March 30, 2014

Why There Is No Housing Bubble

A reader suggested a topic on why there is no housing bubble. “HA says he can build a complete house for $55/SF, including land, permits, financing, construction costs and profit. If that was true, all these out of work builders would be building millions of houses and selling them, solving the housing cost problem. The average home in the Sacramento market is selling at about $175/SF. Even if you could find a land parcel for $75,000 (which is difficult) and built a 1500 SF house, the land portion alone equals $50/SF before you build the improvements. It is simply not true.”

A reply, “It is not very difficult to figure out that a house is made up of sticks, drywall, electric wiring, insulation, plumbing, ducts and a heating system among other things. The labor rate is $80 to $120 per day in most cases. How can anyone figure out that the cost per square foot for the above will ever reach above $55 per sq ft is beyond me? If someone pays $150 per sq ft fits the expression that there is a sucker born every minute.”

And finally, “I let someone else put in the basic infrastructure a century ago on the Reno I bought for my shop/studio/apartment. I used the old survey. My building permit was $40. The utility put in service and meters for free. My predecessor was a wannabe flipper and tore it down to the sticks literally. Steel roof, wiring and insulation surpassing code, new windows and doors, flooring, drywall, all of it including purchase price about half what HA claims. The Amish work cheap and fast and it is done right. OK, I haven’t put up any trim yet, and I won’t right now because boating season is at the doorstep.”

“When there are millions and millions of empty houses, why anyone would pay for built new at 4x cost is beyond me. Why they would pay some city $50K in permits for the privilege is a box of stupid.”

The Los Angeles Times. “Southern California is home to some of the most overpriced housing markets in the country. Three Southland regions ranked among the five most overvalued markets in the U.S. in a new report by real estate website Trulia. These are places where the housing costs have far outpaced growth in income. ‘Southern California has seen big price increases since the bottom,’ said Jed Kolko, Trulia’s chief economist, ‘without big increases in income.’”

“A number of regions across the West that saw price jumps last year as investors gorged on big inventories of foreclosures. Although incomes are growing — personal income climbed 2.8% in California last year, according to new numbers from the Commerce Department — home prices are growing faster. Prices are up 18.9% in metro Los Angeles from last January, according to S&P/Case-Shiller.”

“Those price gains have largely stopped in recent months, which could give the broader economy time to catch up with the housing market. That’s partly because interest rates have climbed, and partly because investors have pulled back, said Mark Zandi, chief economist at Moody’s Analytics. The housing recovery, he said, needs a new economic engine. ‘The job market has to continue to improve,’ Zandi said. ‘As people are more confident they can hold on to their job, they will start buying more homes.’”

“It also would help if credit eased. After the housing bust, lending standards swung too far in the opposite direction, he said, and that has hurt sales. Lending rules have been a factor even in the last few months, said David Cabot, chief executive at Berkshire Hathaway Home Services California Properties in San Diego. New mortgage rules that took effect in January gummed up some sales while brokers adapted. That may have had some effect on January and February sales.”

“But Cabot sees the spring getting off to a good start, with buyers and sellers both testing the market. ‘We think the spring season should be very healthy,’ he said.”

Bits Bucket for March 30, 2014

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