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Warren Buffett: There is No Housing Bubble

Warren Buffett: There is No Housing Bubble

With home prices expected to appreciate by over 5% this year, some are beginning to worry about a new housing bubble forming. Warren Buffet addressed this issue last week in an article by Fortune Magazine. He simply explained:

“I don’t see a nationwide bubble in real estate right now at all.”

Later, when questioned whether real estate and/or mortgaging could present the same challenges for the economy as they did in 2008, Buffet said:

“I don’t think we will have a repeat of that.”

What factors are driving home prices up?

It is easily explained by the theory of supply and demand. There is a lack of housing inventory for sale while demand for that inventory is very strong. According to a recent survey of agents by the National Association of Realtors (NAR), buyer traffic was seen as either “strong” or “very strong” in 44 of the 50 states (the exceptions being: Alaska, Wyoming, North Dakota, West Virginia, Connecticut and Delaware).

Also, in NAR’s latest Pending Home Sales Report, it was revealed that the index was the highest it has been in a year.

What does the future bring?

As prices rise, more families will have increased equity in their homes which will enable them to put their home on the market. As more listings come to market, price increases should slow to more normal levels.

Anand Nallathambi, President & CEO of CoreLogic, recently addressed the issue:

“Home price gains have clearly been a driving force in building positive equity for homeowners. Longer term, we anticipate a better balance of supply and demand in many markets which will help sustain healthy & affordable home values into the future.”

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2 replies
  1. James Somers
    James Somers says:

    “As prices rise, more families will have increased equity in their homes which will enable them to put their home on the market. As more listings come to market, price increases should slow to more normal levels.”

    That quote perhaps explains what happens in much of the country. But it does not explain what is happening here in the San Francisco Bay Area. Here, prices have risen so fast and so high, that many homeowners have outgrown their capital gains exemption. This is one of the factors that keeps them from selling. The other is that prices have risen so dramatically that they would have to spend all their gains, even to downsize.

    In addition, property tax rates in California are calculated at 1% of the sale price. If a homeowner bought at $300,000 15 years ago, their tax would be set at $3000 per year. The next owner might buy that house for $1,500.000 and face a tax bill of $15,000 per year. And if the seller ‘downsizes” to a home that costs $1,200,000, they would pay property taxes of $12,000 per year, an increase of $9,000 per year.

    What do these would-be sellers do? They stay put and age in place.

    • Jill Goodwin
      Jill Goodwin says:

      Prop 60 allows you to downsize and keep your old property taxes once you are over 55. Not an issue at all within county borders, but if you are moving outside of the county, you may have issues.

      As for capital gains: Unless you have refinanced all of the equity out of your home, paying the capital gains should not be an issue. You are still going to walk away with enough to buy almost anywhere else. Remember, you get the first $250k ($500k for a couple) free of capital gains. The average long term capital gains rate is 15% so in the case above (purchased $300k, sells at $1500K) you will pay $105K out of the $1.2 million you made. If you did any remodeling, you can add those expenses to the base value. Think about it, you still made almost $1.1 million on a passive investment in only 15 years. Not too bad!


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