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Right Now, There Is A Bubble Of High-End Homes

A report from King 5 News in Washington. “KING 5 interviewed five local economists, some who specialize in real estate and others in academia. They weighed in on the possibility of another housing bubble and on the likelihood of a buyer’s market in the near future. Are we in another bubble?”

“The economists agree the answer is no. Matthew Gardner says standards to buy a home are higher now. ‘We will experience a slow down to let incomes catch up,’ Gardner said.”

The Daily Commercial in Florida. “Right now, there is a bubble of high-end homes in Florida. Homes in the $250,000-plus range are harder to sell. If the economy falters, there will be an excess of high-end homes that will wind up with diminished values or in foreclosure.”

“I have purchased commodities on the open market for nearly 40 years. The first rule in buying commodities during a declining market is that your first markdown is your best. During the Great Recession, homeowners refused to lower prices believing it was temporary.”

“In 2006, the median home price in Lake County was $248,047, and by 2011 it dropped to $128,388, which is a 48.2 percent decline. Preliminary signs of the Great Recession started in the fall of 2006. Looking back, how many people at that time wished they would have sold their home before the market crashed?”

“Sadly, based on what I see in the economy, the lessons taught by the Great Recession have been forgotten. The final exam for most Americans will probably occur within the next couple of years as another recession looms on the horizon. Yes, home values will decline again. Americans are paying too much for housing and not living within their means. Many couples are paying more than 50 percent of their income for housing and this is not sustainable.”

From Newsday on New York. “A growing number of homes for sale is giving Long Island home buyers more options. ‘We’re starting to feel the effects of a more balanced market,’ said Michael Flynn, an associate broker with Keller Williams Realty of Greater Nassau in Garden City. For homes priced at $500,000 or less, he said, ‘it’s still going very quick. There’s very strong demand.’ But demand tapers off as prices rise, he said: ‘Over $600,000, we’re really seeing more of a buyers’ market.'”

The Los Feliz Ledger in California. “In a Los Angeles City Council motion introduced today, local District 4 Councilmember David Ryu and councilmembers Mike Bonin, Marqueece Harris-Dawson and Paul Koretz called for the city to report on the number of vacant housing units in the city and explore penalties for landlords who intentionally keep housing units empty.”

“According to the motion, Los Angeles has a 500,000-unit shortage of affordable housing and 2017 census data show there were more than 100,000 vacant units of habitable housing in the city–if passed, the motion would call on the city to update that number to reflect the number of vacant units today.”

“‘We need to get serious about tackling our affordable housing crisis, and that means taking stock of every vacant unit in Los Angeles, and holding those who keep housing off the market to account,’ Councilmember Ryu said in a statement. ‘We know that our City has more than enough luxury housing but not nearly enough affordable and moderate-income housing.'”

From Spectrum News 1 in California. “Los Angeles City Councilmember Mike Bonin will propose a vacancy tax Tuesday. The so-called Empty House Penalty would impose a fee on landlords with empty units. ‘It’s time we had a vacancy tax,’ Bonin said. ‘We have a glut of luxury housing in Los Angeles. A lot of these developments are being built and they’re investments for people, mostly foreign investors, and we have units that stay vacant most of the year.'”

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This Post Has 32 Comments

  1. ‘We will experience a slow down to let incomes catch up’

    Which has never happened before.

    2. “….slowdown for incomes to catch up.”

      Doesn’t that mean they were giving loans that were not in sink with incomes , and they catered to speculation demand?

      That’s like builders saying that they were building for high end luxury condo demand and now we just have to wait 10 or twenty years for that demand to get here.

    4. Average numbers like ‘average national household income’ don’t just fail to tell the story, they actively hide it.

      We’ve had a problem for a long while now with the income of the first/lower 80% of households in this country stagnating, and the gains concentrating in the top end.

      Great for people like me, who found ways to make it work, but lousy for the 4 other guys I hung out with growing up who are just ‘average’ earners. And I’ve already got a house, so how does dropping prices help any of us?

      Maybe if we looked at the very very top (and at corporations like Blackstone) we’d see the rise in buying non-primary homes strickly for investment purposes. And gosh darn, we need our investments to generate returns, not to provide a place to live and raise families in.

      1. MGSpiffy, this is a really important point that you have hit on. I’ve found that a lot of the questions in life revolving “Is this good or bad” can be answered with, “It depends.” It depends on who we are talking about. I listened to this really phenomenal podcast from the NPR Planet Money team that this afternoon on my run that gets at this.

        “Our country’s labor market has been splitting into two tiers.

        “MALONE: Tier No. 1, you’ve got high-paying knowledge-based jobs. Tier No. 2, low-paying service-sector jobs. And the stuff that used to be in the middle tier – that is the stuff that has proved easy to automate with technology or offshore with, you know, free trade.”

        “ROSALSKY: But this was just a general national trend. For this fancy speech in Atlanta, David decided he wanted to see how this was unfolding across America. Where exactly in the country are these middle-tier jobs disappearing? He expected to see them disappearing everywhere, but especially in rural areas and smaller, declining cities, like those in the Rust Belt, places that were obviously suffering.”

        “MALONE: David assumed the exception to this would be in our superstar cities.”

        “AUTOR: That’s where all the benefits of, you know, Silicon Valley or finance or Los Angeles are spilling over to everybody. You know, just get there. The cup runneth over, and everyone is part of this concentrated prosperity.”

        “MALONE: But what David had found, and what he was presenting in his speech, was the exact opposite.”

        ROSALSKY: This job polarization, this division of the labor market into high-paying and low-paying tiers, is now happening more in superstar cities than anywhere else in the country.

        NPR Planet Money
        Episode 919
        Are Cities Overrated

        https://www.npr.org/2019/06/14/732847076/episode-919-are-cities-overrated

  2. ‘Right now, there is a bubble of high-end homes in Florida. Homes in the $250,000-plus range are harder to sell. If the economy falters, there will be an excess of high-end homes that will wind up with diminished values or in foreclosure’

    This is that radio show guy who is in the lumber biz and warned us about cratering prices a while back.

  3. ‘We have a glut of luxury housing in Los Angeles. A lot of these developments are being built and they’re investments for people, mostly foreign investors, and we have units that stay vacant most of the year’

    How many times have we seen this pop up? Eat yer crowz Thornberg!

  4. Repost from the last thread:

    “In Los Angeles, it would take 43 years to save up for a down payment. In San Francisco, 40. In San Jose and San Diego, 31. In Seattle and Portland, 27 and 23, respectively. In the east, New York and Miami topped the list, requiring 36 years to save up that down payment. Only Detroit, at seven years, was under the national average from 1975.”

    https://www.theatlantic.com/technology/archive/2019/06/why-millennials-cant-afford-buy-house/591532/

    1. Excerpt from the article:

      “Policies—such as changes in restrictive zoning or building lots of new multifamily units—that could lower home prices are promoted heavily by younger people, who would like to participate in a less insane real-estate market. At the same time, many homeowners, and the city officials they elect, see propping up real-estate values as what the government does.”

    2. Does that figure of ‘years needed to save up’ account for things like ‘pay off student loans/medical bills/survive 2 years of being reduced driving for Uber’ ?

    3. The supply of rich foreigners and part time yoga instructors who have inherited a down payment must be tapped out by now. So who is buying houses in SoCal? In the post Morten analysis, I expect we will find the percentages of non conforming loans will be as high or higher than in the last bubble. It would seem to be the only possible explanation for current prices. My guess would be that at the peak in 2018 more than 80% of mortgages in LA and San Diego will turn out to have been non conforming.

  5. Are we in another bubble?”

    “The economists agree the answer is no. Matthew Gardner says standards to buy a home are higher now.

    “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” — Upton Sinclair

  6. “Los Angeles City Councilmember Mike Bonin will propose a vacancy tax Tuesday. The so-called Empty House Penalty would impose a fee on landlords with empty units. ‘It’s time we had a vacancy tax,’ Bonin said.

    It’s about time communities started actively discouraging housing-related speculation that has driven housing prices to such unaffordable levels.

  7. In 2006, the median home price in Lake County was $248,047, and by 2011 it dropped to $128,388, which is a 48.2 percent decline.

    Fear not, friends and neighbors. That most peerless of prognosticators, Old Yellen, assured us there would not be another financial crisis “in our time.” In addition, one of the HBB’s resident trolls has informed us that a 50% drop is un-possible, so there you have it. Feel free to speculate with wild abandon.

  8. “Right Now, There Is A Bubble Of High-End Homes”
    – It looks like it depends on where you live and who you ask…

    In Washington. Are we in another bubble?” “The economists agree the answer is no.”

    “in Florida. “Right now, there is a bubble of high-end homes in Florida. Homes in the $250,000-plus range are harder to sell.”
    -Not sure I’d call $250K “high-end”. More like starter, IMHO.

    Use your own best judgement and critical thinking skills here. Start with: “Are house prices > 3X median income? Also follow the HBB. 🙂

    “It is difficult to get a man to understand something when his salary depends upon his not understanding it.” – Upton Sinclair

    “He who pays the piper calls the tune.” – well known idiom

    1. “Not sure I’d call $250K “high-end”. More like starter, IMHO.”

      Long term historic trend for new construction is 2.5x annual income and 2x for a resale house. $250k is 4x annual income.

      Is triple the long term price considered “high end”?

  9. The only thing is what if they do a taxpayers bailout like they did when the last bubble popped in real estate?

    God knows what the next round of Insanity might be.

    1. Agreed. It reminds me of TV genre shows such as cops/medical. As the years go by and the plots recycled, they have to come up with bigger and bigger scenarios to get the audience to care.

      From an economic systems perspective, a repeat of the previous bailout will have a smaller impact, and the powers that be can sense that, so they see they need to do something even bigger and crazier. Which leads to even more far-reaching and unintended consequences.

  10. “Sadly, based on what I see in the economy, the lessons taught by the Great Recession have been forgotten. The final exam for most Americans will probably occur within the next couple of years as another recession looms on the horizon. Yes, home values will decline again. Americans are paying too much for housing and not living within their means. Many couples are paying more than 50 percent of their income for housing and this is not sustainable.”

    – Did a Realtor write this? I can’t believe my eyes.

    “During times of universal deceit, telling the truth becomes a revolutionary act.” – George Orwell

    2. “Americans are paying too much for housing and not living within their means”

      Not me. I learned to never stop living like a grad student.

      My rent has increased in the nine years I have occupied 401 but my utilities and other expenses are unchanged.

      I have never purchased a vehicle that cost more than $12,000.

      I ski at resorts less than I used to mostly because of traffic and longer lift lines but my hobby and vacation budget remains minimal, but sufficient. Hiking, camping, and backcountry skiing cost only the gas to get there.

      I’ve stopped spending money in Denver (besides gas and groceries) or cultivating a social life oriented around consumption and posting about consumption on social media (consumption and posting about consumption on social media is basically every female Tinder profile in Denver).

      My close friends and myself work in Denver, live in Denver, save alot of money in Denver, and pursue recreation elsewhere.

      REALTOR, I have so much money left after “throwing money away on rent” every month that I don’t know where to throw it.

      MILLENNIAL, I can see through your lie, your curated Instagram fake life doesn’t mask the fact that you’re drowning in debt, your marriage is on the rocks, and you worry about money constantly…

    3. Did a Realtor write this? I can’t believe my eyes.

      FTA: Don Magruder is the CEO of RoMac Building Supply.

      Seems like he would be in a great position to see what’s in the pipeline.

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