July 21, 2013

A Cash For Clunkers For Housing

Readers suggested a topic on timing and the housing bubble. “How soon from now will broad awareness of the U.S. echo housing bubble lead to a tipping point where nobody is willing to buy any longer and a large number of recent investors try to cash in at about the same time?”

A reply, “Remember the rapid collapse in sales post-homedebtor tax credit? Less than 90 days.”

One said, “I don’t know about my prognostication skills, especially because prices are always ’sticky’ headed downwards, but it will happen quickly and I do believe it has already started. In its least destructive incarnation, all Housing Bubble 2.0 has done is sucked in the 2nd tier of greater fools and pulled forward future demand. With the Fannie/Freddie trickery and block sales of foreclosures/distressed to the hedgies, it was more like a ‘Cash for Clunkers’ for housing.”

“Hedge funds and every other ‘investor’ in housing don’t want to own houses. They don’t want to be landlords or leasing companies- they want the cash. They want to be liquid and nimble so that they can quickly leap upon the back of the next great thing like a rabid Capuchin Monkey. Well, housing ain’t real liquid and they are going to realize that very quickly. When values fall enough, or sales/rentals under perform enough or some MORE attractive bubble grows fast enough, these indifferent investors are going to slit each others’ throats trying to get out from under these buildings.”

“I think it will start to get more interesting after August, because most people with children have to be settled into a school zone by then. It would also seem that monthly expenses for mothballing/carrying an empty house- in most of the country- might be more expensive during the winter months.”

And finally, “It will be entertaining. I didn’t expect the sucker’s rally to play out this way, but I can see it will lead to a rush to the exits. Downleg 2.0 was baked in the cake though. Buckle up!”

The Beach Reporter. “In the past 12 months, the median price of a home in the six-county region increased $85,000, to $385,000 from $300,000 in June 2012, said DataQuick. The median price has risen enough to match that of April 2008, when prices began dropping. The percentage increase is the largest since DataQuick began tracking the market in 1988. Price gains exceeded 20 percent in all counties, the company said, and the median has now increased from the year-ago level for 15 consecutive months.”

“However, interest rates have spiked and the higher prices have eroded affordability, and just when those factors will put pressure on the market is unclear.”

“The biggest price gain last month came in Los Angeles County, where the median price increased 30.8 percent, to $425,000 from $325,000 a year earlier. Sales fell 3.6 percent, to 7,342 properties from 7,619 a year earlier. San Bernardino County logged the second biggest increase, with the median price up 29.1 percent, to $204,000 from $158,000 a year earlier.”

“Buyers who can find properties remained confident about the housing market, DataQuick said. Last month, they paid $4.7 billion in down payments or cash purchases, down from May’s record $5.5 billion and up from $4.1 billion a year ago.”

“Sales in the $300,000-to-$800,000 range — a category that includes move-up buyers — increased 22.7 percent year over year. Sales of homes costing $500,000 or more rose 35.9 percent, and those more than $800,000 were up 33.6 percent. Meanwhile, sales of homes priced below $200,000 dropped 43.2 percent year over year, and those below $300,000 fell 35 percent.”

“During June, sales of foreclosed properties accounted for a 9.1 percent market share, down from 10.9 percent in May and 24.4 percent a year earlier. June’s share was the lowest since foreclosure took up 7.9 percent of sales in July 2007. It peaked at 56.7 percent in February 2009, in the midst of the Great Recession.”

“Does all this add up to another bubble? Not yet, say most market watchers. ‘It’s not indicative of a speculative bubble, nor is it indicative of a housing market that is fully healed. It will be healed when we have a supply side that meets up with demand,’ said Robert Kleinhenz, chief economist at the Kyser Center for Economic Research in Los Angeles. ‘When we get that more normal supply of houses for sale, the price increase will taper off to single or low double digits — and in all likelihood that’s probably a year away.’”

The Arizona Republic. “Mortgage interest rates have jumped over the past two months from levels that now look like once-in-a-lifetime lows. The spike hasn’t choked off the housing recovery, but it has left plenty of would-be homebuyers, already with a wary eye on rising prices, on edge.”

“‘We almost panicked that prices have gone up so much since November,’ said Riannon Bradshaw, who with her husband, Rob, has been looking for a larger home for their Queen Creek family of five. ‘With interest rates going up, too, it has created a sense of urgency.’”

“Adding to buyers’ frustration: Median Phoenix-area home prices have surged almost 60 percent, to $185,000 from $116,000, since the market hit bottom a few years ago, with relatively few properties available for sale. ‘I’m afraid that if we don’t get out there and find a house within the next few months, we’ll be permanently priced out of our dream home,’ said Bradshaw, who would like to stay near her current neighborhood but purchase a house with roughly 1,000 more square feet. And if the Bradshaws do move, they would give up the lower mortgage rate obtained when they bought their current home in 2010.”

“Carole Turley of Peoria worries that her payments will rise in coming months. She has a home-equity line of credit, with an interest rate tied to the prime rate. Unlike 10-year Treasury yields, the prime hasn’t budged. But Turley is concerned, especially because she has a principal repayment looming in a few years. ‘The rate could go up to 10 percent. It’s very scary,’ said Turley, who is retired. ‘Being on a fixed income, that would make a huge difference.’”

“Wendy Bergsman of Mesa, a retired state government worker, said she would welcome higher interest paid on her bank accounts. Even with Social Security and a pension, she still needs to watch her expenses, and low saving yields don’t help. ‘My parents saw their savings increase, but we’re lucky if ours just stay the same,’ she said. ‘Yields already are (nearly) zero point zero. How much lower can they go?’”

“Sun City West retiree Walter Pack bemoans the drastic slide in yields on bank CDs. One-year CDs, which paid an average of 3.8 percent in July 2007, have shriveled to about 0.2 percent today, according to Bankrate.com. ‘We’ve been hurt,’ Pack said in an e-mail, accusing the Fed of harming savers to prop up banks. ‘The Fed is to blame, definitely.’”

Bits Bucket for July 21, 2013

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