U.S. Housing Bubble Popped? Are We Next?

According to Bill Fleckenstein’s “The housing bubble has popped” article, the U.S. real estate bubble has finally popped. He gives many funny, I mean sad, stories about people stuck with homes they paid too much for, like one man in Stuary, Florida:

Concerned about his real-estate investment apparently going sour, he can’t afford to reduce the price to what homes now sell for in his neighborhood — which is about $100,000 less than he’s asking. Says the salesman: “If I got in a jam, I would have to drop the price, but I am not at that point.” His game plan: Rent the house, so as not to “lose my shirt.”

That’s the mentality often seen in manic markets — the belief that you can’t possibly lose, and, when the price goes against you, you don’t have to deal with it, because it will come back. This fellow (and millions more like him) is going to find out that his belief is a mistaken one, in the same way that folks did when the stock bubble burst.

Fleckenstein says the market is no longer leveling off, but is sliding downward:

We’re seeing signs of sales slowing and inventory accumulating, which are all quite classic, even though the timing of when this would begin was not possible to predict in advance.

Closer to home, Vancouver Housing Blog has an article going over some of the Mortgage Math for the new development in the old Woodward’s building (the “W”). First he calculates how much it would cost per month to mortgage a 2 bedroom:

The price range for 2BRs is supposedly 489-795K. Let’s just take the midpoint of these two prices to get a number to work with: $642K. Say you had a downpayment of 10%. You’d be financing $577.8. Take out a 5.25% 5-yr mortgage at ING direct, amortized over 25 years. Monthly nut? $3462.47. Using the 32% of gross monthly income rule, this means you would need an annual income of $129,842.63 to afford the mortgage.

Then comes the shocker, or not-so-shocker if you are like me and have been scanning MLS and noticing that you are completely priced out of everything:

Around half of today’s West Side inhabitants could not afford to buy at the W if they were first-time buyers and had to qualify based on their current incomes.

This can’t go on forever. Gotta love the working on the W‘s website: “The smart money gets in early.”

4 thoughts on “U.S. Housing Bubble Popped? Are We Next?”

  1. I’m looking to get my first house soon so the timing of this bubble couldnt have been better. An earthquake in California would send prices tumbling as people tend to flee and avoid disaster areas. Thats kind of twisted, but still who wants to buy a home in nebraska?

  2. I would like to share an experience I recently had selling my home in Winnipeg, MB. My house was listed for $159,900…….double what I paid 4 years ago. The agents had one open house and then offers were accepted the following night. There was only one offer and it was well under list. My agent told me I should expect more then my list so when I saw this I was surprised but then he told me not to worry. I could not believe what happened next. Both Agents, (listing agent and selling agent) sat at my kitchen table and phoned the buyer with some bad news. The buyer was told that there was another offer (“A Phantom Bid”) which was a total lie, but who was I to say anything. These young buyers got nervous and offered $200,000 for a 60 year old-800sqft bungalow. WOW I was amazed and shocked……very happy to have made that much money but a feeling of guilt. How can this be legal??????? I watched these agents bamboozle this poor buyer until they were willing to pay way to much for my home…….oh well young, greedy, uneducated buyers seem to rule the market. As for me, I paid off my tiny mortgage and will be buying a brand new house just as soon as the market crashes…….maybe I’ll buy two houses.

  3. South Winnipeg Home
    Price: $220,900
    Beds: 3
    Baths: 2
    Sq. Ft.: 1,810
    $/Sq. Ft.: $122
    Lot Size: 40ft x122ft.
    Age (Years): 10
    Year Built: 1998
    Sales history:
    Date Price Appreciation
    Jun 25, 1999 $230,000 >0%
    Jun 15, 2005 $360,000 >50%
    Apr 12, 2007 $480,000 >110%
    Aug 07, 2007 $560,000 >150%
    Listing history:
    Date Price
    Apr 10, 2008 $295,900
    May 02, 2008 $220,900
    Loss if sold for asking: $259965 or 54.1%
    Comments: Here’s a highlight from the last report. Okay, so this one is in Winnipeg, MB, and it just got a new price cut and now the listing price is lower than its 1999 sales price of $230,000! Considering inflation and such in the last 9 years, $230,000 in 1999 is worth considerably more than $220,900 now. We will see if this happens in the rest of Canada!

  4. JK, where did you get these numbers? According to Statistics Canada, the average home in Winnipeg went up 15% between March 2007 and March 2008, which doesn’t seem to match up with your numbers at all, unless this place is a big time outlier, or there is something you’re not telling us.

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