The Housing Bubble

An opinion piece by Alex Pollock in The Hill. “After the peak of the housing bubble in 2006, U.S. home prices fell for six years, until 2012. Are these memories getting a little hazy? The Federal Reserve, through forcing years of negative real short-term interest rates, suppressing long-term rates, and financing Fannie Mae and Freddie Mac to the tune of $1.8 trillion on its own vastly expanded balance sheet, set out to make home prices go back up. It succeeded. Indeed, it has overachieved. Average home prices are now significantly higher than they were at the top of the bubble, as shown by the S&P Case-Shiller national home price index.”

“After 2000, in real terms the housing bubble expanded and contracted quite symmetrically, bottoming out in 2012 just about on its trend line. But it did not resume its trend behavior. The Fed was on the case, and up real home prices went rapidly again, rising over 5 percent a year on average from 2012 to 2017. Their current real level is equal to that of mid-2004, when the bubble was already well inflated, and it is far over — 28 percent over — their trend line as extended from 2000.”

“What can the Fed do about this? Nearly a decade after the 2008 crisis, it needs to withdraw its radical interest rate and investment interventions. I am certain that the Fed does not want to find out what would happen in the market if it actually put its mortgage-backed securities and long-term Treasuries out for bids from Wall Street. So about all, it can continue with the gradualist program, keep up its rhetoric about how very gradual everything is, and hope home prices have a soft landing. It is said that ‘hope is not a strategy.’ But that’s the best the Fed has at this point.”

From The Mercury News in California. “When Nicole Nuss saw the little yellow house in Vallejo, with its white picket fence and huge yard for her beloved dog, she knew she wanted to live there more than she’d ever wanted anything. But in a real estate market where homes fly off the shelf in days and buyers compete with cash offers that are tens of thousands of dollars over asking price, the 38-year-old owner of Cinnaholic bakery in Berkeley worried she didn’t stand a chance.”

“So at the suggestion of her real estate agent, Nuss did something that, at the time, she thought was a bit weird: She wrote the seller a ‘love letter.’ The time-honored practice, in which prospective buyers pour their hearts out while simultaneously trying to flatter the sellers, has become an unofficial requirement of Bay Area real estate transactions.”

“‘You have to write,’ said Oakland and Berkeley-based real estate agent Debra Alber. ‘If you don’t write them, it kind of shows the sellers that you don’t care.’”

From NBC DFW in Texas. “A labor shortage in McKinney is shining the light on a bigger problem in North Texas: Business owners have been posting ads for months, hoping to fill vacant positions. ‘This problem has been going on for a few years, but it’s getting worse because housing prices continue to rise,’ McKinney Mayor George Fuller explained. ‘You can get a job, but you can’t afford housing. The average price for a home in McKinney is $340,000. Just think about the salary it takes to afford a house like that, and then to maintain it. You just can’t do it.’”

The Post and Courier in South Carolina. “Low inventory and escalating prices haven’t depressed home sales in the Charleston area — until now. While still healthy, residential real estate transactions slid 12 percent in February from the same period in 2017, according to preliminary data from the Charleston Trident Association of Realtors. ‘The ongoing low inventory and ever-climbing higher prices are making it more and more unaffordable for many people,’ said Kimberly Lease, president of the association. ‘Those things coupled with rising rates are further pricing people out of homes.’”

From KTVN in Nevada. “The City of Fallon has launched a campaign called ‘Closer Than You Think.’ Fallon is located an hour from Reno and 40 minutes from the growing Tahoe-Reno Industrial Center. While it’s no secret that home and rent prices in the Reno-Sparks area have skyrocketed in recent years, this campaign aims to show both developers and aspiring homeowners alike, that Fallon is full of opportunities, including an incentive program.”

“Mayor Ken Tedford explains, ‘You don’t have to pay your building permit fees up front, when you get done building your house and you close–then you can pay your building fees and loan when you’re done.’ Tedford adds that this applies to developers, too. They do not have to pay building permit fees up front, only when the house has been sold.”

“Tedford says there are currently 300 vacant lots in Fallon, ready for future development, just waiting for developers to build upon them. In the more rural areas of Churchill County, the mayor says Housing Development Authority can give aspiring homeowners grants of up to 5 percent for their down payment.”

From Greenwich Time in Connecticut. “Not long ago, the home rental market in Greenwich rose and fell in contrast to the wider housing market. Pre-recession, about 30 percent of single-family home transactions in town were rentals. By 2009, after the housing collapse, that number jumped to 60 percent before settling back to 36 percent in 2013. Lately, though, the trends have started to diverge — the housing market is relatively healthy, but the number of rentals is still rising. No one is quite sure why, but it’s clear the phenomenon goes far beyond Greenwich.”

“‘To me, renters are on the sidelines. We’re talking about four out of 10 buyers last year who jumped on the sidelines,’ said Kevin Sneddon of Private Client Realty. ‘Half of them are uncertain if they want to live in Greenwich and the other half don’t know where the market is going; they view renting as a protection strategy. … They see real estate as more of an expense than investment.’”

“For now, his examples are mostly anecdotal. Sneddon said one of his clients chose to pay $600,000 in rent over two years because ‘he didn’t want to buy a big-ticket house until he’s certain where he wants to be.’ In his client’s view, Sneddon said, it’s less risky to pay more than a half-million dollars in rent than purchase a home. ‘To me, the most alarming part of this for Greenwich is that it basically speaks to the fact that would-be buyers are renters because they’re unsure about values,’ he said.”

“Of particular concern are situations where homeowners have sold their home for less than they bought it. There are people waiting out the market for one reason or another. Some in those category are like Sneddon’s client who are suspicious of home values; others can’t afford to buy right now. ‘A house that would have been $500,000 20 years ago is now $2 million and salaries haven’t kept up with that,’ said Jane Brash of Coldwell Banker’s Old Greenwich office.”

“On the landlord side of renting, there are several categories: institutions, such as Elk Homes, that have built up portfolios of rentals; individual investors; and homeowners Sneddon says are ’stuck.’ Those are people who ‘can’t sell so they’ll rent because they just need to get out,’ he said. For some home renters, avoiding that scenario is why they haven’t become owners, Sneddon said. ‘There’s a lot of those stories out there, and people want to have less cash tied up in an asset that’s not going up in value. More people are just looking at real estate as an asset that won’t gain in value.’”

From the Greenfield Recorder in Massachusetts. “The story of Bob McCollum and the foreclosure of his Bernardston home is far from a rare case, regional housing experts say. In 2017, there were 103 auctions for properties facing foreclosure in Franklin County, according to data from a western Mass. grassroots advocacy group, ‘Springfield No One Leaves!’ ‘It’s more common than people think,’ said Rose Webber-Smith, lead organizer for the group that tries to prevent evictions in parts of western Mass.”

“As it turns out, McCollum, who is facing a possible eviction from his home after the bank bought it back last Tuesday, is not alone in Bernardston. In 2017, five homes in Bernardston went to auction. And as one might expect in bigger towns, there were more foreclosure proceedings. In Greenfield, there were 22 auctions and in Orange, there were 31.”

“Executive Director of the Franklin County Regional Housing and Redevelopment Authority Frances Pheeny concurred with Webber-Smith, saying her government-funded organization has seen an ‘uptick’ in people they’ve worked with over foreclosures in recent months. ‘For some folks, it’s a misconception that the foreclosure issue is done with,’ Pheeny said, 10 years after the housing bubble burst. ‘but I don’t think it is.’”

“Pheeny said the housing and redevelopment authority hasn’t seen the issue limited to foreclosures from the housing bubble. Instead, it’s ‘generally situations where individuals had some major life change, whether its a loss of a job or a medical issue or a divorce.’”

“In McCollum’s case, he took out a $153,000 loan on an adjustable interest rate in 2003 and later fell ill with cancer, forcing him to stop working and fall behind on his payments. When it’s older people, it’s more likely to be as a result of the housing bubble, Webber-Smith, while with younger people the loans tended to be taken out more recently. ‘When you have a mortgage and one significant life event that can set you back,’ Webber-Smith said.”