More Buyers Are Needed
A reader suggested a topic on first time house buyers. “What about ‘money on the sidelines’ and a generation of delayed first-time buyers who want in, but not at current prices? Is this a possible difference from the last collapse? Whereas buyers in Bubble 1.0 had never experienced home price declines, this next crop of buyers have witnessed both a market collapse and an unprecedented market rebound in a few short years. When prices start to fall, will these people be lining up to buy at slight discounts, with the probably unreasonable expectation that prices will shoot to the moon again in a few years?”
“And will these buyers, in trying to catch a falling knife, temporarily slow what should be dramatic price declines? Or will they get cold feet when faced with the reality of falling prices with no end in sight, especially in the face of increased economic instability and falling rents?”
The Hays Daily News in Kansas. “It is no secret that Hays has been in a real estate bubble for some time. Countless young individuals and families from Hays who have been forced to move to bigger cities because they simply cannot afford to live in or move to Hays considering income potential in relation to the cost of living. This trend is startlingly clear in the most recent U.S. Census, in which the city’s longstanding population boom ground to a screeching halt in the 2000s. Between 1980 and 2000, the city’s population grew by well more than 20 percent, whereas between 2000 and 2010, the city’s experienced essentially no population growth at all.”
“It should be no surprise that the price-to-income ratio for Hays indicates real estate is grossly overvalued. The average person in Hays earns just $24,000 a year (U.S. Census, 2010). Yet a typical new construction home in Hays will cost you well over $200,000. That math simply does not work. In addition, with asking prices that easily can exceed $1 million for a single prime commercial lot (just the vacant lot), it also should be no surprise that most businesses that consider coming to Hays don’t consider it for long.”
“Unfortunately, there is simply no economic foundation to support current real estate prices. In other words, Hays cannot continue to offer Johnson County cost of living with Ellis County jobs and wages. It’s that simple. Something eventually has got to give. It is not a matter of if the Hays real estate bubble bursts — it’s when, and that is not necessarily a bad thing.”
From Chicago Now. “When I heard about San Francisco’s Downpayment Assistance Loan Program yesterday morning I couldn’t believe it. The Mayor’s Office Of Housing And Community Development will begin ‘loaning’ up to $200,000 for down payment assistance to qualified first time homebuyers who don’t have to make any payments on the loan while they live in the home - up to 30 years.”
“In lieu of interest the loan is repaid upon transfer or leasing of the property with a share of the appreciation equal to the share of the purchase price financed through the Downpayment Assistance Loan Program - because housing prices only go up, right?”
“So let’s review San Francisco’s attempts to operate a command and control housing market. First, they restrict housing development so there’s a supply shortage. Then they impose rent control, which simultaneously creates a supply shortage and increases demand. Then they come up with this downpayment assistance loan program, which increases demand. How many ways can they come up with to screw with the market? And making it easy for people to buy homes without putting in enough of their own money…isn’t that how we got into the current mess we’re still digging out of? Ditto for assuming that there will be home price appreciation to help pay off the loans.”
“In reality this program seems to be more of a political ploy than anything - an opportunity for politicians to say that they are doing something about the San Francisco housing affordability ‘crisis.’”
The Globe and Mail. “When the Occupy movement hit the headlines in 2011, we heard about the 99 per cent, but when it comes to getting a mortgage there’s another group in Canada – the 9 per cent. These are the nearly one in 10 prospective home buyers who as recently as two years ago qualified for mortgages but no longer do so. What’s a buyer in the marginal category to do? ‘The short answer is to look to the bank of mom and dad,’ says Bill Johnston, director of the Canadian Real Estate Association.”
“Another option is to lower your expectations, says Trish Bongard Godfrey, a Toronto real estate agent. ‘If people can’t afford houses they can look at condos.’”
The Daily Ticker. “There are many well-known positives of being a homeowner, such as laying down roots in a neighborhood, customizing the property to your liking, and, in theory at least, investing in long-term price appreciation. But James Altucher, investor, author and entrepreneur, argues that owning a home could be one of the biggest financial mistakes to make: ‘It is never, ever a good idea to buy a house,’ he says.”
“What’s Altucher’s beef with owning a home? ‘The house is totally illiquid, homeowners are trapped in a location, it’s not easy to move and taxes and other fees go up faster than the price of inflation,’ he says. ‘There’s no law that you have to follow the ‘American Dream’.”
“There are plenty of people like Altucher who prefer the freedom and limited responsibilities that renters enjoy. Even after a grueling housing bust, however, owning a home retains a powerful allure, with potential buyers edging back into the market. More than 60% of all families still own the home they live in — close to the historical average. And more buyers are needed to get the housing market officially back on its feet.”
From the Globe and Mail article:
‘the finish line keeps moving in popular centres where home prices are rising, such as Toronto or Vancouver. “My question for young people [seeking a mortgage] is: If someone loses their job in your household, how are you going to get out of this? You find that all of a sudden you’re in a hamster cage,” says Kristina Berg, a mortgage consultant in Surrey, B.C.’
‘Another option is to be creative about where you want to live, and how, Ms. Berg adds. Some young people are looking at co-ownership with other couples, for example – buying a house with separate living quarters and sharing the mortgage payments.’
‘Others are looking at homes that include rental units. These do cost more, though, and as a landlord, you’re responsible for upkeep in your tenants’ quarters, too. The wisest thing to do, says Ms. Berg, is to try to live within your means. The new rules are “a reality check,” she says.’
“Pay off some debt. Don’t buy a car; lease or get a used one. Save a little more.”
What exactly is the percentage of non-investor, non FHA types in the market?
Does anyone seriously think there is any organic demand now for SFHs like there used to be?
Phoenix is still building SFHs in the outer areas like crazy. The new homes are overpriced for the area and the available jobs. Once those builders start dropping the prices it’s all over.
Heresy! How will the banks get the money to buy off our ever more expensive congresspeople if each and every human in the country isn’t sending them massive interest payments each month?
We’ve been here before.
‘more buyers are needed to get the housing market officially back on its feet’
Who, exactly, needs this? Is it a matter of religion, or national greatness? I sense the media is sending mixed messages. After all, aren’t we told houses receive dozens of offers, over asking upon being put up for sale? NPR says we should write groveling letters to people who aren’t even interested in selling. This is because there is no inventory; what will these needed buyers purchase?
I’m reminded of the New York Times article years ago that suggested people who didn’t buy a house had something psychologically wrong with them.
I can do simple math, that must be my psychological affliction.
It was something along the lines of; these people are afraid of making a commitment, probably due to something that makes them insecure, etc. It was really over the top.
these people are afraid of making a commitment, probably due to something that makes them insecure, etc
That’s classic bubble-think, Ben; I seem to recall Galbraith writing about it, that one sign of a bubble is if everyone thinks your crazy NOT for not getting in on it.
Of course, by that standard, we’re not _quite_ back in the bubble mind-frame again yet—even though we seem to be back to bubble pricing in some areas.
Very, very strange.
Ben Jones:Who, exactly, needs this?
Why, the big donors of course! Seriously.
At the bottom of today’s Bits Bucket, there is a standard homeowner’s tale of woe - buying a dream home, yadda yadda, getting foreclosed. Well - someone made money on that deal (not the homeowner/patsy of course) - the realtors and the loan originators, and others in the FIRE sector.
From The February 22nd, 2014 edition of The Economist:
“Mancur Olson, a political scientist, argued that small groups of producers have a strong incentive to band together to protect existing tax breaks and subsidies because such perks are highly lucrative for them. He elaborated his theory in a book published in 1982, “The Rise and Decline of Nations”. Conversely, the millions of taxpayers and consumers who bear the costs of these privileges will each pay only a negligible amount, so they have little incentive to lobby for them to be removed. Over time, therefore, the power of special-interest groups will steadily grow, reducing the economy’s potential.
Lobbying is still dominated by the producers’ interests. An analysis by the Sunlight Foundation of lobbying related to America’s Dodd-Frank financial reform found that, between June 2010 and June 2013, federal regulators met banks 14 times more often than they met consumer groups.”
“NPR says we should write groveling letters to people who aren’t even interested in selling.”
Don’t forget that NPR is heavily supported by the National Association of Realtor®s. One shouldn’t be whatsoever surprised if their reporting on housing issues comes out sounding a lot like NAR propaganda.
‘Blackstone LP has dramatically slowed its purchase of single family homes, particularly in the formerly distressed Sunbelt markets like Atlanta and Miami…Today’s drop in existing home sales looks to be caused in part by declining affordability. The problem is that, just as rising prices have scared off investors, they have caused prospective homebuyers to pause as well.’
‘Redfin said California home sales fell to a five year low in the 11 markets it serves in the state. Surveys of local real estate agents in Phoenix, Las Vegas and Sacramento showed the same. And while many of these surveys look at home closings, a survey of buyer traffic from Credit Suisse — an indicator of closing in the future — showed a marked decline in February, suggesting the spring selling season is getting off to a slow start.’
This one’s a hoot:
‘You increasingly have to color California, particularly Orange and Los Angeles counties, a pale grey. These counties are aging far faster than the national average. From 2000-12, notes demographer Wendell Cox, the average median age of Los Angeles and Orange County residents rose by 10 percent, almost twice the national rate and well above the 6.6 percent rise for the state overall.’
‘One recent USC study predicts that the Los Angeles area, due in large part to declining immigration, will continue aging rapidly. In the next two decades, the study projects, Los Angeles County will gain 867,000 senior citizens and have 630,000 fewer residents younger than 25.’
‘San Francisco – with 80,000 more dogs than kids – has the lowest percentage of youngsters of any major American city. Even when more-suburban San Mateo County is added, the Bay Area ranks 40th in growth among people under age 4. San Jose-Santa Clara shows a very similar pattern, with people arriving in their 20s and leaving in their child-bearing years.’
‘Why is this occurring, and can anything be done to address this descent into regional senility? One answer lies in the region’s high housing prices. The L.A. area’s median multiple – the ratio of home price to a homeowner’s annual income – is now more thantwice that of more economically dynamic regions like Houston, Austin, Dallas, Atlanta, Nashville, Tenn., and Phoenix.’
‘This price pressure has sharply reduced opportunities for young couples to buy houses, while older residents, often working into their sixties, seventies or even eighties, stay in their homes, further reducing opportunities for the next generation. Mortgage applications have fallen dramatically in recent months, after some signs of resurgence. It’s now largely investors who are holding the market up.’
‘Clearly, this region, with its still-impressive assets, should be attracting both new families as well as younger singles. But this cannot reliably be done unless we begin looking at ways to encourage older people to move out of their homes, perhaps by reforming Proposition 13 and providing other incentives. We could also start allowing builders again to construct the kind of housing families need and clearly want – detached homes where land is affordable.’
‘The premature aging of this region represents an existential challenge, a harbinger of further, long-term decline.’
Dogs are really popular in SF. It reeks of dog piss, and you have to step over it constantly on the sidewalk.
Old, poor and going to the dogs.
Except I. The financial district.
A great reminder just how hideously pathetic SoCal is.
‘You increasingly have to color California, particularly Orange and Los Angeles counties, a pale grey. These counties are aging far faster than the national average. From 2000-12, notes demographer Wendell Cox, the average median age of Los Angeles and Orange County residents rose by 10 percent, almost twice the national rate and well above the 6.6 percent rise for the state overall.’
This is exactly what you get when you have in place a policy to keep young families priced out of California housing forever.
I suspect that the young families are setting up shop in the Inland Empire. OC prices are absurd. My childhood home, which my parents sold in 1971 for $25,500 has a zEstimate of 640K.
This is a very vanilla house, a 51 year old, 1500 sq ft ranch in Fountain Valley. I suppose that a dual income couple with his and hers 100K or near 100K paychecks could swing it, bit that would place them in a small and elite minority of wage earners. There’s no way an average family could afford this “starter” house, which once upon a time was in a very blue collar nabe.
I’ve heard the “money on the sidelines” phrased as “shadow households” (ie. people living at home longer).
The comment about those households coming out of the shadows in the context of a falling housing market is a very good one. If there is a broad view that homes are falling in value, those households will stay in the shadows much longer than anticipated.
This could lend to the view that this “up” housing cycle will be relatively weak in terms of housing construction, and that the next big “up” housing cycle in terms of development could be ~10 years out.
One thing that could cause these households to come out of the shadows in time for this housing cycle is if wage growth picks up before there is the next “down” part of the housing cycle, which means probably within the next 12 months (which is certainly possible given demographic factors).
“Wage growth”eh? Lol.
Expecting wages to double or triple to meet grossly inflated housing prices is a fool’s game.
“the next big “up” housing cycle…10 years out.”
Manias like this only come along one in a lifetime. You and I won’t see the next one.
The I’m thinking that the next big “up” cycle will look like the late 80’s, not the housing bubble. That was an anomaly unlikely to be replicated in our lifetimes.
Hogwash,
Stick with the next big decline.
Rental Watch is a degenerate gambler plain and simple. He’ll tell you all his big pots and leave out the losses. He’ll believe anything to avoid the freight train bearing down on him.
We’re seeing the second one right now.
Decline or freight train?
The light at the end of the tunnel is due to the oncoming freight train.
There’s one of those hopey-wishy scenarios that keeps Housing Bubble true believers in the fold.
Right. As if finally getting that 4% raise after years of zilch will make people run out and buy a house. Most know that even if they finally get a raise this year that they probably won’t get another one anytime soon.
“…will begin ‘loaning’ up to $200,000 for down payment assistance to qualified first time homebuyers who don’t have to make any payments on the loan while they live in the home - up to 30 years.”
This absolutely boggles the mind. I guess this is the first iteration of Bernanke’s helicopter money, basically giving every potential home buyer a check for $200k. And when prices coincidentally rise by that exact amount, will they then give everyone $400k and so on?
http://www.sfgate.com/bayarea/article/S-F-increases-down-payment-loans-to-1st-time-5323078.php
From the Chronicle: “The new limit… isn’t nearly enough for a home in high-end neighborhoods such as Russian Hill or Pacific Heights but offers options in more distant parts of the city like the Portola, Visitacion Valley and the Bayview, real estate listings show.”
Great. So this taxpayer money isn’t even going to the (relative) safety of a top-tier investment market, but to the “up-and-coming” neighborhoods that inevitably decline in value much faster in any downturn.
And: “Fixer-uppers or similar gems can be found in surprising places, said Olson Lee, who is not related to the mayor. ‘The aggregate numbers (on housing prices) hide that there are units that have old kitchens that haven’t been gussied up with the marble and Viking ranges,’ Olson Lee said.’”
So of course the majority of people getting $200k for free aren’t occupants, but flippers. Super.
And more: “When the homeowner sells or *refinances,* the loan has to be paid off along with a percentage of the property’s appreciation”
So the “homeowner” can pay off that government loan with a shiny new home equity bank loan. Isn’t using new loans to pay off old loans one of the reasons China is on the brink right now? And no chance of shaving off some interest payments by paying early, because the city’s cut is a fixed percentage of appreciation.
“Most of them have some savings, but not enough to buy a house,” Cheng said. “Now this gives them a better chance to buy a house over $600,000. … They at least will have some more access.”
This is the same faulty premise behind the UK’s Help to Buy, that the only hurdle to homeownership is saving enough for a down payment. But as we all know, if you can’t afford the down payment, how will you ever be able to afford the house? Especially once every last penny of those meager savings is funneled into an illiquid asset that you needed multiple combinations of loans to be able to afford in the first place?
http://www.bbc.com/news/business-26679739
“An ex-member of the Bank of England’s monetary policy committee, Adam Posen, has called the government’s Help to Buy scheme ‘mistaken’ and ‘dysfunctional’”
“”The idea of pumping up credit for middle to upper-middle class people to spend more on housing, when people have already spent too much on housing, is dysfunctional,” Mr Posen told BBC.”
‘On Jan. 1, the Federal Housing Administration reduced the maximum loan amount in Santa Barbara County from $729,750 to $625,500. This reduction has undoubtedly removed the chance for would-be homebuyers to own even the most basic single-family homes in our area as the bottom end is appearing to start at $650,000 — if you can find it.’
‘More than 650 counties nationwide had substantial decreases in their FHA-insured loan limits, adversely affecting first-time buyers throughout the nation. San Bernardino County, a fertile ground for entry-level home ownership, had its maximum loan amount cut 30 percent.’
‘The good news is that a bipartisan bill, House Resolution 4208, has been introduced in Congress by California Reps. Gary Miller, Brad Sherman, Ken Calvert and Jerry McNerney that will repeal the loan limit decreases and prevent the FHA from decreasing the loan limits in the future.’
How many thousands of dollars did these congressmen accept from NAR, NAHB and MBA before proposing this bill?
California Reps. Gary Miller, Brad Sherman, Ken Calvert and Jerry McNerney
What’s that, the LA and IE contingent?
Pardon the multiple posts, but as a native San Franciscan, I am now kind of obsessed with this story as it touches on so many imbalances and dysfunctions of the bubble economy.
From the comments on the Chronicle article: program participants “can keep up to $60k in liquid assets (retirement accounts, pensions, 401ks and related savings aren’t included). Most people I’ve known who bought a house really had to throw everything into the down payment/closing cost.”
So one aim of the program is to ensure buyers retain some savings for emergencies, job loss, retirement, etc, which makes a good deal of sense – buyers SHOULD have savings in addition to their down payment! But another way to achieve this goal other than a government program? Significantly lower house prices.
And: “Singles can earn $81k, but couples only $93k? A couple earning $42k each can’t even qualify…but a single earning $80k does.”
Another program goal seems to be remedying the imbalance between single earners and dual income families. Single people are obviously at a disadvantage because it now takes two salaries to buy a house or even rent at this point, and the more dual income households, the more prices rise to meet combined income price point.
It’s actually nice that someone is trying to address this anti-feminist tragedy (think about it: a woman once again needs a husband/wife/boyfriend/girlfriend/sugar daddy/government program in order to buy or rent a house because she can’t afford to do so on her own. WHERE are Germaine Greer and Gloria Steinem and why are they not leading riots in the streets over this?) But another way to address this imbalance? Significantly lower house prices.
‘WHERE are Germaine Greer and Gloria Steinem’
Flipping houses?
Lol! So true.
Went to our local Home Depot last week and the parking lot was fuller than I have ever seen it, huge long lines for everything from building materials to bathroom fixtures to flowers. And this was midday on a Friday. So apparently no one in the Bay Area has an actual job other than fixing up houses and selling them to each other.
Forget about retirement in that house. They will give you incentives to move out as you age.
“It’s actually nice that someone is trying to address this anti-feminist tragedy (think about it: a woman once again needs a husband/wife/boyfriend/girlfriend/sugar daddy/government program in order to buy or rent a house…”
Yes, but today it looks as though a man needs a woman’s income for those same things. So perk up!
Actually you don’t have to marry the opposite sex anymore, further clouding the issue.
“It’s actually nice that someone is trying to address this anti-feminist tragedy (think about it: a woman once again needs a husband/wife/boyfriend/girlfriend/sugar daddy/government program in order to buy or rent a house because she can’t afford to do so on her own.”
You must have missed the piece several days ago from New York where some pecker-head is calling for more childcare subsidies so that the second income could help the home price recovery.
will begin ‘loaning’ up to $200,000 for down payment assistance to qualified first time homebuyers who don’t have to make any payments on the loan while they live in the home - up to 30 years
You can buy a nice house in Greeley for less than 200K. If I could get a “loan” for 200K that I don’t have to repay for up to 30 years, I could live for free in Greeley.
‘To hear Steven Gluckstern tell it, Mortgage Resolution Partners could be the vehicle to keep struggling homeowners out of foreclosure and spur consumer spending. Gluckstern is chairman of the San Francisco-based firm, and his company has laid a unique proposal before San Bernardino County and the cities of Fontana and Ontario.’
‘Mortgage Resolution Partners has proposed that the county use eminent domain to seize control of underwater mortgage loans. Those loans would be replaced with new loans that better reflect the current market value of the home, with more affordable monthly payments.’
“The county is intrigued by the idea,” county spokesman David Wert said. “We think it could address a significant portion of the crisis, but we don’t know yet what the unintended consequences might be.”
‘If the county uses the power of eminent domain to acquire and renegotiate mortgages, it might make mortgage lenders reluctant to write more mortgage loans for fear that they might be seized and re-written, Wert said.’
“Some groups are already asking lenders to stop writing mortgage loans in San Bernardino County,” he said. “But we have 150,000 families in San Bernardino County alone that are underwater with no hope of selling their homes. They can’t get out from under these mortgages.”
‘La Puente Mayor Dan Holloway acknowledged that his city has seen its share of home foreclosures. But he said he has doubts about Mortgage Resolution Partners’ strategy. “I don’t think it would work at the local level,” he said. “Most small cities like La Puente have financial deficits. This would be tying up a lot of assets over a period of time when local governments don’t have the liquidity to do that.”
‘More than 11 million families are now underwater, and nearly 3 million of those families are in default and on their way to foreclosures that will depress home prices further, fueling still more foreclosures.’
‘On Thursday, industry tracker RealtyTrac released new figures showing that banks are increasingly placing homes with unpaid mortgages on a countdown that could send a wave of new foreclosed properties onto the market by early next year, potentially weighing further on home values.’
‘Marty Rodriguez, owner of Century 21 Marty Rodriguez in Glendora, questioned the morality of Mortgage Resolution Partners’ program. “I just can’t see rewarding people who took out loans they couldn’t afford,” she said. “Why do we continue to reward these people?”
“I just can’t see rewarding people who took out loans they couldn’t afford,” she said. “Why do we continue to reward these people?”
The owner of a _realty_ brokerage said this???
This is one of the most shocking things I’ve heard yet!
“It should be no surprise that the price-to-income ratio for Hays indicates real estate is grossly overvalued. The average person in Hays earns just $24,000 a year (U.S. Census, 2010). Yet a typical new construction home in Hays will cost you well over $200,000. That math simply does not work. In addition, with asking prices that easily can exceed $1 million for a single prime commercial lot (just the vacant lot), it also should be no surprise that most businesses that consider coming to Hays don’t consider it for long.”
The story during the pre-2006 Housing Bubble price blowout was that there was no bubble, though a few markets (e.g. coastal Cali) were ‘a bit frothy.’
With Kansas home prices selling for near 10X income, the froth this time around is extreme and ubiquitous.
Yes. This is the mother of all. Strangely enough, far fewer suckers took the bait on the rebound/dead cat bounce.
I think Ella nailed it with this:
‘Whereas buyers in Bubble 1.0 had never experienced home price declines, this next crop of buyers have witnessed both a market collapse and an unprecedented market rebound in a few short years’
this next crop of buyers have witnessed both a market collapse and an unprecedented market rebound in a few short years’
Agreed, Ben—and I worry about how that will affect the decision-making process that potential buyers will apply in the next downturn. Will more of them be inclined to be bottom-pickers, since they have seen a dramatic downturn morph into a dramatic turnaround?
In other words, has the Fed’s manipulation sown the seeds of future inappropriate expectations?
Kansas! Everybody in the country could move there and it still wouldn’t be crowded.
And just in case Kansas ever gets too crowded, Mother Nature has a remedy.
200K in BFE Kansas?
I did look Hays up on wiki. the 24K number is what they call “per capita” income. Not sure what exactly that is. It also said:
“The median income for a household was $44,227, and the median income for a family was $62,775. Males had a median income of $35,905 versus $31,379 for females.”
Still, 200K seems a bit high for a town of 20K people in the middle of rural Kansas. If there is a town where houses should cost what HA claims they should, this sounds like the place.
“So let’s review San Francisco’s attempts to operate a command and control housing market. First, they restrict housing development so there’s a supply shortage. Then they impose rent control, which simultaneously creates a supply shortage and increases demand. Then they come up with this downpayment assistance loan program, which increases demand. How many ways can they come up with to screw with the market? And making it easy for people to buy homes without putting in enough of their own money…isn’t that how we got into the current mess we’re still digging out of? Ditto for assuming that there will be home price appreciation to help pay off the loans.”
This kind of scheme could only possibly make sense to the big economic thinkers of the People’s Republic of San Francisco.
‘Australia - The crisis confronting first-home buyers has been questioned by new research that found young people have not been priced out of the property market and remain in the market under a different guise: as investors.’
‘While official data shows the level of first-home buyers has slumped to record lows, a report by Macquarie and research group RFi found the surge in prices was driving the younger generation to buy property such as apartments as investments, rather than purchasing as owner-occupiers.’
‘The strategy allows buyers to get a foot in the property door while living with their parents and helps explain the massive surge in loans to investors in the past year. It may also quell concerns about the fallout from any investor-led housing bubble in inner-city markets such as Sydney’s, given that younger investors would be less exposed to a spike in unemployment when living with their parents.’
“Counter to popular opinion, we find that much of the investor demand has actually been from middle-high income young individuals and in that sense is actually pseudo-first-home-buyer demand,” said Macquarie banking analyst Mike Wiblin. “In this sense we believe the first-home buyers are back, although they are choosing to invest in — rather than occupy — properties given affordability issues. This situation is sustainable and is likely to continue.”
“…the surge in prices was driving the younger generation to buy property such as apartments as investments, rather than purchasing as owner-occupiers.
The strategy allows buyers to get a foot in the property door while living with their parents and helps explain the massive surge in loans to investors in the past year.”
Kidz who don’t have enough dough on hand to move out of their parents’ basements are doubling as residential investors in apartments. How crazy is that!?
Here’s another one:
‘In some local housing markets, there are simply more buyers shopping than there are sellers with “for sale” signs at the curb.’
‘Joyce Wang and her husband found recently that this can be a recipe for bidding wars. The young couple wanted to buy a condominium in Boston and learned that the neighborhood they had selected is in hot demand.’
‘Sellers can sometimes take for granted that they’ll have multiple offers to choose from, Ms. Wang says. “They say on the listing, we’re going to be examining offers Tuesday afternoon,” after the opening weekend, she says.’
‘In February, the couple put in an offer on one condo for $20,000 above the listing price, but the bid wasn’t good enough to be in the running. That prompted a change in strategy: They shifted away from the most sought-after blocks – where investors were snapping up properties to rent to college students – and decided they could live with commuting by bus rather than subway.’
‘By late February, Wang and her husband had struck a deal for a condo they could afford. In Boston’s pricey market, where neither owning nor renting comes cheap, they now hope to build equity in a home of their own – and to save some money. “Our rent next year would have been higher than the cost of mortgage and condo fees,” Wang says.’
Here’s the key point:
‘they now hope to build equity’
This couple is speculating. On a condo! It’s not even real estate Joyce.
No demand eh? Demand falling 5 years on a row? Demand now at 1995 levels and falling? Excess supply? More supply added every day? Prices grossly inflated 250% higher than long term trend?
Mr. Housing, meet Mr. Oil.
http://www.usfunds.com/media/images/investor-alert/-2012-ia/2012-11-30/Oil-in-th-US-rising-supply-and-declining-demand_Alert-11302012.gif
There is something going on. Wake up.
“…when it comes to getting a mortgage there’s another group in Canada – the 9 per cent. These are the nearly one in 10 prospective home buyers who as recently as two years ago qualified for mortgages but no longer do so. What’s a buyer in the marginal category to do?”
1. Rent.
2. Live in Mom’s and Dad’s basement.
3. Stay priced out forever.
Keynes provides the rationale / cover / excuse for both the government and central bank’s support of 1) the housing market and 2) trickle up policies:
• On trickle up policies (i.e. incentivizing debt and speculation): “How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeoisie and the intelligentsia, who with all their faults, are the quality of life and surely carry the seeds of all human achievement?”
• On housing policy: “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like;”
a) San Francisco has no rent control for new construction (it’s been outlawed at the state level) and the supply of rent-controlled apartments is an ever-decreasing resource as rent-controlled buildings are turned into condos or are redeveloped. Rent control isn’t causing higher housing prices in San Francisco.
b) San Francisco is built out. San Francisco has strict building regulations, true, but there is literally no vacant land to build upon even if it had loose regulations. All current development, such as the condo/loft development down in SoMa, are redevelopment infills where a current property is bought for a quite large sum of money, demolished, and a new condo/loft tower built in its place. The new condo or apartment will be expensive because that’s the only way that the developer can make money on it, otherwise the developer would declare bankruptcy and leave the building vacant until the bankruptcy trustee can find a buyer capable of recapturing maximum value for the lenders (which can take years). In short, it’s easy to sneer about building regulations in high value areas like San Francisco being the problem when you haven’t a clue about the reality of a built-out area. Where there is no open land, it is the price of buying and tearing down currently-existing structures, not building regulations, that makes it really expensive to build.
I’m not sure what San Francisco is supposed to do here other than what they’re doing. They can’t create new land out of thin air. This isn’t Phoenix surrounded by hundreds of miles of flat buildable desert. There’s water on three sides of San Francisco, and other cities on their south.
So surrounding towns are incorporated into the city of SF, just like small cities have always done. There’s your “open land”.
And considering there is a globe full of land and 95% of goes undeveloped, there is no “shortage of land”.
I don’t think prices will rebound as radically as they did next recession. Private industry really brought us back from our deep recession, and next time we do have one, I do not think private industry will be here to make the necessary investment to bring us back out of it.
Of course. Realtors Are Liars.