What if housing is undervalued and the market is just playing catch up.

[The Kin]

Quote from gnome:

With construction costs $100/sq ft and finished product $300+ /sq ft.... looks like bubble territory to me.

Have you factored in the cost of land? What about the desirability of the location. You can't exactly add a new subdivison iun the heart of Manhattan.

 

[theTaoTrader]

Quote from The Kin:

I see your reasoning. But there are other factors to consider such as utility from owning your dream home. Also making a mortgage payment is better than making a rental payment since you build equity in the home and will one day be mortgage free.

“utility from owning your dream home” is a good argument that the cash flow model does not measure. The “build equity” part, however, is accounted by the model. The mortgage payment should (i.e. if the rental reflects the fare market price) slightly higher than rental. This difference “builds” homeowner’s equity.

By the way, the rental/mortgage payment ratio is the way you can argue whether there is a housing bubble or not. Housing price went up 20% a year does not automatically tell you a bubble. You see some 30% or 40% mortgage are interest rate only, i.e. they are not building up any equity. Many of the mortgage payments are still more expensive than equivalent rental. That’s how you can tell there is a bubble in that area.

 

[PuffyGums]

Quote from aPismoClam:

at some point earning power will be a countervailing force -- real earning power, after *borrowing power* becomes too expensive.

Dual income couples will devote 50% of their income to RE and sit on a bare floor and eat hot dogs only if they think they can cash out a millionaire. If prices don't rise all the time then suddenly their house will look very expensive.

Bubbles pop when the facts change.

 

[jficquette]

It has slowed down quite a bit here in Carlsbad, Ca. I think all the doom and gloom about the housing bubble is starting to take its toll here in my area.


John

 

[Casey30]

A guy from Cantor Fitz said, on Bloomberg Radio, that he seees 30 years fixed at potentially 5%, if that happens we could probably see another leg or two up in the housing market in the next year or two.

 

[gnome]

Quote from The Kin:

Have you factored in the cost of land? What about the desirability of the location. You can't exactly add a new subdivison iun the heart of Manhattan.

The land? Oh CRAP.... I FORGOT ABOUT THE LAND! NOW I see it. Of course there can't be a bubble.... sheesh, what was I thinking?

 

[peilthetraveler]

Quote from The Kin:

There is no new land being created. New supply is nil while demand for this limited supply of land continues to rise.

Umm, thats not true. The beauru of land management has been selling land every once in a while where i live. This is land that The public was never able to buy because the government owned it. (they own about half the land in the US) So there IS new supply. The government owns about 90% of the land in my county (Im in las vegas which happens to be the hottest market in the USA right now) Coincidence?