Housing bubble may be illusion, but choices are real

Doug Duncan, chief economist for the Mortgage Bankers Association, says he is "not in the price bubble camp," and wrote an opinion piece on the subject for Bankrate. When rates rise, he expects some local housing markets to slow their pace of price appreciation. Prices might even fall in a few areas on the coasts, but not nationally, he says, because housing simply isn't a national market.

I thought this was an interesting article. And I agree with Anthony Hsieh on the issue when he says

If you buy a house for $200,000 and the value declines to $180,000, he says, "So what? It's not going to be any less warm. If there is a bubble and house prices go down 5, 10, 15, 20 percent, you live in the same house with the same monthly payment."

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I can see house prices dropping 5 or 10% but I just don't find it likely that house prices will drop beyond that HERE. This is the metro area and jobs are rapidly growing. Some areas may see a decline, but over all, I think this area will slow up, drop maybe 5% over the next year at best with rates increases and hover for awhile.

So in a year, we can see if our predictions are true, so predict away. What do you think?

I think we'll have a slowdown, and some areas will reverse (correct) themselves because they were over priced in the first place.

The problem people will have is that when the market has been as good as it has been for the past few years, people tend to put less money down when they buy. If prices suddenly decrease and you're in the need to sale, you are in a tough spot.

Same goes for people who took out huge equity lines. I've heard of banks actually coming to homeowners and forcing them to either payoff the equity loan, or pay it down considerably because the owner no longer has the collateral equity to justify the loan (this makes sense, but still seems pretty damn shady)

So as long as you weren't trying to buy more house than you could really afford, everything should be fine.

A few others are now pointing toward a bubble...

Analysts expect housing market to slow; some fear bursting 'bubble'

That should curb the rise in home prices, which surged a spectacular 11.2 percent last year, the fastest rate since 1979, according to the Office of Federal Housing Enterprise Oversight, which regulates Freddie Mac and Fannie Mae, the nation's largest supplier of home mortgage funds. Nationally, home prices have risen 8.4 percent annually over the last five years; 20 percent or more annually in high-price areas around major cities from Washington to San Francisco.

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He (Yale University economist Robert Shiller) thinks the current boom is a "classic bubble" because people keep buying houses they know are too expensive because they expect prices to rise even higher.

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I totally agree, wages are increasing ~3% but housing has gone up by more than 20% a year in our area....how can this be sustained?? Investor speculation is causing these increases, as long term rates begin to rise I think we will begin to see the decline.

truby20 said:

Analysts expect housing market to slow; some fear bursting 'bubble'



I totally agree, wages are increasing ~3% but housing has gone up by more than 20% a year in our area....how can this be sustained?? Investor speculation is causing these increases, as long term rates begin to rise I think we will begin to see the decline.

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I agree...

I was listening to the radio the other day commuting to work and they were talking about the expansions in southern maryland due to proposed stadium in Hughsville, etc... and there being something about a proposed 820 houses that will be built as a direct result of said expansion.

The radio host's concern was - not the fact that it's filling a void in southernmaryland (that of needing houses) but that of whether it would fill an even bigger void (the need for affordable housing and specified he'd prefer the price was not $1/2 a million per home - we have plenty of those).

All the callers seemed pretty nice, reasonable and levelheaded. Then one jerk called in and said... he disagrees with the afordable housing request. His request was that he wants the houses to be all 1/2 a million dollar homes and higher. In his words "that way it keeps the `riff/raff` out of southern maryland" The dj mentioned - "ohh you mean like force them to live in Waldorf".

Me being one of those I suppose "riff/raffy types" now because I can not either afford a 1/2 million home and higher or because I didn't jump in the market during a buyer's market - thought to my self. Well -- what comes around goes around... soon that azzclown will more than likely have kids and then their kids will have kids, etc... and he'd want to have his family close by to see grandchildren or whatever have you reasons ... by this point in time... the houses will be about 2.5 million in the area and at that point in time I'll be one of the folks nestled into a home with a hopefully reasonable mortgage.

Then, when the shoe is on the othr foot and he calls the radio station complaining about the need for affordable housing in So. MD (for his family)... I'll be the first to tell him... Keep the riff/raff out of southern maryland !!!

Kizzy said:

I can see house prices dropping 5 or 10% but I just don't find it likely that house prices will drop beyond that HERE. This is the metro area and jobs are rapidly growing. Some areas may see a decline, but over all, I think this area will slow up, drop maybe 5% over the next year at best with rates increases and hover for awhile?

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That's what people in New Hampshire were saying JUST before the bottom fell out.. in two months Townhomes that were selling for 200K couldn't sell for 89K.. Garden Condo's that were selling for 150K couldn't be sold for 45K.. AND where in NH.. commutable distance to Boston. BUT I did take a chance and buy a townhome down here about two months ago.. *crossing fingers*

SmallTown said:

Same goes for people who took out huge equity lines. I've heard of banks actually coming to homeowners and forcing them to either payoff the equity loan, or pay it down considerably because the owner no longer has the collateral equity to justify the loan (this makes sense, but still seems pretty damn shady)

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I thought this is why banks will not advance you more than 80% of the appraisial price? I know that when we refinanced and took money out that was the case.

Kizzy said:

So in a year, we can see if our predictions are true, so predict away. What do you think?

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I think I picked a fine time to cash in and sell my shack!

crabcake said:

I think I picked a fine time to cash in and sell my brothel

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payback....

I think that here, housing prices will continue to rise, maybe more slowly, but they'll continue. Out in the midwest, there are some areas that are suffering from a lack of industry and declining revenues for farm products, so I can imagine property/housing prices declining as well.

Boy, it sure doesn't seem long ago that I paid $30,000 for a 900 square foot starter home on 1/4 acre.

This house went on the market this morning.

It's in Frederick County. Similiar commuting area to here. It's my in-laws house. They bought 10 years ago brand new. I'm guessing they paid about $300K for it then. Their daughter's house in the same town sold in November for $530K. It was newer, but I think this one ^ is nicer. More bedrooms, better layout, MUCH better yard. Given the housing market, I expected them to put it up in the high 500's. It's 530K. :shrug:

I definately think the market is slowing down. I don't think the bubble will burst, though.

housing bubble

itsbob said:

That's what people in New Hampshire were saying JUST before the bottom fell out.. in two months Townhomes that were selling for 200K couldn't sell for 89K.. Garden Condo's that were selling for 150K couldn't be sold for 45K.. AND where in NH.. commutable distance to Boston. BUT I did take a chance and buy a townhome down here about two months ago.. *crossing fingers*

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Rightnow I heard wow, my home appraised for 500k. I only paid 200k. I have 300k in equity. Soon this will reverse. People will be saying, I lost 100k on my house and I had to sell it because I was layed off. I had to declare bankruptcy.
or people will say, " I owned three homes and now can't find renters to cover all my costs. I had to declare bankrupticy.

Take your pick. Then next 10 years is going to get ugly...(Quote from Munson and Buffet)