The Housing Bubble On The Air
Here are some audio links on the housing bubble. NPR interviews Robert Shiller. And this WBUR.com round table discussion is interesting. In this link titled "And then some folks want the housing bubble to burst", a lady talks about wanting affordable housing. Various players required.
15 Comments:
How much blame do you guys place on Cable TV New and Home Improvement shows. It seem to me that all the old wisdom about for middle class folks real estate is a about finding a home to raise a family. Financally the old wisdom was to think of your house as a "Hedge againt Inflation" an not an investment. When and how did that change? Was the MSM a willing accomplice to this scam in return for advertising revenue from the Morgage Lender, Realators....
How much blame do you guys place on Cable TV New and Home Improvement shows. It seem to me that all the old wisdom about for middle class folks real estate is a about finding a home to raise a family. Financally the old wisdom was to think of your house as a "Hedge againt Inflation" an not an investment. When and how did that change? Was the MSM a willing accomplice to this scam in return for advertising revenue from the Morgage Lender, Realators....
I agree that TV and the media in general have played a huge part in all this. I also thing the real estate broker associations are to blame. Lets face it Joe six pack doesn't do much research before buying his house. "Everyone" says it will go up and so he justifies the high prices by that. Unfortunately, "everyone" can be wrong from time to time.
I posted this on an older thread. But Prof. Shiller, mentioned the vacation home market.
I would be intertested on articles/threads on the Vacation hOme/Time Share industry. This industry seems to be on the most extreme thin edge of the RE bubble. Most buyers of resort properties justify doing so because they see it as an investment.
I am skier. It is shocking to see the number condos built at a resort like Steamboat Co. in the last 5 years The Ski Resort industry is dominated by a handful of large players. It seems that the publicly traded resort stocks have become nothing more than highly leveraged fronts providing the infastructure, ski lifts, snow grooming, staff...., while all the real wealth is being extracted out the backdoor through real estate speculation and shipped out of state. Just like an Old West Mining town.
All the while the number of skiers is flat or in decline and certainly aging. If the owners of a Ski Condo are aproaching 70 they better consider selling or plan on leaving it to their kids. That could apply to lots of properties in the next ten years. Also what is going to happen to Real Estate values if the Resort goes bust? Lots of these resorts are on very shaky financial grounds?
I have been without a steady programing job for over 2 years. When things are slow I deliver food a couple nights a week. As a renter who has not seen his rent increased in 3 years I get a badly needed chuckle delivering food to very young people who live in high-rise condos with lots of vancies. Are they merely paying squatter's rents to the real owner.
Are they so over stretched that they can not afford furnature?
In Chicago there are so many new condo buildings and they are adding more all the time. I think not enough has been written about these condo associations. Lots of these condo/homeowner associations are private and unregulated. They pose a threat to the homeowner. If you miss a payment your debt is handed over to a collection agency that will apply steep penalities that can be multiple times the orginal debt. It seems that their primary goal is to seek forfeiture of property.
What happens if the Condo association has too many vancies. They have to keep raising fees, right? Who is going to pay for the doorman, security/maintenance staff, grounds/window cleaning, elavators.... But there has to be a limit. What if the Condo association/management company goes bust? Aren't the owners screwed??
Have there been any stories on this yet? Because I think lots of young folks are neglecting a real risk of own condos.
(I would be intertested on articles/threads on the Vacation hOme/Time Share industry)
Hi anon,
I live in a time share community. Thin edge is being kind to this segment. The TSs here are almost worthless as soon as they are bought. You're right, the resorts will get slammed, especially with a restrained consumer.
(the media in general have played a huge part in all this. I also think the real estate broker associations are to blame)
The blame will become a huge issue and rightly so. The media are gutless, let's admit it. The associations are too close to the thing and have never been that objective. I blame the Federal Reserve and the congress. Who created all the money that fuels this bubble? Who is supposed to be overseeing the credit markets? Lets remember who got us here. Good point.
(In Chicago there are so many new condo buildings and they are adding more all the time.)
Thanks for the first hand report. Condos have been inflated all over the country, but yours is the first account I've heard from Chicago. Please keep us updated.
Don't blame the media. It is merely a reflection of social psychology and a lagging indicator at that. The media follows what is popular so they can boost ratings. That's why it's a lagging indicator. I think that the increase in television shows about RE is definetely a sign that the trend is near it's end.
Great blog, Ben... FWIW I live in Chicago too. In most of the more desirable neighborhoods rents have been flat or down for four or five years now. (They've gone up some in the more recently gentrified areas.)
I'm renting a 1BR condo in the Gold Coast here. The math works something like this:
Selling price = 200K (if this sounds low, it's because of the assessments)
With 10% down and 5.5% fixed rate mortgage, monthly payment = $1017 (say $700 net after tax deduction)
Assessment = $400 (which you can't deduct, but covers heat, cable TV and some insurance)
Property taxes = $200 (say $125 net)
Extra Insurance/ water/ maintenance = $25
Total monthly cost = $1250. Probably a bit more, because I erred on the low side, and you usually don't get the full effect of the dedcution.
My rent is $900, which includes heat, water and cable. I can save/invest the equivalent of the down payment, as well as what I'd be applying to principal if I had a mortgage.
I noticed that chart in that other article that comparing buying vs. renting in various cities... problem is it used an *interest-only* loan and didn't consider assessments (which you WILL pay in a condo building). I always thought the whole point of buying was to pay a little bit each month to this quaint old thing people used to call "principal", so I used a more conventional mortgage.
Not as big a discrepancy as what you see on the West Coast, but it's still there.
Don't blame the media. It is merely a reflection of social psychology and a lagging indicator at that. The media follows what is popular so they can boost ratings. That's why it's a lagging indicator. I think that the increase in television shows about RE is definetely a sign that the trend is near it's end.
I am sorry but I do blame the media. Slowly but surely the MSM has been a coconspirator to the housing bubble. Back in the late ninties they started to put on the "Rock-Star" personal finance gurus who started to talk about one's home as an investment/retirement vehicle. You can not tell me local newspapers are not influenced by their huge real estate sections.
8:30 AM Anon - mentioned the Condo situation at Steamboat. I saw the thing this winter in the interior of British Columbia at several resorts. My favorite resort, Red Mt., was bought last year by a US group who made a bunch of promises that so far have gone unfilled. The Mountainside real estate however, has gone through the roof. Prices jumped 25% after the mountain was sold. I was tempted to buy something, but thanks to Blogs like this I managed to keep my wallet in my pocket at least for another season.---Any thoughts on using Canadian Real Estate as a hedge against a falling USD? Keep up the good Work
I think that this tops the "stupid real estate investment" of the year. 2 bedroom condos are selling at Kicking Horse ski resort in Golden, BC for about $400,000. A nice hotel room in the same town goes for $100 per night.
http://www.kickinghorseresort.com/winter/
Notice the "Real Estate" promotion right along with the skiing.
Any thoughts on using Canadian Real Estate as a hedge against a falling USD?
Yeah. Don't bother. Canadian real estate is over priced just like anywhere else, maybe worse in some areas. It is especially bad at those ski resorts like Canmore and Golden. Stupid, stupid, stupid.
Condos in Canmore go for $300,000 to $400,000. They've stopped appreciating. The locals can't afford to live in Canmore anymore. They (wisely) rent.
Most of the condos sit empty during the week and most weekends.
A big developer is moving in to build a whole bunch of condos. I think it will flood the market. Their prices are unreal. Stupid, stupid, stupid.
We stayed in Canmore at a nice hotel with a waterslide and cable TV for $60 a night last year. It might be $85 a night now.
(I am sorry but I do blame the media. Slowly but surely the MSM has been a coconspirator to the housing bubble. Back in the late ninties they started to put on the "Rock-Star" personal finance gurus who started to talk about one's home as an investment/retirement vehicle. You can not tell me local newspapers are not influenced by their huge real estate sections.)
I think that one who follows the media to make financial decisions is foolish. Caveat Emptor!
Thanks for the comments on Canada. Another thing that stopped me from dropping some cash on a Mountain House was according to the MLS there were 25 properties within 10miles of the ski area for less than 100k CDN. Hard to justify a 600k Condo against that.
---Are they so overstretched they cannot buy furniture?---
Had to laugh. Can't tell you how many homes i've visited in Calif----these homes cost $650K-$1M---that are fully furnished with IKEA particle board junk.
Can you imagine telling someone from a bygone era that one day you'd have $1M homes in Calif decked out with plywood furniture and shelves made of bricks and boards?
Don't get me wrong. IKEA's a fun store. But they sell fallapart furniture that is appropriate for young couples and college students, not million-dollar homeowners (or should i say homeowers).
Had to laugh. Can't tell you how many homes i've visited in Calif----these homes cost $650K-$1M---that are fully furnished with IKEA particle board junk.
Hey! That describes my house.
I've been in $3M homes furnished with IKEA. Some people don't care about furniture. It certainly all tastes the same to my dog.
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