# New US housing bubble?



## sags (May 15, 2010)

It looks like the US housing bubble has re-inflated, as new home prices set an all time record high.

Strange it would happen, after such a collapse..............but cheap money is fuel for another asset bubble.

Short memories and central bank intervention..................??

http://www.cnbc.com/id/100761763


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## andrewf (Mar 1, 2010)

$270k doesn't sound terribly expensive for new-build homes. Really, that just underscores the folly of the market in Canada. You'd be hard pressed to find a decent new 1 bed condo for that price in TO.


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## HaroldCrump (Jun 10, 2009)

Even during the _peak_ of the US R/E market in 2005 - mid 2007, home prices for single, detached homes in most major cities in the US were far more reasonable than in similarly major Canadian cities.
You could get a lot more (lot size, features, quality, etc.) for less $$.

And I am not even considering the Vancouver market valuations.

Canadian R/E has been over-priced, even by US standards, since the bull ran began in the early 2000s.
At this point, it is supposed to be the most over-valued R/E market, even leaving side GVA.


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## sags (May 15, 2010)

If interest rates normalize..........mortgage payments will double or triple.

A whole lot of people will be living on Kraft Dinner.


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## HaroldCrump (Jun 10, 2009)

Interest rates won't "normalize".
Did you notice what happened to the markets on Wed. after the FOMC minutes were released...just the whiff of a rate increase sent them into a paroxysmal of selling.


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## Barwelle (Feb 23, 2011)

What is a normal interest rate?


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## andrewf (Mar 1, 2010)

2-3% real?


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## Sampson (Apr 3, 2009)

These conversations always interest me because I believe it is all a matter of perspective whether real estate in Canada is over- priced/valued.

What is the basis of this argument?

Many believe that as a % of gross or net income, housing costs more than it used to. Or possibly, that housing has become unaffordable for many working class or young Canadians.

I would say to both these arguments that there is no rule that every Canadian should be able to afford a house.

Home ownership rates are lower than 50% in some industrialized G8 countries (Germany for example http://en.wikipedia.org/wiki/List_of_countries_by_home_ownership_rate).

I accept the rephrased argument that Canadian housing is more expensive than it used to be, but it really is our perceptual value that all Canadians should be able to afford that might need to be adjusted. We are a country of immigrants and wealthy immigrants typically have a much easier time entering our country. They can afford housing at these prices. So in my mind, the future pricing of personal real estate and the valuations will largely be dictated by those new Canadians. This might mean housing is unaffordable to more residents, but that could become a new norm.


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## andrewf (Mar 1, 2010)

How about rental yields being very low? It's currently like buying the stock market at a P/E of 30-35...


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## Sampson (Apr 3, 2009)

Haven't rental rates shot up recently in Toronto? I recall ready a news article to that effect just a few days ago. Your point about rental yields is well taken, but I have no idea what the yields on personal RE investments in other countries are. Could be that people are losing money all over the World, but they simply don't care?

I personally think it could go either way.

Rent is not unaffordable in any city in Canada. There is room to go up, and this would help sustain higher cost of the housing. Or, maybe all this 'outside' money really isn't as limitless as it seems. One thing for certain, I believe the housing market is as unpredictable as the stock market. I'm pretty happy to have money in both. 

Whether or not general housing for the general Canadian public is affordable or not, I know I can afford my share and my investment income/returns are diversified among many asset classes so a big hit in any of equities, bonds, RE, public pension plan, government pension plans, government benefits, shouldn't affect to drastically. Unless all those things depreciate. Better start looking to buy some fake Gold and some fake Van Gogh's.


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## HaroldCrump (Jun 10, 2009)

There are reports of rental prices in Toronto going up in recent months, but I wouldn't call it "shot up".
More like trickled up.
It might be that rental rates are finally adjusting for the increases in hydro rates, condo management fees, etc.


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## andrewf (Mar 1, 2010)

Price to rents is the main reason why the Economist deems our housing market overvalued, when compared to historical Canadian ratios. While that ratio can revert to the mean by rents rising, realistically it is prices that are more volatile/elastic than rents. More to the point: rents are included in the CPI basket, which is to be held at 2%. For rents to rise much more than 2%, other things have to rise much less than 2%.


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## none (Jan 15, 2013)

Rents are tied to income and house prices are tied to available credit.


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## sags (May 15, 2010)

Young people are less able to afford a home..............at precisely the same time as many baby boomers want to sell. That could affect prices somewhat.

We pay 1000 a month rent for a 3 bedroom townhome. The rent includes gas heat and water/sewer charges and a family membership to a private club (pools, gym)

If I compare to buying a condo townhome...........I would have to pay municipal taxes, condo fees, insurance, and maintenance.............and would be left with about 500 a month towards a mortgage payment.

That wouldn't buy much........even around here......even at today's interest rates.

We would like to buy...............but it will definately cost us more per month to buy a similar unit than to rent it.

Our landlord built these units in the 1960s..........so even at 1000 a month, they are still making money 50 years later.

A landlord with a new unit for rent today..............would be subsidizing rents.


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## Sampson (Apr 3, 2009)

All valid points albeit not strong points (I only imagine you agree, otherwise your posts would be littered with references rather than hypotheses).

Bottom line is changing valuations. There are obvious points why valuations should remain the same (majority of Canadians cannot afford buying - whatever metric you decide to use), and there are arguments why valuations could increase (population growth stems largely from immigration and those people bring money).

Could go either way.


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## GoldStone (Mar 6, 2011)

Barwelle said:


> What is a normal interest rate?





andrewf said:


> 2-3% real?


Why? Why not 1%? Why not 0%?

Here's a speech by Bernanke from a few years ago (before the financial crisis and before QEs):

http://www.federalreserve.gov/boarddocs/speeches/2005/200503102/default.htm

Bernanke talked about "global saving glut": a significant increase in the global supply of savings. Supply of savings goes up --> the price of savings (a.k.a interest rates) goes down.


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## Eclectic12 (Oct 20, 2010)

HaroldCrump said:


> Even during the _peak_ of the US R/E market in 2005 - mid 2007, home prices for single, detached homes in most major cities in the US were far more reasonable than in similarly major Canadian cities...


I'd need more data ... my US counter-parts working in Rockville, Maryland in 2001 were talking about moving for a third to lock in the more recent $200K increase in their home value by moving farther away (i.e. more commute time). If recall correctly, they were saying they were moving in 18 months or less .... 


That's only a couple of years after I paid just over $100K for a house in Waterloo.


Cheers


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## Spudd (Oct 11, 2011)

Sags, where do you live? That's a great rental price.


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## sags (May 15, 2010)

Spudd said:


> Sags, where do you live? That's a great rental price.


London, Ontario..............landlord is Sifton Properties

http://www.sifton.com/


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## Spudd (Oct 11, 2011)

Ah, my childhood home.


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## marina628 (Dec 14, 2010)

I have followed Diana Olick for 2-3 years and one thing I have learned is not to pay attention to her headlines.One week housing is up the next there is a new crisis around the corner.There are pockets of recovery but definitely instability in this market.New Home builders also price high then will include furnishings and sometimes a pool just to make it seem like things are better than they are.I know this from my own negotiations in South Florida ,the buyer would not take $5.00 off the price on his model home or sell it unfurnished as he was painfully aware what a single transaction would do to rest of the inventory he has.Regarding CNBC I prefer to read the comments of the people living in the neighbourhoods and they paint a different picture.Logan Mohtashamin is a very interesting fellow to follow if you are wondering about the US housing markets.


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## uptoolate (Oct 9, 2011)

sags said:


> London, Ontario..............landlord is Sifton Properties
> 
> http://www.sifton.com/


Great city, London and with that kind of rent even more attractive! Good work!


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## Causalien (Apr 4, 2009)

I am here at the frontline. It is not a bubble.


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## jcgd (Oct 30, 2011)

Causalien said:


> I am here at the frontline. It is not a bubble.


Can you give us more details? I'm curious what it is really like from a first person perspective.


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## Causalien (Apr 4, 2009)

jcgd said:


> Can you give us more details? I'm curious what it is really like from a first person perspective.


Investors everywhere saw the same thing. You can buy up houses at a bargain and rent it out for more than the mortgage. 
Any foreclosure unit can be bought up and resold right away at market price. All foreclosure disappeared within the last 6 months. People are not underwater on their houses any more so they are not in a hurry to sell. It's a psychological shift. Current selling price is about 7% more than the actual listing on zillow. (Zillow is a lagging indicator). The only place where prices are still lagging are the suburbs that are too far away from the big cities. People are getting hired, every corporation in the world wants to get into America and heck. Inflation is a big problem.


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## andrewf (Mar 1, 2010)

A market with this low of a rental yield is a bug in search of a windshield. Best case scenario is 20 years of flat home prices and low interest rates until incomes and rents catch up.


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## Causalien (Apr 4, 2009)

andrewf said:


> A market with this low of a rental yield is a bug in search of a windshield. Best case scenario is 20 years of flat home prices and low interest rates until incomes and rents catch up.


Really? Which state is that? I will be sure to go there and gobble up some houses.


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## andrewf (Mar 1, 2010)

I was referring to the Canadian market. And you don't want to buy housing with low rental yields.

From what I've heard, high rental yields can be found in Nevada, Arizona and parts of Florida. High enough for a hedge fund to buy a billion dollars worth of homes.


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