.

[Mike Hansen]

Hi Jason --

You're reading my mind I think about this all the time. We're doing buy-and-hold too. Right now my mindset is to see things in both the micro and macroeconomic, then pull the trigger. I'm thinking like this: First the Micro: How are MY target areas performing in terms of economic indicators? Is there job growth? New jobs moving into area? What's the unemployment rate? Better yet, any idea how many people are simply out of the job market or under employed? Is construction picking up? What's local media saying?

Then Macro: How is overall US economy? Where are people moving? What areas are under-performing? What's government doing? What's the media pumping out? And all the Qs from Micro too :)

I think you need to get an overall picture and then decide. For me, Chicago markets we're in are strong, growth is apparent, and home prices are not shooting up like in some parts of US. Construction is starting again: we have 2 large residential projects starting up, and the "Will build to suit" signs are starting to appear in the more expensive areas. We have low inventory levels too but 2014 already showing more life than this time in 2013.

I don't think we're out of the woods, but I'm bullish on things getting better, and now is a good time to buy here. I think it's all about keeping your eyes open...

Mike