As much as we try to analyze all the metrics I think the market sentiment and emotion in residential real estate is a massive driver.
I was coffee with a smart friend the other day giving him insight on the dumb decisions my clients make. I brought up that this year I've had quite a few clients that have lost out on homes in bidding wars and lost their s***. My thoughts being why on earth would one care whatsoever if you lose out in a bidding war? Just buy the next house. My friend's response "you don't understand because you are a numbers guy, you would basically live in anything where you can sleep, make some food, and go to the bathroom, if the numbers make sense. The average person is emotionally driven and the next house won't work because the one they just lost out on smells like their grandmas."
Two years ago, when I bought my pre-sale Era unit for $213,400 (now worth north of $350,000) it was a super difficult sell. The numbers made a lot of sense in terms of rental return, etc., but the people I pointed in the direction of these units weren't biting because of some dumb excuses such as "the one bedrooms in the low 200s face north, we prefer south," even though it was for investment purposes. Now that the numbers don't make sense at all north of $350,000 everyone is piling in. Can't explain that other than market sentiment/emotional purchases. Affordability didn't change in that 24-month period whatsoever. Rents went up but not like the purchase prices.
Edited by MarkoJ, 27 October 2016 - 03:04 PM.