The Housing Bubble

A weekend topic starting with a CNN opinion piece by William Poole. “Today, the Fed is again ignoring the GSEs and their potential contribution to future instability. According to Freddie’s 2016 annual report, ‘Expanding access to affordable mortgage credit will continue to be a top priority in 2017.’ Fannie/Freddie have redefined ’subprime’ to a credit rating of below 620; previously, these firms and banking regulators had used 660 as the dividing line that defined a subprime borrower. Now by using the lower number, they may be buying even weaker mortgages than before the financial crisis.”

“The GSEs are wrapping new sub-subprime mortgages into the mortgage-backed securities they sell to the market. Fannie and Freddie guarantee these securities, and because the federal government stands behind the GSEs, there is little market discipline. Think about that: With regard to subprime mortgages we may now be in worse shape than we were before the crisis.”

“According to the Fannie/Freddie annual reports for 2016, it is surely the case that subprime mortgage issuance is one force driving house prices once again — up by about 30% over the past four years and now about back to the elevated peak in 2006. Why isn’t the Fed talking about this matter? Someone please convince me that ‘this time is different.’”

From Arizona Big Media. “‘You can never have too much of a good thing,’ or so the saying goes. But that’s not true when it comes to residential real estate in Metro Phoenix. ‘Arizona continues to have a shortage of listing inventory, especially less than $300,000,’ says Trudy Moore, designated broker at HomeSmart. ‘First-time home buyers make up a large sector of the market and there are just not enough listings to fulfill the need. If a property is listed under $300,000 and it is in good condition, it will probably have multiple offers within a few days.’”

“‘Our projection is for 16 percent more new home demand in 2017 and significant appreciation — 7 percent to 9 percent,’ says Jim Belfiore, owner of Belfiore Real Estate Consulting. ‘The rise in demand is already underway. The appreciation is due to inflation, and while we project this growth in home prices, the question is whether or not it will actually take hold?’”

“What is more clear, Belfiore says, is that builders need appreciation to cover the cost of new land, lots and higher building costs.”

The Coloradoan. “New home construction in some parts of Northern Colorado leveled off in 2016 due in part to a lack of affordable and available building lots. But that doesn’t mean there’s a dearth of building activity on both sides of Interstate 25 as area communities struggle to keep up with housing demand.”

“In some communities like Windsor, developers hit the gas last year and show no sign of letting in 2017. The town issued 690 single-family building permits last year, more than doubling the permits issued by the town in 2015 and 2014 and exceeding the number of permits issued by much larger Fort Collins and Loveland.”

“A lack of affordable and available lots is driving all new residential construction, said Eric Holsapple of LC Real Estate Group, which is developing homes in Loveland and Fort Collins. The company is building out its Spring Creek and Story Book projects in Fort Collins and 48 lots at Mariana Butte golf course in Loveland.”

“‘It’s really hot, but we’re looking where the next place to go is and it’s slim pickings,’ Holsapple said. ‘It’s either hundreds of acres that take a lot of infrastructure’ or lots that are slow to be brought to market. As inventory wanes, the cost of new lots, including water, continues to rise.”

“The next round of lots are selling for $100,000, up from about $60,000 to $75,000, fueled by soaring water costs.”

“LC Real Estate has found 36 acres east of Interstate 25 and south of Mulberry Street that it intends to buy from Fort Collins developer Les Kaplan, who abandoned plans to build Fox Grove. Holsapple said he anticipates building about 75 homes on the site, including some two-story projects. ‘With the cost of land, we have to go to a little bigger home,’ he said.”

The Daily Camera in Colorado. “There’s no affordable homes left in Boulder County. Looking to head east to the Carbon Valley? There’s nothing left there, either, according to a new affordability study out of Longmont. In the last three years, the number of single family homes for sale under $250,000 has dropped 72 percent, and the number of attached dwellings for less than $150,000 declined by 87 percent.”

“The report extends past Boulder County and into Weld and Larimer counties, covering Boulder, Longmont, Lafayette, Louisville, Superior, Erie, Loveland, Berthoud, Firestone, Frederick, Mead and Dacono.”

“Not one of the 12 towns has an average home price under $250,000, the study’s threshold for entry-level affordability. Dacono is the closest, with a $265,363 average cost. For attached dwellings, only Mead was under the $150,000 threshold, with a $128,633 average — data that came from three sales last year.”

“‘Our conclusion from the information presented here is that there are no entry level housing options,’ reads the report. ‘The lines we drew in the sand as reasonably priced in both categories will soon be obsolete.’”

“In a recently released affordabilty report, NAR Chief Economist Lawrence Yun said, ‘Home prices have ascended far past wage growth in much of the country in recent years because not enough homeowners are selling and homebuilders have not boosted production enough to meet rising demand.’”

“Without the addition of lower-priced condos to the local market, Kyle Snyder of Land Title Guarantee Company predicts prices will go nowhere but up. ‘The bidding wars, the short days on market — I don’t think it’s going to slow down,’ he said. ‘The demand is just too high.’”

“Aside from the obviously devastating effect to potential buyers in lower income groups, the ever-rising prices could change the way real estate professionals and government entities think about affordability. ‘Our measuring stick is about to become obsolete,’ Snyder said.”