is new housing bubble coming soon ?

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kambo

Well-known member
Joined
Apr 24, 2009
Messages
1,975
Location
CA
title says it all!

in CA prices are crazy high! almost back to where it was before the last bubble.

 
many places are still underwater, or haven't seen any gain at all.  LA/SF/CA would seem demand driven. 
 
I have been watching this and some argue we are already in a real estate bubble, but it is difficult to call a bubble until after it bursts. China has been trying to damp an over heated real estate market and I believe some areas of Canada are also also over heated. (Some of the canadian activity may be chinese money looking for a safe haven.) 

In the US, commercial real estate looks more overheated than residential. And there is capacity pressure (to downsize) on bricks and mortar retail space caused by the growth of internet retail that hasn't fully played out yet..

One argument is that all real estate is local, and housing remains strong in silicon valley and DC beltway (two growth industries).

The rest of the US is driven by interest rates that have been too low for too long in a blatant attempt to reflate house prices to rescue underwater mortgages caused by the housing collapse in 2008-09.  Some (like me) argue that it would be healthier for the economy if all these people who bought houses they couldn't afford 7-8 years ago, just foreclosed quickly and moved into more affordable housing, but that train left the station years ago.  (A young friend of mine was flipping houses in AZ back then despite my pleas to be careful. He eventually took a short sale and now owns a house in CT).

My stock market holdings have been inflated by the same monetary liquidity that has been focussed on raising home prices (money and liquidity is fungible worldwide).  Some of the most underwater mortgages in overheated markets like las vegas and Az are still under water after almost a decade of "rescue mode" monetary policy.

I don't expect another 2008-9 housing collapse because we don't have the flaky derivatives creating the unnatural upward price pressure. I am more worried about a significant stock market correction as central bank policies become less effective and they lose control over bond prices (distorted by them buying their own bonds. 

If i  was a younger man I might buy a larger house but it is almost too late for that trade.

I have been selling stocks and holding more cash these days. I'm looking at perhaps more gold (which is still down from when I bought my current position). 

Scary time for fiscal policy... negative interest rates have never been done before so we don't know how it will end (do you feel lucky?).  Fannie and Freddie, still haven't been reformed even though they've been under government conservatorship for 8 years or more.

Good luck to us all...

JR
 
kambo said:
yeap, Good luck to us all...

Unfortunately "Luck" is about all we have.
When the politicians are owned by the financial corperate eite overloards.......only one outcome.
As it was in the past century......we as humans seem bent on our own destruction.
War has a good income for the snakes....they seem to be prolifirating.
God bless you all, and wake up !
 
<I don't expect another 2008-9 housing collapse because we don't have the flaky derivatives creating the unnatural upward price pressure.>

CDO's are still around, they just have a new name - tranches. https://en.wikipedia.org/wiki/Tranche

Did you like "The Big Short"?
 
AusTex64 said:
<I don't expect another 2008-9 housing collapse because we don't have the flaky derivatives creating the unnatural upward price pressure.>

CDO's are still around, they just have a new name - tranches. https://en.wikipedia.org/wiki/Tranche

Did you like "The Big Short"?

yea, i think i agree with you...
SF is going crazy with prices!
southern CA too... none of those houses worth that much... a lot of overbidding cash buyings going on...
that pushing the prices way up!

we were going to buy a house for 650K, it was a wracked house, over the weekend, it sold for 1.5M...
even if u built apartment building on that land, because of permits, there is no way u can get ur money back,
in this century!..  math is easy!
there is a forceful overbidding going on all over CA!

 
AusTex64 said:
<I don't expect another 2008-9 housing collapse because we don't have the flaky derivatives creating the unnatural upward price pressure.>
Fannie and Freddie are still buying mortgages from banks and haven't been reformed (privatized). 
CDO's are still around, they just have a new name - tranches. https://en.wikipedia.org/wiki/Tranche
That sounds like the old name... difference now is better price discovery. Back then all these bundled mortgages full of sub-prime liar loans were selling hand over fist as long as house prices kept climbing. When the music stopped the liquidity for them dried up.

I didn't realize but there are sub-prime (low quality) auto loans that may suffer a similar fate, while the handle and impact on the economy for sub-prime auto lending is much smaller... Student loan debt has grown enough to be worrisome. Who thinks the government won't mismanage that?
Did you like "The Big Short"?
I didn't read the book or watch the movie, I saw it play out in real time and don't need a Hollywood version.

I worry that we all draw different lessons from this. More regulation targeting the last financial meltdown will likely miss the next one. I worry about all the aggressive central bankers around the world that believe they can make the economy do tricks on command. I fear that the world economy (especially bond markets) may just say enough is enough and bite the handlers. 

That is what worries me...

JR
 
kambo said:
AusTex64 said:
<I don't expect another 2008-9 housing collapse because we don't have the flaky derivatives creating the unnatural upward price pressure.>

CDO's are still around, they just have a new name - tranches. https://en.wikipedia.org/wiki/Tranche

Did you like "The Big Short"?

yea, i think i agree with you...
SF is going crazy with prices!
southern CA too... none of those houses worth that much... a lot of overbidding cash buyings going on...
that pushing the prices way up!

we were going to buy a house for 650K, it was a wracked house, over the weekend, it sold for 1.5M...
even if u built apartment building on that land, because of permits, there is no way u can get ur money back,
in this century!..  math is easy!
there is a forceful overbidding going on all over CA!
I think I already mentioned this but silicon valley is a special case with very high pay rates, and not enough real estate to meet demand. Renting is not a very good option either.

Some new start-ups are trying to locate in other parts of the country, but if you goal is to poach existing silicon valley workers you kind of have to do it there.

JR

PS; Washington DC and suburbs also has a very strong housing market from all the government spending, and lobbyists chasing that spending.  Looks like both candidates are talking about even more spending so that is unlikely to soften. 
 
my brothers living in DC, there is a major  human traffic there due, Consulate, private tutors, foreign government representatives or  etcetc...  so, any area with high school score is expensive... and those are the areas where those people try by/rent!
but, rest is totally doable... also, the way those houses built there in DC, u can sub lent ur basement, or your small second unit in ur backyard..... thats not the case here in CA.
u will be lucky to have a rentable basement in CA, or a small second unit in ur backyard. not that u are allowed to rent but, everybody does it!

rent in SF is a different story too.... i have a friend in housing, and he says, even on rental, they go over bid,
by large amount, and ask for immediate key, move in...

my wife's older sister based in silicon valley, she is retired with Millions back in the days, before the crash..
from the experience, u dont need to be there to run any hitech business....
but, people are usually from outside of CA, and making ton of money, and they wanna enjoy the SF,
and they dont care how much it costs!
 
kambo said:
Did you like "The Big Short"?
I have the book but haven't read it. I heard this Fresh Air interview with the author when it was broadcast about six years ago:
http://www.npr.org/templates/story/story.php?storyId=124690424
 
I guess for some people history cannot repeat soon enough. From the Wednesday newspaper a new pilot program at Freddie Mac and two  non-bank lenders (?) are loosening income and documentation requirements for new mortgages. As before the intention is to boost  mortgage applications from low to moderate income borrowers in underserved areas.

One new change is that mortgage applicants will be able to count the income of people living with them who aren't on the mortgage... (maybe just add their names to the mortgage as co-signers if their income contribution is significant. )

Income from a recent second job is counted without history. Previously a second job would require two years of paper trail.

Freddie Mac buys 1/4 of all US originated mortgages. These two non-bank companies specialize in writing mortgages for low income and hispanic borrowers, then sell those mortgages to Freddie Mac.

The program doesn't change down payment or credit score requirements but loosens income requirements.

JR

PS: Freddie and Fannie still need to be reformed. I wonder if these non-bank mortgage originators are covered by dodd-frank regulations? Whatever happened to banks holding the mortgages they write (rhetorical).

 
In the UK, house prices are fueled as much as anything by the lack of new housing stock. The building industry suffered badly after 2008 and and the number of new builds now is still below what is was then.

Cheers

Ian
 
ruffrecords said:
In the UK, house prices are fueled as much as anything by the lack of new housing stock. The building industry suffered badly after 2008 and and the number of new builds now is still below what is was then.

Cheers

Ian
Yes the calculus is new household formation vs housing stock. In the US there are more millennials living at home far longer than we did when young. Most of us escaped shortly after HS. 

The housing bubble collapse almost a decade ago gutted the home builders (here) and they still haven't fully recovered to pre-crash build rates.

http://bonddad.blogspot.com/2016/05/why-hasnt-increased-household-formation.html

blogger-image--263927825.jpg

Below average but showing signs of recovery with a recent spike up.

blogger-image--1910568339.jpg

Again housing starts are recovering but not where they were. I'm not sure they ever need to get all the way back to housing bubble levels and home builders are having trouble hiring skilled labor.

blogger-image--881611764.jpg

The recent increase in rent prices looks coincident with the spike in household formation. Homebuilders cannot respond as quickly.

Home builders are cautious about expanding too quickly in starter housing since expected interest rate increases can affect affordability of mortgages, but high rents drive people who can, to buy homes. Also news of an impending interest rate increase like we are waiting for right now will also motivate people who were sitting on the fence.

JR
 
i use Uber very often, and i like chatting up with them about the elections and the housing market...
and looks like ~1/4 driver  also doing housing with license.
experienced ones, are not so keen  on buying right now, with advice of having some cash on side, incase things goes wrong... so not much of a trust. but this is CA.
if i was living in cheaper state, i would buy without thinking.... but in CA, i have doubts, due high prices!
 
JohnRoberts said:
Yes the calculus is new household formation vs housing stock. In the US there are more millennials living at home far longer than we did when young. Most of us escaped shortly after HS. 

The housing bubble collapse almost a decade ago gutted the home builders (here) and they still haven't fully recovered to pre-crash build rates. JR

The other factor in the UK (and probably the US) is the huge increase in the number of single parent families. This increases demand for smaller houses and flats (apartments) but often the demand is from people who cannot afford to buy. This has led to  significant growth in the buy to let market with 2 bed homes being snapped up by investors.
CHeers

Ian
 
There is a saying "if you do not know who the sucker is around a poker table then it is you".

This is exactly the case when you sit round a table with the developer, estate agent and the bank.

I do not know the US market but here in Scotland my advice is always the same. Stay away from new build. Go for the tenement ( I know it has a different meaning in US). I do not know any tenement that lost in value but I know gazillions of new builts still in negative equity.

 
ruffrecords said:
The other factor in the UK (and probably the US) is the huge increase in the number of single parent families.
Single parent families have been around forever but most came about the old fashioned way (like when my father died and my mother raised us alone for years until she remarried).

Since then cultural shifts have made divorce far more acceptable, leading to more single parent (at a time) families.

More recently having children out of wedlock has lost the negative stigma it carried traditionally.  Young women, children themselves get pregnant by accident, but there are even anecdotal  stories of teens getting pregnant so they can get away from an oppressive parent and have their own place to live thanks to generous social entitlements.
This increases demand for smaller houses and flats (apaetments) but often the demand is from people who cannot afford to buy.
Historically they would not live alone but with a larger nuclear family that offered other support features (like built in baby sitters).
This has led to  significant growth in the buy to let market with 2 bed homes being snapped up by investors.
CHeers

Ian
Real estate has become a pure investment since the housing bubble collapsed making lots of properties cheap for those willing to wait. Quietly many distressed properties have been bought up by hedge funds and smart money.  REITs (real estate investment trusts ) Have become popular ways for individuals to bet on real estate.  Besides smart money there is also scared money buying real estate to secure assets overseas away from governments or currencies they don't trust. A lot of real estate in London is owned by foreigners. Lots of south american money ends up in Miami, and many Chinese have bought property in US and Canada (probably all around the world).

The size of the real estate as investment market in the US has grown so large that the market recently broke it out as it's own asset class or investment category (formerly it was grouped in with the banks).

JR

PS: I am not smart enough to own any REIT investments.  ???
 
sahib said:
There is a saying "if you do not know who the sucker is around a poker table then it is you".
True, a good thing to remember. 
This is exactly the case when you sit round a table with the developer, estate agent and the bank.
One questionable relationship is the real estate agent who nominally represents the buyer, but profits more from a higher purchase price. Snakes in the woodpile.
I do not know the US market but here in Scotland my advice is always the same. Stay away from new build. Go for the tenement ( I know it has a different meaning in US). I do not know any tenement that lost in value but I know gazillions of new builts still in negative equity.
If by tenement you mean rental income property some housing projects do go bad but often thanks to government "help" filling them up with people who have no ownership interest in keeping the property up. 

One young man I played basketball with years ago bragged about buying rental property that came filled with government supported renters so his income was pretty much guaranteed. That all seems a little sleazy to me, but buying a two family home and renting out half to help pay the mortgage is a good way to get started on the road to home ownership.

JR
 
JohnRoberts said:
buying a two family home and renting out half to help pay the mortgage is a good way to get started on the road to home ownership.

JR

my understanding from the bank/mortgage meetings  20% min down_payment and  6 months of cash reserve if u wanna rent!
but, i agree, its a very good way of starting if u have the cash.

 

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