• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

Sacramento Appraisal Blog | Real Estate Appraiser

Real estate appraisals for divorce, estate settlement, loans, property tax appeal, pre-listing and more. We cover Sacramento, Placer and Yolo County. We're professional, courteous and timely.

  • About
  • Appraisals
  • Order
  • Ask Ryan
  • Areas
  • Classes
  • Press
  • Trends
  • Share
  • Contact

thoughts on real estate bubble

An open letter to buyers worried about a housing bubble

December 6, 2017 By Ryan Lundquist 26 Comments

Dear Buyers-
 
There is growing concern about another housing bubble. What will the future hold? Is now a good time to buy or should you wait? Since I’ve been getting so many bubble emails lately, I wanted to offer some perspective and give you some things to think about. I hope this helps.
 
 
Timing the market perfectly: The truth is markets go up and down, and everyone wants to sell at the top and buy at the bottom, but so few actually pull that off. In fact, most of the time when I ask people if they bought on purpose in 2012 at the bottom they say, “Nope, I just got lucky.” This reminds us timing the market isn’t as easy as it sounds.
 
Riding down the market: If the market did crash, which neighborhood do you want to ride down the market in? This is a very relevant question that I heard last year from Mike Gobbi. Remember, the equity in our homes means very little unless we are taking money out or selling.
 
No bubble formula & real estate cycles: There is no formula for how a real estate bubble has to pop. For example, the median price in Sacramento County in 2005 was $392K and we’re about 10% lower than that right now. In short, it doesn’t mean the market will “pop” if we get back up to $392K. The same thing holds true for national metrics like the Case-Shiller index. Others say there is a 7-year cycle in real estate, but let’s remember the market does not have to behave a certain way every seven years. Granted, there is something to be said about a cycle, and it does feel like we are toward the higher end of a cycle, but it’s still a guess to say how much the market might change in the future.
 
 
Spotting bubbles: It seems easy to predict a real estate bubble, but it’s actually not. Freddie Mac has a thoughtful article called “The ‘B’ Word” that might be worth a read. I know, you might be thinking, “It’s so obvious we’re in another housing bubble because of how high prices are.” I get that, and it’s not that I deny prices are inflated because I think they are. But when people talk so definitively about the future of the market, I like to ask two questions: 1) When exactly is the bubble going to pop?; and 2) What is going to cause the pop?; In my mind it’s not enough to simply say the market is going to change in the future because that’s a very soft non-specific prediction. Of course it’s going to change.
 
False prophets: There are countless examples online of people saying the market was going to start declining in 2013, 2014, 2015, 2016, 2017, and now 2018 or 2019. It’s as if the prediction keeps getting pushed back when the market doesn’t pop. That alone ought to give us pause and evoke humility in our ability to predict the future. The irony though is if a person keeps making the same prediction every year, at some point that person could be right.
 
It does feel inflated: One of the reasons why many people feel concerned about the market is because we’ve seen expansive price growth that reminds us of the way the market felt from 2003 to 2007 in many parts of the country. Thankfully we haven’t seen growth like Bitcoin that’s up 1000%+ over the past year, but home prices are still much higher than they used to be. My big concern about the past five years is price growth is due in large part to investor activity, less new construction for a decade, and historically low interest rates – as opposed to the local job market and economy (for Sacramento at least). In short, there is less room to see prices rise without more wage and economic / job growth.
 
Different than 2005: Let’s remember the climate of today’s market is different from what it was in 2005 when unqualified buyers were given loans with adjustable rate mortgages. If you’ve tried to get a loan recently, you know it’s a different ballgame because lenders scrutinize your income and assets.
 
The power of lenders: Part of looking to the future is wondering how creative lenders will get with financing. If values did begin to soften at some point, lenders could easily compensate for that by offering more creative products to help buyers artificially afford higher prices (and therefore keep prices high). Sounds healthy, right? What lenders do is going to make all the difference. 
 

So should you buy right now? Honestly, that’s a personal issue and it would be presumptuous for me to answer for you. But I do have a few questions. Are you comfortable with the mortgage payment? If the market did correct in the future, would you still be okay with the payment? Does it make sense for your lifestyle to move? What do you think of all of the issues above?

Flipper & Appraiser Conversation: Last week I was on the Six Figure Flipper podcast. Here’s an hour-long conversation about flipping homes, choosing comps, and all sorts of things.

Questions: Anything to add to the conversation? What if anything concerns you about this current market? I’d love to hear your take.

If you liked this post, subscribe by email (or RSS). Thanks for being here.

Share:

  • Click to share on Twitter (Opens in new window)
  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)

Filed Under: Market Trends, Resources Tagged With: crash of housing, false predictions, House Appraiser, housing market, inflated values, lenders, market bubble in sacramento, real estate bubble, real estate cycle, sacramento appraisers, Sacramento Home Appraiser, thoughts on real estate bubble

Primary Sidebar

Connect with Ryan

 Facebook Twitter LinkedIn YouTube Pinterest

Subscribe to Weekly Post

* indicates required

Search this site

Blog Categories

  • Appraisal Stuff (401)
  • Bankruptcy (3)
  • Divorce (4)
  • Estate Settlement (6)
  • FHA Appraisal Articles (56)
  • Internet (53)
  • Market Trends (439)
  • Photos from the Field (126)
  • Property Taxes (70)
  • Random Stuff (225)
  • Resources (560)
  • Videos (161)

Blog Archives: 2009 – 2019

Lundquist Appraisal Links

  • Appraisal Order Form
  • Appraisal Website
  • Rancho Cordova Appraiser Website
  • Sacramento Appraisal Blog Sitemap
  • Sacramento Real Estate Appraiser Facebook Page
  • Twitter: Sacramento Appraiser (@SacAppraiser)
  • YouTube: Sacramento Appraiser Channel

Most Recent Posts

  • My real estate mind never shuts off
  • How might rent control affect the housing market?
  • Street names & hot stats with an asterisk
  • Thoughts on PG&E and the housing market
  • That place where shiplap & murder meet
  • Does the market really change every seven years?
  • When sellers care too much about the Zestimate
  • Zillow has officially entered the market
  • Not everything is getting multiple offers
  • When 1,000 square feet doesn’t count

Disclaimer

First off, thank you for being here. Now let's get into the fine print. The material and information contained on this website is the copyrighted property of Ryan Lundquist and Lundquist Appraisal Company. Content on this website may not be reproduced or republished without prior written permission from Ryan Lundquist.

Please see my Sharing Policy on the navigation bar if you are interested in sharing portions of any content on this blog.

The information on this website is meant entirely for educational purposes and is not intended in any way to support an opinion of value for your appraisal needs or any sort of value conclusion for a loan, litigation, tax appeal or any other potential real estate or non-real estate purpose. The material found on this website is meant for casual reading only and is not intended for use in a court of law or any other legal use. Ryan will not appear in court in any capacity based on any information posted here. For more detailed market analysis to be used for an appraisal report or any appraisal-related purpose or valuation consulting, please contact Ryan at 916-595-3735 for more information.

There are no affiliate links on this blog, but there are three advertisements. Please do your homework before doing business with any advertisers as advertisements are not affiliated with this blog in any way. Two ads are located on the sidebar and one is at the bottom of each post. The ads earn a minor amount of revenue and are a simple reward for providing consistent original content to readers. If you think the ads interfere with your blog experience or the integrity of the blog somehow, let me know. I'm always open to feedback. Thank you again for being here.

Copyright © 2019 Sacramento Appraisal Blog