Is housing on a 'sugar high'?

The strong home price increases of recent months are raising questions about whether a new housing bubble is on the way. But analysts still see problems ahead.

By Teresa at MSN Real Estate Apr 8, 2013 12:40PM

© Dynamic Graphics/JupiterimagesJust a few years ago, no one could have imagined that we’d be writing headlines about rising home prices. The evil "shadow inventory" loomed, and the chance that your underwater home would peek its head above the surface any time soon was slim.

 

But real estate is ever surprising, and just a few years after the real-estate bust and plunging values, home prices are rising again nearly everywhere in the United States. "Home prices are on a tear – thanks to the Fed," The Wall Street Journal wrote in Monday’s editions.

 

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The rising prices mask some of the volatility that still exists in the market. First-time homebuyers have yet to come back to the market in large numbers, partly because they can’t get a mortgage in today’s environment. Many homeowners in hard-hit areas still have homes that are double digits under water. Much of the demand for homes is coming from investors.

 

The WSJ noted "murmurs of concern that the Federal Reserve's campaign to reduce interest rates could be giving the housing market a sugar high."

But the Fed may not be the only culprit. These are the reasons the WSJ lists for rising prices:

  • The number of homes for sale is at a 20-year low. That is partly because few new homes have been built in the past four years. Would-be sellers are still hesitant to sell at prices well below 2006 levels or fear they can’t get a mortgage to buy another home. And investors are scooping up much of what is offered for sale.
  • Demand is rising. Investors are playing a major factor, but rising rents have encouraged more first-time buyers to enter the market.
  • Low mortgage rates have increased purchasing power by one-third. At a 6.1% interest rate, a monthly payment of $1,000 will get you a $165,000 mortgage, The WSJ calculated. At a 3.5% rate, you can borrow $222,000 and still keep your payment around $1,000.

Are we heading for a new bubble? Experts interviewed said no. In fact, things may get worse, and the inventory of homes for sale is likely to rise soon.

"This is not a 2005 market," Rick Sharga, executive vice president of Carrington Mortgage Holdings, said at the real-estate expo in Dallas, as reported by Housing Wire. "A lot of what’s driving home-price increases is lack of available inventory. … Very few markets are anywhere near where we were at the peak."  

 

 
19Comments
Apr 20, 2013 8:54PM
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Every one from lenders to buyers has to understand that we have not gotten out of the mess of 2008. If you are a buyer don't buy a house at an escalated price just because the interest rates are low. Do your homework and find out what the house your are about to sink your life into is worth. Check assessors valuation , be mindful of the location you are buying in. You should not be paying more then 100 dollars a sq ft.
Apr 20, 2013 7:06PM
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Here is the 500lb elephant in the room. At some point the interest rate will have to rise. When this happens, guess what wil happen to housing prices? They will have to drop in order for them to be affordable. So, a house that was purchased at 300k at 3.5 % will have to drop in price when the rates begin to rise. Couple this with a push to drive down salaries and then tell me what is the real state of the housing market?????
Apr 20, 2013 5:21PM
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This is BS.  What I see, and I have a RE license for access to information.  Banks are approving appraisals (and don't tell me they don't work for the banks) for sales/resales, but not for refinances.  I have a property that's a bit difficult to appraise because there are not a lot of 'like-kind' properties.  The current sales for similar ones (within the same radius as my appraisal, but not used) went for between $580K and $650K, one was 3 miles away.  They appraised mine for $440K!  Mines in a more desirable area than one (I know, I grew up in both places) and is almost the exact demographic for the other...in fact, mine had more square footage, much better rents (about 30% better...it's a multi-property) and more acreage.  Even so, I was expecting them to low-ball me considering all their fraud and their double standard about their 'socialized capitalism' they've invented to perpetuate their fraud, but there is no way it should have come in lower than $525K.  Mines a 4-unit, made as apartments.  They comp'd it with 2 units and 3 units that were 1/2 the square footage (and in some case less) that were conversion (ie. some with functional obsolescence, etc. because they took a SF and converted it to make a bastardized rental). 

 

There are 2 playing fields, one for them and one for the rest of us. It's legal for them to commit fraud, break the law, extort, etc. but if we do it, we go to prison or get fined. It's a gross injustice and a double standard.

 

Why aren't Americans outraged? I'm flummoxed by that for sure.

Apr 20, 2013 4:07PM
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I think this is BS.  My house, purchased in 2010 has been going down, down, down in value, even with all the renovations I've made.  It's very discouraging.  I would love to sell it and get out of NJ, but a realtor I consulted would only take a six month listing and I wanted a three month listing.  I'm so sick to death of huge property tax increases, two sewer bills (for the same thing) one from the county and from the township, and everything else being so expensive, that I'm ready to just walk away.  I'm too old to stay put here forever and want to get on with my life.  At this point, I'm considering my options.
Apr 20, 2013 3:43PM
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Just another Obama debacle on cheap money.... he is killing any recovery. 
Apr 20, 2013 10:41AM
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None more apparent than Red China's building boom (1,100 empty cities build to ride the tide of housing inflation)
Apr 20, 2013 10:00AM
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My house was built in 2007 and cost 480,000 it's now almost 6 years later and I can't sell it for 270,000. So where are all these buyer I keep hearing about?
Apr 20, 2013 8:08AM
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I am a home owner and was counting on my home as part of my retirement. I think that they should let the housing market die. Raise interest rates to at least 5.5%. This band aid approach is helping wreck the economy. The only thing that helps the housing market is having the people that buy the houses live in the houses. Having investors buy up the foreclosed homes to flip or rent is not helping and the investors that do this are only hoping they are not the ones left holding the properties when it collapses again. If they are left holding then they pray for plan B, having the taxpayers bail them out. If anybody has any hope of the housing market to stabilize there needs to be 5% unemployment for a few years. The only really big issue this country has is chronic high unemployment.
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For some reason the msmbc documentary about the bubble bursting comes to mind. Former fed chair Greenspan said near the end of the show he commented to the host  " because of human nature, at some point in time we will be having this disscussion again". I think he could be right..

Apr 20, 2013 7:45AM
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As an appraiser I see exactly the same things going on today, (investors buying/flipping) as I saw in '04-'05 at the start of the last bubble.  If you really believe the market has rebounded and happy days are here again I can tell you were multiple flipped house are available at 100-150% profit to the investors, that you can buy as a "rental" at a low interest rate.    Good luck with that one....it will hit the fan again it's just a matter of when.....
Apr 20, 2013 6:14AM
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Housing is changing because of the Fed, you bet, they are screwing up everything in sight in hopes of your distraction from whatever it is that they are doing.   Stop and look and listen to what is going on.  Mayhem and confusion and it all equates to the government and politicians.  They are up to no good again, and you will be blindsided by their next move, this is what can be guaranteed.  The house situation was created by the government and politicians - try and really get any help - you are screwed and the interim time they are blindsiding you with something else - your votes counts for whatever they need because they are not listening  to you.  Transparency is only a word that distracts you, they never will ever do anything that will help you so I say everyone try and become attached to the government in some way in order to get ahead.  They are profiting off of you and your votes, so get in line and let them continue to kick your -ss as long as you vote them in.
Apr 20, 2013 5:34AM
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Investors are sucking up foreclosures and selling them at three times the cost or renting to  people who were  evicted because of these backward mortgages they   should have first shot, and short sales and foreclosed homes as investors are buying homes holding on to them and  creating boarded up cities.

Apr 20, 2013 4:49AM
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The market is driven by investors?

 

I've heard stories about banks selling entire neighborhoods to a single investor. The taxpayers again shot themselves in the foot. The investors hold their cash, the housing market crashes while people lose their jobs, and houses. Historicly low taxes facilitate a transfer of wealth that almost unprecedented. The taxpayers prop up the banks  with bailouts allowing the scam of inflated real estate prices to continue, who then transfer a good part of Mr. and Mrs. America 's wealth to the investor class....... to sell back to Mr. and Mrs. America, that made it all possible to start with. I foresee the same set of circumstances being played over and over, with the investors skimming more profit each time and eventually there isn't anyone left in America who can buy a house. At that point the investors will lobby Congress for 15-20 million immigrants per year to bring money to buy a house.

 

Apr 20, 2013 4:23AM
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A glut of inventory is coming, prices will come down. People who pay high prices are keeping the capitalist profit wheel rolling. Example: In my neighborhood somebody pays 425,000 for a house that's really only worth 225,000, because they want to buy a home, because they can get a loan with 20,000 down. Whatever ,the true value in the older neighborhood, no street lights, next to freeway, house built in 1962 with those building codes, very little or no upgrades. Hello, now that sets the average price with the banks for that area. If I wanted to buy a 200,000 fixer  I cant. There will always be somebody waiting to accept the money that's being given away by a fool. Stop overpaying America!

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