Are we on the verge of a housing bubble??

I've heard that the U.S. bubble is about to burst on us through more than one financial advisor source. If they can keep interest rates down, we'll be OK for a while, but I suspect with the deficit, the added burden for Katrina and the war, our economy is about to go to pot. When the rates rise, housing prices will start to drop again. I'm trying to decide if I want to move now before it happens, or just ride out the next wave of lowered prices.

I have some mutual funds in real estate that have done very well this year, but am watching closely and will sell those fast when the market stops to drop.

I don't think it will *BURST* like it did in the early 80s, but I'm sure the prices will ebb. It's a natural economic cycle. They can't forever keep going up and up and up...

I can't help but wonder when it's going to stop as well.

In the Toronto area and suburbs, the contractors continue to build these subdivisions with huge houses taking up pretty much the whole lot, i.e., no lawn or back yard to speak of. I keep asking (and get no answers), who is buying all these places? Surely that many people couldn't have been homeless before and apartment vacancies aren't up, so where were they living? These houses are not cheap either and I'm betting a lot of those folks put minimum dollars down, so if the interest rates go up I'm afraid a lot of them won't be able to meet their mortgage payment and end up losing their house. That happened to our friends in the 80's when the rates went up to 18%. We were one of the lucky ones, we got in at 16%!

I hope in some housing markets the bubble bursts. My sister would like to buy the house in central Virginia that she is renting but has been checking out the housing market and the prices are awful.
There is a really big subdivison building on several hundred acres and they are putting up 1600 homes!!! But now they are building the patio homes aka McMansions. I agree
with Yosemite there are going to be alot of people stuck living in these places that they cannot afford the mrtge payment. I know a few people who own them and they can't afford to furnish them-what are they going to do this winter with the increase of heating these hugh houses.

It's funny you mention "McMansions." If you ever spoke to my BF or I in person, this is one thing that can keep a conversation going for hours!!!

NJ may be home of the toll booth but it is increasingly becoming the home of the McMansion. These boxes basically going up overnight costing a MINIMUM of $600K -- and this is for a "small" home! Mind you, not everyone in NJ is a millionaire (though by housing costs, it is certainly a deduction of thought).

IMO, I believe all these McMansions do is make smaller communities more enticing, therefore more expensive. And also, does anyone notice how cheaply these homes are made. Heating costs for instance, I think it what is going to be a BIG blow to these McMansion owners. What a buyer fails to realize is with escalating fuel costs, it's not going to be cheap or economical for that matter to be WARM this winter!

Furthermore, what about prop taxes? I know property taxes are just a nightmare in NJ...in my hometown, which was by no means a "rich" area, just your normal working middle class area...a "cheap" house is $400K...but property taxes will be a minimum $4K. I am not kidding! It's unreal.

My boyfriend and I would like to buy something, but it's just so ridiculous that we are yet getting into another rental situation till we can sort things out when we want to buy something.

Median incomes in NJ are $37K...median house prices are $330K. Mind you, back in the baby boom era and even in the early 1980s, house prices were about 2x's or 3x's what an annual salary was.

The only places I could afford to live comfortably now are areas that are 2.5 to 3 hours away from where I work. So tack on a car costs, commuting costs, insurance for car (not cheap in NJ either)...so look at added expenses just for that.

OK so you got me to rant LOL. I just don't understand how people can afford to buy anything. I guess if you were like my aunt and bought a house for $150K back in 2000, and can now turn around and sell it for $500K...I guess you're ok! But not everyone is like my aunt and not everyone has that luck...but hey, I know the bubble is going to burst. IMO, I think it's going to be bad.

I would love for property costs to go down here. I was browsing some listings just for fun and these one bedroom houses in tiny lots of OK neighborhood are 600K!!! And they aren't near the beach or anything! It just blows my mind.

But I have no idea if it will actually happen. I'm gonna have to wait until then anyway.

The mortgage companies are out of control! And of course, people are financial idiots thinking only in the here and now. Variable rate, interest only loans, and the like are HORRIBLE financial messes to get into. But people just see the low, low payments at the outset and don't even think that it's going to catch up with them later. It's already catching up with people. There have been record numbers of foreclosures in Colorado, and the analysts say it's because of the bad mortgage options out there.

We have the same housing build out market as what Linda described. Here, I know why. We still have a reasonable price market, so when people move here from California, Texas, and the East Coast where the housing costs are outrageous in comparison, they have to invest the amount they got in profit from their previous homes or pay taxes on it as income. So they get the grandiose homes that natives can't hardley afford (without getting into one of those bad mortgages!).

The California housing market needs to burst! I heard a stat that only something like 15% of Californians can afford to buy the median home. That is seriously messed up!

That wouldn't surprise me. I've heard there are some areas of the coast where the housing costs are getting SO HIGH that the people in the service industry who take care of these rich people can't afford to live in the area at all. And it really is a problem.

I also live in a ridiculous housing market. We sold our first home in December and moved into our current home. We sold the first one for 2.5 times what we paid for 8 years before. Now if you think abut it, that's just crazy. Our current home is a little larger so all profits got rolled in, and with the exorbitant realtor cut, our mortgage is obviously higher than the last house. The thing that always horrifies me about the prices around here is how can anyone just starting out possibly afford a home? You are looking at $250K minimum for a barely passable home. If you do manage to afford the home, your whole paycheck has to go to the mortgage. Something has to give somewhere.

How about a row house in my neighborhood. You know, no yard at all...the median price is something like $1.5 million dollars. The cheapest bungalows in my neighborhood (these are the ones that border former cabrini green and are in bad shape themselves) go for around 400K.

I know it's only remotely related to property ownership, but even the renter's market is out of control arond here. I pay well over $700 a month for my STUDIO. My last place, a 900 square foot 2 bed, one bath apartment with no A/C and no eat-in kitchen was $1260....it's so bad!

That's another interesting phenomena...I live in NJ and the butts of most jersey jokes are Newark and Asbury Park. Actually Asbury is kind of sad because it was such a hey-day kind of place and went down the toilet in the 1960s.

Anyway, now the newest home advertisements are "waterfront condos in Newark." OK I won't even park my CAR in Newark let alone by a waterfront condo which is basically an industrial waste water river called the Passaic. These homes are starting at like $400K.

Then Asbury is becoming this new "renaissance" which is promising but I mean, a few years back you could get a house there for like $90K as a fixer-upper, sink $100K into it but it's still a cruddy neighborhood. I just don't get it ^shrug^

Gentrification at it's finest, my dear.

The housing development that I mentioned in my last post, Cabrini, was one of the worst in the city (I live in Chicago and I'm talking about our failed experiment with public housing high-rises). Now that they've shut down MOST of the buildings, developers think that it's a good idea to build these mutil-million dollar row houses and condos ACROSS THE STREET. Man, I excercise teh utmost caution when I walk near there in broad daylight!

But, (in a wildly general nutshell) it serves to push the poor people out, and bring the rich people in. This lowers crime and allows the city to raise taxes and make more money for itself. On top of all that, businesses are more successful, so you'll probably see a few Starbucks shoot up in Newark soon as well. The upscale chains do fabulously in gentrified neighborhoods.

You bring up such a good point. Rental rates are such that if you're renting within your price range/space needs, there's no way you can save for purchasing a home. Because of the low interest rates and more people buying homes, the rental market has been really good (for renters) in the past few years. However, that's starting to change. Our rent hasn't increased for the last 2 years, but the manager told us that we lucked out because most 2-bedroom apartments are having rent go up by $100 per month. I know I haven't gotten a $100/month raise in salary in one year! That's actually why we had to move to a smaller place. While I could basically afford the rent on our last place when we moved it, the $100+ increases in rent every year made it quickly become unaffordable.

So yeah, when they won't build anything less than $250,000 - how are first time home buyers supposed to get into the market?

Exactly...they say to put no more than 30% of your monthly income towards rent...I'm putting close to 50% of what I earn during the school year towards paying rent and that leaves...not very much to put in savings towards not just a home, but grad school and a new instrument and so many other major purchases that I need to make in my early adulthood! Granted, I'm only working part time during Sept-June, but still. Needless to say, there will be no nice spring break vacations in this girl's college years!

Its funny that you mentioned property taxes. Wisconsin is like the 2nd or 3rd taxed state in the country. You think 4K on a $400k house is alot-come here its a bit more!!
The area that I live in the "Fox Valley" is experiencing tremendous growth and the prices are increasing however not as much as in the Boston area!!
In 1987 we bought our 3 bdroom 1900 sq ft house with 2 car attached and 2 car detached garage on 3 acres from the owner for $85!!! We have made many improvements including the new "workshop" and a complete remodel, lanscaping etc. We would not consider an offer under $250K now. Plus we have 2 additional acres that are on a seperate tax roll that if we ever do move will be sold for a home lot or two. For that parcel I think we bought 5-6 yrs ago we bought 25K it had a house so unlivable we had the local fire dept burn down!! We will hopefully make $$ on that.

Being a renter still, I would love for the housing bubble to burst. Admittedly I live in a fairly low cost of living area but even a small fixer up is out of the question right now.

I think a lot of the problems we are seeing now is that people are buying more house than they can afford. When I look around I see all kinds of people my age and younger buying houses that there is no way they can afford. And what kills me is that these young people are encouraged to by the expensive house instead of a smaller starter home. Then after they buy the home and value goes up they are encouraged again to morgage their house even further to pay off high interest debt. So when the market crashes suddenly they their in even further over their heads. It's just a symptom of our consumer culture I guess.

I'm moving back home with my parents next June in order to save up a down payment for a house. Rent is redicious right now and there is no way I can continue to live on my own and still save for a house. I'm hoping in the next couple of years to be able to afford my small fixer up and once I move in I hope to live their for a long time. Then I don't view a house as an investment, I view it as a place to live...a home and quite frankly anything is better than renting at this point.

What I just don't understand are the financial gurus on TV who talk about rising house values like they're money in your pocket. Ummmm...does it not occur to them that people need a place to live? What good would it do anyone to sell their house at a higher price than than paid for it, when they'd just have to buy another at the same high price or more? Or rent an apartment (if they could find one that didn't cost more than 50% of their income, because they're paying 25% of their income for health insurance, but that's another vent).

Maybe it's good for people who own multiple homes, but I don't know too many people in that income bracket.

I'm just floored by the way housing costs are skyrocketing. Maybe this is why I'm seeing so many more people camped under the highway bridges lately

Yes that is exactly what I'm talking about. Buy as much house as you can cause the value will go up and you can sell it. What? What happened to people buying a home to settle down and live in for a while. Who wants to move every five years? Doesn't make any sense to me. Why encourage people to be in debt there whole lives? That's what this causes...buy a home then sell it and move up to a bigger home then start the process over again. You'd be a lot better off buying home staying put and paying it off then having no house payment I would think.

And I don't know anyone in the have multiple homes income bracket and if I do they're too smart to buying right now with prices the way they are.

TNR1, i think it really depends on why you bought. If you bought to make a quick investment by resale then i'd be worried. But if you bought the place to stay in it then i wouldn't worry as the market may come down and the bubble may burst but eventually the prices will creep back up again and if you are in no hurry to sell out then you can wait for a better price.

If you bought and are renting out the property to pay the mortgage then you'll also be fine so long as you can keep your place rented.

Bingo my dear! My BF's parents are a perfect example...they've got I think less than 10 years left on their mortgage, but his father was put into a "forced retirement" and lives on a fixed income...plus his health hasn't been great so there's another expense...His mother has her own business, is very prosperous but again, she is nearing retirement age too so if any issues arise, guess what? Home equity loans are the way to go for them, which gives them in essence more years on their loan.

They have a huge house, way bigger than any of them need, they don't have grandchildren or any children threatening to move back home and they can make a KILLING on selling their house now at its highest demand.

The problem? Where are they gonna go?

Of course, his mother is a prima donna and doesn't want to have a smaller house (insert rolley-eyes here)...but the idea is even if they were to downsize, they would still be paying a lot of out pocket. Sure, they'd have some money in the bank, but you know...it's just not the ideal of situations ya know?

We started out with a townhouse and it was tight but manageable (interest rates at that time were 16%). When the rates came down it gave us a breather. Just before the mortgage was paid off (had 4 years left) we upsized to a fully detached 1100 sq. ft. house. When we had about 7 yrs. left on that mortgage we upgraded again to a 5 level side split, 2500+ sq. ft. The reason for that was - with the market on houses going up, the large home was our investment.

We have now downsized in preparation for retirement (I have 5 yrs. to go and my husband has about 10 yrs.) and we made good money on each move. Our current mortgage will be paid off in two months!

We started small with the townhouse and worked our way up and did it while we are both at our earning peak.

I feel bad for the young people trying to get ahead out there these days. Our 25 yr. old daughter still lives with us because quite honestly she couldn't afford to live on her own with the rent prices and utilities, car, fuel, etc.

Hi Yosemite

I noticed you live in Ontario. How does university work up there? The reason I ask is because in the States, unless you are making like $100K right off the bat from graduation, and/or have no life till you're about 30, you are already in the hole.

I graduated nearly 8 years ago, I'm still paying off student debt...plus not to mention that I could not STOMACH living with my mother after being away from her for 4 years...PLUS bills that pile up...I have not been able to save really much for a future or down payment. I mean, this has really cut into my fertility years not to mention thinking about retiring in 30 years might be hard because I'll be worrying about a house payment.

It's tough, but I understand where your daughter is coming from. If mom and dad can have me in the house, and I can save money, my life is totally different. Good for her for recognizing that.

You make a good point. University here is about $10,000 per year and you are so right - you get out of university and you are already in huge debt.

We are among the lucky parents who get along wonderfully with our daughter and she with us. In fact she often prefers to spend time with us rather than some of her friends. She pays her own phone, car, insurance, fuel, clothes and toiletries, in other words she pays no rent or food - we don't have a problem with that. She contributes in other ways by helping out, doing my laundry, cooking sometimes, buying special snacks/treats, renting movies, etc. We are just happy to have her with us now since I believe when she and her boyfriend are ready she will be moving to Italy and her dad and I are going to miss her tremendously.

Well again I applaud your daughter for taking you up on your offer and applaud you and your hubby on being good parents.

I did not get along with my mother, plus she charged me to live in her house and would get mad at me if I had friends over. I was like "Hey I'm a rent paying contributor, I get to bring home whoever I want" (well, it was a little R-Rated what I told her LOL). To save our relationship (and my sanity LOL), I moved out.

Yet I know so many young 'uns (only about 5 yrs younger than me!) who are still living at home, saving money, building a future. I've had to learn about the future on my feet. Would I trade it in ? Heck no! But my life would be much different.

I guess I was/am really lucky to have an example like my parents. They moved into a brand new, ~2000 square foot home in 1974. Guess what? Dad owns it outright now - pays $1200/ year in property taxes and that's it. When they did have a mortgage, Mom told me it was $130/month. That was when I was paying $500/month for a 450 square foot apartment. They paid $27,000 for it, and it has to be worth at around $200,000 now - maybe less since it's still in an "unincorporated" area (which has many benefits - like much lower property taxes!).

Of course, now he's getting married and his fiance doesn't feel comfortable living in another woman's home (which I can understand, but it's SUCH a good financial position that he's in!). So he's either going to sell it or rent it out. But regardless, I would bet that they could probably pay off whatever mortgage she has on her house and again own it outright if he does sell it.

Wow, that sounds great...my mother is 51 y/o and is in the process of purchasing her first home. My father has never owned. So I've never been able to have the example set for me. But on the other hand I've had the school of hard knocks education so it's all good as far as I'm concerned.

My BF's parents on the other hand cannot fathom how we can't possibly afford a home/condo/something today. It's tough for young people. His mother of course thinks it's still the 1970s and you can buy something for less than $100k. Um, no. $100K is more like a car LOL.

but seriously, she (BF's mom) bought the house in like 1981 or something for $70K. She could easily turn around and sell it for $600K at a bare MINIMUM (though to speak to her, she could only get $400K for it because the guy down the street sold his in 1997 for that much...yeah in 1997 dollars!!!!!)

It's tough but it's great you've had those examples set for you

I agree with the prior comment about people buying a house much bigger than what they can really afford. Working in auto finance since 1985 people are too trying to buy a more expense auto/truck than they can afford. Then they get upset when we don't approve their loan!!
Its keeping up with the Jones syndrome!!
When we bought our house we had 20% down which included $10,000.00 that we borrowed from our parents. In addition to making the monthly mortgage payment we paid our parents off in 4 yrs. And then 10 yrs later paid off the house.
When we ever sell we never considered our house as an investment its our house and we remodeled it to our needs not a "future buyer".

I think you hit the nail on the proverbial head here, GailC. Basically the issue is this -- have you heard of real estate "flippers," basically it's buying up real estate as soon as its on the market to immediately resell at a profit. SO "flippers" are buying homes and making like $50K to $100K at a bare minimum in some NJ markets. What it does though, is make it more difficult for the current owners to resell when/if they have to in the future because they have bought way over current market value.

The argument is that real estate investors need to make money too. Well my heart just bleeds for them! It makes hard working people like my bf and I at a loss to truly afford somethiing in a place that is livable