I'm amazed what people will pay for real estate. Some of it, and this is only my opinion, is the market allowing inflated prices to accommodate those fleeing from areas that aren't economical, or crime ridden. Many of those areas had real estate already over priced. If the seller could get out before the prices fell, they had more than enough money to places with a more realistic market. Agents with opportunities took advantage, bargained for higher prices, and laughed on their way to the bank.
Another thing that created the bubble in real estate is the extremely low interest rates on mortgages. Spread it out enough, and a homeowner can squeeze the cost into their budget. With some, it's a gamble, and a burp in their finances can lead to foreclosure.
The high prices led to many new apartment complexes in my area. Many apartments are below mortgage costs, and some people are forced to lease, or rent. To an investor, and some are foreign investors, a good amount of renters can lead to equity that amounts to a long term profit. Even if the investment doesn't reap a big profit, the real estate selling price will probably stay above inflation. With other investment opportunities, and a buyer, moving the money into a less maintenance investment is a win. Without a buyer, to cut costs, maintenance may be where the cuts are, and those renting may have problems that take a long time to be resolved.
Regardless of what's driving the market, the current drops in the market may be the harbinger of a bursting bubble. There are only so many people willing to buy high real estate prices, and any rise in prime lending rates may nearly shut the market down. Some, if not many, may find their home well below the new market value, and if they have to sell, they may not only be underwater in equity, they may have a white-elephant that will never again reach the price they paid.
I think many don't realize the effect of over priced real estate. In areas with smaller banks, foolish bankers can lead to economic hardship for the banks, which affects those that use the bank. That, and if the bank is sold, they may find their money is now controlled by those that can give a rodent's fanny about the personal finances of small town Americans. Larger banks have employees that have no authority but to follow the rules, and ignore the inconveniences they cause. Where there was once a banker willing to lend money due to their knowledge of that person, that person is now only a number, and inconsequential in the big picture of large banks.
I've seen this before. The sub-prime fiasco was probably the best example of how ridiculous the real estate market can become. How this one turns out is to be seen, but with the current economy, it could be really bad. I hope not, but in my opinion, it's unsustainable.
oh yeah, its a bubble, that's about to pop. inflation will make people rethink buying, lumber prices are too high to build. the value will crash leaving many upside down. i watched tennessee land go 3 to 10 times the former value. as the bugout from the north/kali subsides the new buyers will find not only lower values but no infrastructure to boot.
ReplyDeleteHigh price, high energy costs, high taxes, and expensive upkeep. If some people would really look at the totals, they might ask the themselves the important questions, and realize buying in this market can lead to financial disaster.
DeleteIn the end, a house is only useful if someone can afford to buy it or rent it. The renting class is being pushed so hard already in some places there is nothing left to give. This will not end well.
ReplyDeleteApartments are the big push locally. Large, mostly ugly, little parking, and probably overpriced.
DeleteFrom my perspective, the home prices have reached the level they're marginally affordable. A interest rate hike will burst the balloon, and the madness will ensue.