Opinions on the real estate bubble

[jkjsooner]

Just for fun, what's your opinions on the real estate bubble? Is it a fact or a myth?

I've spent the last couple of years mostly on bubble blogs and haven't been here very much. I'm curious what non-bubble heads think...

I suppose I've already given away my opinion (which I formed about 4 years ago). When my old house in the middle of nowhere (exurbs of DC) doubled in value in a couple of years I began asking questions. Then of course I sold it (for other reasons) and it went up to three times the original value before starting to drop. Then I saw people making six figures who couldn't afford their one bedroom condos (with inflated 200-300% over a few years) and I decided something was really wrong.

Obviously this is not as big of a topic for those who live in Oklahoma.

I'm very scared about our economy right now. I think people in the know are scared to death.....

Anyway, feel free to disagree....

[Chuck Bao]

I was scared listening to the newcasts from Thailand and then when visiting my family in southern Oklahoma last month, they hadn't even heard of it. Somebody later told me that OKC and Dallas had indeed been affected with the property bubble and now deflating prices.

Tiny Marshall County didn't have the 2-3 fold increase in property prices. There is still a housing shortage and, as I understand it, the oil companies are leasing up all of the mineral rights.

For the national economy, it looks bad. Although I was scared with the news, it still seems to me like the record mortgage default and the effect on the economy is going under-reported. Wall Street is just too slow, as it has been in the past, for a number of reasons.

[royalfan5]

Hey at least BoA rescued the remains of Countrywide.

[jkjsooner]

Hey at least BoA rescued the remains of Countrywide.

Yeah, my sister and brother-in-law who live in San Diego had a lot of puts with Countrywide. I'm sure they're not happy but they've done well nonetheless...

There was just so much stuff spouted during the runup in prices that I couldn't believe any thinking person could buy into.

1. You have to buy now or you'll never be able to afford a house. How is that ever a sustainable situation. If new people can't buy then the prices can't be sustained. Even move up buyers with equity need some new homeowner to be able to afford the starter home to start the chain reaction.

2. Houses will continue to increase 15% per year for at least the next 20 years. Seriously, a study showed people (albeit math illiterate) believed this. Let's see: 1.15^20 is approx 16. So now that 500,000 house will be $8 million in 20 years? And at 3% inflation that would be approx 4.5 million in TODAY's dollars....

3. It's okay if you can't afford your house because you will be rescued by housing inflation. Yeah, works well until one card falls and the whole house of cards falls. Seems entirely obvious to me. If most of us can't afford our houses, at some point that price inflation is going to fail and then all of a sudden, well, we're where we are now...

4. Prices never go down. Sure, speculators drove up markets beyond any historical norm (with affordablility indexes at all time lows) but somehow once they disappear prices are going to magically stick. Actually, one thing I've learned is that there is some truth to this as instead of getting depreciation first the market just totally seizes. Neither is good at all.

In many markets, during the bubble 40% or more of homes were sold to speculators. That is an increase in demand of 66%! (When normally you would have 6 buyers you now have 10.) Just think what a 66% increase in demand could do! What if we all of a sudden had a 66% increase in oil demand. We'd be paying > $10 per gallon.

And, of course, the lenders allowed it all to happen. Just think where we'd be if we went back to 20% down payments. That $500k condo would halve in value pretty quickly.

This really looks way too much like the 1920's.

[AlbqSooner]

The 40% speculators were playing musical chairs with houses; Buy a house you can't afford and have no intention to pay for and hope you aren't holding it when the music stops.

[1stTimeCaller]

There is still a housing shortage and, as I understand it, the oil companies are leasing up all of the mineral rights.


What do a housing shortage in Marshall County and oil companies leasing mineral rights have in common?

Nothing.

I'm curious to find out what they have to do with this discussion.

[usmc-sooner]

What do a housing shortage in Marshall County and oil companies leasing mineral rights have in common?

Nothing.

I'm curious to find out what they have to do with this discussion.

exactly doesn't effect anything. It's actually better for the economy when oil companies are leasing mineral rights. It doesn't have anything to do with the surface at all.

[Chuck Bao]

I think my point is that mineral lease income is a little extra money in landowners' pockets, which is a factor in helping to keep land (surface) values from falling.

I got offers on both surface and mineral.

Sorry I ddn't explain it well.

[StoopTroup]

I knew a dancer named Bubbles....

http://blogs.zdnet.com/open-source/images/rodney-dangerfield.jpg

[bluedogok]

I think it depends on where you are and how much the bubble has blown up. In the real hot markets, the prices will slide almost proportionately to the speed they ran up because the "get rich quick" speculators are the ones who pushed up the prices on easy credit will find themselves either dumping property or getting it foreclosed to get out from underneath it. I will say it is far from being over.

Here home sales are down a little but new home starts is what has really taken a hit but that is due more to credit concerns of the large builders.

[Petro-Sooner]

I'm confused. I'm sorry if the answer is obvious to others. So are prices of houses going up? Is it harder to sell houses these days? I'm going to rent for one more year because I'm fresh out of school and want to pay off debt and start saving for my first home. Laymans terms here. This is my first encounter with the home buying industry.

[royalfan5]

I'm confused. I'm sorry if the answer is obvious to others. So are prices of houses going up? Is it harder to sell houses these days? I'm going to rent for one more year because I'm fresh out of school and want to pay off debt and start saving for my first home. Laymans terms here. This is my first encounter with the home buying industry.
It varies depending on location. However the Fed will likely slash interest rates several times this year, so if you get a mortgage it should be cheaper. However, with the struggle that banks are having right now, mortgage funding may be hard to get unless you a very well qualified.

[jkjsooner]

I'm confused. I'm sorry if the answer is obvious to others. So are prices of houses going up? Is it harder to sell houses these days? I'm going to rent for one more year because I'm fresh out of school and want to pay off debt and start saving for my first home. Laymans terms here. This is my first encounter with the home buying industry.

It really depends on where you're going to live. If you want to live on the west coast, east coast (except maybe the Carolinas or Georgia), Nevada or Arizona I'd be very very careful.

Here is Robert Shiller's plot of inflation adjusted prices nationowide. This is for the entire US so in some places it looks a lot worse. I'll let you draw your own conclusions.

http://en.wikipedia.org/wiki/Image:Shiller_IE2_Fig_2-1.png

[1stTimeCaller]

Here's my opinion.

I think the potential crisis is just another fine example of how the Baby Boomer Generation is the most selfish generation this country has ever seen.

[jkjsooner]

It varies depending on location. However the Fed will likely slash interest rates several times this year, so if you get a mortgage it should be cheaper. However, with the struggle that banks are having right now, mortgage funding may be hard to get unless you a very well qualified.

While true, arguments can be made that, due to the risks now present, long term rates will not follow the declines of the federal funds rate. (They are not tied together.)

Also, I don't like the idea of making a decision based on the monthly payment. I would never pay twice as much for a TV just because someone gave me a good rate and I darn sure wouldn't do the same for real estate. A low monthly payment is little consolation if rates rise, my property declines in value, and for some reason I'm forced to sell. Personally, I'd buy at high rates and low prices a thousand times before I'd buy at low rates and high prices.

In addition, considering the crashing dollar, I think it says a lot when the fed is still lowering rates. They are really really nervous to the point where they are abandoning their inflation targets.

But I'm a huge bubble head so I'm not an unbiased observer.

[1stTimeCaller]

in Oklahoma the major player in elevated real estate costs (I'm just guessing) are the oilies. It's great if you're one of them ;)

[85Sooner]

Here's my opinion.

I think the potential crisis is just another fine example of how the Baby Boomer Generation is the most selfish generation this country has ever seen.

Even though I was born in the last year of the Baby Boom. I agree with your statement wholeheartedly.

[bluedogok]

Even though I was born in the last year of the Baby Boom. I agree with your statement wholeheartedly.
We may have been born then but my life bears little resemblance to theirs, I NEVER felt part of the Baby Boom generation, always the one that followed. I really think the boomer generation ended about 1960.

[Soonerus]

Oklahoma is isolated and everything is fine in Oklahoma...I know, I am an expert...

[Harry Beanbag]

I think it depends on where you are and how much the bubble has blown up. In the real hot markets, the prices will slide almost proportionately to the speed they ran up because the "get rich quick" speculators are the ones who pushed up the prices on easy credit will find themselves either dumping property or getting it foreclosed to get out from underneath it. I will say it is far from being over.

Here home sales are down a little but new home starts is what has really taken a hit but that is due more to credit concerns of the large builders.


I read in the paper out here about a month ago that over 1/3 of all houses for sale have been abandoned. I know new starts are way down just from talking to people in the business, construction companies are cutting costs as fast as they can to save their ***. The speculators really screwed Phoenix, supply/demand for homes right now is way out of whack.