2013 real estate bubble?

[ScoopKona]

Wow. that comments sounded a bit elitist. - i take it you didn't read the article.
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1] A 360k home in 2012, has increased to 420k in 2013. if this growth continues, the same house will be 500k this time next year. that kind of growth is simply not indicative of a healthy market and cannot go on for a long time.
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2] Right now there is a manic drive to buy by people who do not want to be priced out of the market, and those who want to buy while prices are still "low" (if you didn't buy in 2012, you are already buying high). this manic drive is what is getting people to make offers above asking price in order to compete with cash investors.
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3] If nothing else, please understand that this is not a case of chicken little running around saying the sky is falling. It is simply a conversation piece intended to spark thoughts and communication in a public forum of like-minded people.

Numbers added for clarity:

1) Numbers pulled out of thin air don't matter. How much would it cost to replace the house right now in 2013? How much is the land worth? If the sum of those two is $500K or more, the price will top out somewhere above that. If the sum is less, it won't go up as much.

2) Yes, there is a feeding frenzy going on right now. And that's because inventory is tightening, cash investors are still buying, and people who need to finance still want to get in while prices are still rising. This quick adjustment isn't ANYTHING LIKE the massive drop in 2007. Houses were selling for half what they cost to build -- because supply was unbelievably high and the economy was weak. Prices are now catching up to replacement cost. This means we're finally returning to normalcy. When we go up above replacement cost, cash investors will invest elsewhere. I know I will.

3) Sure sounds like Chicken Little to me. I can still buy houses in Las Vegas for 75% of their replacement cost. We still have a ways to go. And I'm still putting in offers every couple days. When the price per square foot gets too high, I'll back off and invest the rental income elsewhere.

 

[Elan]

I don't see this as a RE bubble either. Certainly not yet. It's quite common for markets to bounce fairly dramatically after a protracted downturn. Everyone waits to become comfortable that a bottom is in and then buying ensues. This usually includes short term investors and panic buyers who fear they're going to miss a rare opportunity. Once prices normalize the buying typically levels off.

Our house is worth about 30% more than when we built it 12 years ago, which equates to around 2.2% year-over-year appreciation. That doesn't spell bubble to me. When it had appreciated nearly 75% in the 5 years immediately after it was built (11.8% YOY appreciation) -- that was a bubble.

 

[Tia]

Our last county property tax info said our house dropped again in value, it's based on compared sales. No bubble here but do know there are investors buying properties for rentals, some paying cash.

 

[vacationhopeful]

I brought a house in 1987. Assumed the prior owner's mortgage and have paid it off. I asked a realtor for a FMV as I was thinking of listing the place. She looked at the house (I walked her thru it - freshly painted, newer kitchen, open concept, backing up to an wooded open space, 3bdr, 2.5 baths, FR, garage). She took her 24 hours and suggested a listing price of $140K. I was dumbfounded and stunned at her suggested listing price as she had told me WHAT a great property it was and how her office had multiple buyers for houses just like that. She told me that was the market and when it came down to an actual sale, the mortgage companies were not giving mortgages ABOVE what other properties had sold for. She offered to email me the comparative sales.

I looked at the comps - and MY house, she had priced lower than ALL the short sales and foreclousures had SOLD for. DANG, did her realtor and her feel I was so STUPID to sign a listing agreement agreeing to sell for so little (were I would have to PAY THEM THEIR COMMISSION if I refused to accept a FULL PRICE OFFER)? And then while under contract to me, FLIP the house themselves?

All they saw, was a little OLD Lady who had owned a house for 27+ years and had moved somewheres, who was needing to sell ....

And when I pointed out to this sales lady, that there where NO available listings under $175K, she told me, all those sales were going to not close, as the mortgage companies would not give mortgages for OVER $140K. :hysterical:

Told her, I could hold onto the house for another 120-180 days to make $35K more.

I am going to put a FSBO sign up soon. The neighbor next door offered me $160K over the fence 2 weeks later - without paying anyone a commission. Still too low ....

 

[DazedandConfused]

I brought a house in 1987. Assumed the prior owner's mortgage and have paid it off. I asked a realtor for a FMV as I was thinking of listing the place.

Check www.zillow.com for the estimate value of your home value.

 

[ScoopKona]

Check www.zillow.com for the estimate value of your home value.

Zillow is rubbish. May as well use a "Magic 8 Ball."

It's easy enough run one's own comps using recent house sales as a guide. Or, just keep your finger on the price-per-square-foot pulse of the local market.

I don't know about other investors, but I simply multiply the square-footage of a house by the $/sqft around here and that's my offer.

 

[MuranoJo]

Zillow is rubbish. May as well use a "Magic 8 Ball."

I agree. It's a simplistic apples to oranges comparison if it's even that.
No way would I go by an estimate from Z.

 

[DazedandConfused]

Zillow is rubbish. May as well use a "Magic 8 Ball."

I disagree, it is definitely not rubbish.

The OP said she was dramatically underestimated a listing price from a Realtor - That is Rubbish.

At least Zillow gives a consumer a starting point to begin discussions.

http://www.zillow.com/howto/DataCoverageZestimateAccuracy.htm

If the homeowner really wants a better price estimate she can pay for a BPO or a full Home Appraisal from an independent person.

 

[BocaBum99]

Wow. that comments sounded a bit elitist. - i take it you didn't read the article.

this is not saying that we are in a financial collapse, or the end of the world , or the destruction of american values. But i think it is a bit naive to look at the current state of real-estate and not see that what's going on is a little weird.

An increase in home prices of 23% in a 12 month period is analogous to a 23 pound weight loss in one month. while it may be headed in the right direction, it is not healthy, and certainly not sustainable.

A 360k home in 2012, has increased to 420k in 2013. if this growth continues, the same house will be 500k this time next year. that kind of growth is simply not indicative of a healthy market and cannot go on for a long time.

Right now there is a manic drive to buy by people who do not want to be priced out of the market, and those who want to buy while prices are still "low" (if you didn't buy in 2012, you are already buying high). this manic drive is what is getting people to make offers above asking price in order to compete with cash investors.

my take is-->once growth stops, slows down, or reverses the 34% of investors will begin selling R/E assets ( as an investor, would you keep an investment that is no longer paying out, or even worse loosing value?), and that is when the burst will happen. the same mania that drove the purchasing will now cause people to start dumping assets in order to not be the one holding the bag at the end. and yes that is the bubble bursting.

If nothing else, please understand that this is not a case of chicken little running around saying the sky is falling. It is simply a conversation piece intended to spark thoughts and communication in a public forum of like-minded people.

I read the article and the authors couldn't be more wrong in their analysis.

Your analogy is not the correct one. The correct analogy is that the person went on Survivor and lost 23 pounds in the 30-days they were on the show. They came back home and gained 23 pounds back. You get alarmed because all you are looking at is the 23 pound gain and not the last 5 year period where he had extreme weight loss followed by extreme weight gain.

When people pay cash for property, they can hold it for extended periods of time without the risk of needing to liquidate the property to make mortgage payments. If they can rent the property for more than their carrying costs, then they are achieving positive cash flow and that is sustainable over a long period of time.

Furthermore, the financial institutions are not holding toxic debt. So, there is no imminent threat of a total system collapse like the one that happened in 2008. The major debt holder is the Federal Reserve. It cannot go bankrupt. The biggest risk would be to the USD currency. The US Treasury can just print money to cover the debt. The markets do not believe that is a current issue as the dollar has strenthened and Gold has tanked.

The big issue is NOT the real estate market. It is recovering nicely. It is finally reaching a point where it can return to full normalcy.

The biggest risk is whether or not the Federal Reserve can taper its buying of US Treasuries down to near zero without spiking interest rates and tanking the economy.

 

[BocaBum99]

I disagree, it is definitely not rubbish.

The OP said she was dramatically underestimated a listing price from a Realtor - That is Rubbish.

At least Zillow gives a consumer a starting point to begin discussions.

http://www.zillow.com/howto/DataCoverageZestimateAccuracy.htm

If the homeowner really wants a better price estimate she can pay for a BPO or a full Home Appraisal from an independent person.

I finally agree with you on something.

 

[BocaBum99]

Zillow is rubbish. May as well use a "Magic 8 Ball."

It's easy enough run one's own comps using recent house sales as a guide. Or, just keep your finger on the price-per-square-foot pulse of the local market.

I don't know about other investors, but I simply multiply the square-footage of a house by the $/sqft around here and that's my offer.

Zillow is way better than your approach. It's not perfect, but you can use it as an initial screen. It's really easy to then get a CMA done by a realtor.

More importantly, you can see pricing trends using a consistent model over time for the same property. I used to have to do that myself by researching county databases. That takes time.

 

[BocaBum99]

I agree. It's a simplistic apples to oranges comparison if it's even that.
No way would I go by an estimate from Z.

He uses a price per square foot valuation model. That does nothing to take into consideration quality of materials used. Floor plans. Types of rooms in the house. Etc. Zillow is way better than a price per square footage metric alone.

 

[ScoopKona]

He uses a price per square foot valuation model. That does nothing to take into consideration quality of materials used. Floor plans. Types of rooms in the house. Etc. Zillow is way better than a price per square footage metric alone.

Not for the houses I'm buying as rentals. They were all built around the same time by the same handful of builders using the same materials.

Notice that I said first that running your own comps is not hard to do.

 

[Elan]

The Zestimates in my subdivision are obviously on a $/sf basis. Problem is that the number is way off. As an example, Zillow lists a recently sold house with a Zestimate of $124/sf. The house sold for $143/sf less than 2 weeks ago with multiple full price offers. The $143/sf number is much more more in line with recent sales. Nearly every surrounding home has a Zillow value similar to the $124 number.

If +/- 15% is accurate enough for someone, Zillow's fine. It's not good enough for me, because I track all of the areas I'm interested in on a continual basis. If I were moving to a new city, where I knew nothing of property values, I might reference Zillow for a ballpark number. Otherwise, it's just not accurate enough if you've done any research and know the area of interest.

 

[Tia]

another opinion-

http://finance.yahoo.com/blogs/dail...says-guardian-heidi-moore-131443918.html?=vp1

 

[Teresa]

Somebody/something will own what you live in

I'm a real estate investor (small time) and about two years ago I became a licensed real estate agent in Ohio. When buyers ask me if we hit the bottom yet I tell them I can't predict it (or I would be a big time investor!). Of course, we tried to predict. 'It appears that we're at it.' Or 'looks like'. Or 'maybe'. The only time we will know when the bottom has hit is when we're past it. I think we're past it (for this cycle anyway). Interest rates are moving up, prices are moving up, activity is moving up. All signs that the market is 'improving' (going higher).

You have to live somewhere (except for those year-round timesharers - but they are living somewhere every week I guess). You or someone else (or some company) will own where you live - your choice! Pretty simple.

Investors are a little bit more 'gambler' than most people. They take a risk when they buy expecting either cash flow or appreciation over time. Sometimes they get both. When anyone buys close to or at the bottom and the prices warm up, the appreciation angle pays off. When no one wants to buy anything because 'what if the prices go lower?' then the investor pops in and buys at low and rents it out to those people who are waiting on the sidelines.

Those who don't have to sell their homes and are underwater should start realizing that they are still breathing. UNTIL they have to sell, the value of their house (except for lending purposes) doesn't matter. The mortgage payment is still their monthly outgo ('rent' for those who don't own). Has anyone heard of a lender foreclosing on a house because the value of the house went down as the only reason? Nope. Only when the borrower starts not paying (maybe through a job loss or something else) does the lender start barking.