Another bubble

January 22, 2013 · 31 comments

house bubble

You know how I keep saying Seattle real estate is crazy right now? Well, an 1,110sqft home (with 800sqft unfinished basement) went on the market yesterday for $275,000. I called my agent to schedule a viewing for this morning. Turns out, I wont be able to see the house. It received 10 offers in about four hours and they aren’t accepting any more. My agent guesstimates the house is going to sell for no less than $350,000 as a result of the competition.

Now obviously the house is under-priced (it’s part of an estate sale). I knew that it was going to sell for above asking. Heck, I even ran the numbers on the property assuming we paid $30,000 above asking. The math looked good. But at $350,000 it’s not so appealing. Buyers in Seattle are like piranas right now. Snapping up anything and everything that comes up on the market.

It doesn’t make any sense to me.

The housing market is up over 15% since last year. I get that interest rates are at all time lows, but a 15% YOY growth is not sustainable. Especially not when interest rates are being artificially kept low by the fed. Interest rates will have to begin creeping up, and when they do, I suspect property values will creep down.

Seattle is in another real estate bubble.

A crappy house shouldn’t receive 15 offers in two days and sell for thousands above market value. You’re suppose to buy low and sell high people, not the other way around.

Inventory in Seattle has never been this low (1.6 months). That tells me we are in a sellers market. When it comes to making the largest financial decision of our lives, we’d like to have a healthy selection to pick from. That’s not the case right now and it sucks.

I’m skeptical that we will be able to buy anything in our target area. If a decent house is listed for a reasonable price, it’s going to get dozens of offers, within a few days, and probably sell for more than it’s worth. I’m not willing to play that game. Our current living situation is flexible; we can move out next week or next year. Once inventory reaches more normal levels (like 4 months), and quantitative easing is a thing of the past, I’ll have a better idea of how much a Seattle house is actually worth.

How’s real estate in your neck of the woods? Anyone else feeling like we are experiencing a mini-bubble?

1 StackingCash

Welcome. To. My. World. IMHO, Las Vegas is experiencing a serious bubble right now. I’ve been saying this all last year and seeing it happen over and over again. Low interest rates and over qualifying borrowers is a GIGANTIC factor in all of this. Banks have the mentality of getting bailed out and borrowers are addicted to credit like crack cocaine.

So how did you talk Girl Ninja out of the house hunt? This post? I think I’m going to need to placate my wife with a new car and a new purse…

2 Mortgage Mutilator @ Mutilate The Mortgage

I’m in Australia… We’ve been in a bible for over a decade now! People are STILL trying to talk up property and saying that surely the market will rise even further it’s mental.

3 Fiona

Don’t bet on the bubble bursting. In New Zealand iit never has and I bet there are similar markets in the USA. We bought 8 years ago at what everyone told us was a bad time and at the top of the bubble – so before credit crunch. Same house now would cost $100,000 more and there is a lot more competition.

Another factor in house price is the number of new properties being built. If they aren’t – and this is a problem in parts on New Zealand AND you live in an area experiencing population growth and wage growth then you may be better staying in the hunt and seeing what comes up. My sister just bought and did so before house was even on the market. Make sure all your contacts know you want to buy. Private sales save heaps on commission and advertising fees.

My big hope is that once all those baby boomers downsize, some housing stock may open up.

BTW – $350,000 is a cheap house in a major New Zealand city.

4 Angela

The Australian housing market has been in a bubble for the past 10yrs. houses near a capital city go for $400k and upwards and houses over 30km away from the city in manufactured suburbs with no work or public transport are $350k upwards. It’s so bad that I don’t ever see myself affording a house.

5 StackingCash

Good points from the Australians! I would have never considered you guys had it not been for the wonderful internet :) I guess it really does make a difference when it comes to location. San Diego, San Francisco, and New York, I’m wondering if Seattle and Las Vegas might make that list…well Seattle I’m sure has but I wonder if Las Vegas will…

6 South County Girl

You have such a level head! I’m wayyy impressed. A lot of time people get sucked into the I want a home NOW that they often set themselves up for failure trying to make it happen…

Kudos to you two!

7 Jennifer

No bubble here, although there never really was. Things in Nebraska are pretty steady-eddy. We haven’t had major ups and we haven’t had major downs.

That said, I lived in Phoenix prior to the bubble bursting and I was in competition for every house I wanted to buy. Sellers would collect offers until X date and then choose, meaning there would be about 20 people trying to buy one house. Or you’d go look at a house listed that day and it would be sold right from under you. Thankfully, when I left Phoenix I sold at the top of the market. Pure luck on my part.

I think you’re smart to hold out. But what will you do if 4 years from now it’s still the same situation? Just curious I’m not challenging your decision at all.

8 TB at BlueCollarWorkman

Yeah dude, as I read what you were saying about Seattle, I thought, “sounds like the bubble we already had in real estate — are these people idiots with no memory?” Man, if you’re gonna flip properties or buy a house to sell later at a higher price, then you shouldn’t do it when prices are high! Buy low, sell high! Don’t buy high!

9 Lutus

Things are down here in Panama City, Florida. I purchased a home in 2007 and met with a realtor yesterday as we are thinking about selling the house. Based on comps and recent sales in the area, a reasonable asking price was 88% of the purchase price in 2007.

Things are on the market for around 150 days on average around here. It is a buyers market for sure.

10 Kacie

So what’s your plan? Are you going to wait it out a little and keep on renting and saving up, or are you still looking?

11 Zach @ The True Generalist

Another thing you might consider is that people like to buy houses in the spring. it being almost February already, you might want to wait until people get that spring cleaning/new years resolutions phase out of their systems and go back into it when the market lulls in the fall.

12 Karie

Bubble here in Toronto, Canada. We bought 8 years ago so good for me in a way but if it bursts, trouble and also we can’t or won’t sell because to get a house we like is about $800,000 – crazy!!

I find it best to do the opposite of what everyone else is doing. If you wait for interests rates to go up, people may sell because they can no longer afford their house. People *think* they can afford it but then they get used to paying a certain amount and then having to pay more hits them hard. Even if you buy when rates are higher but homes are less, it will even out. You may get a good purchase deal and if you are good at making additional payments, it could work out just fine for you guys!

13 Annie

Here in Northern Canada house prices are outrageous. The city I live in has a population of 26,000+ and the average family home (3 bed, 2 bath?) is $442K, Townhouse/condo: $299,800. And they currently consider it a buyer’s market because it has softened somewhat in the past year. I don’t know who is buying homes right now, but I can tell you I will never be able to afford one here. Thank god for awesome landlords, is all I can say. My rental costs are about 1/3 of homeowner costs, so I’m sticking with what I have, although I’m in the minority there, too, as rents are stupid as well. Watching HGTV shows like ‘House Hunters’ just makes me angry these days, unfortunately. Good luck with your search! I’m sure you’ll find something perfect for you and Girl Ninja!

14 Derek

Why doesn’t this make sense Ninja? You said yourself that homes are taking an average of 1.6 months to sell. Thats quite short, which is indicative of buyer’s interest and/or low inventory. That it creates a competitive market seems logical.

I don’t see this as a realestate bubble, but rather as a return of people’s confidence in their jobs and in the housing market. I doubt anyone is now looking at them as a 15% per year investment opportunity. They, like you, have been waiting for the best opportunity to purchase, and ironically, doing so may have generated a less opportune moment.

15 Ninja

My concern is that the housing market is only “affordable” because the government is heavily subsidizing the market. They won’t do that forever, and when they stop it could have a significant impact on prices.

The prices we see today are what they are with govt bailout. I want to know what they will be when that bailout stops.

16 Donnie

The Houston real estate market is the hottest in the country with only 3.7 months of inventory, but I wouldn’t say it is a bubble. It is driven by strong job growth in the region and high incomes.

It sucks for me because my rent has been going up 10-15% per year for the last 3 years, and that will probably only keep accelerating, which makes me want to buy a house, but to find something that I would want to buy, and can afford, it means a long commute.

17 Eric

In Denver certain neighborhoods are super bubbly while others are not. If you are a hipster and want to live amongst your own, you have to pay quite a premium to live in Highland or LoHi, but if you are cool living on the other side of downtown, things are quite reasonable.

Condos are pretty hot right now too, which is a newer trend in the city. Glad I got mine before condos were the new big thing.

18 Johnny @ Our Freaking Budget

I think Derek’s on to something. I think that a lot of fiscally responsible minded folks are finally out of their recession proof bunkers and looking at the pickings. And with the Feds commitment to keeping interest rates low for the foreseeable future, it’s just the boost of steroids, coupled with a significant return to consumer confidence, that’s making the market competitive.

19 Matt

Playing that Game makes buying a house extremely stressful and unattractive. I’d rather invest my money elsewhere than pay an extra $30,000 above what something is worth. I on the other hand am not a big risk taker, and perhaps that is my flaw.

20 bethh

Maybe you should think about other parts of town. I just bought in Portland, and I knew the cap of what I was willing to spend (I did NOT just get approved for $x, instead I said, can I get approved up to $y and my banker said yes. I’m sure I could have borrowed a good bit more), so I entered my price limit in my search engine of choice and checked out a few areas that I hadn’t considered before. My preferred max was 250k and meant I was limited to the outskirts of the city, but I did find something really terrific for 249k. However, I saw my house the day it came on the market and issued a full-price offer that afternoon. The market here is also a bit on the low-inventory side, and in my admittedly limited experience, the good houses got bought right away, while others lingered for quite a while.

As it happens, I landed in a great area but it wouldn’t have been on my list when I first started looking. Also, I think you should think WHY you are buying: is this an investment that you intend to trade out of in a few years, or is it your long-term/forever home? If the former, then this bubble concern matters, but if the latter – just buy what makes sense to you and call it good. It should be easier in the spring when the inventory is up.

I hear the Seattle economy is really doing well, so I don’t think this is a bubble that will burst any time soon. Have you talked to your realtor? Can you really live your lives indefinitely in your rental (is there room for kids if you’re there another 5 years)?

21 BRB

Reading all of your posts makes me very happy and feel very lucky that we bought when we did, last April! We may not have the lowest interest rate, but we got just the type of house and property that we wanted for the price we wanted to stay under.

22 christie

HI: I am new to your site.
I was interested to know that the housing inventory is so low in Seattle. I will have to look it up for the Portland, OR area. I spoke with a local realtor a few months back. First time homes are going quickly as borrowers want to score one of those low rates. “Move UP” home sales are much slower.
Remember, this is January. Traditionally, this is a very slow month. All winter is slower. Many people want to move around the school schedule. There will be a lot of listings coming in May and June.
~ Christie

23 krantcents

Southern California has always been a hot market! One of my realtor friends told me that $500K homes are getting multiple offers and selling above list price. Either the list is low (I doubt it) or it is another bubble!

24 tmr

I feel like Chicago is like that, too. If something is decent and priced appropriately, it still moves quickly.

I bought a condo in the third quarter of 2011, and I did one of the same things you did – I absolutely refused to bid against anyone. If someone else put a bid in, I walked. Sellers were trying left and right to incite bidding wars, and I just refused – I was more willing to wait than to pay more than a place was worth.

It took a little longer than I thought it would, but I ended up in the perfect place – I got very lucky, it hadn’t hit the market yet – I paid below MV, and refinanced this year (my 2012 appraisal was 5% over my purchase price, which in Chicago, is in excess of $20K).

25 Laurie

We’re starting to see hints of a bubble up here too. When we sold our house back in Oct., our house and one other in our neighborhood sold for the highest numbers we’d seen in years. There’s other hints of the economy bubbling up and getting ready to burst again too, if you listen to the underground media at all. They may or may not be right, but it’s a situation we’d best keep our eyes on. Sit tight, Ninja. Wait for the best deal for your specific wants and needs.

26 Ryan

This makes me glad to live in Ohio. When I was in high school I sometimes thought about how awesome it’d be to move closer to a coast or live in a big city, but I wonder if I could ever afford housing there. A $350,000 house in my hometown would be ridiculously nice.

27 Amanda

My concern with your argument is that it is NEVER an opportune time to buy. There will always be arguments for and against buying at any time. You have to make sure that you buy the right house, at the right time for your current situation and keep the long term in mind. I know my current property is just floating (and was well under water within a year of buying it), but it was the right place at the right time, I can make my mortgage payments and I haven’t lost nor gained anything if I’m not selling. If you’re in for the long haul don’t sweat it.

28 StackingCash

Like the stock market! :)

29 Alexa

We bought in Redmond, WA back in March 2012 – got a great deal on what was foreclosure and then was flipped. We also got stupid lucky. Last weekend we were looking at what was for sale in our area and to get a comp to what we have now we’d be looking at another 50k + in addition to the fact that we’d have to go another 5-15 miles farther out.

Best of luck! You guys have a great set up now, wait for the one that works for you, no need to jump in and feed the ridiculousness going on in Seattle.

30 Jenn

Absolutely no bubble here in Michigan (maybe Ann Arbor). The bubble burst in 2008 and hard. I bought my house in 2005 at the height and thought I’d still be OK since I was at the low end of the market. I purchased my 673 sq ft home for $92,000, owe $80,000 and market value is between $50,000-$55,000. Oh, and I no longer live in the house. I married and moved in with my husband, because his house (while not in as great a condition) was significantly larger for us and our combined 3 dogs. He bought his 1100 sq ft home in 2008 at $127,000, we owe $107,000, market value is between $60,000-$70,000. We really wish we had stayed renters, but we have room for our dogs and I wouldn’t trade them for anything.

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