A question about the housing bubble.

[edhopper]

Hey, a thread not about Kerry or *.

I do think there is a housing bubble that will burst in the next year or so. One of the reasons I think this is that of all my friends and family, I do not know anyone who owns a home that could afford to buy it at todays prices. Think about that. Do you know anyone who has owned their home for more than a few years (before the current price spike) that could afford to buy it at todays price. To me that means that all first time middle-class home buyers are being excluded from the market. I live in NY and all those areas that used to attract teachers and firemen and cops are now out of their price range. I've talked to people in other states and it seems this is true around the country. I would be interested in a discussion about this from the wise souls here on DU. Thanks

[soothsayer]

1. Well, SOMEBODY is buying all the incredibly expensive homes in my

area! If no one could afford them, we wouldn't have prices like this. Of course, as the interest rates creep up, people won't be able to afford as much, so prices will flatten. Of course, I'm awfully sorry I didn't buy a few years ago when the outrageous prices were half or 1/3 of what they are now. Great googa mooga, what's a grrrl to do?

[Burma Jones]

2. I believe that part of the housing bubble was caused by

the transfer of the 1990s stock market bubble to the housing market. The stock market lost huge dollars (I don't know just how much) at least on paper. The economy has to shuffle a lot of that wealth somewhere and I believe that many people transferred their money from markets to Real Estate.

Also, Interest Rates have been quite low over the last four or so years. And the new mortgage "products" allow people to borrow money that wouldn't have been able to do so a decade ago.

When this bubble bursts, it will not be universal. Some areas have a high demand for housing with a high income population seeking those areas. The DC area and the more affluent suburbs of New York spring to mind, but there are more.

[sangh0]

3. I agree that tthere will be a bubble

but then, I've been sure for about 5 years now.

:shrug:

But basically, I see interest rates rising and the economy hurting, so I don't see how prices can be maintained. The high-end of the market is still expanding it seems, but that's understandable given that corporate profits are high. The rich are doing well, but I don't see how that can sustain the current market.

[thinkingwoman]

4. it's already leaking in the midwest

Housing prices are inflated in the tens of thousands range depending on the house (ie--50,000 homes are priced at 70-80,000; 100,000 homes are priced 120-150,000; etc.). It's been like that (noticeably) for the past 5-6 years here.

I live in a southern indiana county that has seen 7% unemployment for the past 2 years and the housing prices have remained inflated--until recently.

In the past few months I've watched houses remain on the market for months and now those prices are coming down. They're still too high, and they still start out asking the ridiculous prices, but they're not selling very well up there in the stratosphere.

Meanwhile, defaults and foreclosures are up and defaulted houses are carrying debts that definitely outstrip their value.

The bubble is going to burst and depsite what Greenspan says, it is going to be bad.

[edhopper]

5. As I said

I think the bubble will burst. I have seen housing rise by 300% in the last 5 years around my area. There have been alot of Adjustable loans with no down payment in the last few years. That's how some people have been able to buy.
I am curious if others agree with my initial question. That no one I know could afford to by the house they are now living in.

[sangh0]

8. I know people who can't afford their house

I know one person who could only afford it because he got a great price, and even then, could barely squeeze it out. One stretch of bad luck, and he's screwed. He's looking into selling, and buying something cheaper further away from an urban area. He's now in NYC.

Another I know, not poor, is looking to sell his recently purchased home in the suburbs, for a smaller, less expensive place.

I cite these examples, not because they show people losing their houses, but because they suggest a trend away from luxury towards affordability, a trend I believe is more widespread in the middle income home-owner class. The rich may be able to keep the luxury market going, but I don't see how the rest of the market can when people are economizing.

[sweetheart]

6. vapour and substance

Having been doing some home construction work recently, i've come
in touch with the REAL cost of materials and whatnot that make a
house. It strikes me that wood, plasterboard, wire, concrete, pipe, plastic vapour barriers, insulating foam, asphault and some fittings
just don't have this ridiculous scale of price escalation.

A kit house can be built and delivered to a concrete slab for 40,000,
say a total price of 50-60 for a brand spanking new 4 bedroom basic
house. (kit houses these days are nicer than site-built, check the
web.. some of them are even custom made to order)

Which suggests, that the bubble costs is really related to the land
and crowding demand, interest rates and marketeering. If an
earthquake knocked down a house and it had to be reconstructed from
scratch, what is the difference between that cost and the "price"
of the current building.

Methinks there's a lotta fat in them prices, and that homeowners have
no price benchmark for where this market could go if bush steals
another one.

[IrateCitizen]

7. The NY Times ran a story about this yesterday...

One of the major dangers (and I've read this from numerous other sources) is the number of Adjustable Rate Mortgages (ARM's) that have been taken out over the past several years. Basically, households have over-extended themselves in order to purchase homes for which they can just make the minimum payments and still scrape by. Should prime interest rates rise another 2-3 percentage points over the next couple of years, there will be a significant number of people unable to make payments.

Foreclosures were up 40% nationwide in 2003 as compared to 2002. They are projected to increase again this year. One of the things that happens with this is that when a home forecloses, it pushes property values down on all the other homes in the neighborhood. Just a home here or there is not a big deal, but if it starts happening in larger numbers, it will push home values down to a point at which it will be more economically viable for some homeowners to simply default on their mortgages as opposed to continuing to make payments on a mortgage that is for far more than the sale value of the home. Should we reach this critical mass, all bets are off.

Of course, the surest way for people to see their way through this is if they purchase a modest home that is well within their means. That way, they can ride out the bad times and still have their house when the market eventually comes back up. Then again, there is no such thing as a modest home within my means where I live, in Westchester Co., NY, where a 3-BR split can cost you a cool $450-500K.