Hey, let's talk HOUSING BUBBLE

[PurityOfEssence]

Yes, it's going to burst, but in some places (like this) it may be more of a wheezing deflation, leaving "values" still in some comic book stratosphere.

So, point out your local absurdities, and take a gander at this one.

We live in Silver Lake, a pleasant little hilly enclave around a reservoir that's a mere 2ish miles north of downtown Los Angeles. Lots of Bay Area transplants, winding streets, nice pockets of charming places, and mostly middle-class sized houses. Yards are rare, due the hills and it being L.A., and it's a great mix of gays, families, bohos and professionals.

On our street is a new listing: a charming hillside home with a nice view of downtown. The upside: it's totally renovated and immaculate. The downsides: it's a two-bedroom, one bath place with a small yard below and no front yard; it's 891 sq. ft. and listed at $659,000.

Does that sound WRONG or what?

Yes, the world's gone mad, but with prices like that, even a sizeable correction doesn't approach the outskirts of realityville.

How's the silliness where you are?

[LisaM]

First of all, who can afford it, and second of all

if someone does pay that (which I'm sure someone will) it will just assist in keeping prices inflated. I've pretty much concluded I will never be able to buy a house (I live in Seattle) which I find sad.

[politicaholic]

8. I live in Seattle also, Belltown in fact...

and to live right downtown and own something is like walking a tight rope. Did I pay too much? What happens if I get a home equity loan and the value drops? Luckily the market seems to be sustaining the values.

It's like you get punched in the face because you don't want to live in the burbs.

[LisaM]

14. I know. It's tricky because for my sake I wouldl love values to drop

but it would hurt some of my friends financially.

[Book Lover]

1. Well, I'm in the SFBA, so it's insane

Ranchers made out of cardboard and paper sewer pipes and people expect you to go into $750,000 worth of hock? For a booger-glued home and a postage stamp of land that'll be underwater in a century or so? I just don't get it.

[texanwitch]

15. You just described the townhouses being built in Houston,

and being built in floodplanes.

My neighborhood of old homes flooded almost 4 years ago now, and city and county are allowing wall to wall townhouses, I hate to see the next flood.

The prices are cheaper, cheap to somepeople from other places but all the old inside neighborhoods built to withstands floods are going under cement and townhouses.

Streets are already flooding in some neighborhoods that never flooded before because we had yards to hold the water.

People are paying $200,000 and up for little tiny doll houses which will come about when it floods, the outer walls are chipboard covered by vinyl siding.

What will be the value of these houses when the next flood comes?

[David Zephyr]

32. Houston is way too overdeveloped...again.

The Woodlands becomes a lake nearly every year now. I know exactly what you are talking about.

For some reason, Houston has had this history of over-building of homes, "planned-communities" which is always followed by a horrific bust in home prices.

[Sparkle]

38. I'm in the Houston area also.

And they are starting up new subdivisions with new homes all over the place. I don't get it.

[texanwitch]

48. this for anyone planning on buying a house in Houston inside the 610 Loop

www.houstonpress.com/issues/2005-02-24/news/feature.html





www.houstonpress.com/issues/2001-07-05/news/feature.html




www.houstonpress.com/issues/2001-12-20/news/feature.html

[Gormy Cuss]

16. For only 750K? Where?

How many bids on it? You think I could get it with a bid of $900,000?
Is booger glue better than scotch tape?

Yep, it is utterly insane around here. The housing bubble won't burst. It will slowly deflate. If the Hayward fault lets loose, that WILL create chaos in a large part of the market.

I would not buy in the major California markets these days. There are too many sales on zero-down mortgages. When the market correct, the foreclosures will abound. It may even become a buyer's market.

[earth mom]

71. The San Fernando Valley Quake in the early 90s caused

home prices to crash substantially then. I know someone who bought a fantastic piece of property after the quake for $200K less than it was before the quake. Between the financial crash in the late 80s and then the quake, housing prices in So. Cal were stagnant and slow to rise for years and years. What's happened in the past few years there is absolutely insane! How can little 1950s built 1200 square feet houses on postage stamp sized lots be selling for double the price in the space of a few years-as in 500K and up-like those in my dads old neighborhood?! They aren't worth a hill o beans if you ask me. :shrug:

[democracyindanger]

2. San Francisco.

You have to ask?

I keep waiting for a big shaker. Nothing serious, just enough to send people scrambling south and across the Bay. Then maybe, MAYBE, I can get into a nice studio.

[Demobrat]

7. Don't hold your breath.

I was here for the Loma Prieta. Studios in the Marina went down a tad, but just a tad and only for about a year. Not enough to make the unaffordable affordable, by any means.

[democracyindanger]

11. But my plan is

to run through Cole Valley screaming, "AAAAAAAAAGH! WE'RE ALL GONNA DIE!" for a couple of days.

Don't take my dreams away from me, 'cause then I'll have nothing.

[Extend a Hand]

3. geez

4 bedrooms 31/2 baths 3200sqft. 1/2acre $289,000
I guess there is *something* good about ohio

[Jo March]

80. I live outside of charlotte, nc

4 bedrooms, 2 1/2 baths, 1/3 acre = $165,000. This is in a community with a pool and clubhouse.

[leftchick]

4. I have been amazed at the California housing prices

Shocked it more like it. I thought that only happened in Connecticut?
:)

Where I live NC has not come close to that insanity!

[Extend a Hand]

84. wahoo!

we are looking at property in NC, TN, and AL. Hoping to move next spring. So that's great news for me :)

[oasis]

5. Less charming property in your area (near Queen of Angels) has gone up

200k in just 2 years.

[jedr]

6. less than 100K . in rural Pa.....n/t

[Eurobabe]

9. It's not any better on the East Coast

Boston, Portsmouth, all the way down through Philly. Houses that were selling for under $150K 5 yrs ago are double and triple that now. Bubble's gonna burst.

[The_Casual_Observer]

10. What I want to know is, does everybody make 200,000+ a year

in LA now days? It would seem that $800k would be quite a pill to swallow. The Property taxes alone would require a significant chunk of your after tax income to save up for each year. Perhaps I'm missing something.

[Phoebe Loosinhouse]

31. You've touched on the critical link

The most important factor is : can a median income person/family/whatever purchase a median price home? If the answer is no, in my opinion, you have a problem. Plus, mortgages have offered 100% or more financing at attractive rates (in the short term) SO, everyone is banking on APPRECIATION of value or RATES DROPPING! The rates can't drop any lower! It's not possible?! So why would any sane person do adjustable or interest only unless they were counting on appreciation to carry them out of the crater? I have heard that Japanese real estate values to this very day have not hit the values of the 1980's. Everyone (people, banks, etc) just sucked up and asorbed the loss so as not to totally disrupt the economy. We might be faced with something similar in the future.

[rzemanfl]

12. Someday real soon a slum with broken windows, sagging floors

and rats within walking distance of a bus stop that will get you to work will be costing that much and the little hillside place will go for peanuts.

In response to your question I have a 50 year-old 1,100 sq. ft. 2 bedroom, 1 3/4 baths, garage and a nice yard near the intracoastal waterway on the West Coast of Florida. Paid $69,000 in 1997. House next door which is nearly identical went for $214,500 a few weeks ago.

[shanti]

78. that sounds

exactly like my place here in sacramento, ca. i paid 67,500 for my 2/1 976 sf halfplex in 1996. it would sell for 200,000+ now.

[DemocracyInaction]

13. That's cheap---in a very relative type of way

You are talking major area where you make a zillion times more per year than the people here in Maine BUT our home prices are totally (and I mean totally) insane compared to what people make. A total piece of shit old house is going for minimum $250,000 in the southern part of the state and new homes are starting at $350,000-------and in Maine if you make $60,000 a year, you are considered to be making a real good salary. We cannot understand who are buying these homes and they have been built like hot cakes for several years now and sold within days. No one here makes that kind of money. Obviously it's taking the major chunk of both parent's working to afford this stuff. And you can't touch anything on the coast or out on the islands for under a million--and that, literally is a shack!!! I think it is all just an extension of a generation that has maxed out every credit card. It's a "got to have" to be better than the friends, etc. mentality and when it collapses, there is no way these people are going to economically survive with a house that suddenly becomes worth half the price. (P.S. my daughter and husband in Rhode Island bought a run down, fixer upper built in the 1930's for $265,000---they grabbed it as they fought five other people for it because they just couldn't ever bid fast enough on newer homes and get them).

[Gormy Cuss]

22. The Portland (ME) market is due for a very hard fall

You are right, the appreciation is so far out of whack with wages it cannot be sustained. Southern York County, on the other hand, will probably hold value better because the buyers there include ex-Boston types who first saw their jobs move to N.H., then got priced out of that area and found Maine isn't so far after all. There's also a substantial number of summer complaints who don't mind being a half hour from the ocean or lakes once they're in the state. I know too many people who are being priced out of the towns founded by their ancestors. It's a shame.

I know an old fart living in a shack on one of those Casco Bay islands and believe me, it's a shack (tiny cottage) but he knows exactly what it's worth to some one else. It should make his heirs very happy someday.

[Moxygirl]

17. Here in Bradenton FL

property values rose 45% from this time last year. Houses on my street on the Braden river have doubled in two years. It's utter insanity as far as i'm concerned. What goes up must eventualy come down.

[ultraist]

33. 45% appreciation rates? That IS insane!

In my area in NC, appreciation rates have been consistently in the 5-10% range for years.

Welcome to DU! :hi:

[newyawker99]

62. Hi Moxygirl!!

Welcome to DU!! :toast:

[aint_no_life_nowhere]

18. I live in Orange County, California

in Huntington Beach, about 5 miles from the beach. About 1 month ago, a house across the street sold for $549,000. It's a small boxy two-bedroom, no dining room, less than 1,000 square feet, built circa 1960, with a leaky roof, and very small yard. It's not immaculate by any means. The shocking thing is that this house was up for sale in 2000 for $230,000. The price far more than doubled in just five years.

[Tansy_Gold]

19. First-time buyers increasingly closed out of Phoenix market

Prices have gone up 35% in the Phoenix metro area in the past year.

New homes in the huge developments 35 miles west of Phoenix -- that means 60-90 minute one-way commute on a frighteningly overloaded freeway system -- are running $150K - $250K, on small lots, usually 1200-2000 sq feet, stucco with tile roof. Hubby and I looked at some of them under construction. Can you spell "C H E A P"????

We paid $87K in 88 for our 1600 sq ft on 1 1/4 acre lot. Assessed value approx $250K now, market value unknown since we're not looking to sell.

I could be wrong, but I think the bubble is going to burst in two stages. The first is already happening, as more and more first-time buyers are squeezed out of the market by stagnant incomes and rising home prices AND as more and more of those who have moved into homes on marginal incomes are then slowly forced out by foreclosure. Those who are financially secure but are looking to move up or cash-out and downsize won't affect things as much because they're already into the market. It's the ones who can't get in and the ones who can't stay in who are going to provoke the first slow deflation.

But once it starts, I think it's going to snowball. As people move into smaller apartments and combine furniture and other assets, the secondary consumer markets are going to be hit. Why buy that $1500 dining room suite new when you can get it barely used at the consignment shop or a moving sale for $300?

When the secondary markets get hit, all hell is going to break loose.

My daughter and son-in-law bought a $165K fixer-upper in NJ two years ago, planning to keep it a year or so and sell to move into something bigger and better. They're now rethinking and remodeling to stay where they are at least until things shake out some more.

[Warpy]

20. Houses in New Mexico are still fairly cheap, even here in the city,

thanks to builders who are slapping up slumburbia on top of every vacant lot in the vicinity. However, one disquieting fact is that a third of these houses are being bought by investors, not by families looking for a place to live. That makes this city vulnerable to a rapid decline in housing prices even with no real inflationary bubble to speak of.

As people become unable to afford the housing rents that have inflated very quickly, those houses will become vacant and scared investors will try to dump them on the market all at once. The question is just how far housing prices will decline before the families that had been renting are able to afford to buy.

Most of the insanity is bicoastal, but other places, even here in flyover country, are vulnerable to a housing market collapse.

[Tierra_y_Libertad]

21. We live in SW Washington on 3 acres.

Lovely 2100sqft, 2 story, house. Acreage is half woods, half meadow. We paid $189k 12 years ago.

They just broke up 21 acres behind us and built McMansions on five 1acre and 1 19acre plots. (This to get around landuse restrictions). The faux mansion on 1acre behind us sold for $479,000. About 1/3 of the acre is on protected wetlands which means that 1/2 of their acre is useless to them. None of the properties have a single tree on them and the 3000+sqft houses are pretentious looking ticky-tacky. Presumably, the new owners work in Portland, which means a 35 mile commute one way. (Which my wife and I endured for 6 years until we retired).

Last year our tax-assessment valuation on our house was $250k. That was before the development went in. We'll see what it will be for this year, but it sure as hell isn't going to be the same or less.

If, or when, the bubble bursts, these people are going to be paying huge mortgages on property that is worth a lot less than what they signed on for, and impossible to sell.

I don't know whether to laugh, gloat, or cry for the poor saps.

[ultraist]

37. Price per sq ft

Appraisers often use price per square foot as part of their assessment. The new mcmansion you noted sold for $160 per sq ft which puts the market value of your house at $336,000. Your additional acreage does add some value.

$160 per sq foot is barely above the national average. I wouldn't consider that a bubble.

Tax values are often far below market values. Those new houses will increase your property value. Anytime something sells in your area for a higher price per sq ft, your prop value increases, assuming of course it's not a bubble that bursts. (Appraisers also look at market comps---comparisons of recent sales in your area).

[Tierra_y_Libertad]

57. Thanks for the info. I didn't know about such things.

Very interesting.

[ultraist]

74. Sure!

Even if the McMansions drop some in value, it's still a good thing for you. Had they built a cheap apt complex adjacent to your property or a low end strip mall, I'd be worried.

[dcfirefighter]

23. Land values and depressions

I'm a huge fan of Henry George, a 19th century populist economist / philosopher. Described as Capitalism's last stand by K. Marx.

His major work Progress and Poverty subtitled "An inquiry into the cause of industrial depressions and of the increase of want with increase of wealth...The Remedy" is based on the premise that what the classical economists called 'Land', was the basis of all wealth, and that allowing a select few "the Landlords" to benefit from the ownership of land, rather than holding nature as "a commons", leads to land speculation and concurrent economic depressions.

Where his plans have been partially attempted (Australia, Taiwan, Denmark, parts of Pennsylvania), buildings have gone up and housing costs have gone down.

In theory, a more full implementation of his ideas would lead to full employment, steady money values (vs. inflation), decreased infringement on ecology, lower costs of living, improved standards of living, and better funded government goods and services. Most modern interperations of his theory include a basic income grant or citizen's dividend, similar to Alaska's Permanent Fund.

If you've got 1 minute read: http://www.henrygeorge.org/isms.htm
If you've got 10 minutes read: http://www.henrygeorge.org/chp1.htm

[alittlelark]

24. We started a minor facelift on our Los Altos, CA home

New windows throughout, updated kitchen, new interior/exterior paint.....

We are contemplating putting it on the market in July. It is worth a STUPID amt. of $$$$. It's a beautiful home on 1/2 acre, but I'm still shocked by what ppl are willing to pay for it out here.

[SlavesandBulldozers]

25. Orlando is ridiculous

from what little i understand of real-estate - properties continue to gain value at an extraordinary pace.

I, like someone from Seattle upthread, am pretty convinced that I will never own a house, simply can't afford it. At least not here. Orlando - well, Florida in general - is shitty in terms of wages across the board. So I would say Orlando is a good representative for the greater US, because it has a nationally renowned cheap skilled labor pool and sky-rocketing real-estate prices - so the middle is being squeezed.

i feel pretty shitty that at my age I have no substantial equity.

I'll likely have to, at some point in the intermediate future, have to seek greener pastures. Oh to be a non-Floridian DU'er - that will be a sweet day indeed.

[tinrobot]

26. Over $500k in equity over the past 7 years.

I bought this 1400sf house in LA (Silverlake) a little over 7 years ago for $214k. A 1500sf house a block up the street just listed for $799k and went into escrow within a week.

I have a small home equity loan, but I'm certainly not in over my head. Unless the market completely tanks, I think I'll be fine. Until I move out of California, I'm just going to stay put in my little house and watch the real estate chaos.

[Nye Bevan]

27. Real Estate now = Tech Stocks in 1999-2000

Don't be at all surprised if house prices in places like the NY metro area are 30% lower than today's levels 2-3 years from now.

[yankeedem]

28. From your mouth to the creators ears

I am not paying $350k for a crappy 2 bedroom house with no driveway. No way, no how.

[BlueStateBlue]

30. I completely agree

I live in northern NJ, where prices are completely out of control. Plus, property taxes here average 6K - 10K! An "Under Contract" sign was added to the "For Sale" sign on the front lawn of my rental today. Even though I've been hoping to buy something for the past few years, there is NO WAY I'm jumping into the game at this point.

[David Zephyr]

34. Some places, yes. Others will continue to rise.

n/t

[ultraist]

39. In NYC? No way will values plummett that much

Not unless there is a major catastrophe, like a dirty bomb incident.

Same for LA, unless there is a major earthquake or terrorist attack. Another big one will cause homeowner insurance rates to skyrocket.

There is a big trend towards urban living. The bubbles will burst in the outlier slumdivsions. Cheap mcmansions and mini mcmansions that are out in the burbs will see drops in values.

[David Zephyr]

41. I agree.

You're right, of course. ;-)

[David Zephyr]

29. A bubble for some, yes...but for others not so.

Vacancy rates in Southern California, especially metro Los Angeles where you live, are at historical lows. So, I would suggest that there is no real estate bubble in SoCal or that we will see one this year.

As the U.S. Dollar has slumped to 40% lows against the Euro and Yen, real commodities and real estate naturally rise as hedge against it.

Another fact that continues to drive real estate to such high levels is that the inventory of homes on the market in Metro L.A. has radically shrunk since last fall as home sellers and potential home sellers pull their homes off the market.

It's like there is some sort of "distributive logic" amongst SoCal homeowners. Many are telling real estate agents, "look, I won't let you list my house or put a sign in my yard, but if you bring me a written offer with a pre-approved buyer without appraisal necessity, then I might take you up on it."

Certainly, there are places like Dallas and Houston and Atlanta where I believe there is a bubble, but not in Los Angeles, San Diego, San Francisco, Boston, Chicago, New York and the coastal North East.

That little house on your street will probably sell for the asking price. I wouldn't be surprised if they get multiple offers, too. The Southern California summer home market is about to sizzle again.

No bubble here. Not now. Not this year.

[Phoebe Loosinhouse]

35. How very strange that the very markets you cite as not being a bubble

are exactly the markets that most inside the industry say have the MOST bubblelike charateristics: California and the coastal Northeast. I think Dallas, Houston and Atlanta might be currently deflating, but the bigger bursts will be in the areas you say there is no bubble

[David Zephyr]

36. I believe that Dallas real estate has already dropped 10%

You don't say where you live and I don't know who you are citing as "most inside the industry", but I think that you are confusing reasonable and justifiable appreciation with bubble in the places I have indicated.

When the Dollar is 40% down against the Euro and Yen, real commodities and real estate (and oil, by the way) naturally adjust in hedge against the drop.

Houston and Dallas are way overbuilt and there are high vacancy rates and home inventories there. In the cities I listed, the opposite is true.

There will be no bubble bursting in Southern California with regards to real estate. Further, I did not mention the growing number of Asians and Pacific Rimmers with means also buying here in Southern California every day.

Real demand and the desirability and the lack of supply and a depressed dollar are what is driving real estate prices to a rational price level in some parts of the country. There will be no bubble in these places, and at most, a leveling off.

Lack of demand and the undesirability and the over-supply of housing coupled with greed and reckless profit chasing will explode in a real estate bubble in other parts of the country. Houston in the 1980's and 1990's is a classic example.

[ultraist]

44. Values in LA dropped 21% between 89-96

http://money.cnn.com/2002/12/02/pf/yourhome/q_housingbusts/

snips
For the past 40 years, home sales prices have outpaced inflation by one or two percentage points per year, and there has never been a national decline in real estate values.

But that's just part of the picture. When you drill down to local markets, instead of steady rises, you may find vertiginous spikes followed by stomach-churching drops. What's more, when busts hit, it can take years -- maybe even a decade -- for individuals who bought at the top of the market to recoup their investment.

Ask housing experts about local busts and one of the first places they'll mention is Houston, TX. When the oil market was kicked in the teeth back in the mid-1980s, home prices in this city tumbled fast. In just three years, from 1985 to 1988, the typical home price dropped by 21 percent -- or from $78,600 to $61,800.

"Prices fell so much that people owed more on than their mortgages than their homes were worth," said David Weil, an economics professor at Brown University. " They'd drive to the bank and drop off their keys to their homes and just leave." Houston isn't the only city where home prices have fallen when the local economy languishes badly. Take the stock market crash of 1987, which hit New York City's financial industry hard. Prices peaked at $183,000 in 1988, and anyone who bought then had to wait until after 1997 to get to even money.
==========

LA has huge fluctuations in the real estate market. The key will be holding on to the property until the values increase again. From 84-89, there had been a jump of up to 77% increase in values. This wont be the case though in the overbuilt no man's land, surburban sprawl areas. Those markets may never really recover, once they burst.

I do agree though, LA will not see a burst this year. It will take something pretty major like huge increases in interest rates or, a major stock market crash.

[David Zephyr]

46. I was a homeowner in Los Angeles during that time.

I am aware of the statistics you provided and expected someone to post them. There were very substantial military base closings and aerospace closing during that time frame coupled with a severe national recession that led to GH Bush's defeat in 1992 (he only took 37% of the national vote, even though he was a sitting president), and most of all, interest rates were very high during that period.

And that is the only bump in the road in the housing story of Los Angeles for nearly 75 years and it really wasn't even a bump. I know, I owned property here then (and still do) and bought and sold making profit during that very timeframe.

Still, there are some areas of the U.S. that I would be very, very nervous about now, but Southern California is not one of them. In fact, Palm Springs and the Palm Springs area is probably the most potentially exploding real estate market in the country.

[PurityOfEssence]

70. You're right; it wasn't that bad

We bought our first house when we were younger and poorer in January of '91 (actually, we bought a thrashed duplex with a partner) with an interest rate of 10% and a down payment of 20%. I worked like a dog, refinished hardwood floors, stripped built-in cabinets and shelves, painted, knocked out a window to make a door, built steps outside, and when we got it appraised in '93, it had only gone up about 8% in value. This was in East Hollywood, in a residential area with promise, so that worked in our favor.

Had we done nothing, we would probably lost some in perceived value, but not too much. By '93 it had pretty much hit bottom, and that would have been the right time to buy. Still, though, there's NOTHING on the market now, as you pointed out. We got this place in Christmas of '03 and it was HELL shopping: everything was crappy and outrageously priced. Now it's infinitely worse.

There may be some correction, but I doubt it'll be severe unless there's another big quake or whopper terrorist hit.

Friends of ours bought right after the '94 quake and got a palace in Mount Washington (a bit further east, still very much in the metro area) for what now sounds like a science fiction price. I doubt we'll see those days again anytime soon, but such things can happen...

[David Zephyr]

89. Silver Lake and Mount Washington: The Swish Alps.

Where in East Hollywood? I had the coolest apartment there throughout the late 1970's and early 1980's which I hated to give up as it was under rent control.

I enjoyed learning about your first housing experience here in L.A. Mine is similar, just earlier because I'm older than you are, P.O.E. When I finally had the "down payment" mortgage rates were 18% to 21%. I know that that sounds lunatic as I write this, but that was the state of affairs in the early 1980's. Ouch!

Prices may cool a bit out here, but it's just not happening now and I don't see it this year. Too much demand, too little supply.

:hi:

[Art_from_Ark]

72. What do you base your "dollar down 40% against the yen" on?

For a little less than 2 years now (after it started rising in June 2003), the yen has been in a trading range of 102- 114 per dollar. The highest the dollar has been against the yen in at least the last 14 years was when it momentarily reached 143 yen/dollar in August 1998. The current rate is 107.15 yen/dollar.

[BlueStateBlue]

42. That's because it's DIFFERENT this time, silly!

[tedzbear]

83. Vacancy rates low? Not for long!

I guess you haven't noticed the massive upsurge in Los Angeles area residential construction like I have. Just here in NoHo they are building a huge community redevelopment complex of outdoor mall, block after block of new apartments and condo lofts.
Further away, on residential streets I see a boggling amount of new apartment/condo construction.
Up in the foothills (outside the recently protected scenic corridor) there are countless hillsides that are being leveled off for the construction of new homes.
For the last six months dump trucks pass my mother's street on the way to the top of the hill where they are terracing the mountain side for more homes.

Your conclusion that vacancy rates will only drop is laughable and ignores the reality of profit motive in real estate development.

Until the Chinese and American central banks take away the punch bowl, this bubble will continue to expand.

Ciao.

[David Zephyr]

91. Vacancy rates and housing inventory are still at record lows.

And even the new construction that you see is a drop in the bucket, tedzbear. For first time homeowners, I wish it wasn't so, but the reality is that home prices in Metro L.A. are only reflective of an apartment and housing shortage. Real estate inventory --- homes on the market --- has radically dropped from last fall.

I travel through North Hollywood weekly as I record in a studio near there. There are a few large scale, big dollar projects happening there and in other places as well, but the housing statistics demonstrate that the residential shortage in Metro L.A. is growing, not shrinking.

[jeffrey_X]

94. I think Chicago is safe...

We just moved into a condo back in December and its already appreciated $100,000. Of course, we signed our contract back in 2003 and we got a great deal.

There is too much open space to develop in the surrounding downtown area. Many older homes are being gutted as well in some of the ethnic neighborhoods (hispanic, polish, and african american).

[ocean girl]

40. Want to hear insane?

I live in Highland Beach in Palm Beach County, Florida. I bought my oceanfront 1 bedroom, 1200 sq.ft. condo seven years ago for $110,000.

Last year, a developer offered me $650k for it and I refused. Now, Donald Trump (supposedly ) will be offering everyone in the building $1 MILLION each for our condos! I doubted the story about Trump, but he did buy a condo down the street and is demolishing it for even more expensive condos.

Sounds great, but I won't be able to replace what I have now - probably ever - and even if I could, I couldn't afford the real estate taxes.

This area is truly gone insane - where do people get all this money?

[ultraist]

45. Tell Donald

that you will take the 1M AND a small percentage of ownership in the new building that will replace yours. ;)

Sit on that investment for ten years or so, then cash out!

[Stinky The Clown]

43. The generalization of the bubble needs to be looked at more closely

I'm between Baltimore and DC in primo coummterland for either burg. A mix of older (1960s/1970s) more modest housing stock, 1990's minimansions, and most recently, the march of the McMansions. Ours is a 3,000 sf colonial on 3/4 acre. Four BR, 3 and 1.2 baths, LR, K, DR, FR, FP, fully finished lower level with 2 BR, LR, eat-in K, 1 full bath. (My father-in-law used to be downstairs ... many years ago.) We use the basement, as it is, as office space for our two separate businesses. Paid 120K in 1979. Worth over 600 now. Overall home prices here are going up about 75-100K per year.

Now here's the interesting part. We're buying houses for each of our sons. The deal is, we buy 'em, they pay the mortgage. We sell in 5 years at an agreed-to split of the profit (or the buy us out an agreed-to percentage of the then-appraised value).

18 months ago we bought the first one in inner city Baltimore, close to the Inner Harbor. 700 SF rowhouse. 2br/1ba, low ceiling basement (can't improve it). We got the place after making (and losing) 8 other offers. Paid 79K. Right now, two doors down, a fully renovated place is on the market for 289K. It was identical to ours. The reno costs no more than 50K, tops.

We're looking in another part of town for son #2. So far (over the past 11 months) we have made 5 offers, all well above asking. No luck at all. And this is in the 150-175K range.

So what gives? Well, kids my sons' ages are all fairly well employed, but can't afford to live where they grew up. Ad to that 400M in commercial investment last year (and this year looks to be more) in Baltimore and that means jobs. Being at the lower end of the market, the bubble won't hit badly at all - assuming a bubble even comes. These kids have the money. They just can't afford to go back to the 'burbs. So the city is getting their business.

There's been talk of a bursting bubble here for years. But it never comes. Now they're saying ... no bubble. And that makes sense. Rents and home values are pretty much in line. And the job market's such that people can afford to buy. Maybe not as much as they'd like to buy. But they can buy something.

The speculators/investors have been busy, too, but no more than they've ever been.

So before we yell bubble, we really gotta look closer. If we get any bubble at all, it'll be the McMansions and the minimansions. Looks like everything below that's pretty stable.

[ultraist]

49. 50% of the profit?

So, you are looking at splitting a $159,000 profit (79k+50k in renovation costs=289k value) compared to approx $25,200 in interest (18 mo interest @ 12% on 179k loan). If you were to sell now---So, your son is losing around 125k by not taking out his own high interest loan and splitting that profit with you. ;) Is that right?

Pretty much anyone can get a 12% loan these days. Why didn't he buy it himself?

[Stinky The Clown]

52. Neither one of my sons ......

.... could qualify for a mortgage that big on their own.

And the split's 70/30. Dad and (step)Mom are generous ..... but Dad's 58 years old ...... thats Dad's golden years nest egg .... yanno?

[ultraist]

54. LOL!

That's cool, a win-win situation!

[Stinky The Clown]

58. Our profit will likely be more than that.

I don't know if you're familiar with Baltimore. But there's the Inner Harbor. Ground Zero for the current (and long running) housing boom in the old rowhouse neighborhoods. The actual neighborhood is Federal Hill. There are houses there well in excess of $1M. 6 - 8 blocks south, the same houses are $500-750. We're 12 blocks south, and with somewhat smaller houses. We think the 5 year plan's about right.

Then sell there, take the money, and move to a nice neighborhood further out (but still in the city) and get twice the house (even 3 times the house), probably an older detached single family, with a yard and garage, for less money (but also with less chance for the explosive price increase). But the further out neighborhoods are more stable and just plain prettier. The kids get a house they can actually stay in for a while and raise their own kids. If the profit on the 'spec' houses are enough, they may even be able to do it with a small, or even no, mortgage. And we're hopin' to be sippin' mai tais by the pool, yanno?

Assuming we had a pool .... and liked mai tais ..... and actually wanted to retire .... I'm just sayin' .... :)

[ultraist]

73. I'm not familiar with Baltimore

It sounds as though you are riding the wings of a gentrification movement, which can be very profitable. You really can't go wrong buying on the exterior of a well established neighborhood in a city such as Baltimore that has an anchor like DC. It's only a matter of time before the perimeters get gentrified. Now, this is not the case though in some cities, such as Detroit which doesn't have any anchor.

We've purchased properties in a similiar fashion by buying on the fringes of up and coming or established neighborhoods (Historic Districts), renovated and flipped or held them until the gentrification seeped out. We've also owned rentals for ten years, all of which we could sell now for a profit, but those are our long term investments we plan to hold until they are paid off.

Management is a pain but we are now managing only the properties we own. At one point, I was managing 250 properties, (all of our properties and our partner's properties). That is something I would definitely advise against! Property management is tough and not as lucrative as investing.

[Stinky The Clown]

79. Exactly!

Yup, gentrification is most definitely at work here. It has, literally, been going on since the 60s. In Detroit, you no doubt remember the same riots ..... the Summer of the Burning Homes. That's when Baltimore started the Dollar House program that has been wildly successful. Condemned, burned out shells were sold by the City for $1. The buyer had to pledge to renovate within 18 months and to occupy for (IIRC) two years. This kept speculators at bay and created truly viable, stable, safe (relatively), owner-occupied, sustainable neighborhoods. While there are now many rentals, there is still a majority of owner-occupied houses. The neigborhoods have not only held value, they've increased dramatically and they've spread out.

As to property management ..... this is why my kids are in the houses. I do *not* want to be a landlord.

[David Zephyr]

47. Real Estate Tip? Palm Springs, California

Baby boomers are approaching retirement age, Palm Springs and the Palm Springs area have everything that retirees could want complete with superb medical and senior infrastructures developed for decades and decades. Dry climate. Clean air. Recreational fun. Chic.

It's still affordable, but it is rapidly appreciating like most of Southern California.

Palm Springs will be one of the wisest real estate investments anyone could make now. It will boom and boom and continue to boom.

[ruggerson]

51. And it's 120 degrees at night in August

no thank you :)

[David Zephyr]

92. It could be 150 degrees, but it is still a great investment.

Well, it really isn't 120 degrees at night, but it does get very hot between July and September. We love it there during that time as we jump in our pool at 9 AM in the morning when we are out there.

And I may be wrong, but I think it will prove to be best real estate investment in the U.S. as the boomers begin to retire. Already, the fifty-plus crowd who are able to do so are snatching up everything in site there. Progressive city council, too.

[siliconefreak]

53. still affordable?

Yeah, right. Anything under $300,000 is a total dump in Palm Springs. It's cheaper than the coastal cities, but that's not saying much.

[ultraist]

55. Yes, but as an investment...

At a glance, it looks like he may be right. Sq footage prices are ranging from $230 per sq ft to $600 per sq ft. If you were to buy on the immediate outskirts of one of the more expensive neighborhoods, eventually, the the increased values would bleed out. It looks like there are still opportunties there. Not all areas have been actualized yet.

And as far as marketing to retirees, that is an increasing market of baby boomers, as he said. I bet developers will do well by going into underutilized areas and building retirement communities. Handicap accessible condos would be my first guess on how you could make a sweet profit.

edit to add:
Just to qualify my comments, I spent about 60 seconds looking at MLS listings and didn't do any further research!

[wiggs]

56. I would have some concern about investing in a commuter area

There have been discussions about what is going to happen to car oriented bedroom communities if the price of gasoline really goes through the roof.

Communities without a job base and without mass transit may see a real estate value drop.

[ultraist]

59. I would market to retirees

in that area. I'm just speculating here---no pun intended.

Retirement communities are hot and will be for the next decade. We have NEVER seen an elderly population as large as we soon will (increasing life spans and the baby boomer generation). Many, prefer to downsize their homes and buy low maintenance condos.

[David Zephyr]

93. Yep.

I agree with you, ultraist, that Palm Springs and other retirement areas in the U.S. and Mexico will be the hottest real estate around in ten more years.

We like Palm Springs because it is still in California, 1 1/2 hours from Los Angeles and has a very progressive city council to match the community. African-American and gay mayor and the majority of the city council is gay and lesbian. Great restaurants, clubs, golfing, tennis, pools everywhere, senior infrastructure and easy living.

[progressivebydesign]

76. My husband has a guaranteed, high paying job there..

when his company relocated. I'm talking the one the most desirable jobs in the Country, and almost impossible to get anywhere else.

We turned them down and moved to the Pacific Northwest. No way would I live in that area... cheap housing is not worth it. I dont' care how good the martinis are, and how big of a pool you can get. I would literally drop dead in that weather.

I know that many people love the intense heat, or they don't mind shuffling from air conditioned building to air conditioned car. Not me.. give me trees, blue water, lots of flowers, and four seasons. To each his own!

[Media_Lies_Daily]

50. When it blows, it's going to be major.

[tedoll78]

60. Anyone in Louisiana/Mississippi?

I'm looking at buying some really really rural land when I get out of school, and I was wondering how prices have been going..

[funkybutt]

63. I think you'll be able to find something pretty reasonable

Prices in New Orleans are kind of high but in the rural areas, real estate can be very cheap. Just depends exactly where you want to be.

[tedoll78]

81. I'm probably..

looking to get about 20-25 acres around the LA/MS border (north of Lake Pontchartrain, but as far away from Mandeville as is possible). Then I'll probably end-up just sitting on the land for a while before finally beginning to build a house on it..

[funkybutt]

88. you might want to talk to BOSSHOG about that

He lives out there, i believe.

[stickdog]

61. You think "they" will let the middle classes keep that kind of money?

I'm guessing that it's next on the agenda -- right after SS, Medicare and pension plans.

[Dorian Gray]

64. I'm in NYC...

Where One Bedroom apartments are going from between $300,000 (totally needs renovations, walk up, and in crappy neighborhood). My friend, however, bought a 850 sq. foot one bedroom apt. four years ago for $450,000. He was told by a realtor that he could sell it now for $750,000. It's on the Upper East Side in a really nice co-op building. Maintenance is over $1,000 a month.

Bubble? What bubble?????

[MadHound]

65. I don't understand how any folks in these high house price areas

Afford those prices. Here in Missouri, a house like that is 1/10 of that price. My first house, bought in '93 was a two bedroom, one bath, 900 sq ft. Over the course of ten years there, we put in new windows, a new bath, steel siding, new breaker box, and other minor improvements and repairs. I bought it for $35,000, and in '03 sold it for $50,000. Prices were reasonable for the time. We also bought another house out in the country, twenty acres, 2400 sq ft with out buildings for $140,000. Again fairly reasonable.

How anybody can even think about those kind of prices is beyond me. Perhaps it is time for all you folks to move out to my state. Good employment, cheap housing, and you can help make this state blue again.

Geez, I thought some of the prices around here were nuts, but you folks have got me beat by a mile.

[spooky3]

96. Here's how they (we) cope:

1. Be a prior homeowner with enough appreciation in your prior house to afford to move here or to buy another house.

2. Buy a house with a basement apartment in it and rent out. Yes, there are people living in million dollar houses here (DC area) who rent out their apartments in the basement. My neighbor (nearly age 65) rents rooms in his house each summer to Harvard interns working on Capitol Hill.

3. Live with roommates longer than you would like. Marry someone who has a good-paying career to match yours.

4. Buy a much smaller house and/or yard than you would like. Give up having a garage. Dream kitchen? Dream on. Don't watch HGTV or you will get extremely depressed.

5. Buy a "fixer." However this is becoming a much less popular strategy because all of the very busy contractors charge twice what they charged just a few years ago, because they can get it.

6. Move way out and commute an hour each way to work.

7. Be an urban pioneer. Live in what are still very rough neighborhoods and hope that they turn around as you fix up your house.

8. More than one of the above.

[Bouncy Ball]

66. We looked into moving to Portland, Oregon a couple of years back.

But when we discovered $200,000 would get us a microscopic, run-down, two-bedroom shack with indoor plumbing that sort of works, we decided not to.

We bought our home in 2001 for $130,000. At the time we bought it, it was 10 years old and it's a four bedroom, 1900 sf home. Nice floor plan, two car garage, front yard and fenced back yard. Fireplace, bay windows, two living areas, two dining areas and a big kitchen. Oh and nicely built, too, not crap.

Suburb of Dallas.

There's simply no way we could afford to move somewhere we'd want to live at this point. Houses are just too expensive.

[progressivebydesign]

77. Huh? Portland still remains very affordable...

I'm puzzled on that. I think I'd choose the ramshackle house in Portland over anything in Texas... such a difference in culture and weather. But.. we're all so different, and can't all like the same thing.

[MissB]

82. Portland isn't exactly affordable right now

Last month, the Oregonian ran a series of articles discussing the local housing market. We have something like 1.8 months worth of available houses on the market- the lowest supply around here for years. People are getting into bidding wars over houses that pretty much suck (one example they had was a $240k home that had mold issues that sold and was on the market for $280k just a few weeks later). An "affordable" home in NE Portland is going for way more than $200k.

Parts of NE Portland used to be a fairly scary place. We had a friend buy a house there about 10 years ago- he paid something like $40k for it and he heard plenty of nightly gunfire for the first five years or so. Now his house is worth at least $280k.

We had a house in SE Portland that we sold two years ago. We bought it for $55k, and some first-time home buyers plunked down $365k for it when we sold in 2003. It was around 1800 sq feet, a craftsman style, and on a 50'x100' lot. I simply cannot imagine being a first-time home buyer in the Portland area right now. It would suck.

But yeah, Portland is a great place to live. Schools suck, but the area is nice.

[spooky3]

95. What is the weather like in Portland? And is it a good place to retire?

[MissB]

99. It is very mild, for the most part.

We also get a fair amount of rain, but we tend to be a bit warmer and drier than Seattle.

It rarely snows in the city. If it does snow, the city shuts down. We tend to get about a week's worth of 100+ degree days during the summer (not all at once).

It can rain into the month of June.

I'm not sure about the retirement part of your question.

[Mizmoon]

67. Long Island - bought my house for $125,000 in 1994

now it's suuposedly worth $400,000+. Taxes are outrageous too. I'm paying about $5,000+ per year.

No bubble in sight either - we are within easy commuting distance to NYC by train. I don't know how the younger folks will ever buy their own homes.

[newportdadde]

68. I live in a suburb of Kansas City in the past few years houses

that were 105-110 and TURDS have gone to 125k+, The 125ks to 150++. My sister just bought a home that is newer then ours(30 years old) but smaller for over 25k more then we paid less then 5 years ago... I dont get it, I guess we bought when interest was 8% but still wages aren't matching this increase even with the lower interest.

And now everywhere I look these damn townhomes are the new thing, basically just duplexes but they call them townhomes. And get this... they start at 130k. More then my wife and I paid for a 2300 sqft home in great condition in 2000(although we did do FSBO) 130k so you can share a wall with someone and live in half the space. I swear we have gone mad here.

[enid602]

69. Housing bubble?

Go to realtor.com, which boasts of having something like 80% of all US real estate listings on-line. Sort for homes in Philadelphia, PA. Cheapest: $9900. There are 500 (out of 5600 total)listings UNDER $44900. If this is too rich for your blood, go to Pittsburgh, which is usually considered a cheaper alternative. Good deals in Ohio and Michigan, as well. Given present employment trends in rustbelt states (steel, autos, mfg), there should be no shortage of affordable housing. See, the republicans have you covered.

[progressivebydesign]

75. Geez WHY are people pushing this every month?

I've been on DU for several years. Why do people want to push this meme?? What is it? Housing has been overpriced for decades on the West Coast and the East Coast (i.e. the places people apparently want to live). As long as there is no way to create land, then this will continue. There was one hiccup in pricing on the West Coast 10 years ago, but it still was priced highly.

It is not going to burst. This is constantly posted here.. year after year. High priced homes in desirable areas is not a bubble, it's the sad reality of America.

[PurityOfEssence]

85. Incredulity perhaps?

Remember, this board is a place to blow off steam and make connections.

As the world's population increases ridiculously, land will increase in value. The ability of workers/professionals to actually have a small stake in something gets increasingly remote.

It's worth posting for a wake-up call, if nothing else.

What is "news"? News is rarity. Yes, this is a common topic, but the "I'm all right, Jack" tough-guy mentality of people in this country conspires to relegate crucial issues to the back pages of the paper.

For all the goodness of the American spirit, we're an asshole country. Our national soul is that of conspiring to get others to be maneuvered into giving us what we want. This is feudalism, and that's the soul of the country.

I don't necessarily think it's a bubble, especially not here. I would suggest all to get a grubstake in land as soon as possible. It may depreciate over the short term but it will appreciate.

Shocking? Unsustainable? I don't know. I do know that property rights are more sacred than gun ownership in the individualistic "paradise" that is America, and the hourglass is running out.

[dcfirefighter]

87. That's the problem

as long as we each have a toehold on a spot of land, we continue to support property rights in land. In reality, no one created, therefore, no one can sell it, and no one can own it. We can only rent it from the rest of us.

Practically, that means keeping property titles, but assessing taxes against the land value (rather than the complete value) of the real estate.

We can't make more land, but we can use it better. We can build more housing units per acre in urban areas. We can build up rather than out. And we should. We'd reduce transportation costs, and leave more land open for food production and natural ecologies.

Maryland has a bill in the chambers to allow counties to shift these taxes. Any DU'ers from Maryland ought write their state reps in support of them.

Another benefit: as the taxes are taken off of buildings, more buildings get built, and more people go to work, and wages rise. If taxes on state income and sales are moved to land, people keep more money, spend more money, and employ people, and wages rise. As wages rise, real estate prices rise, and more homes get built, and more business occurs, and more people get jobs ... it's a beneficial cycle.

[triguy46]

86. Great plains reality check

Poor saps buy into (literally) the idea that these crackerboxes are worth that much money, go into huge debt, have no money for kids college, retirement (cause they got * for pres, good luck) and credit card debt out the wazoo. so they can own a home that is over priced by 3 or 4 times?

for 659K in KS/OK/MO you get at least 160 acres, and 3000 square feet, plus lower property taxes, lower insurance, cleaner air. On the other hand you get yahoos using taxpayer dollars to promote Intelligent (not) Design.

Pick your poison.

[BeHereNow]

90. Hey P of E, we are neighbors!

I am just over the hill from you- back side of Griffith Park.
Equestrian center area.
As far as the housing bubble? We are all fucked.
We bought our house ten years ago at 279.
It is now valued at 800 +.
Two bedroom with guest house.
Fortunately, we havew been able to pay off most of our
mortgage. Woe to those who will be caught holding
mortgages on properties that are suddenly worth a fifth
of the debt, eh?
BHN
PS: Do you ride? If so, let's go!

[OxQQme]

97. So, if you're a middle income family

that's lived in your house for ten or twenty years and you've raised kids in the schools and paid $49k for your house back then and have seconded your mortgage to extract some of the equity for that remodel or vacation and the tax man say's, "You're home is now worth $750 bazillion on the market, you OWE $20k this year for property tax!" The gov agency will take no less and foreclosure is the only out 'cause you can't afford the taxes. Is that not forcing you out? The 'rates' are fixed but the 'selling' price isn't and that's what taxes are based on.
Isn't buying a house on spec that it WILL increase in value so you can sell it at the inflated price creating an inflationary boost creating a hardship on the 'natives' ?

[PurityOfEssence]

101. Howdy

I'll PM you.

[sendero]

98. I believe...

.... that there are lots of things driving the real estate market, but the one that scares me the most is the completely lax standards for lending that Fannie Mae (and maybe others) have adopted.

Sure, getting into a house with virtually no down payment sounds good in theory, but it isn't. Not unless the new homeowner has some cash lying around.

If you don't have a couple thousand $ lying around and you buy a house, what happens if something breaks or you miss a week of work or whatever? What happens if values decline a bit? What happens when you miss a couple payments and the mortgage company forecloses, only to find the house is worth much less than the outstanding balance? What happens when these houses get dumped onto an already weak housing market?

I can tell you what happens, and it isn't pretty and it could easily come our way soon :)

Lax lending standards for home mortgages will have the same ill effects as lax lending standards for credit cards - we'll all pay for the folly.

[enid602]

100. bubble

I believe there's a lot of truth to what you say. Couple lax lending habits with the fact that our uneven housing market has appreciated most in metrolpolitan areas which have seen a huge uptick in defense and government spending (DC, LA and San Diego), and you've got a recipe for disaster.