Manifold

Example of gains since the bottom around 2011:

Archimedes

Don't confuse the economy with the stock market or the housing market. The economy has experienced an incredibly sluggish recovery. The stock and housing markets, on the other hand, have been manipulated by the Fed and other Central Banks.

997rs4.0

So to sum it up, the old saying is still true.

If you can't afford to buy a toy (gt car) with left over cash you probably shouldn't buy it.

signes

I can vouch for that Denver figure, been bonkers here for the last five years. Net population gains drive a lot of those markets. Will be interesting to see how the market digests rate increases over the next several years (assuming they continue the gradual rise.)

Manifold

So do we have another bubble in real estate, perhaps smaller than the last one? What's the current situation with mortgage-based derivatives and leverage?

usctrojanGT3

I've been an active realtor since 2008 and can tell you guys that in So Cal, the financial strength of the buyers has never been better. Loans are fully underwritten and the underwriters really probe you very deeply (I speak from personal experience having bought a home last year and refi'ed a few of my rentals). The loans that buyers are using are legit and many of the buyers that I've represented since 2008 would put 30% to 100% down on their home purchases. Rents in the areas that I work have increased 8-10% since 2015 so I'm seeing more and more investors making offers on entry level housing. In fact, 3 of the listings that I had in late 2015 were all bought by investors who outbid owner occupant buyers. The inventory of home is very low right now which makes me think that prices are heading higher. For me, if the interest rate is at or below the rate of inflation...you should borrow against appreciating assets. However, for depreciating cars like cars I take my step-dad's advice and only buy if I can afford to pay cash for the car (I end up getting cheap financing on it later sometimes). The real housing bubble will come when the liar loans are back...give it 2-3 years after they start offering them and then sell and wait to buy the coming foreclosures.

Manifold

So what accounts for this financial strength? Rich generally getting richer? Rich flocking to So Cal? Apparent gains in wealth due to gains in stocks and other real estate?

usctrojanGT3

Very good questions. In no particular order, I would list out the following as the main drivers for increasing real estate prices...

- Increasing employment and increasing salaries, wages, bonuses, and/or proceeds from stock options as well as other investments
- Low interest rates
- Improving local economy
- Limited new home development since 2008 (partially due to tough zoning/permit process in several cities and/or lack of undeveloped land)
- Increasing household formation and population (aka people getting married and having kids)
- Move up demand from growing households
- Investors looking to diversify into real estate versus investing in the stock market or keeping it in the bank making nothing
- Increasing rental prices attracting investors
- Strong demand from overseas Asian cash buyers for homes zoned in good school districts (from China, Taiwan, and Korea)
- Decreasing amount of resale inventory

My tea leaves tell me that we are going higher in prices in the short term and why I bought a larger home last year and why I'm buying one of my seller's homes now.

grendel88

California is not representative of the US now. There is so so much money here. Even day laborers at the Home Depot parking lots are asking for $15 cash in the Bay Area.

usctrojanGT3

Agreed, real estate is very local and even going from one city to another can mean significant changes in prices. Like Irvine is crushing while parts of the Inland Empire are still sluggish and haven't gotten above their pre-bubble highs.

NorCal is even worse than SoCal in terms of real estate, so much tech money up there. I think several areas of NoCal are 2-3x more expense than Irvine which is crazy nuts.

Archimedes

Simple. Cheap money from the Fed drove investors into assets looking for/chasing yield. This inflates equity markets and, directly and indirectly, the housing market as well. Add to that the international effect and the strong labor market in a few key areas, and you get what we have today.

Additionally, cheap money has led to massive stock buybacks, largely financed by debt, which has had a big impact on the markets, and pushed corporate debt levels through the roof at a time when corporate cash flow has been flat.

Stock is a huge driver of the housing market out here.

usctrojanGT3

One counter point for me to make in terms of real estate is that underwriters are super thorough and you have to be squeaky clean to get the low rates that are up there. For example, I had to write 12 letters of explanation, provide support for all deposits over $500 going into my bank account the last 2 months, provide TYD and projected P&L for my net income for my realtor activities, and they excluded my options trading gains even though I've been booking consistent trading gains for 7+ years (justification was that I already have 3 forms of other income sources). Underwriting was definitely not easy but I got it done with the help of my lender.

Leica 993

I don't think productivity will ever take up the slack of these asset valuations, but to get to the "big reset" we will have to go through a sovereign debt crisis. I don't think this country is prepared for anything like that. Martial law, food lines, bartering, etc...

usctrojanGT3

Unfortunately, we are probably the least dirty shirt of the bunch. If we get to a sovereign debt crisis I don't even want to know what pain other countries will be going through, probably going back to the stone age.

Manifold

You guys are succeeding in scaring me ...