I’m Jed Kolko, Trulia’s Chief Economist and expert on the housing market. AMA!

Hi Jed, thanks for the AMA!

Preface to my question:

There seems to be a new trend of investors coming in, buying properties (often offering over the sellers asking price and driving away "real" buyers) and either holding the property, renovating and flipping it, or turning it into a rental property. I've read many stories about this happening, especially in Florida and Southern California.

And the question itself:

What effect do you see this investment trend having in the long term? Are we potentially seeing a new real estate model being established, one where investors are becoming landlords and/or speculators, driving up prices (and forcing home-ownership rates down, in favor of renting) and maybe even turning a property investment into a new type of annuity?

Hi -- This is Daisy Kong from Trulia. I work with Jed. To chime in and help answer this question, here's Jed's 2014 outlook on investors buying up homes.

"Throughout the recession and recovery, investors bought homes and rented them out, sometimes to people who lost another (or the same!) home to foreclosure. In fact, the number of rented single-family homes leapt by 32% during this period. Going into 2014, though, investors are buying fewer single-family homes; loosening credit standards might allow more single-family renters to become owners again; and fewer owners are losing homes to foreclosures to begin with – all of which mean that the single-family rental market should cool."

Here's his full take on what you can likely expect to happen in the housing market in 2014 here: http://www.trulia.com/trends/2013/12/housing-predictions-2014/

Hi Jed,

I live in Southern California where the housing market is absolutely insane and has been for over a decade. I'm worried that due to housing flippers, foreign and domestic investors and low stock the market will never actually "correct" and will be at unaffordable levels for the rest of my life. Do you see any hope for people in this area who aren't flush with cash? Or are my worries legitimate?

Southern California home prices now look about 10-15% overvalued relative to fundamentals. (See our report here: http://www.trulia.com/trends/2014/03/bubble-watch-local-worries-national-calm/). But even when SoCal is not looking bubbly, it's still an expensive place to live.

Housing affordability is always a challenge for California, especially in the big coastal markets. It's hard to build new housing: most of populated California is a strip of land sandwiched between an ocean and mountains, so geography limits the amount of new construction. On top of that, regulations hold back housing construction further. Housing affordability will probably always be a challenge in California unless construction in the big coastal metros increases significantly.

-- Jed

Hey, are you the Jed Kolko who graduated from BHS in 1988?

If so, hello from Nate Teegarden.

Go Barons! Don & Bob's. Twelve Corners. Dr Jones. Junior year in the middle school. You bet! -- Jed

Hi Jed- What do you think will happen over the long term to markets where baby boomers are buying retirement homes?

Hi -- the markets popular with retirees typically also have lots of new construction. The retirement areas that boomers move to should see home-price increases, but if there's also new construction then the extra supply should keep those price increases modest. Thanks for asking -- Jed

How much inventory are banks still holding (aka "shadow market")? How long until it's been absorbed by the market and things settle out?

Hi -- This is Daisy Kong from Trulia. I work with Jed. To chime in and help answer this question -- most of the supposed "shadow inventory" aka – homes in delinquency or foreclosure that will eventually come onto the market – is shrinking. Per the latest findings from Trulia's Housing Barometer, the delinquency+foreclosure rate is 63% back to normal. That's because more foreclosures are being completed and sold. The remaining foreclosure inventory is increasingly concentrated in Florida, New York, and New Jersey, and other judicial-foreclosure states where the foreclosure process can take years. Moreover, fewer homeowners have become seriously delinquent on their mortgages in the first place thanks to rising prices and an improving economy.

do you ever read calculatedrisk? If so what do you think of it?

Hi, this is Daisy Kong from Trulia. I work with Jed. To chime in -- he sure does! He even write for Calculated Risk sometimes:

http://www.calculatedriskblog.com/2012/05/kolko-dissecting-house-price-indices.html

http://www.calculatedriskblog.com/2013/01/kolko-here-are-missing-construction-jobs.html

http://www.calculatedriskblog.com/2014/03/kolko-where-do-housing-leading.html

Hello Jed, there's a massive condominium boom in Toronto right now (and no, I haven't met Rob Ford), many of my friends have put down mortgages on them while I'm renting for about 800$. I'm 26 years old, have a degree in Biochem, and am doing research at a hospital, trying to get in Law School, do you think I should be saving for ownership, or renting for the foreseeable future?

Thanks for asking. My research focuses on the US market, and the Canadian market is different in lots of ways.

One universal consideration in deciding to rent or buy is how long you'll stay in the place. There are a lot of one-time costs with buying (both when you buy and when you sell). The longer you live in the home, the more years you spread out those one-time costs, in effect. So buying makes more sense the longer you stay put. If you might be moving cities for law school or your first post-grad job, then you might not stay put long enough to make buying worthwhile yet.

Taxes also matter. In the US, deducting mortgage interest and property tax payments lowers the cost of homeownership, but I'm not familiar enough with Canadian tax treatment of housing.

-- Jed

My coworker thinks there's another housing bubble about to burst and insists that waiting to buy a house is the way to go. I told him that the Fed will likely raise the interest rates soon and that he should look in to buying now. Which of us is correct?

Our research shows that home prices still look 5% undervalued nationally (see our recent report on Trulia Trends here: http://www.trulia.com/trends/2014/03/bubble-watch-local-worries-national-calm/). Even though prices have jumped in the last 2 years, they're still in rebound mode after the huge price declines of the housing bust.

Even though I don't think we're in a bubble nationally, homebuying is getting more expensive. Prices are rising around 10% year-over-year, and mortgage rates are rising. So it will probably be more expensive to buy a home a year from now than it is today, but lots of people don't have the downpayment or can't get a mortgage today. -- Jed

What do you think of the northern NJ market - close enough for NYC commute? We're buying right now, but it's very difficult to do.

Hi -- This is Daisy Kong from Trulia. I work with Jed. To chime in and help answer this question, our recommendation is to check out our commute maps to see if the commute is doable. It's all based on the typical commute times on any given day, rather than what's happening right now: http://www.trulia.com/local/new-york-ny/commute

Thanks. Do you think the housing in the range of the commutes is well-priced, though?

Hi -- Daisy again. I think it really depends on what your budget is. What may be well-priced for one person isn't the same for another. So our recommendation is to overlay the commute map with our home price map to see what you can live with everyday commute-wise, and commit to price-wise. Here's the link: http://www.trulia.com/local/new-york-ny/prices

Since you guys do that sort of map, could you incorporate the data from this website? That data may determine property values, percentage appreciation, and rate of recovery from market bottoms. "The rich get richer and the poor get poorer".

Hi -- Daisy again. Thanks for the suggestion!

Is it better to buy or build your home?

Great question, but there's no one right answer.

Building a new home (or buying one that's under construction) lets you customize features yourself, and its often easier to build in certain features (Ethernet wiring, radiant heat, etc.) from the start than tearing up an existing home to add them.

However, new homes are typically more expensive to buy than existing homes. Also, some people prefer older, more established neighborhoods, where new homes are rarer.

Finally, if you're thinking about being your own developer and overseeing the construction of a new home yourself, that could give you lots of control over every feature -- but development could be a full-time job. Only do that if you really love the process.

-- Jed

Taco bell breakfast or McDonalds breakfast? Which is a more sound investment?

What kind of return are you hoping to get from your breakfast?

-- Jed

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When you look over the really long term, housing has tended to be roughly similar to stocks/equities. And housing has never actually been a totally safe investment. Even though the recent housing bubble and bust were severe, there have been lots of localized home-price drops over the decades.

Coming out of this housing crash, the big change is that people now realize housing is not a risk-free investment. Hopefully we'll all remember that home prices sometimes do go down, and it's important to factor in that risk when deciding whether to buy. -- Jed

hello Jed,

can you provide any insight into the bay area's housing prices relative to fundamentals?

thanks

Hi -- This is Daisy Kong from Trulia. I work with Jed. To chime in and help answer your question....our latest Bubble Watch report shows that home prices are above their fundamental value in 19 of the 100 largest metros areas -- and this is includes the three major metros in the SF Bay Area.

• San Jose is overvalued by 8%
• San Francisco is overvalued by 7%
• Oakland is overvalued by 4%

Still, we are far from bubble territory. During the peak of the last bubble, prices were overvalued by over 50%

• San Jose was overvalued by 60% in Q4 2005
• San Francisco was overvalued by 53% in Q4 2005
• Oakland was overvalued by 74% in Q4 2005

hi jed, why is real estate so cheap in rhe us compared to europe?

Some hunches, not based on deep research:

• Europe is much denser than the US, on average. Higher density areas tend to be more expensive. The US has tons of open land, which makes it easier to build new housing and keeps prices lower.

• Widely available 30-year fixed mortgages at low rates and favorable tax treatment also distinguish the US from Europe. Low-rate fixed mortgages and tax treatment both lower the cost of homeownership.

Were there other reasons you were thinking about?

-- Jed

How do you define over or undervalued? What analysis do you use to determine value?

Hi -- This is Daisy Kong from Trulia. I work with Jed. To chime in and help shed some light on our methodology:

"Bubble watching is as much art as it is science because there’s no definitive measure of fundamental value. To try to put numbers on it, we look at the price-to-income ratio, the price-to-rent ratio, and prices relative to their long-term trends using multiple data sources, including the Trulia Price Monitor as a leading indicator of where home prices are heading. We then combine these various measures of fundamental value rather than relying on a single factor, because no one measure is perfect."

But for the full methodology, see here: http://www.trulia.com/trends/2013/05/trulia-bubble-watch/

Hi Jed, where do you get your data on the housing market? Also, what do you think about current state of the Manhattan market?

We gather data from lots of places. On our own site we have a ton of data on prices and rents, and we also use data from Census and other sources on construction, population, and more, in order to understand the housing markets from all angles.

Manhattan prices are sky-high, making Manhattan one of the few places in the country where it's cheaper to rent than to buy a comparable unit. Nearly everywhere else in the country, buying looks cheaper, thanks in large part to mortgage rates that are still very low by historical standards.

-- Jed

I live in the DC area specifically Hyattsville/Riverdale in Maryland. I have an offer on a house and I am banking on the development of the first Wholefoods going in within walking distance of the house I am buying. This will be the first Wholefoods in the county and will bring a good amount of development including 3000 new residents to the community. Is Wholefoods a good indicator of future home prices and is there any evidence to back something like this up?

Hi -- this is Daisy Kong from Trulia. I work with Jed. To chime in and help answer your question...when on-trend businesses like Whole Foods are moving in, it's definitely a sign of an up and coming neighborhood. That said, while there's no sure-fire way to know if a neighborhood will be booming, here are some tips on how to spot an up-and-coming neighborhood: http://www.trulia.com/tips/2014/01/7-signs-of-an-up-and-coming-neighborhood/

How much of recent housing data weakness would you attribute to unseasonably poor weather? Weakness seemed to prevail in the Western region of the U.S. as well, does this undercut the weather-related weakness story?

Hi -- This is Daisy Kong from Trulia. I work with Jed. To chime in and shed some insight -- not much. A study that we did earlier this year looked at this exact question. And actually, bad weather has a minimum effect on poor numbers in home sales and construction starts. Here's the full study: http://www.trulia.com/trends/2014/02/will-winter-weather-wobble-housing/

What do you think of housing prices/trends in portland, or?

Hi -- This is Daisy Kong from Trulia. I work with Jed. To chime in and help answer this question, here's a quick rundown of how home prices are trending in the Portland metro area based our latest Trulia Price Monitor and Trulia Bubble Watch reports.

As of Feb 2014, asking home prices were up 13.8% year-over-year. But compared to their fundamental value (historical prices, incomes, and rents), today's prices are just 3% overvalued. Compared to the height of the bubble, where prices were 45% overvalued, prices are no where near bubble territory.

Hi Jed --- I'm curious about the relationship between home prices and schools. I'm in the market to buy my first home and, with two young kids, schools are a priority. Could you share some advice about the financial investment side of factoring in school quality when purchasing a home.

Thanks!

Hi -- This is Daisy Kong from Trulia. I work with Jed. To chime and help provide some insight. We haven't done any research specifically on how home prices are affected by the quality of a school district, but we did do an interesting study on which school districts are the most attractive i.e., where are families with school aged kids moving towards. It can give you insight on which districts are most popular within a housing market. http://www.trulia.com/trends/2012/08/school-districts-people-flock-to-and-flee-from/

But as factoring school quality when purchasing a home, we do have some tools to help you with your search. Our school maps uses GreatSchools.org data to illustrate where district boundary lines are and how parents rate different schools within a district. You can then overlay it with our home price map (on the same tool) to see how much more prices are running in that district: http://www.trulia.com/local/new-york-ny/schools

Jed, do you have gladiator battles with the top economists from Zillow and Realtytrac? If so, who wins?

Nah. Economists who want to have gladiator battles with other economists probably become professors.

My counterpart chief economists and I are far more similar to each other than we are different. And we're all on the same side of understanding what's really going on in the housing market using data.

-- Jed

Younger people are moving to urban areas in greater numbers. How do you see that affecting housing prices?

Hi -- This is Daisy Kong from Trulia. I work with Jed. Just chiming in to help provide some insight on this question. In Jed's outlook for housing in 2014, he says:

"Urban apartments will be the first stop for many of the young adults who find jobs and move out of their parents’ homes. In short, 2014 should mean more supply and demand for urban apartment rentals, but slowing supply and demand for single-family rentals. Ironically, economic recovery means that the overall homeownership rate will probably decline, as some young adults form their own households as renters. Still, the shift in rental activity from suburban single-family to urban apartments would be yet another sign of housing recovery."

Long story short, young people will become renters before they become homeowners. So the influx of Millennials into urban areas will likely have a bigger affect rents than on home prices.

Here's Jed's full 2014 predictions: http://www.trulia.com/trends/2013/12/housing-predictions-2014/

economically speaking how p/o'd is the housing market about the Facebook occulus buy

Hi -- this is Daisy Kong from Trulia. I work with Jed. To chime in and help answer this question...while we don't have any specific feedback about the effects of Facebook's acquisition of Occulus, we did do an analysis once of how Facebook's IPO would affect the local SF Bay Area housing market. Think it might be of interest to you. Long story short, there will be winners and losers.

http://www.trulia.com/trends/2012/05/facebooks-ipo-and-housing-prices-be-careful-what-you-wish-for/