Are we in a "housing bubble"? I have been asked by many platforms....

By
Real Estate Agent with Berkshire Hathaway HomeServices 01238708

Lately people have been frequently asking my take on the where housing prices are now. Are we in the “housing bubble”? The question can be phrased in different ways, but the message is the same. Buyers, sellers, economists, media personalities – you name it - are all concerned.

www.endrebarath.com

I can’t help but find it ironic that Realtors’ brains are being picked on this topic because there has been an on-going attempt over the past 20 years by the large tech platforms to eliminate Realtors. We are the “unnecessary cost” in a Real Estate transaction from many of the pundits. Yet, they seek and value our perspective.

www.endrebarath.com

 

I have always closely watched how the Commercial Real Estate market fares particularly in comparison to residential estate. In the past, residential real estate had a short-term herd mentality, often fueled by hype. When everyone was buying, it was a feast; when no one was buying, it was a famine.

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On the other hand, Commercial Real Estate had and continues to have a long-term viewpoint. Despite the pandemic shutdowns, I notice an uptick in Commercial rentals. How is that possible with the hybrid workplace concept? The answer is easy, the days of elbow-to-elbow cubicle life is behind us. The amount of square foot per employee is growing because people are simply not comfortable being in close working proximity any longer.

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Getting back to the question, provided interest rates remain low it is my opinion that the simple economic principal of supply and demand will continue to fuel the Residential Real Estate Market. Add to this, the Pandemic has fueled an exodus from the downtown city lifestyle to wanting more living space both indoor and outdoor (think about how often we have heard that it’s much safer to gather outdoors since the Pandemic began). The lack of new construction of single-family homes only adds to the already hot real estate market and puts stress on the supply chain. More demand plus less supply equals buyers willing to pay more for a single-family home.

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While some pundits point fingers for the lack of inventory on dwindling builder confidence, that is not the case by any means in the greater Los Angeles area; instead, it is thanks to restrictions created by the Building Department and the politics of getting approvals to build new homes. Depending on which part of the greater Los Angeles area in which you are, the approval process could take one to three years. How can that be, when you can go to other states and pull permits within 100 days?

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I predict that as sellers start to list their homes the increased supply will gradually soften the hot real estate market and potentially create a stabilizing factor in home sale prices. I do not believe this would cause prices to decline. On the other hand, I have noticed that many buyers in the entry level market are forced to stay on the side lines because homes are out of their reach; they make a solid offer yet get outbid by anywhere from $50,000 to $100,000. It is extremely discouraging for them. Add to that the now hefty monthly loan payment and it most certainly eliminates a good portion of potential buyers.

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Getting back to the bubble, the good news is that the current rule of thumb is for lenders to verify if a buyer has real income, and then a few days before they release the funds, they again confirm a buyer’s employment. If these standards remain in place, we will not have a real estate bubble. Alternatively, if lenders start loosening the lending rules again, all bets are off. I would see us recreating the real estate nightmare of 2004-2007.

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I have also noticed that international buyers are starting to return to the buying market. Typically they are all cash buyers, hence this will maintain prices and help to prevent a bubble.

 

Wishing you a safe Wishing you a safe and healthy life and I look forward to your comments. If you are looking for a knowledgeable, focused and goal-oriented Realtor in the Beverly Hills area who will help you achieve your Real Estate goals, please reach out to me directly! If you are looking for a pet friendly Beverly Hills Realtor who can handle and sell the most difficult properties that no one else could, please reach out to me directly!! If you are considering buying or selling a home, a luxury home, luxury investment real estate, luxury vacation homes, or luxury beach properties in Southern California, Los Angeles, Century City, Westwood, West Hollywood, Beverly Hills, Marina Del Rey, Venice or Malibu, feel free to contact me at 310.486.1002 ( m) homes@endrebarath.com or visit one of my websites at https://www.endrebarath.com I contribute a portion of my commission to local animal rescue organizations. Endre Barath,Jr. Realtor at Berkshire Hathaway HomeServices California Properties DRE#01238708

 

Comments (35)

Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

Sometimes you have to see the opportunity in the challenge of the moment and this could  be one of those times

Jul 29, 2021 10:32 PM
Patricia Feager, MBA, CRS, GRI,MRP
DFW FINE PROPERTIES - Flower Mound, TX
Selling Homes Changing Lives

Endre Barath, Jr. - your evaluation and analysis is crystal clear. You live in the real world where no economist can compare while trying to predict the future economy with a crystal ball - that type of crystal can shatter in the wind. When it comes to Commercial Real Estate you're an intellectual who is focused and from what I can tell, you're right! 

Jul 29, 2021 11:20 PM
Buzz Mackintosh
Mackintosh REALTORS - Frederick, MD
“Experience, reliable, leadership”

This line hits the nail on the head Endre Barath, Jr. " it is thanks to restrictions created by the Building Department and the politics of getting approvals to build new homes." The unintended consequences of the government regulations and no growth crowd have caused the pent up demand and put the pressure on the resale market due to lack of new home supply.

Jul 30, 2021 04:48 AM
Brenda Mayette
Miranda Real Estate Group, Inc. - Glenville, NY
Getting results w/ knowledge & know-how!

A great summary on an awesome topic!  Yes - this is about supply & demand and within it, the creation of a new level of tolerance re: price is being established across the nation.  And you do hit  on a fantastic sub-topic... A Realtors role!  The right choice can make all the difference as there is rarely a transaction without an issue.  Congrats on the feature! 

Jul 30, 2021 04:53 AM
Ken Jones
Kenneth J. Jones, Inc. - Toms River, NJ

Endre Barath, Jr. Interesting post.

 

However, many major office markets to which you refer are suffering significant vacancy rates.

 

For example, As of June 2021, New Jersey's office vacancy rate is nearly 20%, a 15-year high. And, only about 20% of NYC office workers actually went back to work in their office. And, there's currently no indication this condition is going to improve in the foreseeable future.

 

As for residential, another major contributing factor causing inventory shortages in many markets is the almost totally overlooked issue of major investment firms, such as Blackrock, who are buying up thousands of homes and converting them to rental housing.

 

Not only are they contributing to higher prices, they're also substantially diminishing the population of entry-level buyers who drive upward mobility and potentially creating a permanent underclass who may never be able to buy a home. (Crickets from NAR)

 

Are we in a bubble?

 

Probably not. But, we are in a very serious fiscal situation as a country which will eventually have to end. And, when it does, there's going to be much economic pain that will be borne by a very large percentage of our population.

Jul 30, 2021 05:51 AM
Debb Janes EcoBroker and Bernie Stea JD
ViewHomes of Clark County - Nature As Neighbors - Camas, WA
REALTORS® in Clark County, WA

Great post and comments. I am a bit late to the discussion so nothing new to add other than timely and well-presented.  Congratulations on the feature. D

Jul 30, 2021 06:48 AM
Matt Brady
Finance Of America - Del Mar, CA
One of San Diego's Best Lenders

With rents being so high and the fact we required people to have skin in the game since 2008, there will not be another bubble. The market may cool but because we cannot build enough homes to meet demand, I cannot see another crash.

Jul 30, 2021 08:25 AM
Adam Feinberg
Elegran - Manhattan, NY
NYC Condo, Co-op, and Townhouse specialist

No bubble in NYC- but rather we are in recovery mode. People are coming back to Manhattan. Well priced apartments in prime locations on the island are experiencing bidding wars, while those further from prime locations are finally starting to see a return of demand. We are also starting to see bidding wars in prime downtown neighborhoods in Rentals! The majority of this recovery is coming from those local to NYC (NY, NJ, CT)- with the activity starting to show an increase in national and international buyers.  The trend has of course been a move toward upgrading to a larger apartment and/or an apartment with outdoor space (apartments with balcony, terraces, patios combined account for less than 15% of the total apartments built).  Our firm's DNA is extremely data heavy- naturally considering our management as well as many of our agents came from finance backgrounds. We believe we are going to see an extended bull market in Manhattan for years to come. There are structural reasons for this- at least partially tied to multiple tax and regulatory actions that have occurred since 2016- making Manhattan appear cheap to other major international cities- not to mention forward looking actions as well. There are a lot of unknowns that should be clarified in the next 9-12 months- but overall there are far more positives out there than negatives.

Nationally, there might be pockets of bubbles that have formed- but overall no, I am not seeing any data that convinces me otherwise. I am also the guy that said 2 years prior to the 2008 collapse (and said it would take about 2 years to be fully realized) that we were about to encounter a meltdown that we haven't experienced in our lifetime.  The signs were obvious and didn't require an expert- but too many people were ignoring them. 

Jul 30, 2021 09:40 AM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Hi Endre:

I wholeheartedly agree. No bubble here. There are several issues that are different these days from the Recession- the limited supply, strong buyer demand, and the more stringent mortgage process. I think we will see a shift in the market but more of a gradual one, and perhaps some segments of the market will come to favor buyers but it will take some time.

Jeff

Jul 30, 2021 09:52 AM
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

The most interesting thing I find in your article is that it proves to me real estate is local and we can't even begin to answer the question on a national level. Your take on the last crisis was that in your market it was 2004 to 2007.  It was 2008 to 2012 here.  And I certainly don't foresee another one.

Jul 31, 2021 08:52 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Jeff Masich-Scottsdale AZ Associate Broker,MBA,GRI  always appreciate your support and you make a good point, I suspect as long as we remain a Democratic Free Country we will remain a magnet for the International Buyers and Sellers. Just as an example last week it was revealed that the most expensive home in Pasadena was bought by a Chinese Billionaire. Endre

Jul 31, 2021 09:17 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

James Dray  if we go in the direction of where your 'pet' can get a loan like in the  early 2000's yes!

Jul 31, 2021 09:20 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Grant Schneider  we are on the same page, Endre

Jul 31, 2021 09:22 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Michael Jacobs  yes this would be a stretch for Rocky Dickerson  challenge, now with that said I will do my best to do at least one more for your perusal that fits the challenge today:)Endre

Jul 31, 2021 09:24 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Wayne Martin  loved your comment "fogging the mirror" should not be a loan qualifier:))Endre

Jul 31, 2021 09:26 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Brian England  that is why you are successful and I am just getting by:) Buyers think I am trying to talk them out of a sale when I talk about the challenges of building in the Los Angeles area.

Jul 31, 2021 09:42 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Kat Palmiotti  and if the land  falls within Coastal Commission jurisdiction, then three years is the shortest time:)Endre

Jul 31, 2021 10:04 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Ron and Alexandra Seigel  you are so right many  Mid Level Managers are realizing that people can work remotely just as efficiently hence their jobs could be in jeopardy, hence they want the workers back:)Endre

Jul 31, 2021 10:07 AM
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Andrea Bedard  thank you for your comment and indeed the shortage is 5 million plus and that is a huge shortage, Endre

Jul 31, 2021 10:23 AM
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of the Manchester NH's area Leading Agents

I love your outlook and explanation. Here in NH, the market is booming. I am seeing replocations from all over the country. I feel the same that they key is lending, if rates stay low, the boom continues. If the banks stop loaning or rates go up, we could hit a slow down,

Aug 03, 2021 06:11 AM