Is this a bubble?

Question

Hello all

I purchased my SFH for $385k in Northern California in 2013 waited the 2 years to get the tax exemption and sold it for $580 cashed out and bought a condo already up $50k in 6 months. My question is how long will this last? I want to sell and start flipping houses, but feel like a bubble is around the corner. What do you guys think?

David Faulkner · Answer

I will tell you the exact date and time that the market will peak, and I'll only charge you $1M for this insider information :)

I do have a little story for you, though. My parents invested in RE is SoCal back in the day. They bought a triplex in the 70s for $75k, held it for a 3 years, and the price went up to $150k so they sold it figuring that it was the peak of the market. They were right in the short term, it stayed at $150k for a couple years after they sold. That was a triplex 1 block from ocean in Redondo Beach. You can be right in the short term but wrong in the long term.

If you sell, you have to be right twice, when and where to get out, and when and where to get back in. The trick to me is getting in in such a way that you can stay in, through thick and thin ... beyond that, the market and your tenants tend to do most of the heavy lifting on your behalf. With flipping, you do all the heavy lifting yourself, then Uncle Sam takes a big chunk out of your hard earned profits, and the day you stop flipping is the day the profits stop flowing; and that is best case scenario if you are right.

Russell Brazil · Answer

5% unemployment. Large percentage of sales are all cash. Large percentage of sales have large down payments. Incredibly low mortgage rates. Low inventory.

There are fundamental reasons to rising property values. This is not tulip mania.

David Dachtera · Answer

@Miguel Ochoa, et al,

I feel the need to chime in here and remind everyone that a good chunk of what we're seeing in the housing market right now actually goes back to the crash.

In that event, some 80% of housing developers and builders went under. So, the supply of housing suddenly all but stopped growing.

The demand for housing, however, remained on it's existing course with only a slight dampening due to the dearth of lending and rentals. Regardless of the perceived demand for housing, the actual demand ebbs and flows with the population and its growth or contraction.

So, here we have a three-pronged puzzle:

- Housing demand stays more or less on track

- Housing growth is temporarily suppressed

- Lending for home loans is severely inhibited by all the post crash checks and balances meant to tame a beast which has just killed itself.

According to the laws of supply and demand, what happens to prices when demand outstrips availability (supply)?

About the only factors keeping housing prices from launching into inter-stellar space are dearth of lending and stagnant growth in wages and salaries.

Home prices may seem high now. They're quite moderate compared to what could happen if the cork were taken out of the lending genie's bottle.

...and, don't let those "all-cash sales" figures fool you. Some of it is re-investment of retirement dollars. Some of it is actually foreign investment. Other sources of funding are enabling buyers to avoid mortgages and other lender's liens and contingencies.

No, people aren't "printing their own money". The economy is still in the tank and in quite a fragile state. People are working smarter with their money, rather than harder.

My perspective... your mileage may vary.

David J Dachtera

Kerry Baird · Answer

I'm thinking that these will hold value well as far as the eye can see:

Vacation houses, the sort coveted by trophy-hunting buyers, which are on the waterfront or similar "prime" locations in the warmer climates.

Starter homes in demand by Millennials, will be in demand for some time to come.  Hope you can see the chart.

Peak baby years are 25 to 34. Largest cohorts in 2020 will be 25 to 34. Home ownership rises sharply with babies.

Sadrud-Din Williams · Answer

Holding properties also depends on what your holding.

Sadrud-Din Williams · Answer

Your actually right, I did not want to say how long but my source is saying with in the next year or two as well. I wish I was joking but I'm very serious this particular hedge fund has said to my source a Certain CEO of a very well known Real Estate Firm that they were schedule to unload 150 Of their properties in late August but now has already started unloading them. I guess they see something in the market that is not known to the public yet. I don't know, but i have already start putting offers in the ones that my source has sent me so far.

David Faulkner · Answer

They're selling 150 properties! Oh no, that will crash the market for sure! :)

I'm joking, and can't actually tell if you are too or are being serious. They agreed with who to hold off on unloading? You might very well be right, but it does sound like it may be anecdotal evidence from a questionable second hand source to be honest, or a sarcastic joke. Not sure which or neither which is why I ask out of curiosity.

For all my joking and sarcasm, I actually do agree that we will likely peak out for this cycle sometime within the next two years, maybe this summer, maybe next winter, who knows. It is just a question of when and how far or long it will dip. The answer to those two unknown and unknowable questions is what will determine if selling is a good idea, but under most long term scenarios where you are in a strong market and sound financial position with your property, holding has tended to win the day over selling.

Sadrud-Din Williams · Answer

Okay my BP family, I have not shared this with anyone until now you guys are all correct. The housing prices are reaching there high and its definitely a sellers market. According to my inside source a huge hedge fund had agreed that they would not began unloading property until late August has moved up the date rapidly and are now unloading 150 of their properties right now! Its time guys and we must prepare now!

Miguel Ochoa · Answer

@david Faulkner thanks for that advice I should start thinking longer term. I still don't see the condo as they way to go. Like you said just need to find the right deal and the right location.

Stephen H. · Answer

Perhaps bubble is too strong of a word to describe it, but these indicators (e.g., 5% unemployment) don't leave much else to go, seems likely that we may be nearing the top.  At best, we reached plateau?

Is this a bubble?

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