Pricked
April 27th, 2004 - 2:41 pm
The end is nigh. Read this from PRNewswire:
The median price of an existing home in California in March increased 22 percent and sales increased 4 percent compared to the same period a year ago, the California Association of REALTORS(R) (C.A.R.) reported today.
“The median price of a home continued its run of double-digit price increases last month as buyers scrambled to purchase homes amid concerns of rising mortgage interest rates,” said C.A.R. President Ann Pettijohn. “This unprecedented demand helped push the median price of a home in many regions in the state to record highs in March. And at $428,280, the median price for the state also hit a record high in March compared to $351,130 just one year ago.”
Back in ’02, you read here:
Let
NOOOO – don’t say bubble!
My closest and dearest friend was selected by lottery to buy in on the first phase of a Condo in Carlsbad. A 1500sf condo, but a condo nonetheless for…drum roll please…$424,000!!! The condo isn’t slated to be ready till October so hopefully if this bubble bursts it will be before Oct. so they can bail, if that is a possiblity…
on the otherhand my parents in south Orange County, are planning to put their home on the market in August…paid $215,00 in ’88 and the realtor suggested the listing price…another drumroll…pinky up, One Million Dollars!!!
I was in OC last August and was astounded at the housing prices, on my visit this April nearly fell out of my chair reading the real estate section of the LA times. In 6 months HUGE increase.
And this is the whole state. I am in Sacramento, not quite as desirable to south coast, but last I looked 1000 sq. ft bungalow downtown could fetch $400,000 plus!
sheesh…I’m just crossing my fingers for it to hit September so all my loved ones make out okay!
Around Silicon Valley and Santa Cruz County, it’s not so much that prices are rising, but just that it’s the more expensive homes that are on the market and that are being bought. This is why the median keeps rising while the prices haven’t really gone up much. There might be some contraction, but I don’t think it will be nearly what some people think it will be. Interest rates will go up, but the economy will improve as well, and people aren’t going to want to stop living in 80 degree weather by the beach any time soon. Plus, the amount of regulations on building, anti-development ideals, and high labor prices all keep the price of real estate in California high. Maybe some places will decline in value, but when you’re talking about some of the beach towns especially, you’re talking about increased demand over time with virtually no additional supply, so it makes sense that prices will continue to rise.
It’s not just in California. Here in Montreal, Canada, the occupancy rate is around 0.3%, people can’t rent decent places, and since interest rates are low everyone is trying to buy something, anything.
The fiancee and I looked into buying our apartment block when it was put up for sale, but we realized there was no way we could pay for it. The building sold in two weeks, and the guy who bought will likely lose money (by my estimate, just paying off the building will take about 35-40 years at current rent rates, assuming no external factors).
On the other hand, when the bubble does pop and all those poor people try to sell off their house for cheap, we’ll have a nice fat cash reserve and should be able to get a decent place for not a whole lot.
Some lose, some win.
Wow, it’s 1993(?) all over again!
However, Howard Veit did post last week that the mid-week classified ads was thick. Lots of companies looking for people.
And when these people buy, their prop taxes get reassessed.
April job growth 500,000?
Ok, maybe May.
Is it actually reasonable for a housing bubble burst to create situations where prices get rolled back 2 or even 3 years?
Im not talking suburbs, im talking manhattan condos. I just dont see property losing 50% of its market value because interest rates go up 1 or 2 points.
As an aside – do you REALLY think its low interest rates that create this irrational property bidding thats going on right now?
Im young – but I want to poach as soon as this bubble burst (sorry to anyone who gets killed – but Im frothing for the fall!)
V-Man:
Your experience would tend to indicate that Montreal is not a bubble. One of the indicators of a bubble is that Purchase prices shoot up while Rentals stay lower. I don’t know about the rents in OC. Are they going up along with the purchase costs?
Time to sell the hovel, move to Nebraska and buy a mansion with the money, enjoy the cleaner air, and get away from the state known only for its collection of weirdos which is bound to, sooner or later, fall into the ocean anyway.
By August, We can expect to see this headline “Bush policies causing overheated economy, says Senator Kerry”
Haven’t you been selling deflation for quite some time now? Mind you, I recently chose not to move to California in large measure because of the housing inflation there, but still.
After dinner with the parents Sunday, I was subjected to NBC’s Sunday newscast, which included a story already hyping the fear of inflation and citing the high price of houses. They left out Greenspans speech days earlier citing “no fear of inflation” and even buried the total figure, which while I can’t remember it, was nearly non-existent, and a far cry from what Carter subjected it too, so yeah, Kerry’s press secretaries at NBC are already switching from “unemployment” to “inflation” as the bad thing Bush inflicted on us, so what if the numbers don’t support it?
Wanna buy my house?
That old post of yours that you link to contains the first comment I ever left here.
Full circle: I just bought a house, something I said in that comment I would never do, at least not here on Long Island. 418k for a house that would sell for 100k in other places.
Soon, the housing market will crash once again and I will never be able to sell back at the price we paid.
Someone get me a cardboard box.
Joe and Mary should take some classes on personal financial responsibility. Or at least have moved into a neighborhood with good public schools and stable property values…
Anyways…using LA homebuying as an example of a nationwide interest bubble doesn’t really fly. Central Ohio has a glut of office space, apartments, and houses despite low interest rates and one of the better job markets in the state. Runaway suburban sprawl has a lot to do with it, but the market is stable and fairly strong in “desirable” areas (you’re screwed downtown). No bubble here, and probably not in a lot of different areas around the country.
Interest rates will creep up slowly, not spike and suddenly make buying impossible. Don;t worry too much.
But you have a low interest rate michele. And I doubt Long Island would take much of a hit, if any.
Those highly desired locations will always be money until the mediocre communities find something special to offer. Its your cookie-cutter rural suburb neigborhoods that will get hit.
Do you have to sell to take a loss on your taxes?
If job growth is above 400k, it’ll be time to short soon.
Someone bring me a bubble down here in Louisiana! The free money would be nice, but I guess I can live with the current rate of appreciation.
All of you, Stephen and the commenters, should go at once to an archive of Thomas Sowell’s columns.
I’ve soap-boxed this one before, but nobody seems to want to face the truth.
Putting in succinctly, current homeowners, in collusion with their elected officials, have placed so many impediments on the development of new housing, that the old market saw of supply and demand is operating at full tilt.
If there’s a growing market for new cars, more new cars come to market; the same can be said for computers, washer dryers, cheap/expensive wines, chickens, cattle, airline seats etc. ad nauseum. Virtually only new housing is restricted and fee’d and permitted to an ever shrinking supply. Benefitting who? why the current homeowner and his elected synchophant who wants nothing to do with going out and getting a real job.
A pox on all their houses.
http://www.jewishworldreview.com/cols/sowell.html
Housing hurdles
A new study shows that you need an income of about $104,000 to buy an average home on the San Francisco peninsula with a 20 percent down payment. Since the average price of a home in this area is more than half a million dollars, the 20 percent down payment itself would be more than $100,000.
These aren’t mansions we are talking about. Often they are little nondescript houses packed pretty close together.
Who can afford to buy a home in such an area? Not many. California is among the states with the lowest rates of home ownership. Moreover, many of those who do own homes in coastal California bought them back before the state’s home prices went sky high in the wake of severe building restrictions promoted by environmental extremists.
Things are not much better when it comes to renting. A calculation of how many hours someone making the minimum wage would have to work to pay the rent on a one-bedroom apartment in this general area showed that, in San Jose, a minimum-wage worker would have to work 168 hours just to pay the rent.
At 40 hours a week, that means working the whole month to pay rent, with nothing left over for frills like food and clothing. Tell this to someone on the Left Coast and the answer will come back immediately: Raise the minimum wage!
If people cannot afford even a one-bedroom apartment while making minimum wages, they certainly cannot afford it when they are unemployed
Damn Mike, I didn’t get past the first paragraph. People I know in construction are most impeded by material costs and low quality labor.
My Sister and her husband we’re looking to trade up from a small San Diego condo. They put it on hold. One thing they noted is friends making $95k combined got approved for a 1/2 million dollar mortgage! So the lenders are also trying to squeeze as much as they can from the mortgage rush of the past years. I worked for Bank of New England in ’89-90 and saw some of the effects of that kind of lending…
(BNE was taken over by the FDIC and assets eventually sold to Fleet)
Mike,
1) don’t post a whole article if you have a link.
2) an exampole from a high-end market like Calif or NYC doens’t mean anything about the rest of the country.
How about Milwaukee then? There are “lofts” (condos) downtown selling for $200K+.
About 6 years ago, you could get a house (never mind a condo) in the same location for about $50,000.
As to deflation. Guess what’s going to happen if there’s a housing asset deflation?
David
Yehudit,
As JWR archives are not article specific, and I really didn’t have time to try to find others who may have picked up Dr. Sowell’s columns, you got the full articles.
I’m well aware of the limits comments should impose on posters, but when you have no alternative—?
aaron,
if you think it’s only CA & NYC that suffer from this, then I’ve got a great bridge for sale, the only way into SF from the North.
1) I’ve seen people predicting the end of the housing bubble for nearly three years now. I’m not seeing evidence of it, yet.
2) Housing prices are growing somewhat less frenetically elsewhere, but here in Orlando the price of existing housing is going up pretty quickly, while new-housing prices are increasing (I believe) much more moderately. We just had our place reappraised (to get out of PMI) and we’ve gained 28% in three years. But we’re in a part of town that people want to move to.
Having now exhausted (more than exhausted, actually) everything I know about housing, I make my exit.