Which Housing Bubble Is About To Burst

Tom, here.

This is Price-Reduced.com where we talk a lot about real estate and a little about life.

The Transcript version contains links to all we talk about.

Many non-resident Foreigners are now banned from owning property in New Zealand. This has come as a response by Parliament to the Housing Crisis that has seen a 60% annual increase of values across New Zealand and an almost doubling of prices in Auckland over the last ten years.

The Australia real estate market finds prices being reduced in five of it’s eight capital cities. The ratio of housing prices to disposable income has increased from 2x around 1980 to about 5x now.

In 2008 as the U.S. was headed into a financial abyss, Canada moved along hardly missing a beat. Here is an article explaining some of the why behind the stability Canada experienced.

Contrast the previous article that talks about the 180 years Canada has avoided a financial crisis, with a BetterDwelling article referencing the view of Canada’s housing market from China. It pointed out that Canadians lead the race in G7 countries for debt to income ratios. It is currently at 165%, which is even higher than the US ratio of 147% at the time of the US Financial Crisis in 2008.

Some say the Canadian Real Estate Bubble is about to Burst. Learn why, including the fact that 47% of Canadian mortgages have interest rate resets coming next year.

Speaking about the U.S. real estate market.

If you wanted to invest in real estate but don’t like the day to day involvement and want more liquidity than outright ownership, you could consider a real estate investment trust or REIT. Even if you are only thinking about investing, you can still get great information about return on your investment and what the public’s attitude is toward various forms of real estate.

Seeking Alpha has a great article with all the charts and graphs the most data hungry of us would enjoy. It not only covers residential real estate but also such things as office, retail, industrial and self storage to name a few. Break out reports on individual sectors such as manufactured homes are referenced. Record high occupancy rates are one of the positive topics covered.

What else are people saying about the U.S. housing market? The Lombardi Letter focuses on higher interest rates, the slowing housing market, and builder’s that are starting to worry.

For an upbeat view of the U.S. Market, read this GordCollins article that discusses how over half of all U.S. home values have rebounded to pre 2007 levels, home sales increased by 9%, and it’s description that “the US housing market is stable and optimistic — backed by a strong economic forecast.”

So, what state is one of the most affordable to live in? Can you guess?

The answer is…West Virginia. The cost of living is 5.6% below the national average and the cost of housing is 38.5% below the national average. For first time home buyers by state, it ranked number 2. See where your state ranks.

Let’s take a brief look at the Portland Oregon and Vancouver Washington real estate market. In July, year over year, Vancouver and SW Washington saw an average sales price increase of 10.3% to $383,000. whereas the Portland Metro only had a 6.4% increase but a higher average at $442,800.

There is one other dramatic difference between the two states separated by the Columbia River. The Vancouver and South West Washington area has more proposed or
“not yet under construction” homes listed in the RMLS system than any of area it covers.

You can click on the links for more details than one cup of coffee will keep you awake for.

Just a reminder that behind all of this information and statistics are people. People who worked hard to be able to buy a house. People who struggle with the high cost of having a family. People who are retired and face an uncertain future.

There are also people who have equity and cash available when they sell, that they would not have been able to save any other way.

Real estate can be a small part of a persons life yet have the potential to be the ship that sinks their finances or the life boat that keeps them afloat.

I could usually tell when a “how to buy real estate and make a million dollars with none of your own money” seminar comes to town. There would be an uptick of people asking about property for sale, not taking the time to talk to a bank or to begin to understand not just the benefits of owning a home, but the cost of home ownership and the risks involved.

Why is that? What would cause thousands of people to flock together for an investment seminar? Or to stand in line, not to buy a house to live in, but to buy a house with the intent of reselling it upon closing?

As a real estate broker, I first got into real estate because I wanted to learn about buying and selling homes, about investments, so I understand the attraction.

What I am talking about though, is more of the “herd mentality”.

There is an old TV show called “Candid Camera” This video clip was taken in the 1960’s and shows us, in a comical way, the influence of group behavior with something as simple as the direction we are facing in an elevator. What direction would you face?

You can watch a similar, more current video clip from a TV show called Brain Games. If you were in a waiting room, waiting for an eye exam, would you stand up just because others in the room did?

If I was at a restaurant and it was on fire, I am all for everyone following the crowd, getting out of the building, and saving lives.

Here is my question.

Once local media publishes a few articles about how the real estate market is shifting, how it is no longer a seller’s market, and how prices are no longer going up, an interesting thing happens. The basic truth of a slowing market becomes a self fulfilling prophecy to everyone who reads the article. If the market is slowing maybe I should offer far less as a hedge against dropping prices. Should I wait to buy a house until prices become way more affordable. How far down will they drop?

The answer to these questions may be yes, or may be no. You should look at your individual situation and see what works best for you. If interest rates went up, how would that affect your buying power? One price range or area of town may not be impacted the same way as another. If you want to live in an area where major positive improvements are being done that will create more demand, would now be a better time to buy or not?

What about selling? You may feel the pressure to sell before prices decline too much. Maybe you should. On the other hand, there may be other factors affecting your life that are more important than which direction the real estate market is going.

Whether in real estate or in life, getting the facts and making informed decisions that work best for you, is the key.

Thank you for listening to Price-Reduced.com and always remember, financially speaking, “When it comes to real estate, the best time to buy or sell, is when you don’t have to.