A Glut Few Can Afford
A weekend topic starting with CNBC. “If the speculation bears out and the White House’s chief economic advisor, Gary Cohn, a Goldman Sachs alum, were to become the next Federal Reserve chairman, the Trump administration would be gaining a steady hand at the central bank, but perhaps losing support from one of Wall Street’s most influential firms, veteran banking analyst Chris Whalen told CNBC. Regardless of how Goldman would feel if Cohn were to leave the White House for the Fed, ‘I’m one of those who believes that there’s nothing wrong with having bankers, people from industry on the Fed board,’ Whalen said. ‘We have been dominated by academic economists. And you know what, they’ve gotten it wrong.’”
“Whalen said nobody should be surprised that inflation has yet to rise to the Fed’s 2 percent target level. ‘Low interest rates [and] quantitative easing are deflationary. So, of course, we haven’t hit our inflation targets. But nobody at the Fed understands that.’”
From Property Guru on China. “With luxury condos in Shanghai selling at rates comparable to London or Manhattan, it is small wonder that the Chinese residential market is a source of endless speculation. ‘It’s a high-growth market. You can see prices grow by 30 or 40 percent in a year,’ says James Macdonald, head of research for China at Savills. ‘That is the primary appeal: to be able to make quite a lot of money in a short amount of time.’”
The Weekly Times on Australia. “Homeowners in parts of Melbourne are making as much as $1200 a day just by holding on to their houses, new research shows. Figures reveal northeastern fringe suburb Kinglake West recorded massive 51.6 per cent median house price growth in the year to June 30, to $580,000. Ray White Carrum Downs’ Maggie Raad said Frankston North offered similar lures for first-home buyers and investors, including rare 600sq m blocks: ‘Eight months ago, the average house cost $400,000. Now we’re getting another $100,000 on top.’”
The Orangeville Citizen in Canada. “While a much-documented drop in the national housing market in recent months has left potential investors across the province in a frenzy, one local realtor has poured cold water on the suggestion the proverbial bubble could be set to burst in Orangeville. And while prices appear to be down pretty much across the board – the $504,458 average sale price in June is a near ten percent drop from the $559,317 average price posted in April – values appear to be going only one way in Orangeville. John Walkinshaw of Royal LePage RCR Realty did however offer some hope to those in the community looking to invest or finally purchase their first home.”
“‘I would say that the market here is stabilizing right now in the respect that the hype is no longer in the market. It’s still a very active and a very solid market, but the hype, in my opinion has gone. The days of people paying ridiculous amounts of money over value, getting into bidding wars with other interested parties, has come and gone for the most part,’ Mr. Walkinshaw said.”
From Bloomberg on the UK. “You don’t have to spend much time looking in the windows of estate agents to see Britain’s housing market has an affordability problem. Homes in England cost eight times workers’ wages; 13 times in London; and 30 times in the capital’s poshest neighborhood, according to the Office for National Statistics. Construction of new homes in London rose 42 percent in the second quarter, according to a report by Molior London. But the stock of unsold units still under construction reached the highest level since Molior started collecting data in 2009.”
“That supports estimates by Savills that although London will see a record number of new homes in 2017, more of those homes won’t have found buyers by the time they’re completed than at any point in the past decade. And luxury house prices are showing signs of suffering. Data released by Lonres on Thursday showed sales values per square foot of properties priced between 2 million pounds and 5 million pounds fell by 8.4 percent in the second quarter.”
“It appears that the real problem in the market isn’t so much a shortage of supply, but a glut of luxury homes few can afford.”
The Los Angeles Times in California. “California’s economic engine quieted in June as employers reduced their payrolls by 1,400, according to a report by the state’s Employment Development Department. It was the second month this year that the state lost jobs. ‘These numbers are problematic, I think this is a wakeup call for everybody,’ said Chris Thornberg, co-founder of consulting firm Beacon Economics.”
“On the surface, California’s economy seems healthy enough; the jobless rate is rock bottom and wages are growing much faster here than in the rest of the country. But most sectors in the state have either lost jobs in the first half of the year or are growing more slowly than they had been. Economists say that’s largely because businesses cannot find applicants to fill open jobs, because rank-and-file workers can’t afford to live in the Golden State.”
“The trouble for California is that the slowdown appears to be touching almost every corner of the economy. ‘I have to assume this is housing,’ Thornberg said. ‘Where do you put bodies? We don’t have houses. The state has run out of labor supply.’”
‘I have to assume this is housing,’ Thornberg said. ‘Where do you put bodies? We don’t have houses. The state has run out of labor supply.’
A shortage of workers causes few jobs. Got it.
All that crime and fraud.
Maybe the millions of free loaders can put down the bong and the xbox controller and help contribute to society? I left years ago partly due to the stats that showed millions moving to clownifornia, but only a few hundred thousand were taxpayers.
“…but only a few hundred thousand were taxpayers.”
We number among the few hundred thousand dupes.
I proudly pay my taxes: 11% fed and 3.4% state.
“Roughly 12% of the U.S. population resides in the golden state, yet California shoulders 34% of the entire U.S. welfare caseload.” —est., 2012.
Oregon’s welfare caseload percentage can’t be far behind.
Portland must be ground zero for Tent City USA.
California pays about 13 percent of all federal taxes and receives about 11 percent of federal expenditures. It’s one of 11 states with a deficit between what it pays the feds and what it gets back.
I bet CA has either first or second dibs on the cheap money from the fed.
Pork. It’s what politicians bring home for dinner.
‘‘We have been dominated by academic economists. And you know what, they’ve gotten it wrong.’
‘Low interest rates [and] quantitative easing are deflationary. So, of course, we haven’t hit our inflation targets. But nobody at the Fed understands that.’
Been saying this for years, along with other people. Again: if one believes in the scientific method, let’s review. QE in 2009, deflation. More QE, more deflation. Year after year. Yes, you get these unsustainable booms, followed by busts: more deflation. Oh, and the overbuilding of air-boxes no one wants nor can afford, more deflation.
I’m wondering why all of the inflation calculators show inflation? What data are they using/seeing?
Japan: QE, deflation, QE, more deflation… with decades of continuation.
It’s easily seen in oil. QE starts a commodity boom. Price skyrocket, followed by increases in supply. Boom wears off, market is oversupplied, prices crash. But easy money keeps companies alive. Now west Texas can make money at $40-$50 barrel. Deflation.
“It appears that the real problem in the market isn’t so much a shortage of supply, but a glut of luxury homes few can afford.”
Soon coming to a housing market near you: Luxury housing glut leads to a price crash that crushes the prices of all nearby inferior quality housing… try not to get stucco!
This is the logic of the supply and demanders. Build, drive prices lower, defaults/foreclosures. Voila! But you get a recession or worse. Job loss, lender losses. I keep going back to this: how did we manage to avoid this circumstance for hundreds of years? Yes, there were no shack flipping TV shows, but that seems a small price to pay.
Central bankers warn of looming global recession
Catholic Online News Business & Economics
By Marshall Connolly (CALIFORNIA NETWORK)
6/26/2017 (3 weeks ago)
Catholic Online
Several indicators show danger.
A group of central bankers has warned that a great recession, possibly larger than the 2007-2008 recession is looming on a global scale. According to their research, there are several indicators of weakness that could be triggered by a rise in interest rates.
A recession could be lurking around the corner and central banks have been asked to take note, especially in Asia.
Keywords: Central bank, recession, global, economy, economics, Great Recession
LOS ANGELES, CA (California Network) — Since the Great Recession of 2007-2008, interest rates have been low. Those rates have finally started to climb again following a slow, but steady uptick in the economy.
Interest rates are important because they act like a gas pedal or a brake on a nation’s economy. Interest is the money charged for loaning money. When economies are sluggish, central banks will cut interest rates to make money easier to borrow. This means more borrowing which turns into more spending, which creates more jobs and puts people back to work.
When economies surge, prices can rise too quickly, a phenomenon known as inflation. To keep inflation in check, central banks can raise interest rates, which makes it more expensive to borrow money and slows spending.
Presently, the world economy has been growing, but slowly. And central banks have been raising interest rates slowly. However, there is a problem where interest rates could go up and may cause a sudden recession. This happens when economies are weaker than thought, and the rates are raised.
While recessions are normal and routine macroeconomic events, they are catastrophic to individuals. People lose jobs, homes, and their lives change dramatically. Millions of people lose businesses and savings. It can take over a decade for people to rebuild their lives, lost in a sudden recession.
The bankers issuing the warning are from the Bank for International Settlements (BIS). They are a sort of central bank for all the world’s central banks.
…
“This happens when economies are weaker than thought, and the rates are raised.”
Isn’t it interesting how exogenous forces have no role in setting rates, at least according to central bankers?
I guess everyone has long forgotten the Great Inflation of the 1970s, which culminated in 14%+ Thirty-year Treasury yields.
“how did we manage to avoid this circumstance for hundreds of years?”
Money wasn’t conjured out of thin air.
Now the earth has been blanketed with conjured money, loaned into existence. Of course it is deflationary, because a pyramid of debt will eventually collapse. It’s not the next loan you make that causes the collapse so much, it’s the zillion loans you’ve made over the last 50 years that set the collapse up.
These pundits think current elevations are ground level.
which culminated in 14%+ Thirty-year Treasury yields ??
And 18% + Prime rate.
Bank for International Settlements?? Central Bank for central bankers? Who the foof are they, Illuminati pulling the strings of Goldman Sachs??
“…which culminated in 14%+ Thirty-year Treasury yields ??”
That was clearly the time to buy…for anyone who wasn’t flat-out broke. I remember a college buddy trying to talk me into buying some bank CDs at the time, which were yielding 10% or so. I didn’t have any spare cash at the time, so didn’t buy.
Actually, the BIS has made more sense than the Central Bankers - go over past links Ben has posted to BIS statements.
The BIS often comes off like a sort of conscience for central bankers, pointing out activities which may bring short-term gains with undesirable consequences to eventually follow.
sort of conscience for central bankers,
Haha. Thanks for a good laugh.
It is curious how in 2008 & 2009, all the economists and wall street bankers were talking about how the Feds policies will lead to massive inflation and to get ready…..and here we are almost a decade later with very modest inflation!
Except in housing.
GREAT point CO!
According to the Fed, housing is an asset and so the price increases are “wealth effects”, not “inflation”.
College tuition
Medical expenses
Even the groceries. Just last weekend, I was surprised to see that the beer bottles are now 11.2Oz as opposed to 12Oz not very long ago.
probably weirdo foreign beer
‘We don’t have houses’
Uh…
‘For 62 straight months, Southern California home prices have gone in one direction. Up. Five years ago, you could snatch up a median-priced condo in Orange and Los Angeles counties for about $280,000, 76 percent less than today’s prices. A median-priced house cost $323,000 in L.A. County five years ago and $495,000 in O.C., about $260,000 less than today’s prices in both counties…Luxury homes, priced at $2 million and up, may have reached a price peak and are facing an oversupply of listings, analysts said.’
http://thehousingbubbleblog.com/?p=10145
But Jingle Fail says there’s no bubble in his special area, the Excremento foothills, an area also curiously devoid of JOBS.
Oh its got jobs - real estate agents, mortgage lenders, appraisers, contractors, etc. Everybody trying to get their vig by selling the dream.
Yeah, I’ve seen these kinds of areas before, where real estate is the only thing in town. I drove through them the last bust. The carnage was almost unbelievable.
Yes, in 2006 I rented a house in a subdivision with 138 new homes….only 3 of them were lived in! The rest were owned by Filipino SF Bay Area speculators (mostly Newark & Fremont) sold a pig in a poke by their friendly Filipino real estate brokers.
They all had 80/20 subprime variable rate loans and they all got stucco…..some even got stuck in the Dublin Federal Correction Institute for Women for mortgage fraud!
I don’t see that kind of wholesale crime & stupidity today.
“stupidity today”
It’s a government franchise today.
I don’t see that kind of wholesale crime & stupidity today.
Still there, but importantly it’s the WS banks buying up the shacks. They are leveraged to the hilt.
They are certain that they will be bailed out when shtf. That’s the only difference.
“Oh its got jobs…”
Lots of silicone implants living-large up in those hills.
Bring on the plastic surgeons! Big business in California.
Lest we forgot: psychologists. I am sure their businesses are doing just fine these days.
It’s a suburban area. The jobs are in the city.
I am well familiar with the area. The closest jobs center is Rocklin, which is 25 miles away.
Folsom and Roseville both have strong employment markets.
A lot of the people in that area probably moved from the Bay Area. They don’t mind driving a lot, so the commute to the job in Sacramento wouldn’t be a big problem.
Wouldn’t a bubble in Sacramento foothills be *good* for Jingle Male? He’s doesn’t sell houses, he bought a couple of them low and rents them out. Bubble –> high sale prices –> people can’t afford to buy –> people rent from Jingle Male. And didn’t he say something about considering selling them into this bubble? ISTM that he’s in good shape.
Hi Oxy, we are in good shape. Our overall leverage is under 50% today (we put 25% down originally), achieved partly by appreciation and partly by principal pay down (about 12% reduction in the actual loan amount over the past years).
The properties cash flow nicely but you are correct, we are considering moving to San Diego as we get ready to retire. Thus we are planning to sell all of our real estate over the next few years and go rent a condo in the SD Marina and see if we like it. (We’ll take Professor Bear to dinner when we get there).
The big challenge for us will be how to replace the stellar return on investment we have been receiving (in both cash flow and appreciation) over the last 7 years……..
“The big challenge for us will be how to replace the stellar return on investment we have been receiving (in both cash flow and appreciation) over the last 7 years……..”
Since you are not adding anything of value to the economy, e.g., no product or service, I suppose you’ll have to hope for another shot of that QE manna.
“(We’ll take Professor Bear to dinner when we get there).”
CLICK!
We had a HBB gathering this past Friday night in Hillcrest, thanks to some veteran posters organizing an outing. We all reflected in amazement at how long it has been since the onset of the bubble! There was a wide divergence of opinion on where things go from here, though…
“There was a wide divergence of opinion on where things go from here, though…”
Many people don’t see the future clearly until their fifties are right around the corner.
No jobs? Hardly. Just no knowledge by PFP…..
The Sacramento region posted strong employment numbers in December 2016, gaining nearly 23,000 jobs from a year earlier — a gain of 2.5 percent. Over the same period, the state gained 265,000 jobs — a 1.5 percent increase.
Stick a fork in PFP, he’s done…..
Sorry, Jingle, but you’re a proven liar. You said that somebody easily doubles their income moving from Portland, Oregon to Sacramento, CA and I posted the median incomes for both places to highlight how delusional you are. Put a cork in it.
More disinformation from the pitch man. Put a fork in it. I reported two prospective buyers of a house in Sacramento were moving from Portland. Their incomes would go up substantially and their housing costs were comparable.
One guy was in I.T. and he said his income almost doubled over what he made in Portland
The other guy was in banking and his raise was 20%, but his wife was an RN and she was offered $140,000/year at the Roseville Kaiser facility, versus the $70,000/year she made in Portland.
You, Pitchfork are the one who made assumptions about median incomes (which are similar). The increased equity and tight sales market in Portland offered a springboard for both families to better their lives with the move. Sacramento gets 300 days of sunshine every year, which was a huge bonus to them versus the constant overcast Portland weather!
One guy was in I.T. and he said his income almost doubled over what he made in Portland
…..she was offered $140,000/year at the Roseville Kaiser facility, versus the $70,000/year she made in Portland.
You have to wonder why Portland isn’t empty by now.
Well, for starters, they don’t put birds on stuff down in SacTown.
(Portlandia joke - sometimes that show is so true that it isn’t even funny).
I thought stagnant household income over 16 years fostered 30-50% home appreciation? What it doesnt? Gasp!
Also, Lol @ California’s “economic engine”. Whatever happened to that doofus Gov having to go back on his “balanced budget” showboating when they had an arithmetic mistake to the tune of a couple hundred billion $$$$….California’s housing market was really banking on SNAPs IPO. Maybe Uber will save the day with its executive turmoil (CEO resign, CTO gone, CFO…)
What cracked me up is that people al over - including some individuals on this board- actually believed California’s budget was balanced.
And within 1-2 years of the Governor taking office!!
Rubes.
‘Since 2000, Alexandria has lost 90 percent of its affordable housing. There are now fewer than 2,000 affordable apartments.’
‘According to new research by Harvard University, almost 40 million Americans cannot afford to pay for housing. Since most of the new units being built are at the high end, “the number of modestly priced units available for under $800 declined by 261,000 between 2005 and 2015, while the number renting for $2,000 or more jumped by 1.5 million.’
‘NBC News sums up the findings this way: “Over 38 million American households can’t afford their housing, an increase of 146 percent in the past 16 years.”
http://thehousingbubbleblog.com/?p=10143#comment-2620763
‘Comment by Ben Jones 2017-07-20
‘More than 10,000 new apartments are underway or have recently opened’
‘Almost 29,000 new apartments are set to open in North Texas this year. Currently there are over 50,000 apartments being built in North Texas’
‘Apartment Insights says 4,004 apartments are under construction or have completed permitting in the three-county area, most in Pierce County. Another 4,251 are at earlier stages of permitting and review’
‘With more than 15,000 units under construction’
‘Currently, 16,000 apartment units are under construction in the Nashville area with 10,000 more units in various planning stages’
And yet:
‘Lazarus said only 178 new Class-B apartments were delivered across the country last year’
http://thehousingbubbleblog.com/?p=10149
178? Really? Any idea what the normal Class B construction numbers are per year?
‘We have been dominated by academic economists. And you know what, they’ve gotten it wrong.’
I had a few economics professors. It’s basically a field of study and prediction. There isn’t any necessary connection from that to a central bank which creates many trillions out of thin air and massively distorts the global economy. Then when it doesn’t work, keeps doing the same things for years.
Just how predictive is that? These academics don’t see the world like the rest of us. Somehow, when they walked into those special buildings they took on a wisdom far higher than markets.
The original report is behind a paywall:
“Markets say the ECB is done, their box is empty,” Vasiliauskas, who heads Lithuania’s central bank. “But we are magic people. Each time we take something and give to the markets — a rabbit out of the hat.”
“We have been dominated by academic economists…”
We were dominated by appointees who solely addressed the exposure of FIVE banks.
^^This. People forget that many, many small banks in this country got the shaft, too. They stood to benefit if the big banks were allowed to fail, as they could have assumed their assets and grown their businesses. Instead, they weren’t rewarded for their prudent behavior, they were shafted.
“Whalen …..‘Low interest rates [and] quantitative easing are deflationary….’ ”
INCORRECT. They are neither deflationary nor inflationary. You ONLY create inflation when salaries rise. PERIOD. China did this in 2011 with ensuing food inflation and we had inflation from Union wages rising in mid 1970s leading up to 1980. Then Paul the Vulcan arrived.
Raising minimum wages, (that States do not roll back a year later), creates Inflation.
AMAZON is the largest Deflationary force in the world today. Throw in eBay and Google and you have discounting.
we had inflation from Union wages rising in mid 1970s leading up to 1980
No, that was mostly caused by the big increase in the price of oil.
How’s the Ownership Society / Affordable Housing program working out for America?
There are more renters than any time since 1965
More U.S. households are headed by renters than at any point since at least 1965.
However, the top renter regret is not buying.
Abigail Summerville
Thu, 20 Jul ‘17 | 10:59 AM ET
CNBC.com
Has Mel Watt seen this?
Please don’t distract DC’s uncle tom with factual data.
“Has Mel Watt seen this?”
OUCH! But I like it….
“More U.S. households are headed by renters than at any point since at least 1965.”
Was housing unaffordable in 1965? If so, why? or why not? Which one is it?
Does the author understand statistical variance?
“Was housing unaffordable in 1965?”
It could be an artifact of Greatest Generation and Baby Boom demographics. My parents and their siblings are a good example. All of them were starting their young families and most likely renting up until around 1965. My parents bought their first and last owner-occupied home in 1965, for something like $15K, which was three times the price of a Cadillac Sedan. By five years from then, all of their siblings on both Mom’s and Dad’s side were homeowners.
I would be curious what your father’s annual salary was in 1965.
$10000
I didn’t realize that alphonso bedoya was one of PB’s aliases.
Or maybe alphonso was PB’s dad’s accountant?
I am not related to Alphonso by business or family ties, so far as I am aware, unless you go back quite a few generations on the human evolutionary tree.
My guess is that Dad made around $5K at the time. I’ll ask my parents when I call this evening and report back.
Feel free to take it back to the lemurs if you want.
Interesting questions AB. I can shed some light on that history:
We moved to California in 1968 from Oregon. My mother increased her salary from about $6,500/year in Oregon to $12,800/year in California. She purchased a lot for $2,200 (with the help of our uncle who lived across the street) and built a house for $18,500.
So….the house cost a total of $20,700 in 1969 and her salary was $12,800 (or 1.6 times her salary).
I just looked up the Zestimate for the house and it is $235,000 and her salary would be about $87,000/year (or 2.7 times her salary).
Thus, housing increased at 5.2% over 48 years and her salary increased at 4.0% over the same time. An equivalent salary today would be $146,000/year……wow….
In California in 1972 the minimum wage was $1.65/hr, and $1.35/hr nationally. Down payment requirements were higher than other states because it was (and still is) a “walk-away” state.
https://en.wikipedia.org/wiki/Variance
In probability theory and statistics, variance is the expectation of the squared deviation of a random variable from its mean, and it informally measures how far a set of (random) numbers are spread out from their mean.
doesn’t appear to have any bearing on the issue
If you flip a coin 100 times and you come up with 48 heads and 52 tails, does that invalidate the 50% rule or are you displaying normal variance?
If a measurement increases from 36% to 38% and then falls back to 36%, are you looking at a rise and decline, or, normal variance?
Charts remove opinion and emotion. And of course the first question is: Is your sampling big enough ?
If you flip a coin 100 times and you come up with 48 heads and 52 tails, does that invalidate the 50% rule or are you displaying normal variance?
It’s been a long time since I took that course, but there’s not much interesting about that scenario. If you flip a coin 100 times and get 90 heads, that would just mean that a rare event just occurred.
The second graph in that CNBC article is the interesting one. It indicates that the headline is a little misleading. The % of households that rent was somewhere between 35% and 37% for first 30 years of the period covered by the graph. Then it went it down around 5% over a 10 or 11 year period. Since then it’s come back up by 5%. Perhaps the last 20 years have been an aberration.
I look at Cook’s D whenever I’m doing regression analysis.
Bygone era. Can’t compare. When houses meant shelter not an investment or an ATM. Economy was good, people were employed and building stuff. When that ran out we were all forced to join the casino by buying and selling houses. Only the house made the money.
Why do media-annointed experts have such a difficult time connecting historically low interest rates with stratospheric housing prices? The valuation formula, with interest in the denominator, is in Chapter 1 of any undergraduate finance text.
US homes are now more valuable than ever
The median value of all homes in the United States in June was more than $200,000, according to Zillow.
The reason behind the rise in those values is simple: short supply.
The inventory of homes for sale was down more than 11 percent in June from June 2016, according to Zillow.
Diana Olick
Thu, 20 Jul ‘17 | 8:00 AM ET
…
Yet median income has been stagnant for 15+ years when adjusted for inflation. We’ve had 15% population gain since 2001. Odd that with that linear population growth we all of the sudden have supply problems.
I’d much rather see a housing article by someone who knows what he or she is talking about. Are there ANY economists or business writers out there with a brain!?
There is NO housing shortage. There are hundreds of thousands of unoccupied houses/ housing units out there that are unoccupied, many of which are very much habitable. In most areas of the country.
Time to find a new career, Diana.
Hey Diana,
Consider what would happen if interest rates rose to a more traditional rate of 6-7% by years end?
Do you think we would have a shortage housing then? Why or why not? Might there be a sudden dumping of several tens of thousands of already empty domiciles onto the market?
It seems the shortage question is confounded by the historically unprecedented influx of investors trying to cash in on the second wave of Housing Bubble appreciation. I’d guess that if you took the speculators out of the picture, the apparent shortage in most U.S. markets would vanish. We won’t know for sure until the aftermath of the next crash, and maybe not even then if the Fed repeats its post-crash inventory mop-up operation again.
Four big companies have bought nearly 700 single-family homes in Spring Hill, Tenn.
Meet Your New Landlord: Wall Street
Big investors transform suburban neighborhoods by buying up single-family homes and renting them out
By Ryan Dezember and Laura Kusisto | Photographs by Luke Sharret for The Wall Street Journal
July 21, 2017 10:30 a.m. ET
SPRING HILL, Tenn.—When real-estate agent Don Nugent listed a three-bedroom, two-bath house here on Jo Ann Drive, offers came immediately, including a $208,000 one from a couple with a young child looking for their first home.
A competing bid was too attractive to pass up. American Homes 4 Rent, a public company that had been scooping up homes in the neighborhood, offered the same amount—but all cash, no inspection required.
…
Are you new here?
There are cities all over the country with unoccupied dwellings. And many thousands more are added annually.
Many have marginal occupancy.
Yet, we are told there is a shortage. But there isn’t. “Investors” are sitting on them. Properties being deliberately withheld from the market doesn’t constitute a shortage.
What remains to be seen is how much of the general population will be affected by a housing crash this time around.
What percentage of the population is taking place in Mania Part 2 now versus Part 1 that blew up in 2007-2009?
Nearly 40% of homes in Dallas went to flippers, investors and …
HousingWire-Jul 14, 2017
The Dallas housing market is on fire as more investors, home flippers, … “That’s the highest share of purchases going to non-owners in Dallas since 2000,” said …
“Nearly 40% of homes in Dallas went to flippers, investors and …”
This seems to be the case almost everywhere now. I have uprooted many “We buy houses” signs in my neighborhood.
There’s not as much raw land speculation around here as circa 2006, my guess being that lenders still aren’t enamored of dirt. They got burned badly last time, and still have it on the books. That being said, I’ve noticed a recent surge in raw land sales.
Ben - or anyone else here - have you come across any websites / info that provides the percentage of homes going to flippers and investors for various cities across the USA?
If so, please provide link. I look and cannot find. Not that that should surprise me.
Thanks in advance.
If the info presented here is to be believed, the some of it is illuminating. By “here”, I mean the following link. There are both numbers and author commentary - the commentary needs work. Fairly rudimentary stuff.
Once you’ve opened the link, search this:
“Net worth with and without home equity”.
If true, most people are in very poor financial shape. Most money is tied up in housing - housing that may crash. Hardly surprising.
http://www.businessinsider.com/heres-the-average-net-worth-of-americans-at-every-age-2017-6
‘Yet, we are told there is a shortage. But there isn’t. “Investors” are sitting on them. Properties being deliberately withheld from the market doesn’t constitute a shortage.’
Preaching to the choir now…
“If true, most people are in very poor financial shape. Most money is tied up in housing - housing that may crash.”
Haven’t you heard by now that the Fed Put backstops housing? It’s now a matter of official policy that it is unpossible to lose money by purchasing a house and waiting.
I recall predicting this on HBB. House prices will not fall to where Joe Six Pack can afford the mortgage. House prices will fall to where some cash-pile investor buys the house and rents it to Joe Six pack and his young child. And that Tennessee article is from this week, not five years ago. That’s part of why ownership is so low and so many households are renting.
(other reasons: Greatest Generation grandmas finally dying in their paid-off cold-war housing. Baby boomers trying to pay off the house but re-fi-ed to send Millenial kiddies to college and/or subsidize grandchildren.)
The valuation formulas and price*income ratios are based on a the old model of housing expenses being 28% of gross income.
If you allow people to buy with I/O and neg-am loans, then they can afford to buy at a higher price at 28% even if income stagnates — that is, until the grace period ends. (2003-2008)
If you allow people to buy with up to 48% expenses of gross income, then they can afford to buy even if income stagnates.. that is, if they drain their income to be house poor (i.e. cash poor/house rich). This is what’s happening now. That extra 20% that used to go to savings, or to mall retail, is just disappearing into the money pit.
“The valuation formulas and price*income ratios are based on a the old model of housing expenses being 28% of gross income.”
This is first order mania thinking. The fact that underwriting standards have deteriorated to the point where lenders make loans at much higher multiples of income than 28% does not change the definition of financially prudent limits, though the resulting runaway price bubble will price out many who are unwilling to leverage themselves to the hilt.
Prof, I still think that 28% is the prudent rule of thumb. But we are the few who still think that. Mel Watt and his merry band think 45% is prudent because “housing is the path to wealth” or some such nonsense.
Sheeple sheeple sheeple everywhere
http://www.telegraph.co.uk/news/2017/07/22/hundreds-sheep-killed-bear-chases-cliff/
FWIW this is one way that early humans hunted game. They tricked a herd into running over a cliff. Then they simply collected dead animals, or killed incapacitated animals.
Wool is a terrible thing to waste.
“Local authorities sent experts to examine the scene during the week and they concluded that the sheep had been running away from a bear.”
Sounds a bit shaky. Suppose the local authorities didn’t like the idea of bears roaming about, and decided to pin the blame on a bear with no supporting evidence? It must be true if authorities say so. Has anyone ever observed a bear chasing a large herd of 🐑 in nature?
The same sort of thing happens all the time on Wall Street whenever a herd of lemmings runs over a financial cliff. It was the 🐻 s’ fault for making negative statements, not the stupid investment choices of greater fools that led to the tragedy.
http://www.greaterfool.ca/2017/07/21/the-bottom-2/
“Simply put, why would anyone buy a property? The 17% slash in prices has occurred in a short ten weeks. An equal loss could lie ahead between now and the end of September – leading into the next round of rate hikes. Yes, there are more choices, vendors are motivated, conditional sales are back and you can spend $160,000 less than your best friend did in March – who now looks like a moron.”
“In terms of price, the GTA average is $760,356. In April it was $919,589. That’s a fade of more than $159,000, or 17.31%. The declines have been historic: down 6.2% in May, another 8.1% in June, and 4.2% in just the first two weeks of July. In the last 15 days alone the average house shed $34,000, or enough to buy eight or nine used Kias.
By every definition, this is a sharp, deep and ferocious correction. If it were the stock market under discussion, we’d be just days away from an official bear market. That makes talk of a rebound in September kind of comical. Or irresponsible. Any buyer jumping in now to take advantage of a 17% price decline might end up losing all of their equity by the end of the year.”
WOW. That is an absolute meltdown. What a bloodbath. I don’t remember any market in the US blowing off that quickly, Oh, Canada!!
WTF?
https://evaluebc.bcassessment.ca/Property.aspx?_oa=QTAwMDAzVzBSWA==
Gross.
I wonder if any US real estate correction ever hit that hard that quick?
More fraud in US than Canada. It will be more swift and deadly.
“I’d much rather see a housing article by someone who knows what he or she is talking about.”
You’re in the right place for that but there are some corrupt interests working to subvert it.
“Realtors are liars.” — quote attributed to former HBB poster Realtors Are Liars.
Because Realtors are liars.
Accept this, and move on with your life accordingly…
Yes. We do have a handful or two of those here on HBB.
Division of place I work just lost a candidate they tried to recruit a second year in a row (have grown from 4 open positions to about 7 open positions they can’t fill - same story repeated across many divisions). He turned it down again cause he realized he can’t get a house near the ocean in bay area like he has near LA. Duh!!!
He was probably just getting another comp offer for negotiations. The housing costs are killing ability to fill jobs. The speculation and tech IPOs (in my opinion) is what has driven the costs sky high. Laws could be passed to tamp down speculation but the rich never tire of riches - nevermind that other countries don’t permit foreigners to buy up their best land. It is crushing productivity where I work - the amount of labor and money going into job searches that yield little fruit while others quit, creating more turnover. It’s at a critical level and for healthcare which the public needs. The public pays the price for this too - how can healthcare costs not rise?
Plenty of crime and fraud there too.
“The housing costs are killing ability to fill jobs.”
Nah, they’re just not offering enough pay.
Some truth in that. I just hired a guy straight out of college with 5 or 6 months of fellowship/hands-on training. He bunks with 5 others in 2 bedroom apt.
And they are all in their mid to late 20’s from what he told me. And all are foreigners. Don’t even have h1b’s . Working on opt/cpt.
Division of place I work just lost a candidate they tried to recruit a second year in a row. He turned it down again cause he realized he can’t get a house near the ocean in bay area like he has near LA. Duh!!!
Can you share what zip code you are in ??
Probably 95 something something, SV prices are insane.
Without the rampant speculation providing large increases in revenues to their coffers, govt drones would have to be laid off en masse. All the paper pushers, meter readers, ticket writers, and public “safety ” and works mafias would be s.o.l.
‘…paper pushers, meter readers, ticket writers, and public “safety ”…’
Don’t they generate lots of their own revenues from tickets, fees, fines, etc?
If you have 23 minutes to kill:
https://youtu.be/SBjXUBMkkE8
It is a type of a porn at this point.
Like shooting fish in a barrel.
Condo prices up 55% in less than a year.
What could go wrong?
Boy, aged just 13, uses his pocket money to become one of Australia’s youngest property investors - as he buys $552,000 home
http://www.dailymail.co.uk/news/article-4716718/amp/Boy-13-buys-552-000-Melbourne-house.html
Well, he is about to get an education on economics with that investment….
So banks on Oz will loan money to minors? If he defaults, who is legally liable, him or his parents? Can minors file for BK in Oz?
Talk about surreal.
Lots missing on that story.
Casey Serin jr.
So he’s Australia’s version of Casey Serin . . .
paying rent to a 13 yr old landlord might be depressing for some. but we all know how easy-going the Aussies are, right mate?
no worries. just keep on the bitumen & mind the corrugations!
Throw another shrimp on the bar-b, mate!