21-09-2005 21:31									#1
	US House Price Bubble? Support Apolyton, buy Galactic Civilizations

Attached is an interesting graph from the IMF about the US real estate market. In short, some states are experiencing house price booms and some not. Nevada, Hawaii, California, DC, Arizona, Florida, Maryland and Virginia are experiencing booms. Are these booms creating a bubble nationwide?

Keep in mind the rule that as interest rates rise, asset prices (f.e., house prices) fall. And interest rates are rising.

In my area, the city of DC is experiencing a boom, but I would argue that it's not much of a bubble. It is due more to the fact that the city's real estate prices have been depressed for a long time due to corruption, violence, and other crime. Add in the fact that the Washington, DC metro area is growing quickly (now about 6 million people) and has a stable and growing economy and it is my opinion that these prices can be sustained.

Virginia and Maryland are in something of the same boat. They benefit from the growth in the Washington metro area. However, the prices in those locales have not been depressed. I expect house prices cannot be sustained in VA and MD, although I think they won't go down too much.

What about in your area?

I note that some of these areas are historically boom-bust anyways. Hawaii has been bust for a while, so I'm not surprised to see a little boom. California has been boom for a while, so I wouldn't be surprised to see a big bust.

Attachment: housing_boom.jpg
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Last edited by DanS on 21-09-2005 at 21:40

	21-09-2005 21:42									#2
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You forgot to mention Rhode Island (sitting between MD and VA)

	21-09-2005 21:43									#3
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I didn't mean it to be a comprehensive recital. Besides, nobody lives in Rhode Island anyway.

	21-09-2005 21:44									#4
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Or you just didn't mean to reveal that you don't know all 50 states of your own country.

	21-09-2005 21:44									#5
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Funny, because you managed to be, with the sole exception of RI

Don't forget the little guys...

Emeril is from RI, you know.

	21-09-2005 21:48									#6
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I don't think it is a boom. Areas RE goes up in areas where people want to be. I would only think there are bubbles if the price is going up and the population is staying the same. Supply and Demand... right?

	21-09-2005 21:50									#7
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That's a useful way of looking at RE, but there are other factors. In DC, it's a switch in the mix of residents. More rich people and fewer poor people. White reverse-flight. The population might even be going down very slightly.

	21-09-2005 21:55									#8
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I think the areas that are experience the increase in housing prices are also seeing an influx of residents and buisness which would see an increase the rich ppl as well.

Also note that most of those states are coastal (which RE ppl love) or are states with great tax advantages for corporations, and no sales tax!

	21-09-2005 22:03									#9
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Three states among the group (DC, MD, and VA) are growing in large part because federal government spending is growing. The taxes in DC at least are quite high (trust me on this), although the politicians have become much more business-friendly lately. While VA and MD are coastal states, I think most of their increase is due to the growth of the DC metro area.

	21-09-2005 22:08									#10
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Ok, Dan, what are the implications of the "bubble burtsting" for a Wisconsin (#13 on the chart) home and investment property owner like myself? Take into consideration that I am looking to either build a new home (to raise my gowing family) or expand my business.

	21-09-2005 22:35									#11
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Actually, Wisconsin is #25 on the chart. Probably not too much upheaval in that market, just don't get too carried away by doing something that would harm you if the home prices don't go up for several years. Plan for a good investing environment a couple years down the road, as prices level off. Also, after a couple more interest rate rises (a couple of months), make sure that the rents you are charging aren't below market.

	22-09-2005 02:47									#12
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Most of the housing price inflation is going on in northwest AR.

There, the problem is, builders are only building high-income housing, since they make the most profit off selling rich homes to rich people.

	22-09-2005 03:18									#13
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quote: And interest rates are rising.

Are you talking about the actual mortgage rates or just the rate set by the FOMC? Bond rates have been staying put despite the rising fed funds rate, for instance.

	22-09-2005 08:03									#14
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That's interesting -- 4 out of the top 5 states there are located within the sun belt.

	22-09-2005 08:13									#15
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The median housing price in Broward County (Ft. Lauderdale) is $285,000 . . . or at least it was so reported in the Sun-Sentinal this August.

	22-09-2005 08:19									#16
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Hmmmm, so when the hell is my house in Ohio going to perk up?

	22-09-2005 08:19									#17
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I own a house in a non-boom area (PA), which I'm going to haev to sell eventually in order to buy in a boom area (metro DC). Sucks for me.

Unless the DC rental market keeps being cheaper than owning, in which case I'll rent in DC short-term and buy a nice vacation/retirement property.

Unfortunately, I was going to do that in Rhode Island.

	22-09-2005 08:31									#18
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quote: I own a house in a non-boom area (PA), which I'm going to haev to sell eventually in order to buy in a boom area (metro DC). Sucks for me. Unless the DC rental market keeps being cheaper than owning, in which case I'll rent in DC short-term and buy a nice vacation/retirement property. Unfortunately, I was going to do that in Rhode Island.

Hey...you know where you could move, where houses are SUPER cheap...

But you won't find a job here...sorry

	22-09-2005 08:33									#19
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quote: Originally posted by mrmitchell Hey...you know where you could move, where houses are SUPER cheap... But you won't find a job here...sorry

Of course, there's a reason housing's so cheap there; little thing called supply and demand, I believe...

	22-09-2005 08:41									#20
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Actually, what industry are you going to be working in? A couple jobs are very lucrative here...but if you weren't going into forestry, oil, or defense, I would entirely forget about the place until you're rich enough to move your own busienss here.

	22-09-2005 08:49									#21
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quote: Originally posted by Colon Are you talking about the actual mortgage rates or just the rate set by the FOMC? Bond rates have been staying put despite the rising fed funds rate, for instance.

It will eventually flow through. Bonds will eventually give up the fight against the Fed.

	22-09-2005 08:51									#22
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The chart looked interesting, so I made a map:

Attachment: housingboom4.png
This has been downloaded 49 time(s).

	22-09-2005 08:52									#23
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quote: Originally posted by mrmitchell Actually, what industry are you going to be working in? A couple jobs are very lucrative here...but if you weren't going into forestry, oil, or defense, I would entirely forget about the place until you're rich enough to move your own busienss here.

I'm just yanking your chain. I work for the State Department so, even though I (like all Yankees) consider Arkansas a foreign country, there's really no chance of me working there.

My problem is that I'm going to spend most, but not all, of the rest of my career abroad. Mostly Uncle Sam will provide my housing, but I'll need a place of my own in DC in 2008-2012 and again probably around 20018-2021 (and, of course, I'll need a place to retire to). Lots of people I know in my position buy in DC and rent out their homes when they're abroad, but laetly I've heard about lots of people getting burned that way; there's just too much rental property in the area.

The thing to do is probably to buy a rental property in a good rental market where housing prices are booming, and let it generate profits and appreciate while I rent for my stints in DC. Austin, TX would be an obvious place to buy, especially since I have in-laws in San Antonio.

I think I just figured out how I'm spending next summer!

	22-09-2005 09:55									#24
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Texas works. When you tire of traffic jams and ungodly heat and tumbleweeds and Republicans, you can come to one of AR's 49 beautiful state parks, free of charge

	22-09-2005 10:01									#25
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Arkansas: Missouri without the international flair

	22-09-2005 13:55									#26
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That map is a much nicer presentation of the data

	22-09-2005 13:57									#27
	Real Rates Support Apolyton

Mortage rates have been creeping up even though long term bond rates have not moved. What I am afraid of now is that the fed will continue to raise short term rates and created an inverted yield curve. It would only take another 2 quarter point rate hikes to do it.

	22-09-2005 21:13									#28
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quote: Originally posted by Donegeal Ok, Dan, what are the implications of the "bubble burtsting" for a Wisconsin (#13 on the chart) home and investment property owner like myself? Take into consideration that I am looking to either build a new home (to raise my gowing family) or expand my business.

There's definitely a bubble here in LA. You can tell by the irrational buying activities. New condos are being built in downtown. Last year, offers are being made, sight unseen. Then some of the condos were being "flipped" for a $10,000, $20,000 even $30,000-profit within a week.

Unlike the dot.com bubble, real estate bubbles don't "pop." Real estate is fairly illiquid. People need to live somewhere, and so they tend to hold onto their houses rather than engage in the panic selling we saw with stocks. This behavior results, not in a crash, but either in a slow downward trend or a flattening of real estate prices -- which we're already seeing in San Diego.

What will happen to investment owners like Donegeal depends upon the quality of their investments. If the income is enough to pay for the overhead, then the underlying real-estate value won't have much effect. But if the owner is running a negative cash flow based upon the presumption that you'll make your profit when the property sells, then the end of rising real estate prices will leave them high & dry.

	22-09-2005 21:38									#29
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The last 6 months have seen prices stay perfectly flat in San Diego. The market has gone from frothy 20% per year gains to hardly any change but at least it hasn't gone down.

	22-09-2005 21:49									#30
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This has been a major issue in other countries as well. The UK has had a similar increase in property prices which seems to have just about stopped in London but is still slowly creeping up. So this bubble is a really big bubble affecting a significant proportion of western countries.