Investors Faced With Rising Prices They Helped Create
A report from the Coloradoan. “Doug Dohn of Dohn Construction, one of Fort Collins’ largest contractors, said he doesn’t have one job that is adequately staffed with the trades. That means construction companies are forced to increase both wages and what they bid for construction jobs. That translates into higher construction costs and higher home prices for buyers. In certain segments, like apartments, construction costs have gone up 25 percent in the past year, Dohn said. And in a city with rock-bottom vacancy rates and rising rental and home prices, a 25 percent price hike is unwelcome news. ‘Affordable housing is a thing of the past,’ he said. ‘The costs don’t work.’”
The Gazette in Colorado. “The Pikes Peak region’s recent housing slowdown continued in April. Sales have declined for six straight months on a year-over-year basis, according to a report by the Pikes Peak Association of Realtors. Meanwhile, the median price - or mid-point - of homes that were sold in April dipped 0.7 percent to $213,500, the association’s report shows. Prices have declined for two straight months after having risen each month for nearly two years.”
“While state and federal employment numbers have improved, the Pikes Peak region still has a ways to go in terms of creating jobs, said Rick Van Wieren, a real estate agent with Re/Max Properties in Colorado Springs. ‘We’re still feeling the effects of a very slow economic recovery,’ he said.”
Arizona State University. “Phoenix-area home prices quickly rose from a recession low point in September 2011 until last summer, when the jumps slowed down. Then, this January and February, we saw the first two back-to-back monthly drops in the area’s median single-family-home sales price. This March, we saw that dip erased, but probably not for long. ‘The bounce is a normal effect of the busy spring sales season, combined with a lot more high-priced homes in the current sales mix,’ says the report’s author, Mike Orr, director of the Center for Real Estate Theory and Practice at the W. P. Carey School of Business.”
“We no longer have a tight supply of homes for sale like we did at this time last year. Supply stabilized in March, with 64 percent more listings this April 1 than last April 1. However, low demand continues to be a problem. Single-family-home sales activity was down 20 percent this March from last March. Some of the drop comes from regular home buyers, but also institutional investors are just not as interested in Phoenix. The percentage of residential properties purchased by investors in the Phoenix area this March was down to 17.4 percent from the peak of 39.7 percent in July 2012.”
“‘The institutional investors are doing very little buying or selling in the Phoenix area at the moment,’ says Orr.”
AZ Family in Arizona. “Michael Orr from the W.P. Carey School of Business expects some of them to get back in the market starting next year thanks, in part, to eager lenders. Orr has been a reliable source for us. A year ago, he cautioned potential buyers who may have been waiting for the bottom to fall out again. ‘It is probably not a particularly good idea to wait for prices to come back down,’ he said. ‘I doubt that they will.’”
Ahwatukee Foothill News. “Cash buyers are losing their enthusiasm for the Phoenix area. Cash purchases during the first quarter were about 3,500 for local homes, but plunged 38 percent from the same period last year, according to research by Fletcher Wilcox, VP of business development for Grand Canyon Title Agency Inc. ‘In March 2013, purchases with conventional loans outnumbered cash purchases by only 96, but in March 2014, the gap widened to 715 more conventional loan purchases,’ Wilcox said.”
“According to the latest ASU housing report, single-family home sales were down 17 percent year-over-year. Even with a 12 percent increase in listings priced below $150,000 where the supply shortage had been most severe and demand highest sales in that range plunged by 47%. For sellers it means fewer showings, longer wait times for offers and falling prices. The disconnect between sellers and buyers can partially be explained because sellers operate on what they read in the news, which is always based on data that’s one or two months old and buyers who operate on current knowledge.”
“‘A larger portion of the population is simply choosing to rent, instead of buy,’ according to Mike Orr, at Arizona State University. ‘If the current cooling trend that started in July continues for much longer, 2014 could easily see average and median home prices move a little lower than they were at the end of 2013.’”
Vegas Inc. in Nevada. “For just the third time in more than two years, Las Vegas home prices have slipped a little. The median sales price of previously owned single-family homes in Southern Nevada last month was $192,000, down 1.5 percent from March but still up 15 percent from a year ago, according to the Greater Las Vegas Association of Realtors. Faced with rising prices they helped create, investors have been scaling back on local purchases. And homeowners, perhaps emboldened by the market’s rebound, are seeking more and more money for their houses and increasingly not getting any bites.”
“Buyers paid cash for 41 percent of the used homes that sold last month, down from a peak of almost 60 percent in February 2013, indicating a drop in investor spending. Moreover, 6,420 single-family homes were on the market last month without any offers. That inventory more than doubled from a year ago, the GLVAR reported. GLVAR President Heidi Kasama said she’s not surprised the market is ’starting to level off a bit.’ ‘Prices have to balance out eventually,’ she said in the report.”
Reno News & Review in Nevada. “There’s no doubt our market is on the upswing. In in the last year, it’s shown as much as 30 percent appreciation in areas such as South Meadows/Double Diamond, and about a 25 percent bump on average. And although Nevada still has the third-highest foreclosure rate in the country, according to RealtyTrac, the biggest problem for first-time buyers may just be the fact that houses in their price range are being snapped up so fast that they’re hard to find.”
“But some say the whole market—or the way it looks, anyway—is a bit manipulated. My own agent, longtime real-estate agent Clay Alder, prefers to use the word ‘influenced.’ In a nutshell, Alder figures as many as 7,000 to 12,000 or more Reno-area homes that could be for sale right now aren’t, for various legal reasons. And in the unlikely but conceivable event they should all materialize at once, we’ll be in trouble.”
“‘Let’s say there are 7,000 [such] homes out there,’ he explains, noting that he’s not trying to sound alarmist. ‘If those homes were all to come on the market tomorrow, it would change the supply-and-demand model, and subsequently, I believe our market would drop in value.’”
“He’s referring to shadow inventory. And even right now, with the market beginning to stabilize, ‘the ingredients are there,’ Alder says, for a fallout to happen. It’s probably not imminent, seeing as banks wouldn’t want to destroy the market for themselves, but it’s technically possible. Before A.B. 284, Washoe County averaged more than 500 defaults a month, says Steve Schiller, president of Ticor Title’s Northern Nevada branch. As soon as the bill became effective, that number dropped to 13.”
“‘I think we can all agree that not all those people just started massively making their payments,’ says Schiller, who combed county and MLS records last year and came up with a high-end estimate of around 12,000 homes in shadow inventory. ‘These were still people who should have been going through the foreclosure process but weren’t, because the lenders either weren’t comfortable or couldn’t comply with the new statute.’”
“‘There are a lot of folks who are just in a stalemate with lots of lenders,’ says Tom Traficanti, the executive VP at Heritage Bank, citing daily market reports. ‘It’s probably hundreds of people, if not thousands, who are simply not paying their loans, and the banks are not doing anything about it. … I look at the numbers, and I think, ’How can this be?’”
“Alder figures as many as 7,000 to 12,000 or more Reno-area homes that could be for sale right now aren’t, for various legal reasons. And in the unlikely but conceivable event they should all materialize at once, we’ll be in trouble.”
3007 counties in the US. (3007 counties)(7000 excess housing units/)= 21,049,000 excess empty houses.
Oh dear.
Yet they are building a frighteningly high number of new houses in SE PHX. Every vacant lot is being graded. Whole new parcels being opened up. Based on no demand! It’s nutso crazy. Live for today home builders. What could they be thinking?
“What could they be thinking?”
1. We financed it with OPM.
2. When it goes belly up again, we will lose OPM, not ours.
YeH I think that’s right. There is a signal from rising prices that when plugged into a spreadsheet and compared to historical periods will show those Other People that they should invest their money now because it’s a sure winner (as long as they ignore common sense).
“Doug Dohn of Dohn Construction, one of Fort Collins’ largest contractors, said he doesn’t have one job that is adequately staffed with the trades. That means construction companies are forced to increase both wages and what they bid for construction jobs. That translates into higher construction costs and higher home prices for buyers. In certain segments, like apartments, construction costs have gone up 25 percent in the past year, Dohn said. And in a city with rock-bottom vacancy rates and rising rental and home prices, a 25 percent price hike is unwelcome news. ‘Affordable housing is a thing of the past,’ he said. ‘The costs don’t work.’”
Funny stuff this one. When times get tough in the wood pecker business and they have to actually compete, these guys do one of two things
a)They start sniffing around and bidding on more lucrative work in the broader construction biz. They fail miserably at this.
b) Cry poverty and claim they can’t compete slapping together sticks and plys.
It might also mean that even minimal enforcement at the border leads to a livable wage being paid to Americans.
Racis
It just means that the oil patch was ramping up at the same time that the construction boom was winding down. Around 2007-2008 the skilled guys shifted to the oil patch and don’t want to go back to lower pay and less security.
I supsect that this article would apply only to oil patch areas; it’s not a nationwide trend.
Yeah because every drilling outfit is going to hire a non-allied trade carpenter to run their rigs.
Jiminy crips woman…. engage brain before opening mouth.
Worth noting that Fort Collins housing demand has collapsed 15% YoY and still falling like a lead brick.
http://www.zillow.com/local-info/CO-Fort-Collins-home-value/r_4764/#metric=mt%3D30%26dt%3D1%26tp%3D4%26rt%3D8%26r%3D4764%26el%3D0
Paso Robles Housing Prices Dump 26% YoY; Flailing Demand Cripples Market
http://www.movoto.com/paso-robles-ca/market-trends/
San Jose, CA Housing Prices Turn Negative As Inventory Balloons 40%
http://www.movoto.com/san-jose-ca/market-trends/
“’But some say the whole market—or the way it looks, anyway—is a bit manipulated. My own agent, longtime real-estate agent Clay Alder, prefers to use the word ‘influenced.’”
And they also like to use the word “homeowner” in place of the word “homebuyer”, and using one word instead of another tends to alter one’s thinking.
“In a nutshell, Alder figures as many as 7,000 to 12,000 or more Reno-area homes that could be for sale right now aren’t, for various legal reasons. And in the unlikely but conceivable event they should all materialize at once, we’ll be in trouble.”
Strangely, these “various legal reasons” just happen to be of benefit to the bank, because …
“‘Let’s say there are 7,000 [such] homes out there,’ he explains, noting that he’s not trying to sound alarmist. ‘If those homes were all to come on the market tomorrow, it would change the supply-and-demand model, and subsequently, I believe our market would drop in value.’”
“He’s referring to shadow inventory. And even right now, with the market beginning to stabilize, ‘the ingredients are there,’ Alder says, for a fallout to happen. It’s probably not imminent, seeing as banks wouldn’t want to destroy the market for themselves, but it’s technically possible. Before A.B. 284, Washoe County averaged more than 500 defaults a month, says Steve Schiller, president of Ticor Title’s Northern Nevada branch. As soon as the bill became effective, that number dropped to 13.”
“‘I think we can all agree that not all those people just started massively making their payments,’ says Schiller, who combed county and MLS records last year and came up with a high-end estimate of around 12,000 homes in shadow inventory. ‘These were still people who should have been going through the foreclosure process but weren’t, because the lenders either weren’t comfortable or couldn’t comply with the new statute.’”
“‘There are a lot of folks who are just in a stalemate with lots of lenders,’ says Tom Traficanti, the executive VP at Heritage Bank, citing daily market reports. ‘It’s probably hundreds of people, if not thousands, who are simply not paying their loans, and the banks are not doing anything about it. … I look at the numbers, and I think, ’How can this be?’”
Let’s see if I understand this:
The banks “want” to foreclose but they can’t because of legislation and so this legislation ends up restricting the supply of houses that are put up for sale, and restricting the supply pushes up the prices, and pushing up the prices pushes up the values, and pushing up the values of houses pushes up the values of the underwater mortgages that are backed by these houses PLUS when the bank decides to drop the hammer and foreclose on the occupants (note: I did not say owners) they will have a high-priced market to sell the house into.
Well, it looks like I did a fine job in screwing this post up.
Back to my coffee pot.
Back to the bakery!
End Result: Housing Demand is collapsing further pushing up inventory
Solution: ____________________
About year ago, I posted some quotes; I think it was the Nevada Attorney General, saying there wasn’t anything forcing a complete stop to foreclosures, implying the lenders were using these laws as an excuse to restrict supply.
Which is sponsored and encouraged by the Fed, who’s rule is mark to fantasy accounting.
From AB 284:
“Legislative Counsel’s Digest:
Under exiting law, the assignment of a mortgage or the beneficial interest in a deed of trust may be recorded. (NRS 106.210, 107.070) Section 1 of this bill requires such an assignment to be recorded in the office of the county recorder of the county in which the real property is located.
Sections 4, 7 and 8 of this bill increase from $500 to $1,000 the civil liability of a mortgagee or trustee or beneficiary under a deed of trust who fails to discharge the mortgage or deed of trust within 21 days after the obligation secured by mortgage or deed of trust has been satisfied.
Section 6 of this bill prescribes certain duties of a trustee under a deed of trust and provides for a civil action against a trustee under certain circumstances.
Section 9 of this bill requires a notice of default and election to sell real property subject to a deed of trust to include an affidavit setting forth certain information concerning the deed of trust, the amounts due, the possession of the note and the deed of trust and the authority to foreclose.
Section 9 also provides for a civil action against a person who exercises the power of sale under a deed of trust without complying with the provisions of law governing the exercise of that power.
Existing law authorizes certain persons to request a statement of the amount necessary to discharge a debt secured by a deed of trust. (NRS 107.210) Section 12 of this bill adds to the information required to be provided in this statement: (1) the
identity of the trustee, any trustee’s agent, the current holder of the note, the beneficiary of record and the servicers of the debt; and (2) if the debt is in default, the amount in default, the principal, interest, default fees and the cost and fees
associated with the exercise of a power of sale.
Section 13 of this bill revises provisions relating to the crime of mortgage lending fraud by: (1) providing that a person who commits mortgage lending fraud is subject to a civil penalty of not more than $5,000; and (2) authorizing the owner or the holder of the beneficial interest in the real property to bring a civil action for damages suffered because of the conduct and for attorney’s fees and costs.
Section 14 of this bill revises the crime of making a false representation concerning title and increases the penalty for such a crime from a gross misdemeanor to a category C felony. If the person engages in a pattern of making false representations concerning title, the person is guilty of a category B felony. In addition, a person who commits this crime is subject to a civil penalty of not more than $5,000, and the owner or the holder of the beneficial interest in the real property may bring a civil action for damages suffered because of the false representation and for attorney’s fees and costs. ”
The process became more complicated, and penalties for not following it went from a misdemeanor to a felony.
Nothing stopped banks from foreclosing, but it certainly made them more cautious.
Seems like they HAVE started to deal with the distress somehow or another though. Non-current loan rates in NV were upwards of 11% as recently as late last year, now just below 9% and falling. Increase in short sales?
La Jolla, CA Housing Prices Plunge 15% YoY As Housing Demand Wanes
http://www.movoto.com/la-jolla-ca/market-trends/
The Fort Collins construction article is a good one. Their trade workers left construction to go to the oil patch. The Hispanic workers just left (self-deport?). Now they blame high schools for focusing on knowledge jobs instead of vocational training.
But why would apartment construction command a higher price? I guess the plumbing and electrical are on a larger scale? HA, any insight?
“But why would apartment construction command a higher price?”
Reading something that isn’t there? Again?
I’ll let you be the judge:
“That means construction companies are forced to increase both wages and what they bid for construction jobs. That translates into higher construction costs and higher home prices for buyers. In certain segments, like apartments, construction costs have gone up 25 percent in the past year, Dohn said.”
This implies that apartment construction uses more expensive labor than, say, SFH. I was asking the HBB construction expert why that could be.
If the article were to be believed, input costs are up for one structure but not another?
It sounds like something for your fertile imagination.
Is this code for “We need more illegals”?
I ask because back during the boom there was a lot more construction in Larimer County than there is now, and there was no labor shortage. When that boom ended many of the illegals moved on. I’m sure that the more skilled local boys (electricians, plumbers, trim carpenters, etc.) are all still here. I know a guy who is a plumber and he isn’t exactly swamped with work.
Cash buyers are losing their enthusiasm for the Phoenix area.
Yep, just like I said. Plus these ain’t cash buyers. They are people using borrowed cash from other sources than a mortgage. Shills want to ignore PHX and point to the Bay Area. PHX is more relevant to the rest of the country and PHX is falling because the unsustainable price increases were not based on real demand, but instead on flipper investors hoping to make a buck.
…… and losing their shirts.
There’s an all-cash house up for sale behind my abode. Was bought by a college kid back in ‘06. He tried to flip it in ‘07. Didn’t work. This is the third time he has tried to sell since ‘07.
I’ve never met the guy, but I think his parents HELOC-ed their place to get him into real estate. Big mistake, Mom and Dad.
“We need more illegals”
Don’t worry. The libtard COEXISTers and the GOP Chamber of Commerce gang are working overtime to turn on the spigot full blast and let the Mexodus resume.
Politics does make for strange bedfellows.
A thin line of tea party folks is really the only thing holding it back.
‘It’s been seven years since the housing bubble burst but you may have noticed an increase in construction projects lately. New planned communities are popping up all over northern Nevada, with more and more people buying new homes. “The resale market has shrunk, we’re seeing people coming from California, we’re seeing people wanting new houses,” Kenneth Hendrix, Managing Member of Jenuane Communities and KDH Builders said.’
“It’s the American Dream,” Mike Dillon, Builders Association of Northern Nevada Executive Director said. “Everybody eventually is going to want to get back in a house again.”
‘The number of building permits, in Washoe County, has tripled in recent years. “Five years ago, we were doing 400 permits, which was nothing,” Dillon said. “Then that doubled to 800. Then we were at 1,200.”
‘As many as 1,400 building permits are expected this year. Still a far cry from the 6,000 during the peak of the housing boom. “I think if we can get into that one or two percent growth rate where you have about 3,000 homes, 2,500 homes being built a year, that’s ideal,” Dillon said.’
‘Despite Nevada’s 8.8% unemployment rate, contractors are having a hard time finding skilled workers to fill open positions. “We have lost a lot of people that were in that when we were in the big boom and a lot of those people have left or are doing other things now,” Dillon said.’
‘New home prices in The Overlook at the Pinnacles, in Sparks, are between $270-330,000, and interest rates are still in the low fours. But with demand and prices both rising, Dillon says he doesn’t expect another bubble. “Homes should still be able to hold their value and it’s still an affordable price,” Dillon said.’
There is no demand for these. I think the big home builder projects are like movies being made in Hollywood. It doesn’t matter what it makes at the box office because all the players have already gotten paid along the way. Might as well take the gamble. Plus, if you can’t sell the government will bail out housing again.
I’m pretty sure that’s the thinking. It’s a freeroll.
‘Home prices kept climbing last year and a Wall Street Journal report based on Deutsche Bank statistics said renting a home in the Valley has become cheaper than buying a home. Austin, Texas and Sacramento, Calif., join Phoenix in that category. Realtor Diane Brennan, host of “That Real Estate Show” on 92.3 KTAR, disagrees with the notion metro Phoenix is a renter’s market.’
“Rents will keep going up, which will only make owning a home more affordable and you get the bonus of building equity in your own home,” Brennan said.’
‘But she also said the millennial generation was having an impact. “They’re smart, they don’t want to take on more debt on top of student loans. They are one of the most educated generations that we’ve seen,” Brennan said.’
Yet rental rates remain 50% less than the cost of principal, interest, taxes and depreciation at current median asking prices of resale housing.
Strange world indeed.
building equity in your own home
How many years after move in does this occur after paying the transaction costs and massive amounts of interest as a percentage of the loan up front ?
Balance against buying after a 20+ percent runup and the equity you would “build” with the risk of loss of that same 20 percent or more.
What goes up, must come down.
“They are one of the most educated generations…”
The last generation to get an education in the hazards of a credit bubble have long since passed away. It’s been Spring Break for the last 80 years.
“They are one of the most educated generations…”
Most college graduates today could not pass the same test that was administered for graduation from high school in the early 1900’s. If you debase the currency enough anyone can hold a college degree.
No, they think they know it all. Big difference!
Most college graduates today could not pass the same test that was administered for graduation from high school in the early 1900’s.
I’ve seen some of those tests. IIRC, a lot of the questions ask some rather arcane and obsolete stuff.
“Rents will keep going up, which will only make owning a home more affordable
No, owning will not be “more” affordable. This just makes both renting and buying equally unaffordable.
And this is how Mr. Banker likes it. A price war is no longer lowering your price below the other guy. A price war is now increasing your prices less than the other guy, forcing people to pay your price increase because it’s the lesser of two evils. Legal price fixing.
“forcing people to pay your price…”
That would be awful.
It has nothing to do with what the Millenials “want”. They are not allowed to borrow any more money until they can start earning enough to pay their current debts.
Ironically, these broke millenial baristas may ultimately wind up as Zerohedge’s desireable “Household B,” from the other post. Live in Grandma’s paid-off house with low expenses simply because they can’t afford more. No college loans because they defaulted (eventually). No college loans for kids because they learned from Barista dad and took up plumbing instead. There’s an Sbux on every corner, so Grandma’s house is bound to be “near work.” Qualify for Obamacare subsidy.
The trouble is that most parents have more than one kid, and each kid in turn has more than one kid. Will they all move into grandma’s house?
This is why I moved to a boat. Only room for me and my girlfriend after the dinner dishes have been washed.
“The trouble is that most parents have more than one kid,”
And that’s why the house gets liquidated. Only another 35 million houses to liquidate.
‘Jose Valencia was shaking his head as he walked out of the conference room at the Americana Quality Inn last week. The 45-year-old Rio Rican was one of 58 local residents who showed up at a housing counseling event last Wednesday to navigate the complex world of home finance after they ran into mortgage trouble during the economic crisis.’
‘For Valencia, the decline of the housing market was a one-two punch, taking away his job in construction and making it difficult to afford mortgage payments. In addition, house prices fell and his home is now worth half of what he paid for it, he said.’
“There’s a lot of people out of work. If they don’t get help, they’ll lose their homes,” he said.’
”Nogales residents Oscar and Beatriz Santa Cruz were at the counseling session last week to see if they qualified for a loan modification. When they both were working, they earned too much income to qualify for a loan modification, said Beatriz, 46. Now, only one of them is working and they don’t earn enough to qualify.’
‘The Santa Cruz’s made partial payments on their mortgage until September, but finding themselves in a tough spot, they went to the counseling session to see about qualifying for the relief fund.’
‘Nogales resident Alva Irastorza, 52, said she was looking for a way to lower the interest rate on her mortgage without losing the equity she has built up for the past eight years. “I’m just fighting for my home,” she said after sitting down with representatives of the Pio Decimo Center of Catholic Community Services.’
Doesn’t Jose know how to pick strawberries?
If Jose hasn’t paid off his mortgage then it’s not his house - it belongs to the bank.
Where are all the John Smiths and Sally Martins?
“Supply stabilized in March, with 64 percent more listings this April 1 than last April 1.”
If it keeps stabilizing at that rate, they will soon have inventory out the wazoo.
According to Movoto, inventory is up 86%, not 64%. If you just look at single-family homes inventory is up 98%.
“He’s referring to shadow inventory. And even right now, with the market beginning to stabilize, ‘the ingredients are there,’ Alder says, for a fallout to happen. It’s probably not imminent, seeing as banks wouldn’t want to destroy the market for themselves, but it’s technically possible. Before A.B. 284, Washoe County averaged more than 500 defaults a month, says Steve Schiller, president of Ticor Title’s Northern Nevada branch. As soon as the bill became effective, that number dropped to 13.”
Given that the shadow inventory is effectively contained from now on forevermore, why do people even bother to worry about it any more?
https://www.youtube.com/watch?v=1J8Feyr38Ss
“Look, all the Thai’s are running.”
“Maybe the earthquake affected the water.”
“Nahh.”
‘‘Some people never learn.” So says Catherine Rampell of The Washington Post, who joined the trendy chorus of homeownership naysayers in her column in The New Mexican (“Home investment? Not always best,” April 23). She argues that stock market investment is so much smarter than home purchase and that anyone who thinks otherwise must be the prisoner of an uninformed fetish.’
‘There are many problems with this argument, the first of which seems so obvious. You can’t live in the stock market…Rampell points to the relatively low appreciation rates of housing as the proof that it is not a good use of the typical American’s savings. Citing the fashionable Robert Shiller, she notes that housing has only appreciated at an annual compound rate of 0.3 percent when adjusted for inflation compared to 6.5 percent for the S&P 500 Index. No more discussion needed, right?’
‘Wrong. To really solve this math problem, you have to ask: 0.3 percent of what? A homeowner earns appreciation on the entire value of the home, regardless of the amount of cash he invested initially, which boosts his effective return. Homeownership is the only investment vehicle available to the typical American that offers this leverage factor.’
‘Let’s say someone has $10,000 to use as either a downpayment or to buy a mutual fund. If he used that for a $200,000 home, after a year, he would have earned $600 in appreciation. If he puts that same 10 grand into a mutual fund tracking the S&P 500, he’ll earn $650, just a touch more. If he could eat, sleep, play with his kids, watch TV and enjoy a cold beer in that mutual fund, it would be the clear winner. But he can’t, and so homeownership starts to look a lot better.’
‘What about the risk? Yes, home prices can fall, but so do stock prices. Stock prices fell 50 percent after both the tech bust and the housing bust. Home prices fell 35 percent in the housing bust. Sure, the renter won’t lose any equity if home prices fall, but that’s only because he hasn’t got any.’
‘The next argument is that any return the homeowner does earn is lost to the costs of maintaining that home. The critics ask, wouldn’t it be so much better if a landlord had to pay for things like replacing the water heater, fixing the roof and servicing the furnace? Do these critics really think the landlord pays for maintenance and repairs out the goodness of his heart? That he never passes along his costs to the tenants? Make no mistake, the tenant pays for all of those things in his monthly rent, which goes up year after year at unpredictable rates.’
‘Urging Americans to rent is in vogue these days, but it is the exact wrong advice if we want to reverse the growing and disturbing wealth gap. The suggestion that the middle class should all become renters and then gamble their savings in the stock market would only serve to further concentrate wealth in the hands of the few.’
‘Some people never learn? After 25 years in housing and community development, I have learned that homeownership done the right way helps middle-class families stabilize their monthly budgets, earn appreciation and build savings, all while giving them a place to live that is so much cozier than a mutual fund.’
Mike Loftin is the executive director of Homewise Inc. a nonprofit based in Santa Fe. He is a recognized leader in the fields of affordable housing and community development.
‘Urging Americans to rent is in vogue these days, but it is the exact wrong advice if we want to reverse the growing and disturbing wealth gap. The suggestion that the middle class should all become renters and then gamble their savings in the stock market would only serve to further concentrate wealth in the hands of the few.’
^Relying on the reading public’s inability to spot this red herring.
So the choice is between renting and dumping the money in the stock market on one hand, and buying a house on the other?
What if I want to dump the difference into a buncha Beanie Babies? Does that count, honey?
What about just savings for a rainy day? Does that count too?
I have this lovely book in my house which I am unable to find at the moment written by a very cynical curmudgeon dating back to 1920-something which could be a verbatim reproduction of the arguments on this blog.
I will dig it out. It’s spooky to see the same “logic”.
Pimps gonna pimp. And from a nonprofit. Surely paid for by tax dollars. And people wonder why Bill in La wants to cut government.
Myths:
1) You can’t buy stocks on margin.
2) Landlords are always able to pass costs along to tenants. There are no landlords with negative cash-flow.
3) The middle class is not typically gambling on the stock market. This is because 401ks are designed to be conservative, so when typically middle-class people blindly allocate 3-10% of their income into their 401k, and literally NEVER look at their accounts, they are not gambling. It isn’t even really the stock market, it’s mutual funds. Those aren’t stocks.
4) It’s OK to lose equity because at least you will still have some left. There will never be negative equity, resulting in foreclosure and bankruptcy, resulting in people being forced to rent for years during crashes, thereby preventing those people from buying houses when they’re cheap, and forcing them to rent houses when they should be buying. Also, negative equity will never result in hundreds of thousands of lost dollars to people who “do the right thing” and continue to pay their underwater mortgages throughout their lives. And those lost hundreds of thousands of dollars will not prevent people from being able to retire, even though they have to retire because they’re too old to even remember what year it is, much less handle a full-time job.
5) The Case-Shiller index is fashionable, and therefore wrong. The methods of data collection and analysis are mathematically correct and statistically rigorous, but all that should be ignored. As long as the index is saying something bad about houses, then it’s wrong. You can’t live in an index.
6) If you don’t own the house where you live, then you must live in a van down by the river, or else you are a transient who will live under a bridge soon, or you live there now, and you are human scum.
There are no landlords with negative cash-flow.
My my, that’s a pretty strong assertion. You wanna bet?
On what basis are you making this claim?
Oops, myths section. Total reading comprehension FAIL for me.
Sorry. It’s been a long day.
Alameda, CA Rental Rates Plunge 11% YoY As Excess Housing Inventory Swamps Area
http://www.zillow.com/local-info/CA-Alameda-home-value/r_16697/#metric=mt%3D46%26dt%3D1%26tp%3D4%26rt%3D8%26r%3D16697%26el%3D0
‘Cybersecurity firm FireEye Inc. has tumbled 72% from its peak March 5, the day the tech-heavy Nasdaq Composite Index hit a 14-year high. Meanwhile, advertising-technology firm Rocket Fuel Inc. is down 61%, software firm Splunk Inc. is off 50%, microblogging service Twitter Inc. is down 41% and electric-car maker Tesla Motors Inc. is off 28%.’
‘The selloff began abruptly in early March, with traders saying there was no single reason sparking the collapse. The losses have been concentrated in what had been the market’s hottest names, particularly Internet, social-media and biotech stocks.’
‘Money managers say it is no mystery what has been at work: These stocks rose to stratospheric prices compared with their earnings outlooks. “We’ve gone from three times silly to two times silly,” said Mitch Rubin, chief investment officer at RiverPark Funds, which has $3.1 billion under management. As investors start focusing more on the fundamentals of these stocks, they could easily fall further, he said. “When the facts start to matter for these stocks, the bottom is a long way off.”
“The high-growth, high-momentum stocks are more overvalued than Cisco and Qualcomm and EMC and things like that were in 1999,” said John Thompson, founder and chief executive of Chicago hedge fund Vilas Capital Management LLC.’
“When the Facts Start to Matter”
Good title for Ben’s book.
Get out of the house! Get out of the f****ng house! If you can’t afford it, then get the f**k OUT.
Get out of the house! Get out of the f****ng house! If you can’t afford it, then get the f**k OUT.
Why? In the old Soviet Union the joke about government jobs was “they pretend to pay us and we pretend to work”. With houses the people living in the house pretend that some day they are going to pay on the loans and the banks pretend they are not bad loans because the people that took out the loan still live in the house and “may” pay in the future. If the Fed by creating Zimbabwe style inflation can create a situation where the people actually have a house valued higher than their mortgage the people living in the home might actually start paying again. In the meantime, the people living in the homes are unpaid caretakers of the property albeit often times very poor caretakers. But why should I hate the people living in the houses more than the banksters?
We pretend we’re going to start paying again soon and they pretend they’re going to foreclose if we don’t.
crater
“As I look at the economy, population growth is the missing catalyst,” said said Lee McPheters, director of the JPMorgan Chase Economic Outlook Center at the W.P. Carey School at ASU. The state’s population grew 1.2 percent last year and is expected to grow 1.4 percent this year. Even so, Arizona has slipped from third to sixth for the number of new residents from other states.’
‘In a state where so much of the job growth is tied to serving the population, whether in retail or the hospitality industry, tepid growth ripples heavily through the economy, he said.’
‘A Gallup poll last week that found one in five Arizonans were considering leaving the state. “It’s potentially unsettling to be thinking we’re among the states with the highest share of our citizens that yearn for living in other states,” said Dennis Hoffman, director of the L. William Seidman Research Institute at ASU.’
‘Together, a younger generation that doesn’t seek homeownership and older residents who can’t get it anyway have helped hold down demand for new housing, which has also held back employment in the construction industry that has often played an outsized role in the state’s economy.’
‘The construction industry lost 133,000 jobs, easily the largest portion of Arizona’s work force, but through March it has only replaced 12 percent of those losses.’
‘It’s potentially unsettling to be thinking we’re among the states with the highest share of our citizens that yearn for living in other states’
Wow, Dennis, it’s almost like this high house prices thing isn’t working out so well.
‘A Gallup poll last week that found one in five Arizonans were considering leaving the state.
How many of those are illegals that do not like Arizona’s laws? It could be a very good thing that they leave and reduce the future burdens on the state. It is interesting despite many illegals leaving Arizona it is still growing much faster than the country as a whole.
I overheard some poolside chat the other day about someone who had saved $4000 for a downpayment for an expensive townhome they intended to buy soon.
I don’t know how they plan on getting the loan, perhaps it’s just empty sentiment, but back in ‘05 I used to over-hear similar things and that had convinced me we were experiencing a housing bubble. Jeez that was 9 years ago. The more things change the more they stay the same.
I remember sitting poolside in ‘10 hearing someone say they were getting $4000 for mailing the keys back on their defaulted townhome. Rinse and repeat…
How much is the house? $200K? $400K?
Either way it’s 1-2% downpayment.
Even the monthly payment is more than what they have saved.
Yup, no bubble, nothing to see here, folks. Move along.
Worthless housing…. worthless worthless housing. It’s worth less and less with each passing day.