No bubble?

Bacon’s Rebellion: Housing Bubble Watch:
Land developers say that the need to comply with environmental requirements, zoning laws, and delays in putting the necessary infrastructure in place – roads, water, electricity and sewer lines – limits residential lot development and thus the number of area houses being built. They tell us that it can take upwards of three years or more to take a housing project from start to finish.” (For details click here.)

So long as there are more buyers than sellers, (in my un-economist opinion) there is no bubble. Real estate is local. I love watching CNBC every morning, because invariably there will be a housing bubble watch story. Prices are inflated. Lending is risky. Many people are getting in over their heads. But bubble? I just don’t see it in this market, especially when new construction prices are being bumped up in increments of $5 every couple of weeks when properties don’t sell … and then they do! So long as buyers buy …

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  1. Duane Gran August 10, 2005 at 13:37

    I struggle with this, as a homeowner and as a (small time) real estate investor. Housing is fundamentally backed by a durable and scarce commodity, but on the other hand I smell trouble when the appreciation of any good or service outpaces wages for too long. Demand remains high in Central Virginia, which will hold off a downturn, but I sense that a lot of purchasers are people who are getting out of the rental market.

    I don’t have hard evidence, but I see some rental units in town converting to condos for sale. I’ve also noticed several single family homes convert from “for rent” to “for sale” signs. Rent rates are definitely depressed right now and it seems to be a renters market, as opposed to a landlord’s market.

    If a significant number of these new entries into home ownership have ARM loans or less than 5% principle they will be over exposed to market fluctuation. My suspicious is that a housing bubble, if there were to be one, would harm this group the most but people who have 20% or more principle in their homes and don’t need to sell will be fine.

  2. Jim August 10, 2005 at 15:49

    The rental market is certainly impacted by more renters purchasing. There is a great WSJ article about this very situation.

    For consumers, rising home prices and soft rents have made renting a bargain compared to owning in many markets. Some of the best deals can be had by renting from an individual investor. But there are tradeoffs. The landlord may not do as good a job on maintenance, or may show up unannounced to check on the property. Some investors use real-estate agents or property managers to find tenants; others use classified ads and Web listings or hang a sign in the window.

    The increased competition for renters is the latest sign of how investors are putting their stamp on the housing market. During the first four months of 2005, investors accounted for nearly 10% of mortgages taken out to buy homes, according to LoanPerformance, a unit of First American Corp., up from less than 6% in 2001. Many builders have taken steps to limit sales to investors, in part because they fear these units could quickly return to the market if prices soften.

    If you happen to know of any landlords looking to sell, ask them to email me!