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Housing Bubbles Reported on Both Coasts

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bradellis

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Joined
Jan 16, 2002
Pam,

Read the article. Don't you think that the heading of your post is a bit misleading given that the article essentially is saying that there is no bubble?

You might first want to read my article in the e-gram on the NAIFA website (sorry Wayne- not advertising).

A UCLA professor also issued his magical formula to determine if there is a bubble. He calls it the price/rental ratio. For some reason, he does not think anyone knows about a GIM (gross income multiplier). His premise is that when this ratio exceeds historical trends, there is a bubble.

Bunk. He conveniently neglects any discussion of economic factors that drive real estate markets. He says nothing about population trends. He ignores rapidly rising apartment rents to concentrate only upon SFR rentals and assumes they always occur at market levels. It is a real house of cards- but of course, he got PUBLISHED. Perhaps his real motivation?

Brad Ellis, IFA, RAA
 

Pamela Crowley (Florida)

Thread Starter
Elite Member
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Brad,

I don't really know which side to believe. I do know what I'm seeing happening here in my market. Whether it really is a bubble that will slow down to stable or if it's expanded so far that it will burst or just leak a little, or there is no bubble and it's perfectly OK that housing prices are rising at a much higher rate than just about any other market???????? Wish I had that crystal ball, I don't. I will read your article, thanks for the reference. Lots and lots of misinformation and hype out there.

Read the article. Don't you think that the heading of your post is a bit misleading given that the article essentially is saying that there is no bubble?

My subject headline is identical to the story headline, I copied it.
 

Steve Owen

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Jan 16, 2002
Professional Status
Certified General Appraiser
State
Missouri
Pam, I don't know enough about those markets to know whether or not there is a bubble there. However, I suspect that the basic premises of the article may be correct.

Here's another interesting factor, (quoted from www.realtormag.com):

(September 18) -- Fannie Mae reports that its so-called "duration gap," which gauges its interest-rate risk, ballooned from negative nine months in July to negative 14 months in August--the highest level on record.

The article goes on to say:

The result is a potential mismatch between the mortgages it now owns and the debt on its books, which could send the government-sponsored enterprise into a financial tailspin in the event of a sudden shift in interest rates.

With Fannie's stock price in decline and consumers paying off their old mortgages to take on new lower-rate debt, the housing market could be in trouble in many parts of the country that are over-heated in the event of further recession. As I see it, one of the main problems is that many homeowners have no equity to speak of; in effect they have become renters in their own houses, cashing in equity everytime they want a new car. Congressional treatment of interest on mortgages is primarily responsible.

As the article says, a bubble similar to the stock market bubble is unlikely because of the nature of real estate markets. However, that will make little difference if a large number of homeowners lose their jobs at the same time they are negative in terms of home equity. If that happens, appraisers should get ready for some long days doing repos.
 

bradellis

Member
Joined
Jan 16, 2002
Pam, Steve, Mike

Yep. markets change. They will. They've done so before and will repeat that.

But, a bubble? A bubble assumes a burst, and there is simply no basis- other than basic economics- for them to change. The basic economics are changing. Each micro market will experience its own changes, so the best advice for all is to pay attention to what is happening in your own market.

Leave the prognostications to others. Some markets will continue to be strong while interest rates continue to be low. Others will decline despite that. Still others will continue to rise, but at a slower and much more sustainable pace.

So says the feds, NAR's own chief economist, and the chief economist for the NAHB. I agree. Keep your eyes open.

Brad Ellis IFA, RAA
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
As long as there is an influx of population and jobs to support the population and cost of living, an upwards trend on values can be expected - supply and demand. If jobs decline or incomes decline (loss of high $ manufacturing/telecom jobs, prices will fall. I have seen this first-hand with the oil boom/collapse of the 80's. To say that an equillibrium will occur at some point is not necessarily true. If you look at the towns of the high plains (Nebraska, et al), there are towns where prices continue to fall as no one is moving in while the younger people are moving out. In summary, supply and demand is the primary factor. In today's Nervous Nellie world, the world can intrude on normal factors and totally change an economy. Let someone set off a nuke/biological attack that kills a lot of people in a major city, even NY, and you may see an outwards migration from major metropolitan centers of employers and population.
 
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