Is There Another Housing Bubble Coming?
For this post, we took a survey of the “pundits,” (the supposed experts) to find out what they think about another housing bubble coming. In the conclusion, we give our opinion and some insights about dealing with the current real estate market dynamics.
We are pragmatic about this because we know that real estate, like any market, has its ups and downs. What caused the problem that led to the worldwide financial crisis, which started in 2008, was that nobody thought housing prices in America would ever go down, at least not significantly. Easy credit for sub-prime borrowers flooded the market with new homebuyers, creating a false sense of upward pressure on housing prices.
Then, of course, came the collapse. Millions lost their homes. After that, real estate investors, who still had cash reserves, made a fortune, buying homes at bargain basement prices. Hedge funds bought thousands of homes to turn them into rental properties. Since then, the housing prices have recovered to around the same prices as they were ten years ago.
Here is what the “experts” think:
Fortune – Housing Bubble? – YES
U.S. Real Estate 25% to 60% Overvalued: Analyst Marc Hanson
Hanson says that real estate is dangerously over-priced. He determines this using a simple mortgage calculation. His opinion is the true value of a single-family home should be the price coming from the average person in a specific market putting 20% down and borrowing no more than the amount, which would result in a maximum debt-to-income ratio of 43%.
Market Watch – Housing Bubble? – Maybe
The seeds of the next housing crisis have already been planted
“Mortgage-default rates are currently very low, but that shouldn’t be any source of comfort because they are always low when the economy is doing well and home prices are going up,” said Oliner. “That can turn around quickly if there is a recession.”
U.S. News & World Report Money – Housing Bubble? – NO
Are We Heading for Another Housing Crisis?
Some people may feel skittish about rising home prices and apparent attempts to open the mortgage market to unconventional borrowers, but many industry experts say there is no reason to believe a repeat of 2006 is about to happen. “House prices have rebounded, and the jobs market looks quite good,” Fleming says. “There’s not a lot of data indicating another housing crisis.”
Forbes – Housing Bubble? – YES
Are We Entering A New Housing Bubble?
“Home prices are rising too fast in much of the country. In Dallas and Denver, prices have surpassed their prior peak and have risen over the past two years by 18% and 20%, respectively. Similar gains were recorded in many Western cities, including Seattle and San Francisco, regaining most of the price declines during the bust years to reach very close to their prior peak. Nationwide , home prices have risen by 10% over the past two years, according to the Case-Shiller repeat price index, and by 13% in the median home price.”
Bloomberg – Housing Bubble? – NO
It’s Not a Housing Bubble, It’s Just Expensive
“Home prices have hit record highs in some major U.S. metropolitan areas, and house-flippers are behaving like it’s 2005: Residential real estate isn’t in a speculative bubble, industry observers contend. Instead, a low inventory of available homes is driving prices higher—prices, however, will eventually recede as buyers throw up their hands, or as more new homes come on line. The structural issues that led to the housing collapse last decade aren’t present.”
Harvard Business School – Housing Bubble? – NO
How to Use Real Estate Trends to Predict the Next Housing Bubble
“For many cities and asset classes, the expansion phase is well under way. According to Glen Mueller, Boston, New York, Denver, and San Francisco, for example, are already experiencing incredibly tight rental markets and robust new construction in apartments. Those who lived through the financial crisis of 2008 will (we hope) always be weary of the next major crash. If George, Harrison, and Foldvary are right, however, that won’t happen until after the next peak in 2024. Between now and then, aside from the occasional slow down, the real estate industry is likely to enjoy a long period of expansion.”
David Stockman – Housing Bubble? – YES
Housing Bubble 2.0
“A phony housing recovery now underway—especially the mini-boom in house prices that has erupted in the very same precincts of Phoenix, Los Vegas, Sacramento, Southern California and Florida that were so badly bombed-out during the crash of 2007-2009.
Speculators and hedge funds armed with nearly free money are always on the prowl for a new “asset class” that can be drafted into the carry trades. Thus, when housing prices dropped by 40-70 percent in the most devastated sub-prime markets and caused a massive surge in foreclosures, Wall Street gamblers wasted no time pouncing on the Next Big Thing. Soon their agents were on the courthouse steps scooping-up foreclosures by the hundreds and thousands. And in America’s Fed-fostered casino economy, nothing will attract carry traders like “new asset classes” with smartly rising prices.
Housing prices in many of these born-again markets had been dead-as-a-doornail, but suddenly reared-up and soared by 25-50 percent during a remarkably brief interval of 10-20 months in 2012-2013. And the reason for this shocking reversal is crucial to understand. The Wall Street hedgies and LBO guys driving the buying frenzy in places like Phoenix never purposefully over-pay—since they pride themselves in buying low and selling high. But they do chase hockey sticks generated by spreadsheet financial models, believing that any price is “cheap” so long as the model spits out their stipulated IRR (internal rate of return) target.”
Conclusion
As usual, the experts cannot agree on the status of the real estate market. For those buying a home to live in for a long time, it is important to be able to make the monthly payments. It is wise to have a flat rate 30-year mortgage, which has a good rate right now while interest rates are still low.
For those buying a home for a short time (less than three years), or those real estate investors that are speculators, wanting to “flip” homes, exercise caution and look for bargains as an insurance hedge against declining prices.
For those wanting to sell a home, they should have a gain, depending on when the home was purchased, and now it is a very good time to sell.