> This hot housing market can't
> go on

Yeah, I saw them building more land off the west coast of the U.S. here, creating more places for houses here in sky high places like San Fran and San Diego. Plus I expect the flood of people coming over the border to stop any day now.

More supply and less demand should push prices back down.

Riiiigt.

We've been saying that ever since we got married in 1956!

I live in the north suburbs of Cincinnati, which has not had much huge inflation in housing. Older split levels in nice areas with pretty good schools are going for $140K to $190K, and upscale new construction [McMansions, 2400 sq.ft., small lots, 3-car garages] go for about $220K to 360K, depending on area. but even here, interest only ads are on radio and TV constantly. The local economy is highly diversified, and not subject to sector declines.

erp, is correct in observing that prices have been going up for quite some time. Prices have been rising for everything for quite a while now. Computers and telephone services being the notable exception.
But what is happening in the housing markets in many parts of the country, here in Anchorage too, is that housing costs have skyrocketed at a pace that far outstrips any level of inflation, gains in pay or any reason that I can see, except for rampant speculation. This can not continue. Here in Alaska, we went through this frenzy in the early 80's. In 86, the price of oil went through the basement floor and the state's revenue and the economy in general went down the toilet. It was ugly. There were many defaults. Lots of folks had to leave the state. It took years to recoup.
Now the national economy, for different underlying reasons, is on a housing bubble as well. Once the interest rates get noticibly higher and they've started to go back up, the ARM's and LIBOR's are not going to look so good and many people are going to discover the outer limits of their financial wherewithal is rapidly shrinking.
It makes me uneasy because I suspect that like the S&L debacle of the 80's, the taxpayer (you & me) will wind up shouldering the burden. Then we of the limited government philosophical camp find out who's for real and who's not.

Sorry, Stephen, was my previous post not kosher for some reason? Apologies...

I expect better. Three years ago you made a prediction which, given Will's post, you were way off on. Now you renew your prediction. Whoopie.

Of course, those of us who actually work for our wealth (instead of whining when one of our inherited investment instruments expires, like Steve) are less likely to offer dubiously informed psuedo-advice to the unwitting. Speaking of unwitting, to Dick McEnroe I confess that I live in a week-by-week boarding house and eat raviolios six nights a week (so you can skip your usual idiocy and try making a point).

Here in RI (and New England in general) they had a huge deflation in the late 80s early 90s due to state Credit Unions failing. The drops in values scared the shit out of many. I was astonished when we moved from Northern Michigan to RI. Housing is so expensive here in comparison. What we sold in MI for 50 goes for 150-250 now. Our house has more than doubled in 7 years. Taxes are killers in New England. Our taxes went up %25 this year. I for one cannot wait to get the hell outta dodge. Our property in Florida is calling and I am hearing the call loud and clear.

Sorry to burst your bubble bolivar, but Florida real estate is already at astronomical levels and going up minute by minute taking our real estate and school taxes right along with it.

Our small (1,700 sq ft) house w/pool and two car garage in a town you never heard of between Daytona and St Augustine which we built for about one hundred thousand 15 years ago, we can sell immediately (buyers are waiting, as the real estate agents tell us) for upwards of half a million.

We'd sell in a heart beat, but where would we go? We can't take the cold weather anymore, so the south it is. We have friends who moved to a rural part of Florida near the Georgia border in the panhandle and their property went up by a factor of five in just three years. Granted it was dirt cheap when they bought it, but a five hundred percent increase!!!

If anyone has a tip on an area guaranteed to stay small and undeveloped for at least the next 20 years or so in the southern United States, please share it with us.

Erp, I'm originally from Enterprise, Alabama, and property there is still dirt cheap.

Of course, you're a long drive away from literally everything, but since you asked...

Thanks for the tip. Maybe we'll drive over there and check it out. Do you think a couple of retired geezers originally from NYC would be welcomed as neighbors in Enterprise?

erp,

There's always South TX - Corpus Christi and the areas nearby.

But a small town by the sea I would recommend is Rockport. Small enough, but growing in certain areas. Nice houses, and best of all, it's about 45 minutes from Corpus Christi, if you want to avoid city life at all costs.

I don't think the price of real estate has increased exponentially here. Our little house (3b-2b-2c), which we got for 100 grand and on a bankruptcy sale, increased only by 30 grand in value.

This place will remain small for a long, long time.

Enterprise has a lot of retired military folks, so you certainly wouldn't be the only "old Yankees" around. I don't think that'd be much of an issue there (it's is right next to Fort Rucker, a very large Army base).

Frankly, I'd gargle Draino before I lived in Enterprise again, but that has a lot to do with having grown up there...

Thanks Newton.

In Florida where we live, everyone is from somewhere else. What concerns me about small, possibly insular communities like Enterprise or Rockport is that everyone in town goes back generations and they don't welcome newcomers especially ones with New York accents.

I do like the idea of a large town or city within a reasonable drive for those rare times when we get nostalgic for city noises.

Sorry to burst your bubble bolivar, but Florida real estate is already at astronomical levels and going up minute by minute taking our real estate and school taxes right along with it.

Florida real estate is undergoing astronomical growth that is unsustainable at pace, but it's not at "astronomical levels." And with no state income tax, FL is still a bargain in many respects.

Individuals that move from other areas of the country, particularly the NE and out west, can still buy a heck of a lot of house with all that capital from real estate markets with much higher avg values.

In addition, Florida's double digit employment and population growth make the real estate market likely to level off or slow down in growth, but not "burst" in any appreciable way.

As for pining for a place "guaranteed to stay small and undeveloped for at least the next 20 years," my advice is to look for an area of the US with crappy infrastructure, education and dim economic prospects. Poor weather, too. Somewhere in the backwoods of the rust belt (like Alabama mentioned above) might do ya.

With almost everything available via air courier and satellite tv, it's not untenable.

And I hate to take a shot at ya Steve, but as far as your prediction 3 years ago ... well, considering the fortunes made in the last three years while you've been pissing around with bonds, I wouldn't exactly be bragging about it.

Plus, wise real estate investors will transition over to rental property, which will yield higher rents in a down buying market with higher interest rates. Flippers and primary homeowners caught out with large adjustable debt could/will suffer, but otherwise ...

Georgia is the leading state for Interest Only loans!
http://msnbc.msn.com/id/8034214/
I would have to say no money down, buying in a market that is 3 deviations over the trendline, and building no equity sounds absolutely irresistable! Too bad if things go south it will be all our tax money that goes to bail out the Fannie/Freddie backed mortgage monster!

Boy, is my face red!

My husband is a CPA and after he retired as a college administrator, he started a post-retirement practice here in Florida. I'm the IT person and manage the office, but in my other life, I dabbled in mathematics and also did some writing and editing.

We bought our first home 50 years ago and since then we bought and sold almost a dozen homes in New York, Connecticut, Vermont and Florida. Between us, we thought we were pretty good numbers people and savvy real estate investors, yet somehow we have totally misread the dynamics of what's happening right here in front of our noses. How embarrassing. Thanks for the heads up Bill, we'll rethink our options now.

BTW - The word "astronomical" was used as a literary device and not meant to be taken at face value. If you Google it, you'll find there are many other literary devices like irony, alliteration, sarcasm, etc. Many writers find these devices useful in getting their points across.

Ah, Newton. If you have been to the beaches in the Florida Panhandle, you would NEVER buy a place in the Panhandle of Texas.

The beaches in the Florida Pandhandle are sugar white and clean. Beaches on the Texas coast are brown and smell like oil. That is why property is cheap there.

The sugar beaches of the Florida Pandhandle have just recently been discovered, because the rest of the coast of Florida has already been exploited. Time is running out to get a decent (not good) deal on beach front property in Florida.

I am not a real estate broker, just an Alabama person who goes to the coast, frequently.

You Yanks, complaining away. You don't know about expensive property. Try finding anything in southern England for under $300,000

Now, unlike most people, I think high property prices *can* sustain. If the US wishes to curb it, raise interest rates - that has started to work in the UK, but it takes about 12 months to bite. In the Eurozone, some countries housing markets are at inflation rises of 1-2pc, and others are spiralling at 20pc a year. Of course, raising interest rates would have side effects: stronger dollar (so less foreign types will buy up half of Florida - ie Brits) and possibly more unemployment (so less people willing to buy houses).

Between us, we thought we were pretty good numbers people and savvy real estate investors, yet somehow we have totally misread the dynamics of what's happening right here in front of our noses. How embarrassing. Thanks for the heads up Bill, we'll rethink our options now.

Methinks someone is being a smart-ass. I don't care if you used to bang the guy on those "no-money down real estate investor" infomercials on TV, don't take out your angst for the spanking you may have previously received in the comment section of my site on my otherwise sound advice.

Florida is not comparatively "astronomical" to the rest of the country. Florida is experiencing huge demo growth from higher income regions, a retiring baby boomer demographic, as well as the best employment prospects in the nation. Florida still has low, low taxes. Florida still has growth left to achieve parity.

I'm not the one that dropped the groaner about looking for someplace "guaranteed to stay small and undeveloped for at least the next 20 years."

Try the deep swamplands of Lousiana. Maybe the middle of the Mojave.

Try Mars.

Pat -

SW Florida is still comparatively unexploited compared to other sections, though it's in it's 11th hour. Experiencing HUGE growth.

And Monjo points to another demo sustaining FL (even overinflated Miami) - foreigners. Think about the fact that the price per square foot in London is TWICE what it is in New York! Yikes.

AND after 4 hurricanes, FLA is still short housing stock.

AND they just increased their minimum wage.

I have to agree with Pat and Bill. FL panhandle between P'cola and FWB was virtually unknown until just a few years ago. Now? Unbelievable growth and prices to match. Beaches and weather are great, though. It's going fast.

If you're looking for somewhere cheap in the south, you might look at Arkansas. My parents retired there from California several years ago. Theirs is a new house, well over 2000 sq ft, 2 acres, near Bull Shoals. It's worth about 225 now, but they bought it at 170. Will's right about lack of infrastructure, but that is changing. Since they moved up there, the population is growing fast, mostly with retired military and the like from CA, MI, and IL. My folks travel a lot now, and they catch planes in Little Rock or Memphis - Memphis has nonstop to JFK for Europe. But hurry, it's not getting any cheaper. As for the Mojave, forget it. It's either Palm Springs, which is still afflordable by CA standards, or you live in a shack in the desert with the scorpions. You might try Barstow CA if you want to live next to 10,000 Marines.

I have someplace "guaranteed to stay small and undeveloped for at least the next 20 years."

Easy. Anywhere near Fort Polk, LA - heh, heh. Yeech.

So, Vodka, are you in the market w/your soon-to-be new additions of baby and The Death Star?

Stephen, Your wonderful home town just turned, again, into a sellers market about three weeks ago. Early, if you consider we just picked up about 8K in new military folk and along with the other 30K not expected to start filtering back until later this year.
Don't see a bust happening any time soon. Your town is fairly safe though. In fact, a small bust already happened and now we are on our way back up.
pete

"...but Florida real estate is already at astronomical levels and going up minute by minute taking our real estate and school taxes right along with it."

And that is precisely why the inflation is being fed -- it produces copious revenue for the bureaucracy.

Last idiot in...as long as someone doesn't have to bear the direct consequences.

"We've been saying that ever since we got married in 1956!"

Until the past few years, the price of housing closly followed the rise in population and general inflation. That's no longer true, not by a long shot.

Funny - I had the first comment on that post three years ago and I said "I am not about to back to living paycheck to paycheck just for the "privilge" of owning a house when it would leave us one appliance breakdown or medical emergency away from poverty."

Guess what? We did just that. Bought last year at some ridiculous price because it's never going to get any better around these parts. The hot housing market has been here for years and shows no sign of abating.

"This hot housing market can't go on."

When Thomas Sowell weighs in on it, I take that as a signal that it has reached the point of being intuitively obvious. It seems to be Mr. Sowell's gift is to point out such things and for this we call him a genius.

Of course it can't continue, unless you are Jesus Christ and can multiply loaves of bread or turn water into wine. Something has to give somewhere, somehow. It's beginning to fly in the face of reason and common sense.

Only half a million for a 1700 square foot house with a pool? Florida sounds like a bargain. Here in Orange County (CA) houses in towns 20-25 miles from the beach (that you've also probably never heard of) $500,000 will buy you an 900 square foot house built in the Eisenhower administration with one bathroom and no AC (no pool either), or a 1200 square foot condominium unit.

And the sad part is that while ARMS and excessive debt could lead to large foreclosures and a short term dip in the housing prices, I don't think the homes are grossly overvalued. High cost of doing business (construction lawsuits, mold claims, workers compensation premiums) and the enviornmentalist/ NIMBY axis has kept home construction from keeping pace with demand for about 10 years now. So as long as the demand for housing here exists, there will never be enough housing stock to keep up.

And there's an opinion piece in the WSJ today about how there's not a bubble.

It isn't a national bubble, tho.

Who knew this would be such an emotional subject. We're not concerned with the housing market as an investment strategy, nor do we care about mortgages or bubbles bursting, we're disgusted because our little corner of paradise is being destroyed by wanton development and we must decide fairly soon whether we want to stay here and put up with the changes or relocate somewhere else where we can continue to live the boring, quiet, peaceful life that we enjoy.

Thanks to all. Your comments have been food for thought, and I wish you all as comfortable a life as we have had, the vagaries of housing market not withstanding.

Erp, if "boring, quiet, and peaceful" is what you're looking for, you'll fit right in in Enterprise. ;-)

Will. Forty years from now, it might look good to you too.

"..But the princple remains the same: This hot housing market can't go on." Yeah, but Stephen, had I taken your advice three years ago and not bought my modest ranch house here in California, I would have missed hitting the double I've got in only 2.5 years! Now I've got my dream house under construction on nearly an acre with the same commute I had before. My friends who were too lazy to figure out how to get a house like mine three years ago, missed out on 200K -- how they gonna make that up with the 401K? Better question -- how they gonna get a house at all?

Wow. I had thought about moving for a while, but I may stay put now. I live in Knoxville, TN, and have a 1,750-ft, 2-story house on a 3/4 acre lot. Paid 118K for it five years ago, and it's probably worth 140-150 now. And there are a lot of places around here in that price range. Half a million in this town will get you a 3K-ft.-plus house with a 3-car garage in a top-20 subdivision. Air quality here sucks, and there is always the threat of somebody going after the uranium at Oak Ridge. But the area is growing and there are the Smokey Mountains, which are just beautiful.

But I agree with Steve and Will. Anyone who takes out an interest-only loan is a moron. Shoot, I have a 30-year mortgage and that probably wasn't all that smart.