Housing Price Bubbles

[BKM]

When, or will, the price bubble-especially in overheated markets, pop? Can a metropolitan area have $700,000 MEDIAN house prices.

This is pretty scary, and its NOT a Kunstler rant: (somewhat long) http://www.washingtonmonthly.com/features/2004/0404.wallace-wells.html

 

[Dan]

I've always wondered why Washington's real estate prices were so outrageous. I know the region offers a good of life, and th environs are easy on the eyes, but Washington is a center of government. Government is the major employer ... and to me, it seems like there's absolutely no correlation between government salaries and the cost of housing. Housing is priced as if everybody is a lawyer, lobbyist or pundit with a book deal..

"Supply and demand," you'll say. Sure, there's a big demand for housing in the DC area, but what happens if the primary market for your product, in this case housing, can't afford it? It's not merely expensive ... it's out of reach. Still, people are buying, and middle class folks aren't homeless or living in hovels. I have no idea how a married couple of government workers, maybe making $100,000 between them, can afford a $700,000 house.

Also, I think outrageous real estate prices are a fairly recent phenomenon. Was housing also extremely expensive during booms in the past? Were famlies waiting in line to bid the equivalent of what was $700,000 in 1920 dollars for a bungalow in the then-hot cities of Buffalo, Detroit or Cleveland? I know there were times when LA, New York, and DC were considered cheap places to live. Was there ever a time when someplace like Pittsburgh or Youngstown was considered expensive?

 

[boiker]

well, since I've recently purchased a home.. the bubble will burst anytime now.

As long as consumers pay the prices, the market will stay inflated. Since there is so much equity debt right now, I doubt prices will ever fall back... at least not without an incredible number of bankruptcies.

 

[plannerkat]

Still, people are buying, and middle class folks aren't homeless or living in hovels. I have no idea how a married couple of government workers, maybe making $100,000 between them, can afford a $700,000 house.

Easy, the middle class folks are living out in the burbs an hour's commute away, or are crammed into tiny apartments in not so hot areas of town. The rental rates in Washington are obscene as well. I lived in the District nearly 10 years ago and paid $1000/month for a place in a nice neighborhood that the landlord passed off as a 2 BR. It was actually a 1 BR with an enclosed sleeping porch that resulted in the promary BR having no window. In hindsight this was a totally illegal setup that the fire marshall would have a fit over. I'm sure it's only gotten worse.

 

[BKM]

Well, I know of a townhouse an HOUR away from San Francisco in a 1980 building that needs a new roof that they are asking well over $200K for. Insane!

 

[ebeech121]

My old house (well parents' since I was 11 when we moved), in Berea, Ohio, recently sold for $150,000 in 2000. My parents bought that house in 1987 for $70,000. Of course there were renovations and additions put on it since it was almost 50 years old in 2000. But the house was under 1000 sq ft. !

Down here in ATL, we have a house valued around $140,000. Most of the new houses in subdivisions being built around Metro Atlanta (esp. southside) are starting in the $200,000's.

I think median rent in the metro area is about $900. Isn't that lower than most places, esp. up north? But since ATL has so much room to grow, I guess that is why prices aren't quite as high as other cities.

 

[Seabishop]

In a sense the market itself induces demand - people think they might as well buy now even though payments will be tough because it will only get worse and now is their last chance to own anything. Of course they also assume value of their home will go up - if the market crashes lots of people will be screwed.

I've got to say rising regional housing prices have been a blessing for this community which is finally getting people to invest in its old mill structures and once dilapidated housing. I'm sure this is the case in other old industrial corners of metro areas - people are starting to realize their value.

 

[Mud Princess]

Was housing also extremely expensive during booms in the past? Were famlies waiting in line to bid the equivalent of what was $700,000 in 1920 dollars for a bungalow in the then-hot cities of Buffalo, Detroit or Cleveland? I know there were times when LA, New York, and DC were considered cheap places to live. Was there ever a time when someplace like Pittsburgh or Youngstown was considered expensive?

I'd like to know the answer to that. One of the reasons I moved back to the area in which I spent my childhood was because the housing prices were relatively modest. I knew that in NYC or Boston or Washington DC, I'd end up spending a lot of my income on housing costs. The pluses of living in a large city didn't outweigh the affordability issue for me at the time.

I was able to purchase my first home as a single person. With the second, we're thinking we're pretty lucky for buying when we did, because all of a sudden, housing prices are going way up. I wonder if this area is going to become a lot less affordable now.

 

[tsc]

I live and work in such market.... and it ain't easy. We bought a fixer upper,,, my partner is a health worker and makes the same salary as me (public sector planner). It has gotten a lot worse... if we didn't get the house 3 years ago... we wouldn't be able to afford one. I think the median house value must be well over 600k by now....

Planners do make a lot more in our area... but in recent years the housing cost have just skyrocketed....and if you dont already have a house... the door may have shut.

 

[pete-rock]

Also, I think outrageous real estate prices are a fairly recent phenomenon. Was housing also extremely expensive during booms in the past? Were famlies waiting in line to bid the equivalent of what was $700,000 in 1920 dollars for a bungalow in the then-hot cities of Buffalo, Detroit or Cleveland? I know there were times when LA, New York, and DC were considered cheap places to live. Was there ever a time when someplace like Pittsburgh or Youngstown was considered expensive?

I'm guessing there was never a time when Rust Belt cities (with the exception of Chicago) were considered expensive. The homes built during the booms they experienced 80-90 years ago were strictly for the middle class. Nowadays, the top-end new construction on the edges of metro areas are propping up median prices.

 

[BKM]

Also, I think outrageous real estate prices are a fairly recent phenomenon. Was housing also extremely expensive during booms in the past? Were famlies waiting in line to bid the equivalent of what was $700,000 in 1920 dollars for a bungalow in the then-hot cities of Buffalo, Detroit or Cleveland? I know there were times when LA, New York, and DC were considered cheap places to live. Was there ever a time when someplace like Pittsburgh or Youngstown was considered expensive?

Of course, in some metro areas, part of the problem may be change in quality/expectations. In the hyperinflated markets, though, the prices for the really crummy stuff in marginally attractive neighborhoods are insane. In my town, for example, an 1100 square foot crummy, not just modest but crummy, 40 year old rancher on a busy street right next to the high school (which menas boom boxes going at all hours) was over $200,000.

Thanks God I bought my house when I did years ago.

 

[Miles Ignatius]

I've Wondered Where The Ceiling's At, Too....

In Colorado[Metro Denver], we've suffered from the over-building left over from the tele-dot-com boom of the 90's; all of the $500K chateaus for the junior executives now languish on the market awaiting a series of price concessions.

This has not impacted the entry market, where just to get in the game is still around $200-250K and how many are there among us well heeled enough to handle a down payment and service that debt?

Not many, think.

 

[Jam]

Aaaaarrrrggggghhhhh!

Its not just in the states where this is happening-here in the UK the same is happening-My 1 bed flat Ive just sold has trebled in value over the past nine years and on average, prices where I live up North have risen between 40%-60%.

Its nigh on impossible for a young single person to afford anything now. I think the average 1st time buyers age in the UK is something like 35 or 36 now....

As a result though, everybody is trying to build as much as they can onto what they've allready got, which means (yes you've guessed it) we get about 30% more applications than normal last year! (but no extra staff)

please, please, put the violins away.........

 

[Wulf9]

There's a few reasons for $700,000 median house prices.

First is payment subsidies (income tax deductions). A tax deduction of $3000 has a capitalized value of about $45,000 at 5%. Translation, you can buy a house worth $45,000 more for the same payment.

Second is the interest subsidy (Fed lower interest rates). The same payment can buy a house 30% more expensive at 5% (current subsidized rate) vs the market rate of 8% a few years ago.

Third is the lack of income tax on most house sales. A $200,000 house in 2000 should be worth $300,000 in 2004 just because of the change in interest rates. That $100,000 "income" can be transferred to a new house (actually must be transferred to avoid paying capital gains taxes) - allowing purchase of a new house considerably above the capitalized value of payments.

Fourth, in California, the property tax subsidy for long term ownership (Prop 13), keeps many houses off the market, reducing supply of houses for sale,

Finally, in high cost areas, the combination of the above means that houses are bought and sold and bought and sold with the unearned income from one sale is used to pay for the high median price of the next sale. It's hard to enter the market, but an existing house owner in the same market is buying a $700,000 house but making the payments that would buy a $300,000 house.

 

[Zoning Goddess]

The median price in my neck of the woods is only about $130,000. Most of the new homes here are over $300,000, but the median comes down due to all the teeny little ranch homes from decades ago. I bought almost 7 years ago, and luckily beat the bubble.

 

[Dan]

Nowadays, the top-end new construction on the edges of metro areas are propping up median prices.

That might be that case ... but all that implies is that there's a huge selection of houses for the upper middle class, and that affordable housing can still be found for the masses. I don't think that's the case ... from what I've seen in San Francisco, it's the three bedroom, two bathroom, 1600 square foot starter homes that are selling for $500,000.or $600,000.

As with ZG, the median price of housing in Cleveland is low, even though most new construction is move-up or high end. My landlord paid $120,000 for the three bedroom, one bathroom, 1,500 square foot house I'm renting now. There's trendy inner-city neighborhoods, like Ohio City, and a few suburbs where schools are vaunted, like Beachwood, where real estate prices seem high for what you get. $130K won't get you what it could a few years ago, but still, the area is affordable.

 

[Lee Nellis]

On top of what Wulf( says, I would add that alternative investments are not very productive right now. Assuming the bubble never really bursts, the return on a home in a market like the Bay Area is better than you get anywhere else right now!

 

[panchess]

The Bubble isn;t everywhere..

..much of Upstate New York continues to have depressed prices.

Check on this one from realtor.com



16 PUTMAN ST
AMSTERDAM, NY 12010
MLS ID#: 24101073
$19,800
3 Bed, 1 Bath
1,432 Sq. Ft.


Estimated payment:
$92 Per Month*
Change Assumptions
Check Local Rates


Map & Directions
Save This Listing
Send to a Friend
Send to your REALTOR®




Single Family Property, Age: 100 year(s) old, Two story, Basement, Laundry room



This listing is brokered by: ROYALVIEW REALTY
Office: (518)798-1531


Property Features

--------------------------------------------------------------------------------


Single Family Property
Age: 100 year(s) old
3 total bedroom(s)
1 total bath(s)
1 total full bath(s)
8 total rooms
Approximately 1432 sq. ft.
Two story
Basement
Laundry room
Heating features: Gas
Interior features: Basement, Dining area, Eat-in kitchen, Laundry rm/area
Exterior features: Public sewer srvc, Public water supply
Approximate lot is 50 X 180
School

 

[Dan]

16 PUTMAN ST
AMSTERDAM, NY 12010
MLS ID#: 24101073
$19,800
3 Bed, 1 Bath
1,432 Sq. Ft.

What kind of neighborhood is that in, though? Here's a $19,900 house in Buffalo, but it's in Genesee-Moselle ... a very rough neighborhood.

Here's a few from Buffalo. These are listings in a stable, desirable (although not hip) urban neighborhood - North Buffalo, in the city limits.

$129,000

$139,000

$169,000

$187,000

$199,000

While expensive by Buffalo standards, they're quite reasonable when compared to housing boom areas. Buffalo has had something of a mini-bubble, according to the local media, but it's only affected a few areas: the West Side (Elmwood Village, Allentown), North Buffalo/Parkside/Central Park, and a few suburbs (Amherst, East Aurora, Orchard Park). In the rest of the metro area, it's business as usual ... here's a few from the neighborhood I grew up in.

$33,000

$52,000

$54,000

$68,500

 

[tsc]

Upstate New York does have a beautiful housing stock too. The neighborhoods of Syracuse, Rochester... amazing architecture and details. I have been to Amsterdam... but just a few drive throughs....going to Lake Sacandaga. Not a bad looking town actually.

 

[Downtown]

..much of Upstate New York continues to have depressed prices.
16 PUTMAN ST
AMSTERDAM, NY 12010
MLS ID#: 24101073
$19,800
3 Bed, 1 Bath
1,432 Sq. Ft.

yes - $19,800, but it's in [gasp of horror]Amsterdam[/gasp of horror]. ;-)

I think you'll find this type of "affordable" housing in lots of older cities throughout the NE, but middle class folks still flock to the growing suburbs. In our suburban Capital District town, realtors are begging people to sell their houses to meet the demand. We bought our 1967 raised ranch 3 years ago for $145K, and after 2 years, when we refinanced, it was appraised at $185K. Like tsc - thank god we got in when we did.