Reader Matt questioned whether we are in another bubble:
2 years ago, homes were sitting at 600-650 range. Now, you can’t find a home for under 900k in Encinitas without a feeding frenzy. Bubble?
The media, and the soundbite society, has trained us to apply labels to everything we see. After the latest real estate depression, the word “bubble” will always be linked to real estate, which implies an unsustainability.
Are we in another bubble?
Rather than discuss the label, let’s consider the underlying conditions and judge whether the current conditions are sustainable.
1. People who have a down payment and can qualify are getting a mortgage payment that is similar to rents. And rents are going up fast enough that the first bump in mortgage rates shouldn’t stop this trend.
2. Today’s buyers get a fixed-rate mortgage, so if/when rates rise, there won’t be a resulting payment shock to cause foreclosures.
3. The current demand is deep when you see 5-10 buyers for every house. It will take months or years to get everyone a home – if they stick with it.
4. Investors should endure once they get their systems up and firing, and once established, they should sustain. There will always be fixers and foreclosures to buy and flip or rent.
5. If there is any hitch in the program, we know the government is there to bail us out – it is expected now.
6. It is still an American tradition to own your home. Family and friends will keep the pressure on.
People are buying for the right reasons, to raise a family and stay long term, or to flip or rent. The investor business will come and go, but the long-term family buyer should provide solid demand. There will be spurts of sales and rising prices, but until we hit liquidation mode by bankers or elderly, the tight inventory and low rates make this a sustainable package.
Here is the latest on this topic from Robert Shiller:
Now that the last real estate depression has subsided, I’ve wondered if a blog name-change would be in order. But with the media’s insistence to quickly label any market movement as a bubble, I think we’ll keep it right here!