Study: Washington housing market reaches bubble

[Beet]

Real estate broker Redfin calls the Washington area the "bubbliest" housing market in the nation right now, based on several troubling signs.
While housing markets in most cities don't show signs that point to a bubble, several of the hottest housing markets have a selling environment that sends up red flags, Redfin said.
The company points to these signs of a market bubble in the Washington area:
The ratio of prices to incomes is now 26 percent higher now than it was in 2000.
11 percent of homes sold in the Washington market in March were a flip.
71 percent of Redfin deals in the market involved a buyer bidding war.
43 percent of listings are under contract in two weeks or less.
Listing agents in the Washington area are getting discouraged when their listing attracts only two or three offers because they are used to getting 10, Redfin said. And more deals are now being financed with downpayments of just 5 percent or less.
Redfin's list of bubbly housing markets also includes Los angeles, San Diego and San Francisco.

http://www.bizjournals.com/washington/news/2013/04/12/study-washington-housing-market.html

[Benj]

It's not a bubble if it's supported by other fundamentals, namely a roaring local economy and rapid population growth. Of course, sequestration and other austerity measures may chip away at DC's current flourishing, but I would expect home prices in the area to be surging with the rest of the economy. That does not a bubble make. (Compare, say, Las Vegas or Phoenix during the boom, where the only real business in town was construction--obviously unsustainable.)

[DC Al Fine]

It's harder to have a real estate bubble in a government town simply because its so hard to take the floor out from under the city's economy. It's not like an oil town or a Vegas/Phoenix type place.

[Sbane]

Washington didn't see prices fall as much, which contributes to it I suppose.

Why is California considered to be in a bubble right now? Prices have fallen a lot in LA and SD, and while prices haven't fallen as much in the Bay Area, the economy is doing really well and creating a lot of well paid jobs. Using normal price to income ratios and applying them to California, where there is a dearth of usable land, might not be the best move. Housing markets around the world are much more pricier than what income would suggest, if you look at it from an American perspective.

[Torie]

With interest rates at some incredibly low rate like 3% for 30 year fixed mortgages, housing prices vis a vis income levels are quite sustainable. Purchases pencil quite well now as investments - particularly if you can lock in one of these absurd government subsidized in effect loans, with the plan to hold the purchase for along time.

[Sbane]

With interest rates at some incredibly low rate like 3% for 30 year fixed mortgages, housing prices vis a vis income levels are quite sustainable. Purchases pencil quite well now as investments - particularly if you can lock in one of these absurd government subsidized in effect loans, with the plan to hold the purchase for along time.

Do you think California prices are in a bubble? I can't speak for the Redwood City to Santa Clara corridor, where there could be a bubble, but most of the Bay Area is pretty reasonable considering the income and the scarcity of land. You can get single family homes for around 300-350k in the Union City to East San Jose corridor. Same with LA. Desirable areas in west LA might be considered a bubble but the way I see it is that these areas won't see as much appreciation over the next 5-10 years as the places that saw prices drop much more.

[Torie]

Tell me what the pads can be rented for and I will opine Sbane. Take my Silverlake pad. I can rent it now for about $4,500 a month. It's worth maybe 1.2 million. After expenses of say 30% of gross rents, that is a net income of 37.8K, or 3.15% of FMV. If you can get a mortgage at about the same rate, you can see that the pad is not overpriced vis a vis the underlying economics at all. And that is for an expensive home relatively speaking, where in general, your NOI does down as compared to more bread and butter properties.

[Sbane]

In Pleasanton, a house worth $700,000 will get you about $3,000 a month in rent. Which works out to about 3.5% of market value, if you set aside expenses of about 30% of rent. Not sure about Silicon Valley though.

[opebo]

It seems unbelievable to me that anyone can afford 3,000-4,500 in rent.  It is hard to believe anyone with such a vast income as that would be renting.

[DC Al Fine]

It seems unbelievable to me that anyone can afford 3,000-4,500 in rent.  It is hard to believe anyone with such a vast income as that would be renting.

Priorities/Lifestyle. If you could up and move in a year, there's no point in buying a place.

[Sbane]

It seems unbelievable to me that anyone can afford 3,000-4,500 in rent.  It is hard to believe anyone with such a vast income as that would be renting.

Sometimes people just want to test out the area for a while before jumping in and buying a place. Or they are waiting for the market to bottom out, which was certainly the case the last few years. Someone who pays $3,000 in rent either work in jobs paying 6 figures or own their own business.

[opebo]

Someone who pays $3,000 in rent either work in jobs paying 6 figures or own their own business.

So a very tiny minority of the population then, hardly worth talking about.

[Benj]

It seems unbelievable to me that anyone can afford 3,000-4,500 in rent.  It is hard to believe anyone with such a vast income as that would be renting.

In a place with rents that high, purchasing may be out of reach for the renter, at least if they're young. It takes time to build the wealth necessary to make a down payment on the ~$600k apartment that would be renting for ~$3k, especially if you have debt from student loans, etc., even if you're a high-income doctor, lawyer, engineer, etc.

[Torie]

Someone who pays $3,000 in rent either work in jobs paying 6 figures or own their own business.

So a very tiny minority of the population then, hardly worth talking about.

Except in the Hollywood orbit, where it's a whole other world.

[Sbane]

Someone who pays $3,000 in rent either work in jobs paying 6 figures or own their own business.

So a very tiny minority of the population then, hardly worth talking about.

In the Bay Area, they make up about 30% of the population I would say, if not more. In Santa Clara and San Mateo Counties, the median income is about 90k.