Home Prices Continue To Surge Sparking Fears Of Bubble 2.0

Tyler Durden's picture

With each passing day, and each new financial bubble, it becomes more and more difficult to figure out what exactly is "normal."  That said, we can say with near certainty that home prices are not supposed to behave like this:

 

Home prices in markets that bubbled over back in 2006/2007, like Las Vegas and San Francisco, got cut in half in 2009 but have since doubled again of their lows.  Meanwhile, markets like Denver and Dallas that didn't participate as much in the 2007 mania are now surging to all-time highs, with Dallas prices up 55% over the past 5 years.

Even the 20-City Composite Cash-Shiller Index shows that average prices have surged 44% off their lows and are nearly back to their 2007 peak.

 

As the Wall Street Journal points out today, some of the home buying behaviors of consumers, like paying prices well above appraisal values and waiving home inspections, are starting to be eerily reminiscent of 2006.

In some markets, bidding wars are breaking out. Agents said some buyers are kicking in extra cash when properties don’t appraise for the asking price, and some are waiving their right to home inspections.

 

“It can’t be sustained,” said David Berson, chief economist at Nationwide Insurance and a former chief economist at mortgage giant Fannie Mae, referring to the frenzied buying. “It can’t go on forever.”

Per the chart below, homes in a dozen major markets have increased over 50% off their 2012 lows while many have already exceeded their previous bubble peeks.

 

Meanwhile, there are other signs of overexuberance as well including surging levels of licensed Realtors all chasing a quick buck.

The number of licensed Realtors has jumped by nearly 25% since 2012, hitting a nine-year high in 2016 and sitting just 9% below the peak in 2006, according to real-estate consultant John Burns.

 

In Denver, homes are selling briskly. The median number of days that homes spent on the market declined to eight in the first three months of the year from 61 in 2012, according to Redfin. Home prices rose 8.5% in Denver over the year ended in February, according to Case-Shiller.

 

Nicki Thompson, an agent in Denver, said she recently had a listing that was on the market for two weekends at $1.2 million and she received multiple all-cash offers above the listing price.

 

“It’s just crazy,” she said.

 

Martin Mata, a Redfin agent in Denver, said his buyers often will commit to kicking in extra cash if the bank’s appraisal comes in lower than the purchase price. “We’ve got to be coming close to a plateau for prices,” he said.

But perhaps the scariest warning of all comes from the number of economists who were all too eager to reassure the WSJ that all is well.

With little risk of a supply glut in the near future, economists generally expect prices to continue rising quickly in most markets for a couple more years, if the economy keeps expanding.

 

They said it is more likely that overheated markets are headed for a long period of flat or slightly declining home prices, especially if mortgage rates rise or job growth slows, but not an outright crash.

 

The market “is not going to burst, it’s going to contract” with falling sales volume, said Nela Richardson, chief economist at Redfin, a real-estate firm. “You might still see what looks to be a robust market because prices are really strong, but that doesn’t mean it’s a broad market.”

Alas, we're sure the economists are right this time around.

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Jim Sampson's picture

Really surprised... there's a housing shortage here in Vegas.

Schlump's picture

Home Prices Continue To Surge

Problem? No, not for rich people.

"The beauty of me is that I’m very rich." (actual Trump quote)

techpriest's picture

How rich do you have to be to be "rich?"

techpriest's picture

Back on topic - My own place is already up 7% since I bought it according to Zillow, which at this clip I will "gain" 10% this year.

But... based on what? I haven't put that much money in the house, and I haven't seen anything change in the neighborhood. Maybe they figure buying season will be like last summer, where every house in the area was snapped up within 12 hours of going on the market.

I feel really sorry for any neighbors who are choosing to refi and pull out all of the fake equity. Unless they're expecting nukes to fly and kill us all in 6 months, in which case it'd be a smart move.

Your Good Friend's picture

And very unlikely you'd find a buyer at half of what you got in it.

techpriest's picture

The funny thing also, is that rents for a similar house in this area are about 30% more than a 10-year mortgage.

Anyway, we went with the minimum suitable house, and will pay it off 100% in about 8-12 months. During that time I'm going to talk with a good friend of mine who knew how to search housing auctions and pick up houses for $25k back in 2009. If we don't get QE infinity, I'm guessing that in the next 2-3 years those skills will be useful to have.

Houses Depreciate's picture

Incorrect. Rental rates are half the cost of a 10-year mortgage..

 

 

Why buy it when you can rent it for half the monthly cost? By later after prices crater for 70% less.

Stan Smith's picture

As someone who's been in the financial / RE business for a long time,  I can tell you that Zillow is NOT what you should be using to find your numbers.   They're awful.    They are better than they used to be.    But if you want the best numbers, my advise is to check the tax records in your city/country/town.    Most counties of reasonable size have adequate to decent web sites now that have that information.

Zillow's information over the years has led to multiple law suits -- I'd love to be on retainer for those guys.   The idea is they're using data from the tax records -- which I've mentioned on here -- and they do,  but it's often wrong because it's not up to date information.   There are times that's the governments fault.   Lots of times it's Zillows.    They've been caught holding the bag lots of times with this.    And I can also tell you nationwide forget the lawsuits,  they've probably killed thousands of deals because they're putting out dated and inaccurate numbers.  

Again, they are FAR better than the used to be,  only because they've been forced to be.    Realtor.com is okay,  but I'd still used your local government entities tax records site.   It's not perfect, but it's likely the best source of that information

Houses Depreciate's picture

Yet it's unlikely you could find a buyer for even half of what you got in it.

 

Remember my good friend.... You can ask $50,000 for your 10 year old run-down Honda Civic but where is the buyer at that price?

 

 

So it is what housing.

yrad's picture

Bought my Dallas home in lows of 2012z I'm ok with this...

Your Good Friend's picture

You're really ok with losing your ass?

LetThemEatRand's picture

If my PM's don't melt and/or become radioactive, I'm going to clean up in a few years.

VD's picture

unlike housing, which is rigged up by banksters locking debt-slaves into 30yrs of indentured servitude, said banksters are stomping PM's down..... timing is crucial...

EmmittFitzhume's picture

Yes put your Joobux into hard assets because they will continue to devalue to oblivion. They will devalue to 0 before they let the housing market collapse again.  Pretty pathetic but that's what will happen

Houses Depreciate's picture

Hold onto every dollar you can get your hands on my friend. They're increasingly valuable as prices continue to fall.

techpriest's picture

Have some of both, IMO. If you imagine fiat, gold, housing, commodities, stocks, etc. as a series of buckets, the next crisis will see the wealth explode out of some buckets while landing in others. Pick up some "empty" buckets to be in position to catch the wealth whichever way it goes.

Your Good Friend's picture

Just don't be holding depreciating assets like a house.

techpriest's picture

Just curious - what are you holding?

x marx the spot's picture

The market in Los Angeles has already peaked. Forced-sales and deals falling-out-of-escrow are common and news of homes selling-above-asking has all but dropped off. It might be too early to say hunker down, unless you're one of those who likes to hunker down early.

decentralisedscrutinizer's picture

 

Almost all the world’s economic and political problems revolve around the hegemony of a global corporate cartel, which is headquartered in the US because this is where their military force resides. The only way to regain our sovereignty as a constitutional republic is to severely curtail the privileges of any corporation doing business here. As a free nation, we really have to stop granting corporate charters to just any “suit” that comes along without fulfilling a defined social value in return. The "Divine Right Of Kings” should not apply to fictitious entities just because they are “Too Big To Fail”. We can't take the incorporation of private transnational banks for granted anymore. The government must be held responsible only to the electorate, not fictitious entities, if we are ever to restore sanity, much less prosperity, to the world.

 

 

 

It was a loophole in our Constitution that allowed corporate charters to be so easily obtained it created a swamp of corruption around our capital. It is a swamp that can't be drained at this point because the Constitution  doesn’t provide a drain. This 28th amendment is intended to install that drain so Congress can pull the plug ASAP. As a matter of political practicality, because they defend each other with battalions of corporate lawyers, and because said corporations virtually constitute a global empire, we can't outlaw corporations through the States’ amendment process but must rely on the Article 5 Convention for which the electorate will need to prepare for consensus beforehand. Seriously; an Article 5 Constitutional Convention could solve that problem in days. This is what I think it will take to save the world; and nobody gets hurt:

 

 

 

28th Amendment

 

Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to:

 

1, prohibitions against any corporation;

 

a, owning another corporation,

 

b, becoming economically indispensable or monopolistic, or

 

c, otherwise distorting the general economy;

 

2, prohibitions against any form of interference in the affairs of;

 

a, government,

 

b, education, or

 

c, news media, and

 

3, provisions for;

 

a, the auditing of standardized, current, and transparent account books, and

 

b, the establishment of a state and municipal-owned banking system

 

c, civil and criminal penalties to be suffered by corporate executives for violation of the terms of a corporate charter.

 

 

 

Think about it: The Founders had to fight a bloody Revolutionary War to win our right to incorporate as a nation – the USA. But then, out of legislative inexperience, our Founders granted unrestricted corporate charters, (with enough potential capital & power to compete with the several States, smaller sovereign nations, and eventually buy out the Federal government itself) to thieves and con men. Ooooops! Now they all got together and want to buy the whole shrinking Planet, coalition armies and all! How whacky is that?!

    

RSDallas's picture

The market will continue to explode if Trump gets his tax breaks. This is when you best sell and head for the hills. By the way, prices are up,100% or better in the D to F rated properties in Dallas. I have been in this market for a long time and I have never seen anything like this! The question is , What happens after the Trump expansion (if it happens)? Answer: We will experience the Mother of all Crashes if this happens.

Elguapo's picture

The next crash was are ready baked in he care from the start of the bailout. The smart peep will have been totaly out the housing marking and cleaning thier credit ansd will save thier tax breaks for the POP.

Houses Depreciate's picture

Considering housing demand is at 20 year lows and falling, it's a long way down for prices in order for housing to "explode"

schrock's picture

With interest rates this low it is not a bubble. A mortgage 10 years ago on a 330k house would have been 1700 a month. Now 420k would be the equivalent. We have another 3 or 4 years before we get to the bubble point and that isn't taking into consideration higher wages. This is coming from someone who is currently renting and paying more a month than what it would cost to buy the equivalent.

schrock's picture

Go ahead thumb me down. I hate this centrally planned economy with every ounce of my living being, but there is no housing or stock market bubble. The central planners will do anything to keep prices from falling. I would bet my nut sack that the NSA along with the PPT have a pipe funneling ones and zero's directly into the veins of the exchangess and any time there is the slightest hint of a major down turn they let loose.

schrock's picture

I wonder how many people logged in just to thumb me down lol. Let me break it down for those who are a little slow:

  • 2007 Purchase for 340K @ 6.375% = $1,697 a month
  • 2017 Purchase for 450K @ 3.852% = $1,688 a month

As you can see we have at least another couple of years before the top is reached.

Houses Depreciate's picture

I wish you were right. But prices  are falling.

 

Why catch a falling knife and lose your ass?

Professorlocknload's picture

The house the Fed built. The reset started in RE and Equities this time. Likely, it keeps going until wages catch up. > 50% dollar devaluation by the time it's over,,,,if they can hold it together that long.

Houses Depreciate's picture

LOL.

 

Do you really believe wages will magically triple or quadruple to meet grossly inflated housing prices?

 

Of course you don't my friend.

 

Housing prices will continued falling to dramatically lower and more affordable levels, meeting wages and accelerating the economy like only falling prices can and do.

Elguapo's picture

Yup, I think that's calledl price discovery.

schrock's picture

The fed is avoiding price discovery through low interst rate polices.

Elguapo's picture

Here we go again. They are hyping housing again just before the crash. The pentup supply is almost done and will be on the market with in the next 2 years and to top it all of is that intrest rates are little by little going back up, maybe to a nice 6% or more. Can any one say "POP" or how the bankers say "SUCKERS".

schrock's picture

Interest rates are not going to go up. Trump is on his knees sucking Yellins fat one.

Your Good Friend's picture

The wheels are coming off housing irrespective of rates.

schrock's picture

I wish you were right, believe me I do. But monthly payments are cheaper now than they were 10 years ago, by quite a bit. That is all the sheep care about. If interst rates go back to something normal then the wheels will fall off. But intrest rates will not be allowed to go any higher. A line has been drawn in the sand.

Houses Depreciate's picture

Yet rental rates are half the monthly cost.

 

Why buy it when you can run it for half? Buy later after prices creator for 70% less.

 

schrock's picture

Where I live rental rates are not cheaper than owning. In fact renting is quite a bit more expensive. Houses that are renting for $1500 a month can be mortgaged for atound $1100 a month. It is the oposite of what it should be. The market has been completely distorted. This could go on for years.

Houses Depreciate's picture

I wish you were right but the reality is rental rates are half the cost of owning. Falling prices can go on for years.

Singelguy's picture

Interest rates will rise when confidence is lost in the US dollar and most certainly when the pension system collapses.

Elguapo's picture

don't know I just heard the opposite

Herdee's picture

Just put the price of Lumber up, see what happens, it only adds a thousand onto the cost of a house - bullshit.

Your Good Friend's picture

11% down is 14% up? Ok Downzup.

schrock's picture

Quote from your link "Boulder home values have gone up 9.9% over the past year". The chart spreadsheet shows +14%.

Houses Depreciate's picture

Yet prices fell 11%yoy.

 

Your point Schlock?