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Home > Housing Bubble again?

Housing Bubble again?

March 7th, 2016 at 12:37 am

Are we in a housing bubble? So here is some quick facts. Our neighbors are about to list their 4/2.5 bath, 2006 sq ft house for $630k. They think it'll go in a bidding war for much higher $650k+, they are probably right. They bought it in 2012 for $420k and have sunk in $50k probably. She said they only put down 5% and most people they knew were putting 5% or less down. So where are these tighter lending standards?

However the house next door to us also bought 7/2015 last year 4bd/2.5ba, 2006 sq ft for $571k. So in 8 months the same size house, same location, same condition has increased in $60k if not $80k more? That means it's increased 10.5% in 8 months. Right now since 2012 my neighbor's house has increase 50% in 4 years if not more with 10.5% coming in less than 8 months. This seems like a lot.

My neighbor is selling to cash out equity and put down 20% on their next house. Yes she said in 2012 they put down 5% and many people they know are putting down 5% or 0%. When apparently it's supposed to have gotten "tougher to qualify for mortgages." So let's assume people are putting 0% to make calculations easier.

At $400k @ 4% = $1910/month mortgage (they pay $2500 PITI we're going to use $600 TI/month), with a DTI 25% = $10k/month income or $120k.

Last year the PITI for $570k $2721 mortgage + $600 TI = $3321 PITI, with a DTI 25% = $13,284 ($160k gross salary).

Now at $630k = $3008 mortgage + $600 TI = $3608 PITI DTI 25% = $14,432/month ($173k gross salary).

If we go on the presumption that it will grow by the end of this year in 8 months 10% the cost of the same house will be $700k = $3342 mortgage + $600 TI = $3942/month PITI, DTI 25% = $15,768/month income ($189k gross income).

So I guess I can see how housing affordability can go from $120k combined income to $189k in 4 years but it seems like an awful lot be able to afford the same home. Incomes I doubt have grown that much. The needed income had to have risen 57.5% in 4 years to stay at the same level of affordability.

Either people are stretching more. Incomes have increased more. Or potentially we are in a bubble, but when will it pop? Or will it never pop and this is the new level of home prices for the area and it might just stay flat for 10 years until incomes catch up?

I think it might level off and not go much higher because I think incomes need to catch up. I believe it might not drop to 2012 prices, it might not drop at all, but it might stay steady until people are able to catch up affordability. Of course this assumes that nothing during this period causes people to lose income.

I'm nervous about buying. I'm also unsure how long to sit out of the housing market because it's nice to stay put and know your housing expenses. My DH is of the opinion that if you are ready to buy then buy. But what is nothing you like comes on? I wonder if we should maybe rent? Rents are not keeping up with home prices but it would mean moving.

What do you think is going to happen?

10 Responses to “Housing Bubble again?”

  1. creditcardfree Says:
    1457314380

    The truth is every area is different. Here housing prices are flat. They are building more new homes then there are buyers for. We lucked out in our last area, as the demand for homes in that area of town was super high, but they were no more new lots for sale. The town was close to starting a new development, but it was at least two years out at the time we moved.

    The only thing I remember about last time we bought was all the extra paperwork. A lot of concern to document any large deposits into accounts.

  2. CB in the City Says:
    1457314844

    The market in Chicago is pretty flat, too. Still a lot of people underwater, especially in the condo market.

  3. MonkeyMama Says:
    1457363070

    Our housing market has been flat for years. But the Bay Area is as crazy as ever.

    Having bought in two insane sellers markets, I will say our strategy was simply to get into a house ASAP. The longer you wait the bigger mortgage you are stuck with. Might even be worth breaking a lease if it saves you tens of thousands of dollars on a house. If you have a good realtor on your side and the timing is right then it will work out. If you don't like anything, don't force it.

  4. MonkeyMama Says:
    1457370307

    P.S. Mortgage loans are still absurd.

  5. LivingAlmostLarge Says:
    1457372150

    What happens if it goes down?

  6. MonkeyMama Says:
    1457379652

    IT's a risk, so just don't take a risk you aren't willing to make. Given your finances and what you have shared I presumed you would buy something well within your means. I'd have clarified that point if you were someone else. If you truly think that housing will go down, then wait.

  7. LivingAlmostLarge Says:
    1457389058

    I hate the idea of buying and being stuck. Nope I refuse to partake in a bidding war. NO way will I love a house that much.

  8. RRR Says:
    1457404118

    I would wait until you have an income so you can qualify for a mortgage. I'm baffles on why you picked such an expensive area after moving specifically to a lower cost area. $630k for a 4/2.5 bath house is very expensive.

  9. LivingAlmostLarge Says:
    1457485759

    because it's still cheaper than where we used to live. Nope I don't need to qualify for a mortgage, i know better than the banks what we can afford. I don't bother listening to them ever. What we'll buy is what we need and we decide is "affordable". Banks always do stupid things.

  10. RRR Says:
    1457490522

    So you will be paying cash for your next house? Is that better than a 15 year mortgage under 3%? I don't recall you having $5-600k in cash so you would be cashing out retirement rather than getting a mortgage. Do tell.

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