Given the current system of how realtors get paid is another bubble inevitable, even if it's many decades in the future?

In most real estate transactions you have 4 parties. It benefits 3 out of 4 of those parties to have a higher sales price (not to mention lenders and closing agents). These prices are then used to come up with future sales prices via CMA's. It just seems to me like this system will always lead to prices rising slowly but surely if all other variables (supply and demand, inflation) stay constant.

It might be relevant to this discussion to know if the way realtors get paid has always been the same. I don't know the answer to that.

fwiw I am a realtor myself

I don’t think realtors are mainly to blame here (though I do hate you guys).
Realtors have had every bit as much incentive, to push up prices during the last 4 years as ever,
and yet have been spectacularly unsuccessful in doing so.

I would blame the fiat money system. When the going is good it inevitably becomes ever easier to borrow money,
which gives people the ability to "afford" ever more expensive houses, pushing up prices.
This comes to an end sooner or later, and deleveraging brings the prices down again.

I wish I had known about this stuff before I signed for an apartment at the very top of the boom.
Ah well, live and learn.

I'm more thinking decades and decades...not something you would notice in only 4 years.

I don't think you can really attribute the price increase to realtors. Mainly the cheaper lending rate, and the shift to a two worker family household.

It's not realtors' fault that people won't spend a few hours researching their largest life purchase. People will pay top dollar simply because they don't have the patience to hunt for a good deal and can't do 6th grade math to understand interest rates.

House costs X per month, buyer has X per month, whoops it's an ARM loan and now payments crush the buyer because they didn't lock in at the historically low rates because they fail 6th grade math.

If realtors continue to act more as speculators than facilitators, then its a pump & dump environment. Not to say that they shouldn't be investors in their own industry, but it can be more bubble inducing.

Make buyers have skin in the game, which includes down payments, regardless of credit rating.

In the first bubbles that come to mind- one of the main reasons they occur is that the public jumps behind an investment and the thought process becomes "this investment can't go down and will sky rocket it up"/ "only an idiot would not put all of his money in this investment". This is unlikely to occur in the 20 years while this bubble is still on people's minds.

Yes they are. Make all the people that created this mess serve time. So far very very very few people have been prosecuted. This ensures that this mess will happen again. This happened not too long ago with the S&L fiasco in the late 80's early 90's (scale and scope smaller but similar). Similar in that very few people went to prison so here we are again. And yes I know there is more to it than just that but it would be a good start.

And +1 to making people have something to lose in all of this whether it is money though a down payment or their freedom through fraud and prison.

I don't see how real estate agents have anything to do with real estate bubbles.

The fault is a people acting irresponsibly. If you believe in paternalism then the lenders who allow people to act irresponsibly are also at fault. Agents and how they get paid have nothing to do with it.

Agents have nothing to do with bubbles.

Yes, but agents have almost nothing to do with it.

The real problem is that you can buy a house with 0 down or absurdly little down. This gives people a free run to speculate - with unlimited upside and almost no downside. Your upside is making 100K in exchange for possibly loosing your hypothetical FICO credit score which is hardly a loss.

It is not people acting irrationally, it never was. It is people acting in their best interest.

When people are forced to put down 20-30%, it's much, much harder for housing prices to crash. Prices just stagnate until demand catches up. This is what is happening in China as developers sit on empty malls and skyscrapers.

I completely forgot that the US is no recourse. So the legislature is also to blame for allowing that.

incorrect assumption. The main reason for skin in the deal is for the party with a financial interest to be able to recoup its cash. Pawn a ?, or any reasonable lender, wants collateral that has a cushion, so in a default the property can be sold. Has nothing to do with a crash, because its not germane to the calculus.

$200k house with 20% upfront equity - 10 to 15% sales cost = cleared asset under default. Anything less creates the quagmire we saw. But recourse must be reintroduced to the market. To not means more kindergarten business people, which creates another implosion.

I disagree that agents dont play a role in the bubble. I am in Canada and there is no doubt in my mind that 90% of this country is in the midst of a catastrophic R/E bubble.

I deal with agents and I cant tell you the number of times I have heard something to the tune of:

"Now is the time to buy as much house as possible because low rates makes it affordable"

Of course you have the herd mentality, and R/E here hasnt corrected in a decade, (R/E does nothing but go up, is another popular buzz term)

I encourage people to pay off their principal balances at 3%, while most scumbag advisors are encouraging HELOCs and the works because cheap rates mean you can buy more lol.

Now I realize rates are going to be low probably forever or until we hit the reset button on the globe, but there is some seriously irresponsible behaviour on all parties involved; buyer, agent, bank.

2.99% for 5 years is why we get condo bubbles. The government keeping the rates artificially low is what is causing this Canadian bubble.

I just sold a condo in the building I just converted and the buyer that bought it is paying less in mortgage / taxes / insurance per month than he would have if he rented the same apartment.

There is a bubble right now for multi plexes in Montreal. Owners have took many of these properties in the last 5 years and converted them into condos.

Now there is a ridiculously small supply of multiplexes in good areas, every good property that comes on the market gets multiple offers and visits, also pushed by low rates.

Agents parading the buyers around aren't the reason why the buyers are out there in the first place.

I agree that property is overpriced in the vast majority of Canada but we will not have a bubble the bursts and results in a sharp decline. Instead we'll have a long period of slow decline and flatness. Prices will take years to correct. Condos might be the exception where we could get a little bubble and a sharper correction.

I believe a prolonged period of flatness would be considered a best case scenario.

I just don't understand how in my parents time coming up they made out so well in RE.

I was born in late 70's and right before that they bought their first house for something like $24K around 73' or so, then sold it only 3-4 years later for just over double.

Then purchased a little too much house in a move (or so they thought) for around $60K and sold it for well over again in a matter of a couple years.

my numbers are slightly off, but from what I remember they doubled their investment in a short few year period on a house with doing no major work to it, then got around 25%+ return in a few short years on another.

My purchase numbers could be slightly off, but apparently they saw returns we will never see again in RE again?

"Yes they are. Make all the people that created this mess serve time."

Does this include all politicians who voted to loosen up lending laws and threatened banks into lending to ppl who weren't qualified in the name of equal opportunity? What about all those stupid consumers who bought houses they should have known they can't afford? Or is ignorance a legit excuse?

"Now is the time to buy as much house as possible because low rates makes it affordable"

It is gross to hear RE agents saying things like this, it is just like a hot dog vender yelling out who he just cooked the dogs and how they are hot and fresh. I mean come on if we want a hot dog we will buy a hot dog, but don't bully us into buying it.

If you buy in an area that experiences extreme growth, you do alright. Or you get lucky. Or you put improvements into the house.

But hell, my grandparents moved to Phoenix in 1974 and got a house for $35K. Their house is worth $205K now, but really that's only 4.9% in one of the fastest growing cities in the country (and their "outskirts" location in 1974 is fairly central now). Keep in mind cost of upkeeping the house, cost of improving it (putting a pool in, fixing it, maintaining it), etc..., and it's not really that good of an "investment". If you hit bubbles, you can seemingly do nothing and make a lot. Same thing with stocks, if you happen to have good timing, you do very well, but over the long haul it evens out.

Same. My parents paid under $30k for their home and their home 38 years later is valued at $550,000-600,000. That is about 8% a year return. The reason for that is the construction was in the middle of nothing. The city was still forming at the time. The vast majority of the value of the home is location. I can buy a house 50% larger and more baller on the outskirts of the city for less. You will not have those kinds of returns again unless you start having small cities growing into major cities which is not very likely to happen.

Is that 8% a year calculated using the buy and sell prices along with the cost of upgrades and the work put into fixing up the house?

8% is pretty good, not as good as the long term avg of the market but still pretty good. Of course if we cherry pick good RE investments we should do the same for stocks and other investments too to give us some comparison. Just saw Apple was returning somewhere around 39% per year for the past 15 years (that was the best out of the 5 large cap stocks I looked up).

This isn't investment advice.

Agents are just salesmen. It's like blaming the car sales guy for the price of cars going up.

Historically, house price appreciation isn't all that high. If you are in the right spot, it can be high. If you're not, things often stagnate for decades. There are plenty of people out there who have made exactly 0 on their house investment in the last 20 years.

There was also a big drive to the burbs at one point, and subsequently a decent drive back to the cities. Depending on which side of the wave you are on, you either gained or lost.

There are two 'big picture' issues that make me wonder about future of RE investments in USA:

-Today, the carrying costs of RE are increasingly high. More and more jurisdictions are relying on property taxes. This isn't 1900 when you bought something, you actually owned it and no one could touch it. Today, in some states and cities, you are slave to taxes. It feels more like renting from the tax man than actually owning. Taxes are much more likely to go up than down, putting downward pressure on RE returns.

-On the other hand, you can travel around EU and Asia and prices of RE are very surprising. Third rate city burbs in E. Europe are more expensive than USA. I've always looked at EU as being ahead of US on the developmental timeline. When I see prices of RE in crap cities of the world, it makes me very bullish on the US.