Housing market question

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Could someone give me some insight/advice into my situation? Just keep renting, hoping that the trend reverses? I mean, our rent now is essentially the same as the mortgage on a 500k home.

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No one really knows. And, as 2003-2010 showed, no one can really tell you IF or WHEN there's a bubble and when that bubble will burst.

Back in the early 2000's there were many reasons for the absurd increases in the price of housing. One of the main reasons was the Community Reinvestment Act and mortgage lenders giving loans to anyone with a heartbeat and pulse -- brain activity was optional. These companies would accept completely (and obviously) fraudulent W-2s, 1099's, tax returns, etc. The whole point for mortgage companies (and banks) was to make absurdly high fees and then get the crap mortgages off their books as soon as possible.

Now, it's a little more difficult to do that. Many will say the driving force behind the current market is due to the low interest rates. And, more recently, the inability to build new homes because of the lumber and material prices.

But, I'm sure that other factors are in play.

Is this a bubble? Will prices go down in the short term, i.e., next year? Will prices go down in the long term, i.e., the next 5-10 years?

As mentioned earlier, no one really knows. But, contrary to what everyone thought in the late 90's to the mid-to-late 2000's, housing prices CAN go down -- and go down significantly. Planning for when that will happen is almost impossible as it has really only happened twice in the last 100 years -- during the depression of the 30's and from 2008-2012.

Patience in a housing search is never a bad thing. Buying a house too quickly, or just because is how a lot of people get upside down. I don't know the ins and outs of the Juneau housing market, but I think we will have to see an increase in rates at some point in Q3 or Q4 this year and hopefully some price drops in 2022.

Can you find a house with a lease less than one year? It may give you some more flexibility if you see something you like.

Man so much good advice. I really appreciate it! Finance isnt a strong suit of mine. I wish this spike in the housing market here had launched before I signed my contract. Could have definitely used it to negotiate a higher salary.

The starting salary here for a resident fresh out of residency was 100k higher than anywhere else. But with the insane housing market and high cost of living, we probably end up behind in the end compared to other places.

We have a year lease and will just stick it out with a close eye on the market for a place on the water, which would be a dream come true for a fly fisherman in a place with a 5 month long salmon run!

Housing prices as multiple of income

A tried and true measure of housing prices is viewing as a multiple of income.

If I had better posting skills, I’d copy the first chart in the link. But, when viewing that chart, note three things:

1-in the 70s, 80s, 90s, and early 2000s, housing as a multiple of income ranged between 4-5x
2-current multiple is approaching 2006 market bubble peak
3-current displayed multiple is as of end of Feb 2021 so actual current multiple may be higher

In short, housing prices are unsustainable based on multiple of income and only currently affordable because of low interest rates. As a result, housing prices must come down when interest rates begin to rise unless incomes ratchet up rapidly.

All that said, that’s the trick...if the fed keeps rates low for a while, housing prices will stay elevated regardless of other factors (lumber, work from home, etc).

Awesome chart! Cheers man

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This climb is unsustainable and there will eventually be a cliff we fall off. It may be this fall or it may be 2023 but it’s coming.

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Said a lot of people in California every year for the last 45 years

This is true. I have a friend in the industry who I asked about the same issue as we have been considering downsizing. But I was told is that it is a multi factorial issue but some of the drivers that people don’t consider is that in light of Covid and how hard hit the nursing homes that more older people are deciding not to sell and move into assisted living and nursing homes. So you have a significant portion of the older demographic not turning over their houses like usual. And on the younger side you have a bunch of millennials who after a 10 year delay finally decided to grow up and start buying houses. This coupled with historically low interest rates and historically high lumber prices has led to no inventory.

This is a great breakdown - If inflation is only transitory and/or fed keeps the rates low, this will stay like this for at least two - three years. However, if housing increasing at this same rate in 2-3 years, we will be in a housing bubble because incomes will not be able to meet the cost of living. Biggest thing to look for in 2021 is if the inflation numbers start improving.

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And on the younger side you have a bunch of millennials who after a 10 year delay finally decided to grow up and start buying houses

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