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Housing Bubble?


Parsad
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So Tolls and Pulte say no.  Others say maybe.  Not many say yes right now. 

 

I remember I used to watch a number of "Flip This House" type of shows back in 2006 and 2007.  There were quite a few on television.  In the last year, I've noticed that a number of new "Flip This House" type shows are back with a vengeance...the one I'm watching right now is "Flip or Flop"...mainly because the guy's wife in the show is pretty damn hot!  ;D

 

Anyway, I was looking up information on the show, and I stumbled across a real estate forum, which uses the same software as this one, including the same theme...no I did not start it, but maybe someone from here did.  The main character from the show, Tarek, posted on that board and he is flipping some 55+ houses this year...using very "creative financing" for many of them.

 

http://www.talkirvine.com/index.php/topic,3738.105.html

 

Is the Fed's easy money policy creating another housing bubble...is it here already and no one is recognizing it?  Cheers!

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How to define a "bubble" ? An unsustainable price level ? :)

No idea if it's a bubble now but I believe national wide the housing price is still far from the last peak

 

So Tolls and Pulte say no.  Others say maybe.  Not many say yes right now. 

 

I remember I used to watch a number of "Flip This House" type of shows back in 2006 and 2007.  There were quite a few on television.  In the last year, I've noticed that a number of new "Flip This House" type shows are back with a vengeance...the one I'm watching right now is "Flip or Flop"...mainly because the guy's wife in the show is pretty damn hot!  ;D

 

Anyway, I was looking up information on the show, and I stumbled across a real estate forum, which uses the same software as this one, including the same theme...no I did not start it, but maybe someone from here did.  The main character from the show, Tarek, posted on that board and he is flipping some 55+ houses this year...using very "creative financing" for many of them.

 

http://www.talkirvine.com/index.php/topic,3738.105.html

 

Is the Fed's easy money policy creating another housing bubble...is it here already and no one is recognizing it?  Cheers!

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How to define a "bubble" ? An unsustainable price level ? :)

No idea if it's a bubble now but I believe national wide the housing price is still far from the last peak

 

So Tolls and Pulte say no.  Others say maybe.  Not many say yes right now. 

 

I remember I used to watch a number of "Flip This House" type of shows back in 2006 and 2007.  There were quite a few on television.  In the last year, I've noticed that a number of new "Flip This House" type shows are back with a vengeance...the one I'm watching right now is "Flip or Flop"...mainly because the guy's wife in the show is pretty damn hot!  ;D

 

Anyway, I was looking up information on the show, and I stumbled across a real estate forum, which uses the same software as this one, including the same theme...no I did not start it, but maybe someone from here did.  The main character from the show, Tarek, posted on that board and he is flipping some 55+ houses this year...using very "creative financing" for many of them.

 

http://www.talkirvine.com/index.php/topic,3738.105.html

 

Is the Fed's easy money policy creating another housing bubble...is it here already and no one is recognizing it?  Cheers!

 

I agree...far from the peak...but so is the Nasdaq!  ;D  Cheers!

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I need to have an income of $166,600 in order to pay an $80,000 rent in Montecito..

 

The investor might only be getting a 4% yield on his $2m property, but the renter is effectively needing to achieve 8.33% income yield on his $2m of financial investments in order to pay that rent.  So given that an 8.33% yield is tough to come by, especially one that increases at the pace of rents, it's maybe worth it to just buy the damn house.

 

So for the buyer it might seem like buying a home to live in isn't so dumb, even though getting only 4% rental yield from an investor's perspective may seem dumb.

 

I find the rent vs own comparison in California muddied by these absurd tax rates -- 52% at the peak end.

 

Perhaps that explains how these homes sell at prices you scratch your head, you know, at prices where investors wouldn't be too happy to invest.

 

 

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It doesnt feel like a housing bubble to me. There isnt a mass consumer adoption where everyone has to own a home. Like its there personal right to own one.  In my area i have seen insane price increases from 2009- until now in luxury condos. The nicest condos here have increased around 15-20 percent compound per year.  Maybe its the wealth effect. The rich have gotten a lot richer the last 3 years or so. Multi-family rental units are also on fire around here. So if there would be any bubble it would be in investment property that the rich are buying. The rich have a huge advance in locking lower than average rates for a longer term. So it would make sense to buy luxury property while locking down insanely low rates.

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Mark Hanson thinks so, and has some interesting thoughts on the subject: http://mhanson.com/archives/1329

 

The conclusion:

 

In closing, during the “Bubble-Years’ of 2003 to 2007 not everybody took out an exotic high-leverage, stated income, 100% HELOC, 5/1 Interest Only or Pay Option ARM.  But it doesn’t matter, as real estate “prices” using the “comparable sales valuation methodology” are moved at the margin.  And when the incremental buyer has the firepower to pay whatever it takes to buy the house using high-leverage, exotic loans, as homeowners and speculators did from 2003 to 2007;  or the cheapest money in history thanks to the Fed like PE firms — who regularly paying 10% to 20% over appraised value/list price using other metrics like UST yields, cap-rates, and “forecasted” house price appreciation as guides — they push up the prices of ALL houses.

 

Again, all it takes is 3 comparable sales to change the value of all houses within a one square mile area both lower and higher.

 

Based on the data presented above on the typical homebuyer that must use a mortgage to buy US housing is back in bubble territory.  Obviously, some regions like AZ, CA, FL, NV are extremely over-heated, back in bubble-territory relative to 2003-07, and will correct sharply on the “surge” in rates and some regions may just slow down.  But make no mistake about it…a 150bps jump in rates — or 43% increase — will have serious consequences to house sales and prices in Q3, Q4 and beyond to a market that has been completely reliant on the lowest rates in history for the past 2 years.

 

Just remember what happened to housing when the 2010 Homebuyer Tax Credit sunsetted in June…sales fell over 30% month-over-month in July…the middle of the busy home buying season!  And the “surge” in rates took far more leverage out of this housing market than the loss of the $8k tax credit…that’s a certainty.

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If you value houses based on what it costs to rent versus owning, then the US is doing ok.  In some areas the cap rates aren't that great.  In other areas of Phoenix, it makes a lot of sense to buy a home (especially with a 30-year fixed rate mortgage).

 

The most overpriced real estate right now is in China, followed by Australia, followed by Vancouver.  In my opinion.

 

2- As far as housing stocks go, I am shorting some of them.  These valuations are really high.

 

3- As far as lending to homeowners go, the US was awful in the past and is now getting a lot better.  Before, an unemployed person could buy multiple homes with no downpayment (!!!).  Now, the loosest lending is being done by the FHA.  You need a 3.5% downpayment and there are less people gaming the downpayment to get it down (in the past, you could borrow against the homebuyer's tax credit so the downpayment was close to 0).

 

Credit standards are extremely high right now in China because they are trying to cool down the housing market.  Credit standards are higher in Canada than the US.

 

4- There could be a small amount of bad behaviour going on in the mortgage origination space and in the mortgage REIT space.  The mortgage originators have some of the same problems as the past- there is a huge incentive to have low lending standards.  The mortgage originators are liable for fraud and faulty paperwork- but these problems won't surface until several years later because it takes a while for some homeowners to be delinquent on their mortgages.

 

Low yields are pushing investors towards buying mortgage-backed assets from these mortgage originators.

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