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Jim Klinge
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Posted by on Jan 25, 2013 in Market Buzz, Market Conditions, Thinking of Buying?, Thinking of Selling? | 10 comments | Print Print

Another Bubble?

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!


  1. 22% of all mortgages in the US are underwater. Banks are holding back inventory resulting in higher current prices. New home construction is still lagging. Seems like we could still be bumping on the bottom until shadow inventory clears the market.


  2. Thanks Mark, and yes, those are the standard ‘bubble’ concerns, but not specific to our local market.

    Anyone who is underwater is welcome to sell their home today – in fact, please CALL ME TODAY if you are underwater and want to sell!

    I’ve checked the tax rolls, and banks aren’t holding any properties long-term. I believe that they have deliberately stopped foreclosing on defaulters, and while wrong and unfair, nobody is going to make them foreclose. Welcome to the new abnormal.

    We are done with new-home construction, there isn’t any land left.

    Yet, I agree that prices will not uniformly skyrocket, they will bounce around mostly because sellers prefer to list too high and stagnate, rather than price to sell which would create pricing momentum. You need a group of recent sales to convince buyer to be comfortable with higher prices, and in the places where that happens, oh happy day for the sellers. But expect those locations to be scattered about.


  3. What I would like to know is how many were bought by Blackstone and others like them, and at what price? My understanding is bulk sales over the last few months have had a dramatic effect on inventory. As to how could make the banks foreclose, Congress could, but I am not holding my breath for that to happen.


  4. its different this time, liar loans are not available to the masses.


  5. Yesterday I started getting a “Script Error” pop-up when I do anything on this site. Is it a problem with my pc or your site? No problems viewing any other sites.


  6. “Bubble” can no longer apply to real estate, it seems to me, since “bubbles” are fueled using other people’s money. In the stock market, it was from allowing almost anyone to trade on ridiculous amounts of margin. The same effect applied to the real estate market via a massive amount of “liar loans.” Liar loans are just about trading with the promise of money you don’t have.
    Now that the liar loans are a thing of the past, real estate bubbles are about impossible, particularly since we’ve indulged in the largest immigration movement in the history of the planet. We’ve imported a massive underclass, and it’s growing rapidly, including a significant industry that charges the Chinese to come here, have babies who are automatic citizens, then flying back to China. These chinese american citizens will be “coming home to roost” eventually. If there is more political turmoil in China, they might arrive sooner than anyone thought. These people need places to raise their families. They will take care of any temporary excess housing inventory.
    My guess… invest in REITs, buy rental properties, and retire happy and secure in 20 years. If you want to buy a house, err on the side of gated communities, if you can afford it.
    Real estate bubbles are over, imo. The price rise, barring any hiccups owing to past political blunders, will be legit for the long run. If you believe in our economy, real estate is a good gig. If you don’t, immigrating to New Zealand is also a popular choice these days.


  7. I’m very comfortable with the homes I purchased for my kids the last two years, and would still not hesitate to purchase in the current market.


  8. Thanks, Jim! Working perfectly now.



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