patrick.net

Florida homes are selling at 35% above what they should in comparison to inflation of 2-3% a year since 2008 and the fact your saying you only expect a 10% drop is mind boggling to me

We must be in a bubble again

To me it doesn’t feel like 2008 at all. Prices have gone up but so have rents and building costs.

I was on this site in the run up to 2008. Patrick had a very simple premise, rents and sale prices were out of wack. And he was right.

I don’t see that pattern in 2023. Prices are high but so are rents and so are prices to build new. If anything, we’re about to see a commercial real estate collapse, but I don’t think that will effect residential negatively.

If it’s anything, this is closer to 2007 rather than 2008. The Fed stopped hiking rate in May 2007. Fed fund rate was at 5.25%, which is similar to now. However, NINJA loans were still happening till summer 2007 with as much as 105% financing. Housing inventory was still building up.

Late 2007 to spring 2008, REOs started to hit the market. Inventory was massive in 2008. Housing came to almost a standstill while prices were in freefall.

Now, lack of inventory. No distressed/REOs hitting the market. No NINJA loans with 105% financing. Buyers are well qualified.

Similarity between then and now is that the buy/rent ratio is way out of whack.

pudil says

Prices have gone up but so have rents and building costs.

I just pulled up a random for sale house for $720,000 (actually $719,999). Payment to own after $144,000 down payment is $4,903 per month. The rental value for the house is $3,200 per month.

Broadway_Sam says

fact your saying you only expect a 10% drop is mind boggling to me

I stated at least a drop of 10% in 2024. It may also drop 20% in 2025 allow for wages and income to catch up with housing.

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Here in the SFBay Area and Silicon Valley in particular, here's a difference between 2007/2008 and now:

In 2007/2008 the Welcome Mat was out for H1 folks, mainly tech workers from elite families "back home" (Asia). They comprised a huge cohort of buyers in neighborhoods some here referred to as The Fortress. That, and another cohort of buyers who Venn-Diagram overlapped a lot with the H-1 crowd, Google folks with founders' stocks vesting.

Broadway_Sam says

2023 is showing housing at 40% above 3% inflation rate in some areas and I am wondering if banks shadow inventory or lack of building causing this spike. Either way, a new group of fools are willing to pay 800k for a cottage is hilarious to me seeing how we debated this same on Patrick.net back in 2007-2010.

1. Will the bubble burst?
2. When will the bubble burst?
3. Will we ever see 300k homes again in Mexifornia?

Sam

It's really hard to tell I think the bubble would have popped I'd we were only having 3% inflation year after year. But we have had massive inflation the last two years probably in the range of 20-30%. Same with markets those should have also crashed but are also being held by massive inflation.

In some locations in Florida, nothing is going to burst because there is constant demand of people who escaped NYC, NJ, CT.
"New York's alright until they push you in front of a subway." Fear

They're coming in the tens of thousands every year.

I don't think it's a bubble. I don't think there'll be a crash. Inventory and jobs are everything. IMO, of course.

Actually, I'll add that if inflation were to get bad enough, yeah, that could force a crash but how much inflation would it take? Is it possible?

GNL says

Actually, I'll add that if inflation were to get bad enough, yeah, that could force a crash but how much inflation would it take? Is it possible?

Inflation is on a downward slope already.

RWSGFY says

Inflation is on a downward slope already.

Barely

We wont have a nationwide crash unless the economy goes belly up and homeowners are forced to sell. Inventory is too tight.

RedStar says

RWSGFY says

Inflation is on a downward slope already.

Barely

From 9% to 3.5% is a little more than "barely".

From Fool.com

Price-to-rent ratio of less than 15: It’s cheaper and more affordable to buy versus rent.
Price-to-rent ratio of 16-20: Leans towards renting as a better option over buying.
Price-to-rent ratio of over 21: By renting you are making a much better personal finance choice.

^^^^^^^^^^^^^^^^^^^^^^^

Right now our townhome could sell for around $300,000 and rent for $2,200. We bought it brand new in 2016 for $187,000. Its has annually appreciated about 7% for the last 7 years.

So the price to rent ratio is around 11.5

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From recent Seeking Alpha article:

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@Broadway_Sam

Yes, I think we are likely to see a dramatic deflation in the housing bubble in CA, OR, WA, NY, soon.

Other places which are not so comically overpriced relative to rents are not going to fall as much.

A combination of higher interest rates and Biden's disastrous energy and war policies mean that people just won't have enough money to support current prices.

Prices going down????? -- Nothing a few more millions of illegals can't cure.

Rubicon says

Where is this?

Florida panhandle about 2 miles from beach

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Rubicon says

Hey ad,

“ Right now our townhome could sell for around $300,000 and rent for $2,200.”

Where is this?

Omaha suburb (Papillion) in a nice area:

Like Nebraska is full of ballers that can sling around a $2500 rent every month.. Just where do these investor morons, think people in rural areas come up with high rents? A house like that in fly over America has no business being over $120K period.

Tenpoundbass says

Like Nebraska is full of ballers that can sling around a $2500 rent every month.

Omaha suburbs are not like the rest of Nebraska. In the small rural towns, there are plenty of homes in the $100k price range or even less. Also, Nebraska has very high property taxes, on that $348k home, the monthly property tax will be about $400.

HeadSet says

Tenpoundbass says

Like Nebraska is full of ballers that can sling around a $2500 rent every month.

Omaha suburbs are not like the rest of Nebraska. In the small rural towns, there are plenty of homes in the $100k price range or even less. Also, Nebraska has very high property taxes, on that $348k home, the monthly property tax will be about $400.

That's 1.3%, same as "low" California tax. =))

RWSGFY says

That's 1.3%, same as "low" California tax. =))

Isn't that on "assessed" value? In most places, assessed value if far below asking prices. Omaha has about 2.6% of the assessed value.

RWSGFY says

Inflation is on a downward slope already.

Actually, any inflationary number that they admit to is compounding the previous inflation. If inflation was really improving, you would see a decrease, not an increase in the rate of inflation.

RayAmerica says

Actually, any inflationary number that they admit to is compounding the previous inflation. If inflation was really improving, you would see a decrease, not an increase in the rate of inflation.

Month to month and quarter to quarter needs to be compared now, more so than annual change in inflation. It will take at least 2 years to figure out if inflation will steady between 2% and 3%.

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RayAmerica says

f inflation was really improving, you would see a decrease, not an increase in the rate of inflation.

Where do we see the increase in the rate of inflation?

Eric Holder says

Where do we see the increase in the rate of inflation?

Trend has been downward, but we did just see an uptick in July.

The Consumer Price Index, a closely watched inflation gauge, rose 3.2% in July from a year earlier, up from June’s 3% annual rise and the first time the CPI picked up in more than a year.

Intersestingly
Research from Federal Reserve Bank of San Francisco argues that shelter inflation is poised to fall significantly, reaching 0% in 2024 then turning negative by the second half of the year. Shelter costs made up 90% of inflation in July.

EBGuy says

Intersestingly
Research from Federal Reserve Bank of San Francisco argues that shelter inflation is poised to fall significantly, reaching 0% in 2024 then turning negative by the second half of the year. Shelter costs made up 90% of inflation in July.

I think any down turn is going to be regional. Mainly people leaving. IL seems to have leveled since our exodus. But there's not inventory, BUT people need to work. Builders are adjusting their quotes down now. BUT, overall housing prices are staying the same since inventory isn't increasing because people stopped moving out.

I think east of the Rockies to just east of the Mississippi will be fine. I think some other areas that were hipster and booming or having an exodus might eat some shit over the next two years. I don't think it's going to be national like it was last time where if you owned and needed to sell you took a bath and foreclosed, short sold or came to closing with cash to unload the house.

Fun fact: Snowflake which moved their HQ from San Mateo to Bozeman back in 2021 has recently got into contract to lease a huge chunk of office space in Bay Area.

ad says

Right now our townhome could sell for around $300,000 and rent for $2,200.

(2200 * 12) / 300000 = .088

That's a fine cap rate, and a good deal for the owner.

Let it never be said that I always recommend against buying.

Eric Holder says

Where do we see the increase in the rate of inflation?

Stores, hotels, restaurants, almost everywhere. It's hard to buy a sandwich for less than $10 that used to cost $5.

I know what you meant.

Onvacation says

Eric Holder says

Where do we see the increase in the rate of inflation?

Stores, hotels, restaurants, almost everywhere. It's hard to buy a sandwich for less than $10 that used to cost $5.

Eh, this is feelz, not data.

Rubicon says

As a millennial I don’t remember getting a good sandwich for $5. Was that 30years ago?

20 years ago, you could get a decent grinder (sub, hoagie) for $5.

richwicks says

20 years ago, you could get a decent grinder (sub, hoagie) for $5.

Yep, it was as late as 2008 that Subway started that $5 footlong deal.

HeadSet says

richwicks says

20 years ago, you could get a decent grinder (sub, hoagie) for $5.

Yep, it was as late as 2008 that Subway started that $5 footlong deal.

And Costco hot dog combo is still $1.50 as it was in the 80s. Shall we accept this anekdote as proof that inflation does not exist? Of course not.

RWSGFY says

And Costco hot dog combo is still $1.50 as it was in the 80s.

Well pig lips and assholes aren't very expensive.

RWSGFY says

Onvacation says

Eric Holder says

Where do we see the increase in the rate of inflation?

Stores, hotels, restaurants, almost everywhere. It's hard to buy a sandwich for less than $10 that used to cost $5.

Eh, this is feelz, not data.

Not “feelz” it is real. Hamburger at the arches fast food was less than a dollar not so long ago. Now it is $3.20 for the same shit sandwich. Salaries in the meantime at best have double while the cost of food has more than tripled.