The Disconnect In The Home Business
A report from CNN. “It’s been a long and uneven road to revival for the housing market. But things have been heating up for the last few years. Home prices took off in 2012 and went on a tear in 2013. And some local markets are on fire, with bidding wars and offers above asking price becoming common. If prices continue to outpace inflation and income in these areas, that can eventually become a problem. ‘Price increases — even in the most desirable places — can’t continue to outstrip income growth forever,’ said Keith Gumbinger, vice president of HSH.com. ‘At some point, no one will be able to afford a home.’”
“But current homeowners aren’t flooding the market with ‘For Sale’ signs. Some are worried they won’t be able to find a new house or they’re still waiting to recoup their home’s value lost in the crash. ‘Homeowners who would be considering selling could still be underwater or still in too low of an equity position,’ said Gumbinger.”
The Press Telegram in California. “In Long Beach, that white picket fence costs a lot more than it did in the days of ‘Leave It to Beaver.’ How much? Try nearly four times more. The income of a Long Beach family in 1960, adjusted to today’s dollars via the Bureau of Labor Statistics, was $52,099, while the median house value was the equivalent of $112,603 now. In 2013, the median household income was $52,711, and the median house value was $417,600, according to the U.S. Census Bureau. Why have home values almost quadrupled in a time when income has been stagnant at best?”
“Mary and Brian Harte would lead to one of the milestones of what it has historically meant to be middle class in this country: buying their first home. Mary said her family immigrated to the United States from the Netherlands in the 1960s, and her grandfather was able to support a family and buy his own home while working in the produce department of a grocery store. With starter homes they think are suitable to begin a family topping $400,000, or even reaching $500,000, it’s a stretch for their finances. ‘I feel like we are honest, hardworking people,’ Mary said. ‘We started from the bottom of our careers and we’re working our way up. Who are the people who are buying a home if we can’t do it?’”
The Herald Tribune in Florida. “Southwest Florida’s burgeoning new home construction industry has taken a modest step back as developers grapple with rising costs and shrinking demand from young families. After more than two years of steady gains, home builders throughout the region are pulling fewer building permits to start 2015. The lull follows a lackluster fourth quarter, with six months of diminishing construction activity. Builders cite fewer land opportunities and rising costs, which are squeezing out first-time buyers.”
“Deals are evaporating from first-timers and move-up homeowners, including many who remain underwater on a boom-time buy, said Pat Neal, who runs Lakewood Ranch-based Neal Communities. He now sells the vast majority of his homes to adults no longer raising children. The longtime regional builder attributes that to a lack of income for younger workers, less confidence in the long-term value of homes, fewer new household formations and other debts, such as student loans, that young families cannot overcome.”
“It is one of the reasons the home ownership rate among Americans fell to 63.7 percent during the first quarter. That was the lowest rate in more than 20 years, according to the U.S. Census Bureau. ‘Retirement buyers are still very strong, primarily because they can sell their homes in Ohio,’ Neal said. ‘The disconnect in the home business has been the first-time buyers. That’s a problem, and it will continue to be a drag on housing during the next two years. It’s true across the U.S.’”
The Lansing State Journal in Michigan. “Lansing’s residential market continues to recover from the housing crisis of the late 2000s. Sales and prices, generally, are improving. These days, the market is turning in favor of sellers because there simply aren’t enough turnkey-ready homes for sale to keep up with buyers’ demand. As a result, real estate agents say, it’s not unusual for homes to receive multiple bids and full-price offers, provided the price is right.”
“Lansing Realtor Peter MacIntyre, who handled many short sales during the recession, said the number of cases where lenders take a loss to enable a sale has declined by about half over the past two years for him. Even so, he’s handled 15 to 20 short sales already this year, he said. ‘I’m still walking into the homes of people who owe more than what their home is worth,’ he said. MacIntrye said he has what was once a $600,000 home in Okemos listed for $400,000 and ‘can’t get anybody to bite on it.’”
“Lisa Nowak bought her home south of downtown Lansing for $129,000 in 2006. After the market crashed in 2008, ‘we lost half the value,’ Nowak said. She said the home would sell for about $80,000 today. Last August, she cut her losses. A new mother, she moved with her family to a larger home in Williamston and put their Lansing home up for rent. She and her husband are paying two mortgages, but are recouping some money through rental income. ‘We’re just way upside down,’ Nowak said. ‘It’s better for me to rent at a loss than it is for me to sell and lose tens of thousands of dollars.’”
The Bronx Times in New York. “State leaders are trying to halt the rise of ‘zombie homes’ through the recently proposed Abandoned Property Neighborhood Relief Act. Senator Jeff Klein, state Attorney General Eric Schneiderman and Assemblywoman Helene Weinstein announced the introduction of legislation which, if passed, would reduce the problem of abandoned foreclosed homes across the state.”
“In Harding Park, a handful of abandoned homes is having a big impact on the small community, said homeowners association president Elbin Mena. One property on Harding Park Avenue has been empty for almost five years, to the dismay of neighbors, who’s property values have been affected. ‘You see a house like this, are you going to buy a house next to it?’ Mena asked. ‘No way.’”
Frisco, TX List Prices Plunge 8% YoY; Inventory Balloons 103%
http://www.movoto.com/frisco-tx/market-trends/
“The income of a Long Beach family in 1960, adjusted to today’s dollars via the Bureau of Labor Statistics, was $52,099, while the median house value was the equivalent of $112,603 now. In 2013, the median household income was $52,711, and the median house value was $417,600, according to the U.S. Census Bureau. Why have home values almost quadrupled in a time when income has been stagnant at best?”
Why? One reason may be because in 1960 a person could not buy a house that he could not afford, but now in 2013 he can.
And because he can, he does. And if he doesn’t then somebody else does.
And since such large chunks of the population have been sufficiently and successfully dumbed down when it comes to such issues as affordability and debt there will always be with us large chunks of the population that will willingly take this leap into insanity.
If they can. Available money means they can, and the lack of available money means they can’t. So, at root, it comes down to the availability of money, which means that at root whomever it is that controls the availability of money controls the behavior of these people, these debt-slaves.
I think that the availability of money is an important factor but population cannot be ignored. What was the population of California is 1960 and now? Realtors may overstate the importance of scarcity but that does not mean it is not a factor. It is just another reason why immigration both legal and illegal, actually can reduce the true standard of living for Americans.
Populations of other states have also grown, but home prices are not as out of whack in those states…why?
Immigration isn’t the bogeyman here.
It’s over-regulation.
It’s
over-regulationfraud.fixed for you.
But if you look at places like Texas, you can say it is partly regulation, but it is also because it had abundant fee land and the land was indistinguishable. in California, there is a very limited amount of land near the ocean or up in the tree line of the Mountains. Scarcity does drive housing prices and population increases do drive scarcity whether the population is driven by births (it is not) or immigration (it is).
With the kind of excess, empty and defaulted housing inventory in CA, land doesn’t much matter.
There is plenty of land in both TX and CA to build housing.
It is easy to add supply in TX due to lack of regulatory hurdles.
It is very difficult to do so in CA.
There is comparable immigration forces at work in both states.
You cannot compare housing affordability in the two states. TX is far cheaper.
The city I am most familiar with in California is Coronado. There I have seem them create long slim houses to fit odd lots and to put second floors on new condos. Clearly, the ocean lifestyle can only be achieved in a limited number of spots and the average price there drives up state wide average. Also, federal ownership of land is much higher in California is much higher there then in Texas. CA has abundant BLM land, national parks and land managed by the USDA. Texas has very little. That said state and local regulation is very important but like always there is more than one reason for anything to happen.
http://fas.org/sgp/crs/misc/R42346.pdf
This shows that the federal government owns 47.7% of all the land in California but only 1.8% of the land in Texas.
Supply and demand my friend. Supply is at record highs and demand at record lows.
‘the federal government owns 47.7% of all the land in California’
What percentage of the house loans does the federal government back in both states?
Yep, TX is cheaper than CA, you got that right.
Yet still inflated by what….. 150%?
Do you seriously think that government ownership of land in CA is what is restricting supply?
CA has a total of about 100 million acres of land. That’s a lot.
And a large amount of the land owned by the government is pretty far away from major job centers.
The problem is not that the US has a lot of BLM land in CA. The problem is called CEQA (California Environmental Quality Act) and other regulations.
You can’t look at coastal CA as the norm. It’s not. Yes, lots of people would love to live on the beach in Malibu, but there simply isn’t that much coastline–of course beachfront will be expensive.
And if you want to add density along the coast (like Miami)? Forget it. It would never fly. Places like Santa Monica and Newport Beach are impossible to build in…and don’t even get me started on getting approvals from the CA Coastal Commission.
Even in places like Ripon, CA (far inland), they have limitations on the number of permits that can be pulled each year for housing.
The AG sued the City of Stockton on their general plan to slow development.
The Sierra Club sues on CEQA grounds ALL THE TIME.
Adding new supply that should be routine becomes burdensome, expensive and slow–and it has nothing to do with Federal ownership of land.
All which have no impact on the cost to build Rental_Fraud.
That’s absolutely not true and you know it.
No my friend. Doesn’t change labor nor materials cost.
You’re another who just doesn’t know what he’s talking about.
It’s over-regulation ??
Exactly RW…It plays a serious role….Ignore HA…Everyone ignore HA…He’s an idiot….
The constant passing of new code requirements along with the municipalities raising their fee’s is just incredible…
Just a couple years ago, the mental midgets in Sacramento passed legislation that requires fire sprinklers in every residential new construction throughout the state…This includes ALL residential…Depending on the size of the structure, that raise the building cost by roughly $10.00 per square foot…
Development fee’s have gone vertical…New restaurant…Sewer fee is approximately $9.00 per square foot…Park Fee…$25,000. per door…Thats right…Build a 100 unit apartment complex, you pay $1-mil park fee…
I just touched the surface on all this…Its completely out of control…If it was not for the continued strength of the local economy, new construction would come to a screeching halt…
Do a remodel of a existing structure that exceeds a certain dollar limit…Full ADA compliance bot onsite & offsite is required…Offsite for those who do not understand is driveways, sidewalks etc…
You hang on my every word Dave. You always have.
‘Development fee’s have gone vertical’
Why would this increase the price of a 50 year old house? And how could this possibly explain a million dollar median in San Francisco? Why didn’t SF have a million dollar median 20 years ago? Or 30? There’s something magical that’s appeared in the recent past.
One sign of a bubble is after the fact, new-paradigm rationalizations. They can be elaborate. Statistics galore, broad sweeping trends will be described.
Just a few years ago, there was a glut of foreclosures in California. Remember the new house auctions where the guys would run up and down the aisles in tuxedos? Then when they ran out of suckers, the deep discounts started, followed by FB lament from those fooled by the tuxedos. It wasn’t that long ago. All of a sudden; shortage, we don’t have enough! Buy!
It is clear that we are being lied to about the pool of available housing stock.
Why would this increase the price of a 50 year old house ??
Because the comparable new product is more expensive and possibly inferior in some manner…Such as, lot size…All new construction throughout the valley now is on very small lots..Maybe, 2500 square foot to 4000 square foot and 4000 would be considered big…
With that said, ALL are two stories…If you are looking for bigger yard, single story then older product is your only play..
Schools play a big part particularly with some of the asian and indian ethnic groups…You can see it in the data and the way the property is offered…If its in a high proforming school district, such as Cupertino, it will be the lead in a realtors marketing information…In other words, the most important this for many buyers is the school district and they will pay for it..The age of the house, size, condition are all secondary…I think their attitude is; I can fix the house with money…I can’t fix the school district…
There are more reasons I believe but I will leave it there…
It is clear that we are being lied to about the pool of available housing stock ??
Lied to by whom and with what data ??
Got to go see a architect…Will check back later this morning…
You don’t know what you’re talking about Dave.
It’s not rocket science - prices went up because cheap money was and is being handed out to anyone who wants it. When the cheap money stops, prices will respond accordingly.
“Why would this increase the price of a 50 year old house? And how could this possibly explain a million dollar median in San Francisco? Why didn’t SF have a million dollar median 20 years ago? Or 30? There’s something magical that’s appeared in the recent past.”
High development costs restrict development until prices of new homes justify development–and thus new homes go up in price, which pulls up prices of everything else on a relative basis.
Unfettered, a City planner will tell you that you should usually try to have 20 years of supply of housing in the pipeline. This is because some of the development won’t happen, some will be delayed due to economic cycles, and some projects simply take time to build-out (infrastructure, etc.). CEQA was passed in 1976, and because of forward planning in place, it took a while for the restrictions to really slow development of new homes.
Look at the housing start data in CA. The 80’s were fine. The 90’s onward have been very low in terms of new development.
Fees are the other piece. Prop 13 passed in 1978. Ever since then, a greater and greater share of government revenue needs to come from sources other than property tax. And so we have the rise of the municipal fee monsters–which drives up the cost of new development.
http://www.vcreporter.com/cms/story/detail/soar_losers/4485/
Ventura Co. passed SOAR to limit new building.
Nonsense. There are no “high development costs”.
It doesn’t cost us any more to construct in CA than anywhere else.
I would say that psychology/behavioral economics plays by far the biggest role. Whereas in 1960, a house was a place to live, in the 21st century a house is perceived as an investment, a store of value. In 1960, there were not swaths of individuals leveraging one home purchase on top of another to flip in three months. There were not individuals buying homes at prices 7 times their annual income with the expectation these homes would appreciate to 10 times that annual income. There were not Chinese and Russian and Brazilian and Canadian investors buying American homes hand over fist.
Yes, lending practices play a crucial role. Yes, zero bound interest rates play a role. But these economic realities are simply the easily accessible ropes with which all the behaviorally deficient folks are hanging themselves.
“Yes, lending practices play a crucial role. Yes, zero bound interest rates play a role. But these economic realities are simply the easily accessible ropes with which all the behaviorally deficient folks are hanging themselves.”
The ample supply of rope, precut and tied into nooses, was a signal to the investor horde that a high rate of future price appreciation was in the bag.
Warning, PDF:
http://www.cbia.org/tasks/sites/cbia/assets/File/Historical%20Housing%20Starts%201954-2013.pdf
From 1954-1964, housing starts were only below 200,000 per year two times in the state (20% of the time)
From 1954 to 1989, housing starts were below 200,000 per year fourteen times (40% of the time)
From 1990-present, housing starts in CA were only above 200,000 per year two times (2004 and 2005). That means they were below 200,000 per year more than 90% of the time.
Thank you, CEQA.
200,000 is the approximate number of units that need to be built each year in order to keep up with population growth in the state.
You cannot possibly explain high housing costs without addressing the supply side of the equation.
Cheap finance affects all markets, but high housing costs are only acute in certain markets. The explanation goes much deeper than ability to buy due to debt availability.
Why would anyone build more housing in a state with 4.4 million excess empty and defaulted houses and population growth at record lows?
Davis, CA List Prices Plunge 6% YoY As Housing Correction Ramps Up
http://www.movoto.com/davis-ca/market-trends/
Follow the data, don’t ignore it.
California added an estimated 358,000 people in 2014.
And they started construction on approximately 85k housing units in 2014.
More than 4 new people for every housing unit built…and that ignores the housing units that were demolished.
The US as a whole added about 2.3MM people, and had total housing starts of just over 1MM. About 2.3 people per new housing unit.
And it also ignores the millions of excess, empty and defaulted houses in CA.
“California added an estimated 358,000 people in 2014.”
Is that net change? How many people did it lose?
HA - where for my edification is the excess inventory recorded?
CB, realtytrac, bank ledgers. We’ve discussed it at length.
““California added an estimated 358,000 people in 2014.”
Is that net change? How many people did it lose?”
That was the net change.
http://www.kcra.com/news/california-population-grows-about-1-percent-to-387m/32705856
RJ, if you can look through the FDIC records, RealtyTrac data, and the Census data and find 4.4MM excess, empty and defaulted homes in CA, you win the prize.
Good point Rental_Fraud. There are 25 million. Only 4.4 million in CA.
If there is such an under supply then why do ANY ghettos exist in LA. Places in Venice, Culver City Mar Vista, Inglewood, South Central, all very close to the beach.
You can’t show me block after block of empty, abandoned homes anywhere in LA. Regardless of the crime level, the occupancy levels are high.
And yes, people would rather drive farther out than live in Compton…if they can afford it.
Vacancy rate is still triple the long term trend Rental_Fraud.
Who is talking empty? This is prime prime land close to jobs. Who is keeping it ghetto? Under supply would provide massive economic incentive to gentrify en masse. But that isn’t happening. Why?
‘You cannot possibly explain high housing costs without addressing the supply side of the equation.’
OK, let’s play along. Build lots of houses, prices go down; it’s a crisis!
What you’re doing is a game; house prices should, need, must be really high, but not so high that we can’t explain it or keep it going. This fine line of the golden goose (money for nothing) or killing the goose.
Here’s a crazy idea; let the market decide! The participants decide how many houses to build and what houses should cost. It worked for hundreds of years and there weren’t crazy spikes.
But that means, no messing with loans. No QE’s or Janet Yellen’s. No FB programs or changing bank accounting rules or foaming runways. Let the chips fall. We’re a long way from that, huh?
Outright financial manipulation is outside the collection of explanations in RW’s tool kit.
“Here’s a crazy idea; let the market decide! The participants decide how many houses to build and what houses should cost. It worked for hundreds of years and there weren’t crazy spikes.”
I agree that we should let the market decide.
However, the government isn’t letting it, in part through offering subsidized interest rates, and in part by restricting supply.
That said, Fannie/Freddie doesn’t explain it all either. Or else the housing bubble wouldn’t have existed all over the world.
Low interest rates, unfettered capital flows, and too much QE money trying to find a home in an investment with an expected yield above zero explain it.
Why are some places rising far more than others? And it’s not explained by rental yields. Some markets have rental yields far higher than others.
You are noting universal truths (low yields are everywhere, QE money is everywhere, people are seeking yield everywhere). However, the rate and extent of price rises are different everywhere.
Why the differences in price increases if the cheap debt and drive for yield is the same everywhere?
Considering materials and labor costs don’t vary more than 5% irrespective of location, why not answer that question your self Rental_Fraud?
Those two idiots need to move out of Long Beach or all of California. Zero sympathy. Less than zero sympathy if they have kids.
If you want to drive up prices:
1. Subsidize it.
2. Issue credit for it.
3. Offer insurance for it.
A friend recently got beat out on a property bid by the same old game; his cash offer wasn’t rejected or accepted, he only got a “we have other offers” response. That’s it. So I hope the a**hole seller chose the high offerer (if he even exists) who will fiddle-fart around with trying to find a banker willing to finance his dream bid, and then have it collapse a few weeks later since the offerer doesn’t actually have any money or credit-worthiness, and then the seller has to put the house back on the market.
Starting to see more and more of this sort of thing in good ol Colorado (Denver area). I notice weekly on corelogic that houses that sold within a few days are within a couple of weeks back on the market - no mention as to why but my guess is the buyer did not qualify - all the while the seller is packing his box and leaving. OOPS!!!
They are probably being saved from moving “up” to an even more overpriced house. The more you pay now, the bigger your losses will be in the future.
…which cascades into a failure to finance his new house.
“I feel like we are honest, hardworking people,” Mary said. “We started from the bottom of our careers and we’re working our way up. Who are the people who are buying a home if we can’t do it?”
Priced-out by the strawberry pickers.
Strawberry pickers are about the hardest working people there are in this modern age.
agreed, thanks for stating that
“Strawberry pickers are about the hardest working people there are in this modern age.”
FWIW, picking strawberries ‡ $500k starter homes.
“You’re signing up for a lot of sacrifice,” he said. “You need to be making $6,000 or $7,000 a month to make a payment on a starter home (with an FHA loan).”
Only an idiot(s) would sign-on for this pain.
The answer is not nearly so complex. LA is a majority renter city, with only 33% of the city being single family homes, the rest being multi-family, and 43% own while 57% rents.
So the median income person in Long Beach in 2014 rents, they don’t own. Therefore, you have to get higher into the income profile before you get to the ‘land owning set’.
And regulation has a lot to do with this - in the 1960s, LA was zoned to be a 10million person city (which would push that single family home number down farther and therefore the price of each up), but riots, home owner association zoning, and city zoning for business moved it from being zoned for 10million to 5 million.
See:
https://escholarship.org/uc/item/6k64g20f
if you are actually interested.
The Homeowner Revolution: Democracy, Land Use and the Los Angeles Slow-Growth Movement, 1965-1992 by Greg Morrow.
Most other cities have higher numbers of single family than LA, and most cities in the US are majority owner, not majority renter.
I’ve posted here before about how I screened potential renters for the 5-unit apartment complex located in Seal Beach that I lived in during the early to mid 90’s.
I would get the well dressed professionals (usually a couple) who were driving nice, new shiny euromobiles showing up at my unit excited to live the beach life. A precautionary TRW credit check on my part would almost always show the same similarities in the applicants, individuals with tremendous amounts of credit debt ($30-40K on average) usually accompanied by a default or judgement of some sort.
I could, on average, find one good rent prospect out of about 12-14 applicants.
In 1997 the wife and I started looking at houses because one could take on a mortgage, at that time, for about the same amount of costs that one would spend on rent for a similar living space. Both of us had good incomes and we had managed to save a great deal of our earnings.
We did find a short-sale property in Belmont Heights (Long Beach) that we wanted to make an offer on. A local credit union was going to take the property back. We were told that around ten offers had been made on the house but none of the individuals/couples that made the offers could swing the loan and that was the reason that the listed price for the property was being drastically reduced on a weekly basis.
We made an offer only to be told that we were beaten out by another couple earlier the same day. The selling realtor didn’t want to use our offer as a backup because “this couple is the real deal”.
I guess that they weren’t “real” after all because we received a call early the next morning from someone asking us if we were still interested in the property.
Prices are higher today because all those same flat broke deadbeats who spent all their income (and more) on the nice cars and fancy threads that I wouldn’t let in my apartment complex or who couldn’t swing the loan for my future home are now getting home loans for any amount that they desire.
Go back to the lending standards we had a decade ago, reinstate FASB accounting practices and foreclose and evict people not paying their mortgages and then sell the properties taken and home prices across the Nation would not only go down they would collaspe.
Of course the housing market, along with homes prices, is going to collapse soon whether we do these things or not and the crash will not only be spectacular it will be never ending.
I would get the well dressed professionals (usually a couple) who were driving nice, new shiny euromobiles showing up at my unit excited to live the beach life.”
That’s LA right there.
“One property on Harding Park Avenue has been empty for almost five years, to the dismay of neighbors, who’s property values have been affected. ‘You see a house like this, are you going to buy a house next to it?’ Mena asked. ‘No way.’”
So stage it, stage the empty house. Hire a couple of foxy chicks to exercise all day long in leotards.
‘So stage it, stage the empty house. Hire a couple of foxy chicks to exercise all day long in leotards.’
lol
They are enabling debt transfer to taxpayers
“Forgiveness”
Housing Demand Plummets YoY In 54 Of 58 California Counties
http://files.zillowstatic.com/research/public/County/County_Turnover_AllHomes.csv
“Cars depreciate more rapidly than houses however the aggregate losses to depreciation on a house are much greater.”
Exactly.
‘Price increases — even in the most desirable places — can’t continue to outstrip income growth forever,’ said Keith Gumbinger, vice president of HSH.com. ‘At some point, no one will be able to afford a home’
Boy all these experts are getting worked up lately, using words like affordability and incomes and unsustainable.
“Demand in many markets is far exceeding supply, and properties in March sold at a faster rate than any month since last summer,” Yun says. “This, in turn, has pushed home prices to unhealthy levels — nearly four or more times above the pace of wage growth in some parts of the country.”
Here’s some more.
‘Housing affordability in California’s major metropolitan areas is the worst in the United States, with a third of wage earners unable to afford the lowest priced home, according to a report released Monday.’
‘The online real estate company Zillow said home affordability among the least affluent third of Americans has worsened sharply nationwide over the past two years, as the housing market has recovered but incomes have not.’
‘The bottom third of wage earners are effectively locked out of the market San Diego, San Francisco, Los Angeles and Silicon Valley, where those in the bottom third would have to spend over 70 percent of their monthly income on a low-priced home. Only Sacramento is relatively affordable.’
“The disparity has placed homeownership increasingly out of reach for working Americans whose wages are lowest, even if they shop for the least expensive homes on the market,” Zillow said. “Worsening housing affordability for the lowest earners comes as rental housing is less affordable than ever, forcing those who can’t afford to buy to face rapidly rising monthly rent payments.”
‘Here’s what percent of monthly income wage earners in the lowest third would have to pay for the least expensive home:
San Jose (Silicon Valley) — 85.6 percent
Los Angeles — 84.7 percent
San Francisco — 72.0 percent
San Diego — 70.1 percent
Sacramento — 46.0 percent
U.S. Average — 26.1 percent
“This is a striking example of growing income inequality in America, as upper-tier incomes grow sufficiently to keep even very expensive homes affordable for the well-heeled, while wages among the working class increasingly fail to support the purchase of even the most modest homes,” said Zillow Chief Economist Dr. Stan Humphries.’
“At the same time, rising rents and stagnant wages are also making rental housing increasingly unaffordable. It is imperative that we find ways to create both meaningful wage growth for all workers, and increase the supply of affordable housing, and soon. If not, we run a real risk of the working class in America running out of affordable housing options, either to rent or to buy.”
Just a short while ago, these high house prices were going to solve all our problems; more equity, more spending, joy on bread. Funny how that didn’t work out.
Oh, but now; the working class! Inequality! Gosh, it’s taken on the gravity of a class war.
Hey government; get out of the housing business. Stop hoarding houses, making loans and get the Fed out of the interest rate scene. Do that and we’ll have all the affordable housing we’ll need in a month.
Simple solutions exist. Simple solutions exist. Simple solutions exist.
People who say otherwise are liars or salesman who are looking out for their own interests.
The relative question becomes;
Why buy a house at these massively inflated prices when you can rent one for half the monthly cost?
When Yun starts sounding the alarm on affordability, you know the end is nigh.
Larry Yun is just an NAR shill!
Napa, CA List Prices Dive 6% YoY As Housing Demand Craters
http://www.movoto.com/napa-ca/market-trends/
“It makes me very upset that our government allowed for us to be exploited by giving Everest funding,” said Tasha Courtright, a former Corinthian student from Lake Elsinore, Calif., who was one of the protesters who attended April’s meeting with regulators. She graduated in 2012 with more than $40,000 in federal and private student loans. “I felt that I could trust my college because they were endorsed by the government, and now I feel like my government is responsible for what has happened to us.”
I recall reading about this several years ago, how for profit colleges were all a scam doomed to failure. Wasn’t it Bill Ackman or someone who was calling them out? Now collapses occur and no one will go to jail. It will cost the government a pile and the government will continue promoting this type of fraud. Hmm, sounds like housing.
Former President Bill Clinton is stepping down from his post as honorary chancellor of Laureate International Universities, the largest for-profit college chain in the world, the company said Friday.
The former president is leaving his post just a couple of weeks after his wife, presidential candidate Hillary Clinton, criticized for-profit colleges at her first campaign event for saddling students with debt and failing to give them the credentials to succeed in the job market. Douglas Becker, the CEO of Laureate, wrote that Bill Clinton was leaving his post on the final anniversary of his five-year term.
“Laureate students represent the next generation of leadership. I have seen a commitment to quality and leadership throughout the Laureate network, and I have enjoyed being a part of it,” Bill Clinton wrote in the release.
‘I have enjoyed being a part of it’
I don’t doubt that. Hey, let’s start a charity and blow 94% of the money on flying around saving the environment! Leonardo, where’s my martini?
‘We started from the bottom of our careers and we’re working our way up. Who are the people who are buying a home if we can’t do it?’
- Hedge funds
- All-cash foreign investors
- Greater fools
The discussion always seems to divert from the simple fact that organic housing demand is at 20+ year lows.
The liars that speak for the housing fraud system run from it.
‘The disconnect in the home business has been the first-time buyers. That’s a problem, and it will continue to be a drag on housing during the next two years. It’s true across the U.S.’
Are prices predicted to fall back to normalcy over the next two years?
‘Making yourself house poor with a McMansion you can’t really afford is a stupid, costly mistake for Americans. The housing bubble collapse tried to treat the McMansion pandemic of yesteryear, but animal spirits are alive and well as the majority of Americans claim to be living in an inappropriate-sized home. According to a new analysis from Trulia, only 40% of respondents say they are living in a home that’s their ideal size, and 43% believe their dream home is somewhat or much larger than their current residence. Several factors influence whether people desire a different-sized home, but every generation as a whole shows a bias toward a larger home.’
‘Adding insult to injury, one house is not always “enough.” The National Association of Realtors reports that vacation home sales surged last year to above their recent peak level in 2006. Investment purchases fell for the fourth consecutive year. An estimated 1.13 million vacation homes were sold in 2014, up 57.4% from the prior year and the highest amount since NAR began the survey in 2003.’
‘Some vacation home buyers may be enjoying their gains in the stock market or preparing for retirement, but people tend to forget that the good times don’t last forever. Interestingly, 45% of vacation homes purchased last year were distressed properties, meaning they were either in foreclosure or a short sale, compared to 42% in 2013. The typical buyer in 2014 only had a median household income of $94,380.’
In case you missed it rental watch:
‘An estimated 1.13 million vacation homes were sold in 2014, up 57.4% from the prior year and the highest amount since NAR began the survey in 2003′
Ooo, build more houses! That’s the ticket.
“…but animal spirits are alive and well as the majority of Americans claim to be living in an inappropriate-sized home.”
Would those animal spirits be of the government-sponsored variety?
This inappropriate size thing can be found everywhere.
* A family of two needs a 3000+ sq ft house.
* An SUV is required to haul around all their useless stuff.
* A restaurant’s default meal size is enough to feed 3 people.
* Seriously overweight people are all over the place.
There is a difference between the national numbers and individual states. I’m not advocating for development everywhere. But CA is supply constrained, which contributes to high prices.
http://www.hcd.ca.gov/hpd/shp/web_hcd_stateofhousing_april2014.pdf
“2014 Update The State of Housing in California: Affordability Worsens, Supply Problems Remain”
Ah, but do you realize it’s everywhere? North Dakota, Texas, Washington, Massachusetts, Calgary. Oops, forget that last one, it had a shortage last summer but now it’s a glut.
Isn’t it interesting that the media is telling us there’s a shortage of a thing there has never been a shortage of (except around 2005ish), in practically every corner of the country, at the same time.
I guess my view is far more nuanced than the media ever presents.
I do not buy into the view that there is a shortage everywhere. Again, I don’t look at listings vs. sales as a measure of supply/demand, but I look at vacancy rates (is there enough physical shelter?).
If there is so little physical shelter that low vacancy rates start to drive up rents and prices, then more housing should be built.
Just look at the vacancy data presented by the Census recently. They show the vacancy rate by state:
http://www.census.gov/housing/hvs/data/rates.html
Rental vacancy rate in CA is sub-5%, among the lowest going back a decade. When you look at the long-term trend of housing development (the link I sent earlier), etc., you can easily see why the vacancy rate is so low.
If, however, you look at a place like AZ, the vacancy rate is 8%. No problem there.
FL is at 8.4%. No problem there either.
NV is at 7.8%. No problem there.
The national vacancy rate is 7.1% (which is probably dragged down somewhat by CA and NY’s low rate). Generally speaking, there seems to be plenty of supply in most of the country.
Yet, construction is happening at much higher rates everywhere but CA (which has a lower vacancy rate and thus should be building more)…why?
Coastal Commission, CEQA, NIMBYism (and the laws it creates), etc.
“I guess my view is far more nuanced than the media ever presents.”
Same here.
“I do not buy into the view that there is a shortage everywhere.”
Nor do I; rather I buy into the view that once the short-term investor crowd cashes out in the collapse of the Echo Bubble, there will be plenty of inventory at affordable prices.
“Nor do I; rather I buy into the view that once the short-term investor crowd cashes out in the collapse of the Echo Bubble, there will be plenty of inventory at affordable prices.”
I completely disagree.
You’re looking at it from a listings/sales pace = Supply/Demand instead of a vacant units/total units = Supply/Demand.
From the Census data, 95%+ of all rental units in the state are occupied. As such, when the investor crowd cashes out, the first thing they need to do is kick out a tenant…and that tenant needs to find somewhere to live, keeping pressure on rents being high (and thus encouraging renters to become buyers).
It’ll be a game of musical chairs, not a whole lot of new vacant shelter hitting the market on a net basis.
Exactly. And what joy will be had by those who possess hordes of liquidity.
And from the very same data table you’ll find 25 million excess empty houses Rental_Fraud.
‘Stock markets were subdued on Tuesday after Chinese stocks plunged as the start of an IPO wave cooled investor sentiment. The Shanghai Composite Index in mainland China had its worst day in months, losing 4.1 percent to close at 4,298.71, in turn dragging down Hong Kong’s Hang Seng 1.3 percent to 27,755.54. Australia’s S&P/ASX 200 briefly surged after a rate cut announcement but ended practically unchanged at 5,826.50 on indications the central bank probably won’t cut rates further.’
‘The Reserve Bank of Australia cut interest rates by a quarter percentage point at its board meeting, as many economists had expected. That brings the central bank’s policy interest rate to an all-time low of 2 percent, providing additional monetary support for stocks and other financial assets. Australia’s economy is struggling as growth slows in China, its major market for iron ore and other commodity exports.’
‘Investor enthusiasm waned after the rate cut because language in the central bank’s statement was a bit more upbeat than expected, signaling that this will probably be the final dollop of stimulus, IG Markets strategist Stan Shamu wrote in a commentary. “In a nutshell, it gave no hint of further easing and sounded like it is done with this easing cycle,” he said.’
‘the final dollop of stimulus’
Final dollop. Has a funny sound to it.
Time for another crow dinner on the resident China booster’s plate tonight?
Collapsing demand…. cratering prices. It’s how a market works.
Someone said yesterday that housing speculators are getting bled dry in the mid atlantic and new england states.
My reaction ——–> http://goo.gl/loFyZ5
Falling prices….. cratering demand…
“In China’s Bond Market, Something Worse Than A Default”
http://www.forbes.com/sites/gordonchang/2015/05/03/in-chinas-bond-market-something-worse-than-a-default/
‘central government technocrats are running out of options to rescue the faltering economy.’
They must be running out of land for ghost cities.
“Real Estate Agent Busted Trying To Lure Boy”
http://koin.com/2015/04/13/police-real-estate-agent-busted-trying-to-lure-boy-for-sex/
‘The new fixed-income haven is, of all things, the market for junk bonds. With government securities in Germany to Japan and Ireland yielding less than nothing, money is pouring into exchange-traded funds that buy speculative-grade debt, traditionally the riskiest of fixed-income assets.’
‘While last week’s sudden selloff in euro sovereign debt gives investors all the more reason to crowd into high-yield assets, the lingering concern is that buyers are exposing themselves to even greater losses. And with the European Central Bank’s bond purchases still keeping government yields close to historic lows, many bond investors have few other options.’
“Investors are being forced by the central bank to assume more risk,” Jens Vanbrabant, a money manager at ECM Asset Management, which oversees $6.5 billion, said from London. “They’re trying to adapt their investment parameters to the new situation of zero or negative yields.”
‘AXA SA, France’s biggest insurer, will boost holdings in “illiquid” assets such as real estate and infrastructure projects to 20 percent from 15 percent last year, according to Chief Investment Officer Laurent Clamagirand.’
“It’s very tricky” for insurers, said Bruce Porteous, an investment director for insurance solutions at Standard Life Investments, which oversees about $370 billion. They’re making a shift because “they can’t earn enough money on the assets they hold to provide the benefits that they offer.”
That last line is interesting.
So they buy riskier stuff. It could end very badly once again.
This is worth a look see…..
http://www.worldpropertyjournal.com/real-estate-news/united-states/home-ownership-data-2015-q1-2015-cash-investor-distressed-sales-report-realtytrac-owner-occupied-homes-data-daren-blomquist-real-estate-investor-data-9055.php
Might this eventually affect house prices - the Palmer drought index - graphic…..
http://www.ritholtz.com/blog/wp-content/uploads/2015/04/Palmer-Z.jpg
Not sure if many of you were following along with the Sohn conference yesterday, but I would say three themes were rather consistent.
1. Buy US equities (especially in the near term)
2. Borrow as much $ as you can
3. The world is a very dangerous place
Although I feel I could confidently argue against all three of these, the one that strikes me as especially myopic is the idea of borrowing as much money as I can. Why would I want to borrow dollars today, albeit at ridiculously low rates, and have to pay them back at a future date, at which point in time those dollars are likely to be far MORE valuable?
These are the world’s finest hedge fund managers. Masters of the universe. And with all their ideas and all their Greenwich estates, they are nothing more than backwards looking thinkers that mastered one game but have no clue about how the game can, and likely will, change.
When prices reset 30%, the long only PMs will lose their tails. The long/shorts will slightly outperform and boast of their great successes. But those fully invested in cash…simple folk like us…we’ll be high-fiving Housing Analyst and laughing all the way to the mattress.
It’s all just a game when you’re playing with other people’s money.
at which point in time those dollars are likely to be far MORE valuable?”
Maybe they disagree with you on this point ? I don’t know ?
I think at some point the government will be forced to raise interest rates to defend a collapsing dollar against the rising YUAN but until then its cheap to borrow which inflates assets, but not wages.
When higher interest rates, and I mean much higher panic high rates like the 1970’s happens it swill cause a major collapse of assets.
My guess in 10 years ?
10 years is far longer than I envisage.
Yields on EXISTING debt will rise dramatically. Why would you want to purchase someone else’s loan if you highly doubt that person or entity will be able to make u whole? So credit markets evaporate. No one makes new loans. Existing debt is dramatically written down. Prices re-center.
This is not a currency issue. The whole world is awash in bad debt. It’s not specific to one or a few places. It is a global phenomenon in assets priced in the whole spectrum of currencies.
But in the end, when all is said and done and people the world over experience the long overdue pain that decades of fiscal recklessness warrant, price and value will finally once again be aligned, and the markets can begin to once again function normally.
We get our restart. Lending is once again done shrewdly. And the world is once again a bright, optimistic place.
“These are the world’s finest hedge fund managers. Masters of the universe. And with all their ideas and all their Greenwich estates, they are nothing more than backwards looking thinkers that mastered one game but have no clue about how the game can, and likely will, change.
When prices reset 30%, the long only PMs will lose their tails.”
Last go round, these folks got bailed out.
Given that the entire global financial system might collapse if any significant number of these hedge hogs failed, wouldn’t it become necessary to bail them out again if prices reset 30%?
And in that case, I guess we can also look forward to QE4 to cover the bar tab.
“Who are the people who are buying a home if we can’t do it?”
The Chinese, with all the money we’ve been sending them in exchange for plastic Wal Mart crap for the last 30 years.
We gave them our factories, now we’re giving them the houses. Just like the original occupants of this country were prone to, we’ve sold it to foreigners for a handful of glass beads.
We are being colonized.
We are being colonized”
Yea crazy huh ?
We are being colonized.
If you’re a lucky ducky does it make any difference if your landlord is a Chinese, a Russian, a Saudi or an American oligarch?
Chinese, Russians, and Saudis are HARSH overlords.
First water - now shadows…..
I caught a bit of this from (I know, I know) Rush on the radio today….so I went to take a peek at the article….
Having just been to NYC last week - the canyons are indeed getting darker and darker….
Central Park on the other hand - still magnificent!!!
http://www.washingtonpost.com/blogs/wonkblog/wp/2015/05/04/in-the-shadows-of-booming-cities-a-tension-between-sunlight-and-prosperity/
http://www.laweekly.com/music/the-martha-stewart-of-marijuana-helps-women-get-into-the-weed-business-5536188
Take that Mike Huckabee
Did you dump your REITs soon enough?
Behind the great REIT sale
Published: May 5, 2015 1:55 p.m. ET
Getty Images
Real-estate investment trusts are suffering their worst correction in two years.
By Charles Sizemore
…
REIT selloff
Alas, all the news can’t be good. REITs — which make up about a quarter of the portfolio — are suffering their worst correction in two years.
As an example, Realty Income (O), of the highest-quality blue chips in the REIT space, is down about 15% from its late January highs and now yields about 4.8% in dividends.
That’s a comfortable spread over the 10-year Treasury of about 2.8%.
Steep decline
STAG Industrial (STAG), a smaller and more speculative REIT holding of the Dividend Growth portfolio, has seen an even bigger selloff.
STAG is down about 21% from its recent highs and now yields over 6% in dividends.
I will save you the details of a REIT-by-REIT breakdown, but suffice it to say that the entire sector is down significantly from its January highs.
This begs two questions:
1. Why the price declines?
2. What do we expect going forward?
…
I offloaded all my REIT shares a couple of months ago, due to an accute case of cold feet. Also needed to raise funds to buy the dip in energy mutual fund prices.
I remember you saying that you had. Impeccable timing.
Wall street got it’s first good inflation scare. Stocks … down. US bonds … down slightly. What happens next? In the short term, inflation really gets cooking. Stocks way down. Well located real estate up. Interest rates … up slightly.
In the long term, an economic accident. Inflation way way up. Prices up on everything. Income, only slightly up. Global economic chaos. Potential armed conflicts ahead.
So, if you make money on your real estate, it won’t mean much, because the world will likely come apart. Scary stuff.
“Well located real estate up.”
You mean those empty investment condos in Manhattan? Please be specific on what ‘well located’ means.
This May is setting up much like May 2013 did.
Global Bonds Tumble as Deflation Concerns Ease; S&P 500 Retreats
by Jeremy Herron
4:05 PM PDT
May 4, 2015
Greece Attacks Creditors as ECB Considers Next Liquidity Step
Buffett and Ackman Hate U.S. Bonds and the Losses Are Piling Up
Treasuries fell with European bonds as oil’s rally above $60 a barrel added to signs of incipient inflation, while concern rose that Greece won’t be able to resolve its debt crisis. U.S. stocks tumbled the most in more than a month amid a retreat in global equities.
Yields on 10-year Treasury notes rose four basis points to 2.19 percent by 5 p.m. in New York, extending an eight-week high as U.S. crude jumped 2.5 percent to $60.40 a barrel. German bonds resumed losses, while Spanish debt tumbled with Greek stocks. The Standard & Poor’s 500 Index lost 1.2 percent, the steepest drop since March 25. European equities slid to the lowest level since March 10. Copper entered a bull market.
The exodus from sovereign-debt markets is accelerating as investors question the sustainability of rallies that pushed yields to record lows. Data Tuesday showed U.S. services growth accelerated more than forecast last month as the Federal Reserve considers raising interest rates. Crude traded in New York topped $60 for the first time this year on speculation the biggest supply glut in 85 years will ease.
“We’ve had a total selloff in European government bonds that just won’t quit,” said Thomas di Galoma, head of fixed-income rates and credit at ED&F Man Capita Markets in New York. “This is purely repositioning of risk.”
Ten-year Treasury yields have increased 28 basis points, or 0.28 percentage point, since April 24 and earlier on Tuesday touched the highest level since March 6. German 10-year yields rose six basis points to 0.52 percent, for a seventh straight gain to the highest level since January. Spain’s 10-year rate jumped the most since June 2013.
…
The end game is an inability to make creditors whole. For anyone to use the term inflation in such a scenario is an Adan level of stupid.
Either that, or he is talking his book and hoping to offload investments on the unsuspecting before the SHTF (possibly describes Adan!).
RE: Making creditors whole; I note there are LOTS of seniors (aka voters) in developed western nations who are owed fiat-currency denominated pensions. Inflation would wipe out this group of pensionsers (aka voters), no?
‘It’s better for me to rent at a loss than it is for me to sell and lose tens of thousands of dollars.’”
Because bright and shiny days are ahead. Just hang on.
Good point.
Once again…. Why buy a house at current prices which are 250% higher than long term trend when you can rent it for half the monthly cost?