The continued rising costs in the housing market have caused the Federal Reserve to warn of a housing bubble, something not seen since just before the market crash of 2008. Phillips said this means the Federal Reserve sees people overpaying for houses causing a “market exuberance.” The Federal Reserve called the exuberance “unhinged from fundamentals” and “abnormal … for the first time since the boom of the early 2000s.”
Now, the Federal Reserve is warning about a housing bubble.
Housing prices have spiked 25% over the past year, and since 2012, the cost of a new house has doubled, Phillips explained. “Cities with the biggest spikes were Phoenix AZ, Miami FL, and Tampa FL, but overall, it was houses in southeastern states that saw the largest spike in 2021,” said Phillips to “Morning Wire” hosts Georgia Howe and John Bickley. “But again, it’s really everywhere across the country.” Including Texas and California
Looks to me like we are at "Euphoria" sliding toward "Anxiety" - hang on for the ride
Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
4y
Anyone waiting around for a repeat of 2008 is going to be very disappointed. Buyers may be paying too much right now, but these loans were underwritten well. If someone has no money, no skin in a property, is underwater, and has an unsustainable adjustable interest rate mortgage they walk away and go into foreclosure. This time around borrowers had good credit, good jobs, have skin in their properties via down payments, reserve funds, and a locked in low interest rate 30 year loan. If the value of their house drops, so what? They keep paying the mortgage and life goes on.
I keep thinking about supply and demand. There's very little supply and an outrageous amount of demand. Sure, rising interest rates or some unforeseen event could cause prices to drop. But then everyone would just stay put. No foreclosure crisis this time.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
4y
@Mike Hern I question any article that says we’re in a bubble simply because of parallels to the lead up to 2008. We may be leading into a recession but that doesn’t mean 2008 all over again or that housing will go down. That particular financial crisis was an outlier because it was real estate-related, indeed caused by real estate (subprime mortgage lending/ derivatives trading). If you look at all the other most recent recessions (1983, late 80’s, 1999-2001 tech bubble, etc.) none of them effected real estate prices nearly as much in fact real estate typically goes up in a recession. Seems like prices are spiking partly because investors feel it’s the safest asset class currently, and they’re probably right IMO.
In *2006* there were almost 10x the number of houses for sale as there are right now, in Metro Detroit.
We are sitting a little over 10k homes for sale today, and in 2006 we were over 100k…
how many of those though would a homeowner buy ?? and how many are vacant and never really going to come back.. I think you have to look at obsolesces in Detroit.. the same can be said with many mid west cities.. INdy has/had 5k vacants philly at one time 30,000 vacants etc etc.
in other areas of the country very rare to have an abandoned vacant home. So that all said I bet your true available homes is much less than 10k at least what owner occs want to buy ?? thats my guess anyway.
@Greg R. Good points Greg. I don't know if the shape of the income distribution curve has changed or if it has stayed relatively proportional but simply translated higher. I see your point that you see it as closer to a bimodal distribution, but I'm not sure that is the case. I'm not sure how the economy would have transitioned to allow that change. It would be nice to have some up to date current data, otherwise it is just going to be our anecdotal opinions based on what we are seeing which makes it hard to answer the question.
To add to that line of thinking, if very large amount of people are currently stuck renting and are chomping at the bit for a drop in prices, that would prevent a drop in prices. If we compared it to a depth chart on an exchange, I think there are massive amounts of people with buy order not far below current trading price. This would mean that the second it drops, there are people buying it back up which results in the current market price being more resistant to dropping. Meaning it shouldn't pop fast like a baloon meaning it wouldn't be a bubble.
If the distribution is bomodal, the reason it matters that the lowest wage earners are now higher is that the market floor is higher. If the purchase price of a house is too high, then they drive up rental demand which drives up rent prices which attracts more investment money to buy up rental property. That decreases supply of owner occupied which slides the price right on up the demand curve.
Either way, I see current prices as not extremely overpriced.
Developer · Atlanta, GA · Member since 2014 · 475 posts · 424 votes
4y
Here is my take on the situation.
The next real estate crisis will not directly h he arm the residential buyer. In 2008 basically anyone with a pulse received a mortgage. Keep in mind during that time the mortgages were adjustable rates and underwriting was poor.
Homebuyers in the last few years are locked in at extremely low rates for 30 years. This is why fundamentally the next crisis will not be a 2008 situation. Homeowners are safe if they just sit tight through the downturn.
Now, I have said this time and time again, this next crisis will play out on the institutional level. Keep in mind that over the past few years we’ve also seen institutional buyers step into the residential space at a high level. This is also playing a roll in extremely low inventory. If you take all the homes that’s been purchased by Zillow,Opendoor,Offerpad, etc and put them back on the market, what does inventory look like. Still low, but you get the point. Especially since their buying strategy, which is ran by an algorithm, is to buy at market value, throw a little lipstick on the house, and sell at a higher price. These companies currently have tons of inventory sitting on the market. They are going to be forced to sell a lot of homes at a discount when the tide turns.
Or what about the massive build to rent projects or syndications being underwritten at a 3% cap? This still amazes me. The increase in rents are just as bad as the increase in housing prices. It’s unrealistic for rents to keep going up and wages are basically going backwards in this inflationary environment. I honestly wonder how many of these companies actually considered a drastic decrease in rents as part of their underwriting? Or better yet, when it’s time to refi or restructure the debt, can the project support higher rates?
I’ll say it again- The average homeowner will be safe from the next fiasco if they just sit tight. Everyone else is in for a rude awakening. Lenders, syndications, institutional buyers will start to have real trouble when the value of assets start declining. When that will happen who knows.
Am I waiting to buy properties, hell no!! There is value to be found in every market, it just takes a little longer to find in a hot market.
Just a question... are the ones who are most fervently defending this market and insisting that it can't crash the same ones that would be hurt the most if it did? Realtors, lenders, etc.?
If we accept that the market is grossly inflated and that the country is in a very bad place economically/ financially, that could cause a shift in public opinion and start the inevitable downturn. Denying it is likely swaying public opinion and postponing the inevitable.
Great question actually, Greg! Let's talk about "defending the market".
My team closed 95 transactions last year and we would very much prefer for the market to slow down! Here is why:
It is tough for buyers agents to write offers on deals when you compete against 15 offers! You did all the work, but 14 agents did not get paid. Also not fun when I am on the listing side: 15 offers x 25 pages = 375 pages to print, read, mark up and present to the seller. I'd much rather have 2 offers to present!
So no, I have no benefit in pouring gas on the fire. As an active buy and hold investor I would also like to see the market slow down. I pay literally twice for the same house what I have paid 10 years ago. We buy several houses every year.
And no end in sight. Milwaukee has a housing shortage - we have 300,000 Millennials, who have aged into home buying years (the oldest are 39 now, married, kids) - we have a market of about 10,000 SF homes per year. Tell me how that is going to work! And Millennials are not the only buyers!
We do have new construction; 1678 units last year. That is a drop in the bucket. Plus, these new houses are all 500-700k and up compared to our 250k median. Not much help!
My hope is that rising interest rates slow down the market eventually; so far not much. We have about 60 active buyers and not one has thrown in the towel as far as we know. I'll be the first to post when I see things slowing down!
@Marcus Auerbach what you are describing is a good problem to have. That's like investors complaining because managing their huge portfolio is a so much work, and they need to pay accountants, attorneys, etc. Never mind the fact that they amassed a huge portfolio and established generational wealth. Similarly, you are slammed with work because a million people want to buy your listings for "x" over list price, and your sellers are throwing caution to the wind and offering "x" over list price to get a home amongst the rat race. With record home prices I'm sure commissions have been quite nice. And that's great, you are working hard and being rewarded for your hard work.
I remember a time when there were famines/ droughts among realtors & lenders. I certainly don't wish that on anyone. Just remembering a time when the market was not so kind for those in the industry.
Greg, you did either not read my post or you did not understand it. As an investor I get paid every month, of I work or not. My agents only get paid when they close a deal. In this market that means working 5x to 10x than what you did 3 years ago for the same money.
Great question actually, Greg! Let's talk about "defending the market".
My team closed 95 transactions last year and we would very much prefer for the market to slow down! Here is why:
It is tough for buyers agents to write offers on deals when you compete against 15 offers! You did all the work, but 14 agents did not get paid. Also not fun when I am on the listing side: 15 offers x 25 pages = 375 pages to print, read, mark up and present to the seller. I'd much rather have 2 offers to present!
So no, I have no benefit in pouring gas on the fire. As an active buy and hold investor I would also like to see the market slow down. I pay literally twice for the same house what I have paid 10 years ago. We buy several houses every year.
And no end in sight. Milwaukee has a housing shortage - we have 300,000 Millennials, who have aged into home buying years (the oldest are 39 now, married, kids) - we have a market of about 10,000 SF homes per year. Tell me how that is going to work! And Millennials are not the only buyers!
We do have new construction; 1678 units last year. That is a drop in the bucket. Plus, these new houses are all 500-700k and up compared to our 250k median. Not much help!
My hope is that rising interest rates slow down the market eventually; so far not much. We have about 60 active buyers and not one has thrown in the towel as far as we know. I'll be the first to post when I see things slowing down!
@Marcus Auerbach what you are describing is a good problem to have. That's like investors complaining because managing their huge portfolio is a so much work, and they need to pay accountants, attorneys, etc. Never mind the fact that they amassed a huge portfolio and established generational wealth. Similarly, you are slammed with work because a million people want to buy your listings for "x" over list price, and your sellers are throwing caution to the wind and offering "x" over list price to get a home amongst the rat race. With record home prices I'm sure commissions have been quite nice. And that's great, you are working hard and being rewarded for your hard work.
I remember a time when there were famines/ droughts among realtors & lenders. I certainly don't wish that on anyone. Just remembering a time when the market was not so kind for those in the industry.
Greg, you did either not read my post or you did not understand it. As an investor I get paid every month, of I work or not. My agents only get paid when they close a deal. In this market that means working 5x to 10x than what you did 3 years ago for the same money.
Your income as an investor is irrelevant. That's why my original post said that relators and lenders would be impacted the most if the market crashed - not investors. My point was that a thriving market with record high prices is good for those who work in the industry and get paid based on market prices. I never said that the work is easier now than it was "x" years ago. My point is that you get a listing and it's going to sell very fast for top dollar. The buyers are swallowing up any/ everything out there. However, if you think this is the worst that it gets for realtors & lenders, that's your opinion.
Rental Property Investor · Murrieta, CA · Member since 2020 · 338 posts · 343 votes
4y
@Steve K. I know all real estate is local but if you look at the US housing market real estate prices have a point when they go down in a recession. Like I said real estate is local, so it depends what's going on in your market. I am right there with you that the overall trend for real estate is up and RE will be worth more in the long-term than it is today. Nothing moves in a straight line so there will be times when it is up and sometimes when it is down. If you're looking for a personal home as long as you have a secure job and you plan on living in the home, you are buying for a long period of time 5+years you are more concerned about the payment. If you are an investor as long as the building has a positive CF, and it yields a return that you are happy with keep buying or you may need to find a new market. Where you will get burned by investments is being too liberal with your underwriting or anticipating huge appreciation or CF year over year. Even though you may get a spike here or there it is better to run your numbers conservatively.
Anyone waiting around for a repeat of 2008 is going to be very disappointed. Buyers may be paying too much right now, but these loans were underwritten well. If someone has no money, no skin in a property, is underwater, and has an unsustainable adjustable interest rate mortgage they walk away and go into foreclosure. This time around borrowers had good credit, good jobs, have skin in their properties via down payments, reserve funds, and a locked in low interest rate 30 year loan. If the value of their house drops, so what? They keep paying the mortgage and life goes on.
I keep thinking about supply and demand. There's very little supply and an outrageous amount of demand. Sure, rising interest rates or some unforeseen event could cause prices to drop. But then everyone would just stay put. No foreclosure crisis this time.
Agreed there will never be another 2008 ( without a war knock on wood ) .... how ever lol ...life happens... divorce, death, loss of income, Tragic health issues the list goes on and on to why we find ourselves NEEDING to sell, it will be these NORMAL life changes that will cause many who are upside down to be ruined. While this isn't likely to happen on mass I wouldn't be surprised if it became common.
The stupidity of this is to talk about a bubble with no mention of supply. No mention of the record low supply. I only took two economics classes in college but I distinctly remember learning that supply was a driver of price.
If 1/ Americans cannot pay higher prices because of inflation on everyday goods and 2/ banks are tightening because of an inverted yield curve……your supply theme goes out the window.
Also - the issue with less supply is most likely from money printing by the fed. They are reversing course to tightening, going to be more supply soon…..
Rental Property Investor · Member since 2017 · 84 posts · 41 votes
4y
Quote from @Account Closed:
I think we will have low inventory for at least two more years as supply chain kinks effecting home builders get worked out. We can't even get molding for the new floor we just put in our rental property. There are so many owners/investors that will hold on to their 2.25-2.75 rates for dear life and are not going to be selling, thus contributing to the low supply problem. Mortgage interest rates rising will cause some buyers to back off, but there are still plenty of investors with a lot of cash on hand or needing to do a 1031 exchange that will benefit from less competition. I think home prices will stabilize, but not fall off a cliff or anything. As it stands there are still motivated buyers who would rather attempt a home purchase this year than keep renting and have their rents go up annually.
Banks are tightening at a record pace. Yield curves are inverted (translation: banks make money on the spreads of short term to long term. If not there, banks lend less). Is this in your inventory equation?
Turn key provider · San Jose, CA · Member since 2010 · 4k+ posts · 3k+ votes
4y
There are a lot of things wrong with the Daily Wire article. First of all, bubbles are not caused by high prices a lone. The crash of 2008 was a perfect storm brought on by 3 major factors 1. Overly lenient lending practices, 2. Robust growth of money supply in the economy and 3. High rate of new housing starts. None of these factors exist today. The article in fact is contradictory. They say that new construction came to a halt during the pandemic and therefore "it will take years for new construction to meet demand". This is precisely why there won't be another crash. There is a significant housing shortage across nearly every U.S. market and that won't change overnight. There's no question that the heated appreciation that we've been seeing is not sustainable but what is more likely to happen as it always does is that the market will eventually run out of steam and will gradually return to equilibrium. It will be more of a soft landing rather than a crash.
Anyone waiting around for a repeat of 2008 is going to be very disappointed. Buyers may be paying too much right now, but these loans were underwritten well. If someone has no money, no skin in a property, is underwater, and has an unsustainable adjustable interest rate mortgage they walk away and go into foreclosure. This time around borrowers had good credit, good jobs, have skin in their properties via down payments, reserve funds, and a locked in low interest rate 30 year loan. If the value of their house drops, so what? They keep paying the mortgage and life goes on.
I keep thinking about supply and demand. There's very little supply and an outrageous amount of demand. Sure, rising interest rates or some unforeseen event could cause prices to drop. But then everyone would just stay put. No foreclosure crisis this time.
