Profile picture for Rob Hale

Is there another Real Estate bubble?

Many homeowners or perspective homeowners are asking the question of whether or not we are experiencing another Real Estate bubble.  To best answer this it is important to realize what caused the bubble and crash post 2006. 
Lending Guidelines.  Prior to that time there was too much loosening of lending guidelines.  Buyers and investors were able to obtain loans with no money out of pocket, making the only recourse a bad mark on their credit and foreclosure.  Currently lenders are requiring a minimum of 3% down for buyers and mostly a minimum of 20% down for investors.  Still in Mesa, AZ over 30% of homes are currently purchased with ALL CASH.  That means that buyers and investors have a lot more skin in the game now.
Also, there was an abundance of low doc and and no doc loans (stated income) where if a buyer had good enough credit the bank would loan them money based on whatever the buyer told the bank they made.  I heard of a school teacher buying a 450,000 house because the loan officer told him he could just say that he was making $150,000/year or 5 times his income. 
Currently banks are requiring documentation showing recent pay stubs and past tax returns to verify buyers' income.
Supply/Demand- The supply and demand are the drivers of the Real Estate marketplace.  During the bubble builders made millions off of a false demand from buyers and investors that should not have been purchasing properties.  When the market crashed the builders stopped building, but we already had oversupply.  Now there are real qualified buyers and investors that have strong demand but the builders are hesitant to get burned again, and we are experiencing a shortage of supply. 
Unless lending guidelines change and supply/demand gets way out of whack, we are on our way to a normal market and not another bubble.
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August 12 2013 - Mesa
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We have seen significant increases in property values over the last several years!  Thanks for sharing this information.
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August 12 2013
I feel no...we are currently in this seller's market because of supply and demand. As more and more homeowner's put their homes on the market the increase of home values will slow. Also prior to 2006 our government had very liberal rules and regulations for lender to follow which in turn made it possible for just about anyone to get financing on a property purchase. Now that those rules and regulations have returned to pre 2006 home loans are more in order with regard to qualifications. For the last couple of years INVESTORS have been able to gobble up many properties with CASH. Those investors have slowed way down in the last 3 months. So again I do not feel we are going to see a Real Estate bubble. Hopefully we have learned our lesson and home values will continue to increase but at a normal and responsible way. Good luck to you. Should you like to speak to me, I can reach at <Removed by Zillow Moderator. Please see Good Neighbor Policy.> 
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August 12 2013
Profile picture for hpvanc
Yes there is. The current bubble like the last one is being fed by speculative buying. Most of the all cash offers are coming from investors, when they find out the economy won't support the kind of returns their looking for they will liquidate. Since they weren't purchased with directly collateralized loans, the unwinding/abandoning of some of the speculative properties could be more interesting/devastating than the mortgage defaults of the last round.
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August 12 2013
We hope
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August 12 2013
Profile picture for Dunes ..
I'm curious..
Since 2007 there have been so many "There is no bubble", we are at the bottom, best time declarations & NAR good time to Ad campaigns/claims I can't help but wonder

How much faith do you feel the public has in members of the RE Industry or the RE Industry as a whole when it comes to explaining the Market/Economy or claiming all is well now?

I'm not even going to take a pro or con position, just curious how much credibility do you think the public feels the RE Industry/Agents has after the last/current bubble?


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August 12 2013
Profile picture for SteadyState
Making accurate predictions is very difficult
Making accurate predictions about RE is even more difficult
Making accurate predictions about RE when the predictions influences your paycheck is impossible


The poster behind the thread in a round about way says that the bubble was caused by low interest rates and easy credit ...

This is exactly what is happening today. Loans are backed by the US government with taxpayers on the line for future bailouts!!!
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August 12 2013
Profile picture for Rob Hale
Dunes shares some good points.  It is important to recognize who is declaring the state of the market and why.  NAR always has incentive to point out a positive outlook for the Real Estate market, because then more people get their Real Estate license and pay their dues. 
Buyers' agents may have an incentive to state that it's a buyers market, and listing agents have incentive to state it's a sellers market.  As an agent that helps both buyers and sellers, I like to look at the mitigating factors in the market that affect both buyers and sellers for positive or negative.  Proclamations that the market is strong only hurts good agents' business, because many more people sign up to get their license and dilute the market.
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August 14 2013
The "incentives" that one side may have really don't matter. What matters is how you will feel if:

1. you buy today and the market goes down,
2. you stand on the sidelines and the market goes up.

There's an "incentive" that investors and landlords have in trying to keep people out of the market, because if people own, they don't rent. 
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August 14 2013
Profile picture for Dunes ..
Thumbs up for sharing your view Rob

All I'm really saying is it seems to me that right or wrong we live in skeptical times.
The Foreclosures, Banks, Loans, Lenders, Housing Market, Economy, Jobs all the yadda in the media, sites ..it is all recent history, still on-going.

People seem to be a skeptical across the board/about everything not just skeptical about Real Estate after the last 6-7 years...
Less eager to pull the trigger on any large financial obligation..more skeptical of banks, lenders, the gov., everyone 

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August 14 2013
Excellent analysis, Rob. Very recently, we've experienced an over-demand for housing. On the demand side, this was caused by cash investors competing with traditional buyers for inventory. On the supply side, inventory shrank due to a) the snails pace of foreclosures and short sales, b) the understandable horror traditional sellers felt when they learned what their home was currently worth and c) artificially low interest rates. The result of these factors was substantial appreciation in home values. Now that "c" has changed significantly, we are experiencing a significant slowing on the demand side. This and the fact that home values have appreciated enough to take many homes off the "underwater list" should level the market. The forecast looks pretty steady from where I sit.
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August 14 2013
The situation were are in now is quite different from before. During the "bubble" we saw sky rocketing housing prices and decreasing interest rates.  Currently, we are looking at stable to moderate increases in housing prices and rising interest rates.  The flow of foreclosed properties has slowed a bit and the increase I've been seeing is steaming from bottled up demand and a shortage of listings.  As long as interests rates stay in the 4-5% range I expect to see steady growth in prices until there is greater supply available!!  
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August 14 2013
Profile picture for SteadyState
Once again although all RE is local I abhor marketing puffery disguised as sound advice !!!
15% to 30%  increase in the median price is a normal market when inflation is at 2%? The 10 year crossed 2.8% today and  you believe someone will give you a loan for under 5% for 30 years?
I advice REAs that do not have data, facts, and are not capable of objective analysis to keep selling and not worry about offering predictions or advice. At least that is honest work that is done honestly.
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August 15 2013
That's fine, steady state. When we have questions about the future, we'll just ask you, then.
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August 15 2013
Profile picture for Pasadenan
Arizona?  Quite likely there is a housing bubble in many areas, especially Phoenix.  On the other hand, Phoenix also over-swung on the down swing, so it may have just been a correction for an over-swing.

Certainly, not all parts of the U.S. are equal when it comes to speculation and panic.

For each specific area, it is best to look at the long term pricing trends, and compare that to inflation.  And if there is substantial difference, look at the other economic and amenity issues.  Is there sufficient jobs in the area?  Why?  Is there sufficient water and other resources in the area? Why?  Is the transportation infrastructure sufficient or not?  Why?  Is the population increasing or decreasing?  Why?

Predictions are easy to make if one has sufficient data.  Predictions are worse than foolish if one is making them without considering the cause and effect relationships of relevant factors.

Certainly the 10yr T-note reach a temporary yield of 2.8% is not a sufficient determining factor by itself.  That was due to low unemployment claims last week; and as soon as the Phili FED survey came out, the yield dropped back down again.

For my recent predictions, see the thread: "Rates on the Move Again".

For better understanding of the concept of economic bubbles, see the section of the NOVA video: Mind over Money
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August 15 2013
 
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