May 10, 2015

A ‘Push Me, Pull You Situation’

A weekend topic on an exchange in this mornings bits bucket. “North Texas median home prices soar above $200,000 for first time…The days of decent sub $200k houses in Dallas are gone.”

The Dallas Morning News article provided by the poster. “This spring’s scorching home market has propelled median house sales prices in North Texas above $200,000 for the first time. In April, home sales prices in the area were up 14 percent to a record $207,000. With the latest gains, the median price of preowned single-family homes sold by real estate agents in North Texas is almost 60 percent higher than it was in January 2010, at the worst of the recession.”

“And home prices in the area are now more than a third ahead of where they were at the previous peak of the housing market in 2007.”

“‘If you have anything that is moderately priced, there is a bidding war,’ said. He said the inflation in local homebuying costs is starting to be a concern. ‘It all works right now because mortgage rates are so low and it helps with these price increases,’ said Ted Wilson, a housing analyst with Dallas-based Residential Strategies Inc. ‘I just hope that we see household incomes pick up, or we will have a big jolt down the road when interest rates go up.’”

“‘As long as inventory remains low and demand remains high, we are going to see these big price increases,’ said David Brown, who heads the Dallas office of housing industry consultant Metrostudy Inc. ‘It is unsustainable long-term.’”

“Some of the Dallas area’s biggest year-over-year April price gains were in Irving (up 43 percent), southern Dallas (24 percent) and Oak Cliff (23 percent). The highest median sales prices in April were in the Park Cities ($1,190,000) and North Dallas ($802,500).”

Let me revisit something I mentioned before. Last summer, 2014, I was in a neighborhood north of Dallas. The people I was with told me about their house; a nice brick 3 bedroom, 3 bath, 3 car garage, with a pool. They had bought it 2 years prior for just over $200,000. One almost exactly like it a block away had just sold for $300,000.

What was a perfectly reasonable to them price 2 years ago had now jumped 50%. In 2 years! They felt pretty good. To me, an alarm was ringing. When in our lifetimes has an ordinary house increased so much in such a short time? But to them, it was as natural as the sun coming up.

This is what a mania looks like. On the surface, people go about their day. Newspapers report on the growing good fortune, maybe even dropping in a cautionary quote here and there. I could be wrong. Perhaps the reader is right, “The days of decent sub $200k houses in Dallas are gone.” But such new paradigm, after the fact rationalizations sound like a bubble to me. And that means trouble ahead.

The Midland Reporter Telegram. “Despite high inventory rates and stagnating prices, the first quarter of 2015 may have looked worse for Midland’s real estate market than it really was, according to Carol Nall of the Permian Basin Board of Realtors. The MLS member services director said that the local market is stronger now compared to the downturn of 2009. While the average number of homes on the market for the first quarter of 2015 increased by 74 percent over 2014’s first quarter, Nall believes that after years of growth the market is adjusting to the benefit of both buyers and sellers.”

“‘Having that number of houses on the market is not a bad thing, because it gives the buyer the opportunity to spend more time looking and find something that they really do want,’ he said.”

“Figures provided by the board show that between 2010 and 2014 the average sale price for a home increased by 57 percent, while median sale prices rose by 41 percent. Nall said that the market could not sustain these levels of growth and that an adjustment was bound to occur. More houses on the market reflect what Nall called a ‘push me, pull you situation’ in which sellers have competition and must negotiate while buyers have more options to choose from. Nall said he is keeping an eye on what businesses in the area are doing in response to lower oil prices.”

“‘It would concern me if I started to see these companies that are moving in and continuing to build buildings. … If I were to see those things stopping, then we may get a little more concerned about it,’ he said.”

“Figures from the Real Estate Center at Texas A&M show that the housing inventory, which hit a low of 1.8 months in March 2014, has adjusted to 5.3 months a year later. ‘Six or seven months ago we were selling a little more than two-thirds of what we had on a monthly basis. … On that aspect, we’ve moved into again … what I would call a balanced market,’ he said. ‘Some would say it is a buyers’ market, just simply because we’ve adjusted $10,000 to $12,000 down. But the truth is, we’ve got more to choose from that’s in the price range that the buyer’s interested in looking at.’”

“The 2 percent drop in prices over the first quarter is another piece of the adjustment puzzle. Nall said that he would have been concerned if the price had fallen by 10 percent for the quarter but that the price drop is not a sign of the bottom falling out of the market. While the numbers may not look the best, Nall said the market has been worse in the past. ‘We didn’t have a great first quarter, I won’t dispute that. But we didn’t have a bad first quarter and now the consumer has some choices,’ Nall said.”




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50 Comments »

Comment by Housing Analyst
2015-05-09 07:28:11

“after the fact rationalizations sound like a bubble to me. And that means trouble ahead.”

Considering asking prices of resale housing are 250% higher than long term trend and 2x construction costs($55/sq ft for lot labor materials and profit), it’s huge trouble.

 
Comment by Ben Jones
2015-05-09 07:29:57

‘the Dallas area’s biggest year-over-year April price gains were in Irving (up 43 percent), southern Dallas (24 percent) and Oak Cliff (23 percent).’

‘between 2010 and 2014 the average sale price for a (Midland) home increased by 57 percent, while median sale prices rose by 41 percent’

This is nuts. And it’s happened all over the country and the world.

Comment by Ben Jones
2015-05-09 08:06:14

I haven’t been to Oak Cliff in many years, but the last time I was there it was dominated by houses with steel bars on every window.

Comment by Housing Analyst
2015-05-09 08:09:02

Sounds like every single neighborhood in NYC.

 
Comment by ibbots
2015-05-09 10:56:34

Oak Cliff has re gentrified big time. historically, Oak Cliff was a desirable part of town. I’m talking in the forties. it is close to downtown and has some very nice old houses.it was only a matter of time until people moved in and fixed it up.

Some other areas mentioned, southern Dallas, have just been historically repressed. while pricegains may be significant expressed as a percentage, some of those houses were selling for as little as $20,000 as recently as a few years ago.

Comment by Housing Analyst
2015-05-09 11:44:27

A used up 60 year old house is worth about that much… $20k.

Do you see anyone but dumb borrowed money paying more than that?

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Comment by Housing Analyst
2015-05-09 07:44:29

Fort Worth, TX List Prices Turn Negative YoY At Peak Of Season; Inventory Skryockets 52%

http://www.movoto.com/fort-worth-tx/market-trends/

 
Comment by Housing Analyst
2015-05-09 07:47:43

Frisco, TX(Dallas Suburb) List Prices Plunge 9%; Excess Housing Inventory Balloons 109% As Oil Bust Spreads

http://www.movoto.com/frisco-tx/market-trends/

 
Comment by Housing Analyst
2015-05-09 07:49:57

Irving, TX(Dallas) List Prices Tailspin; Down 17% YoY As Foreclosures Increase

http://www.movoto.com/irving-tx/market-trends/

 
Comment by Housing Analyst
2015-05-09 07:52:47

Arvada, CO(Denver) List Prices Crater 18% YoY As Inventory Grows 137%

http://www.movoto.com/arvada-co/market-trends/

 
Comment by Housing Analyst
2015-05-09 07:55:35

Brookhaven, GA(trendy Atlanta) List Prices Crater 8% YoY On Rising Excess Housing Inventory

http://www.movoto.com/brookhaven-ga/market-trends/

 
Comment by Housing Analyst
2015-05-09 08:14:43

“Richmond Realtor Accused Of Theft Could Get Realtors’s License Back”

http://wtvr.com/2015/05/08/henrico-realtor-update/

Keep lowering the bar. No wonder NAR ranks look like a roster of prison inmates.

 
Comment by Housing Analyst
2015-05-09 08:17:03

Brookline, MA (Boston metro) List Prices Submerge 17% YoY; Underwater Homeowners Grow

http://www.movoto.com/brookline-ma/market-trends/

 
Comment by Ben Jones
2015-05-09 08:21:34

97 properties found Prosper, TX Price Reduced Homes for Sale

http://www.realtor.com/realestateandhomes-search/Prosper_TX/show-price-reduced?source=web

Check out some of these price tags.

Comment by Ben Jones
2015-05-09 08:26:29

Listing Agent Meritage Homes
Listed by Meritage Homes Realty

1630 Lonesome Dove Dr Prosper, TX

$540,802

Brand new energy efficient home ready Sept 2015! The Honeysuckle has a spacious kitchen, walk in pantry & huge Family Room. First floor Master retreat with large walk in closet & spa like bath. Located in Prosper, this community offers Parks, Playgrounds, Pond, Swimming Pool, Splash Pad plus MORE!

http://www.zillow.com/homedetails/1630-Lonesome-Dove-Dr-Prosper-TX-75078/2103385372_zpid/

4/10/15 Listing removed $541,846 $125 Meritage Homes…
04/08/15 Price change $541,846-0.9% $125 Meritage Homes…
02/11/15 Listed for sale $546,783

 
Comment by GuillotineRenovator
2015-05-09 10:43:12

If I recall, property taxes are fairly high in most areas of Texas, right? What’s funny is those gigantic houses around here are way more expensive. We have a MASSIVE bubble.

 
Comment by oxide
2015-05-09 10:53:07

Are these supposed to be high or low? :roll:

This Tudor Revival house is $370K in Texas:

http://www.realtor.com/realestateandhomes-detail/700-Buffalo-Springs-Dr_Prosper_TX_75078_M83973-24457?row=9#modal_PhotoGallery

Here is what the same price will buy you in Northern Virginia:

http://www.zillow.com/homes/recently_sold/Annandale-VA/house_type/51879908_zpid/21472_rid/6m_days/zesta_sort/38.872458,-77.155609,38.803062,-77.268047_rect/12_zm/

And a haunted(?) house in Beltsville MD, in the poor side of the burbs:

http://www.zillow.com/homes/for_sale/house_type/37344882_zpid/6m_days/zesta_sort/39.079374,-76.87932,39.010181,-76.991758_rect/12_zm/0_mmm/?view=map

And a plain-jane 1960’s burb house in “up and coming” Wheaton/Silver Spring MD. Where up-and-coming means two families in the house instead of 4:

http://www.zillow.com/homes/for_sale/Silver-Spring-MD-20906/house_type/37295987_zpid/66705_rid/6m_days/zesta_sort/39.076726,-77.043064,39.059433,-77.071173_rect/14_zm/0_mmm/

So I think this is all pretty laughable.
And don’t forget that a $70K starting engineer and a $50K teacher can buy that Tudor Revival in Texas.

Comment by Housing Analyst
2015-05-09 11:31:52

Here is what the same price will buy you in “Northern Virginia:”

Which tells everyone that prices have even further to fall in Northern Virginia than in Tx Donk

.

 
Comment by Ben Jones
2015-05-09 12:07:33

We’ll see how funny it is when you find some of these bonds in your 401k, or start seeing the USDA/VA loans go bad.

I was in Prosper last summer. It’s a long, long drive to a job that can come close to paying off 300k. And the scale was amazing. Mile after mile of cow pastures turned over at the same time. (You know what’s just beyond those pastures? More pastures, all the way to Oklahoma). Billboards said, ’starting in the 300’s, the 400’s, the 700’s’. And most added ‘ZERO DOWN!’ It was the usual mugs row of national builders.

Somehow, I’m not surprised at your complacency. If one looks at history and thinks, prices of houses in north Texas have doubled in a couple of years when? Uh, never. Why now? “It’s boomin’ ya jackkk asss!”

From the desk clearing post yesterday:

‘Top analysts say the booming DFW housing market could be too hot. Some worry the lack of inventory in cities like Plano could lead to big trouble. ‘The inventory is so low, it’s driving the prices up,’ says realtor Valerie Kirkpatrick. ‘It’s driving the buyers up, they’re having to pay more and more and more and the houses are not worth what they’re paying.’”

“Kirkpatrick says she’s worried. She’s seeing an influx of cash buyers and she says that pushes price points higher. Too high. ‘It is absolutely scary to me…no matter how much relocating companies we have, we just don’t have enough houses to sell and I fear we are going to end up facing what California faced and Arizona faced when the bottom fell out,’ says Kirkpatrick.”

Comment by Housing Analyst
2015-05-09 12:14:18

Shes fully vested in the unprecedented.

Stupid stupid stupid.

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Comment by Ben Jones
2015-05-09 12:42:23

I don’t think she’s stupid. See, unlike Texas, money grows on trees in Maryland and Virginia. All she has to do is plant one of those money trees and the house will pay for itself and a vacation every year!

 
Comment by oxide
2015-05-09 20:59:43

To extent that’s true. Money grows out of a printing press and goes directly to Northern Virginia — in the form of joint strike fighter jets and cybersecurity crap out the wazoo. Salaries for contractors. As long as the US can borrow money, there will be jobs in DC.

 
Comment by Housing Analyst
2015-05-10 02:45:02

You paid a grossly inflated price for a depreciating asset Donk.

Carry on with your empty-pocketed self.

 
Comment by Ben Jones
2015-05-10 07:11:36

‘Money grows out of a printing press and goes directly to Northern Virginia’

Wallowing in her own crapulence.

 
Comment by Professor Bear
2015-05-10 12:31:08

“As long as the US can borrow money, there will be jobs in DC.”

I pull in resolution, and begin
To doubt the equivocation of the fiend
That lies like truth: ‘Fear not, till Birnam wood
Do come to Dunsinane:’ and now a wood
Comes toward Dunsinane.

– Shakespeare’s Macbeth

 
 
Comment by Professor Bear
2015-05-09 13:23:23

‘The inventory is so low, it’s driving the prices up,’

Isn’t it odd how so many MSM commentators can completely miss the role of generation-low interest rates in driving prices sky high and sucking all inventory off the market? These same folks will most likely be heard to say “nobody could have seen it coming” when the dynamic reverses.

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Comment by Professor Bear
2015-05-09 08:48:20

“The 2 percent drop in prices over the first quarter is another piece of the adjustment puzzle. Nall said that he would have been concerned if the price had fallen by 10 percent for the quarter but that the price drop is not a sign of the bottom falling out of the market.”

There seems to be a lot of whistling past the graveyard by Texas real estate peops these days. Hopefully there are no investors in this guy’s market, because falling prices are likely to lead investors to cash out, which could result in the bottom dropping out of the market.

 
Comment by Housing Analyst
2015-05-09 08:59:09

Renton, WA List Prices Sink 5% At Peak Of Season; Prices Fall In Seattle, Kirkland And Redmond

http://www.movoto.com/renton-wa/market-trends/

 
Comment by Get Stucco
2015-05-09 09:01:23

“What was a perfectly reasonable to them price 2 years ago had now jumped 50%. In 2 years! They felt pretty good. To me, an alarm was ringing. When in our lifetimes has an ordinary house increased so much in such a short time? But to them, it was as natural as the sun coming up.

This is what a mania looks like. … But such new paradigm, after the fact rationalizations sound like a bubble to me. And that means trouble ahead.”

Sounds to me like lots of buyers are about to get stucco again. And the longer the Fed postpones rate hikes, the more misaligned prices will get from incomes, and hence the worse the eventual pain when rates increase.

Comment by Blue Skye
2015-05-09 21:05:47

We are seeing in some places that prices can collapse even when interest rates do not go up. When growth stops, overpriced houses suddenly are not an attractive investment at any interest rate.

 
 
Comment by Professor Bear
2015-05-09 09:10:50

“‘If you have anything that is moderately priced, there is a bidding war,’ said. He said the inflation in local homebuying costs is starting to be a concern. ‘It all works right now because mortgage rates are so low and it helps with these price increases,’ said Ted Wilson, a housing analyst with Dallas-based Residential Strategies Inc. ‘I just hope that we see household incomes pick up, or we will have a big jolt down the road when interest rates go up.’”

What so many commentators like this one seem to miss is the fundamental connection between interest rates and price. In short, historically low rates have led to historically high rates of real estate price appreciation.

Makes one wonder what might happen if rates ever normalize.

Comment by Ol'Bubba
2015-05-09 09:56:26

“Makes one wonder what might happen if rates ever normalize.”

How do you define normalized rates in this context?

Comment by Professor Bear
2015-05-09 10:19:08

You could simply define it as “significantly higher than all-time historic lows.”

Comment by Professor Bear
2015-05-09 10:21:23

And in case you don’t know what I mean by “all-time historic lows,” check out the post-2008 period in this figure.

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Comment by Ol'Bubba
2015-05-09 10:35:32

Would “significantly lower than all-time historic highs” also qualify as normalized rates?

My point is that no one knows with any degree of certainty how and when the yield curve is going to move. What if we stay in a low rate environment for an extended period of time (say 5- to 20-years)?

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Comment by Professor Bear
2015-05-09 11:26:27

You are right about the duration of the extended period of low rates. As I have often mentioned here, the only ever comparable period to the present episode that began in 1933 didn’t end until circa 1948 — 15 years!

The same duration this time around would take us out to
2008 + 15 = 2023. We might have another eight years of extend-and-pretend policy ahead before rates normalize.

 
Comment by Housing Analyst
2015-05-09 11:33:26

And what if they go to 20% next week? Wise up.

 
Comment by Professor Bear
2015-05-09 11:44:43

Rates don’t go up 20% in one week. The death of a bull market in bonds is crushing and slow. It took over two decades to play out last time (circa 1960-1981).

 
Comment by Housing Analyst
2015-05-09 12:20:02

They turn on an instant. Might take a while to get there. Simply makes the pain and losses less noticeable.

 
Comment by Professor Bear
2015-05-09 13:34:24

I view the situation of bond investors and home owners facing rate increases as akin to the plight of the frog in the pot of the water which is gradually heating up to boiling. The frog may keep thinking about jumping, but never gets around to it by the time when he is fully boiled. In the case of homeowners, who cannot easily liquidate from an underwater position, it is more like being trapped inside a pressure cooker with the lid on.

However, given the extremes of interest rate suppression in the QE era, moves could be far more violent this go round. Moreover, due to convexity, small moves off the zero bound have a much more potent impact on markets than similar magnitude moves off higher bases.

 
Comment by Professor Bear
2015-05-09 16:00:01

The coincidental timing of liftoff in German bond yields with Draghi’s mid-April reminder that Greece is too-big-to-fail seems striking.

Bond markets
Reverse speed
Bond yields are suddenly rising
May 9th 2015 | From the print edition
Timekeeper

RARELY can a market have changed direction with such speed. For most of 2015 European government-bond yields had been heading lower, with the German ten-year yield on a seemingly inexorable path towards zero. Shorter-term German bonds were already offering negative rates, meaning that investors who held the debt to maturity were bound to lose money.

Then, in the middle of April, the markets turned and yields started rising again (which means that bond prices fell). Germany’s ten-year yield is now back where it was at the start of the year. The sell-off has driven yields in the rest of Europe higher as well (see chart: Yield of screams).

 
Comment by Rental Watch
2015-05-10 12:59:46

Rates will go up faster than people think.

A 20% increase from a 2% 10-year is only a 40 basis point move. That’s nothing, and could easily happen within a month.

 
 
 
 
Comment by Professor Bear
2015-05-09 10:25:23

In case it is any comfort, the property bubble is completely global, not at all localized to the U.S. We’re all in this together, folks!

Comment by Professor Bear
2015-05-09 10:27:49

The Financial Times > Companies > Financials >
Property
Last updated: April 16, 2015 12:36 am
Global property bubble fears mount as prices and yields spike
Kate Allen in London and Anna Nicolaou in New York

Fears of a renewed global property bubble are rising as prices and yields hit records last seen before the financial crisis, according to new data.

The pricing of real estate around the world had become “increasingly aggressive”, research company MSCI said. This is particularly the case in the US, where investors’ returns from rental income are now lower than before 2008, when a crash in massively overleveraged property triggered an international banking slump.

Globally, property generated total average returns of 9.9 per cent in 2014 thanks to rapid capital value appreciation, MSCI found — the best performance since 2007 and the fifth consecutive year of increasing returns.

The spiralling price of property assets in the world’s biggest investment markets was raising “increasing concerns over its sustainability”, said Peter Hobbs, research managing director at MSCI.

Most global markets are at or close to historic low [yield] levels,” he said. The yield expresses rental revenue as a proportion of a property’s value. As values rise, yields fall.

The main factor behind the pricing is “exceptionally low” bond yields, which made property much more appealing to investors in relative terms, Mr Hobbs said, citing “frenzied buying”.

Comment by Housing Analyst
2015-05-09 11:38:16

” This is particularly the case in the US”

Clearly the largest losses will be right here in the US.

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Comment by Professor Bear
2015-05-09 11:30:22

Opinion May 8 2015 at 12:15 AM
Updated May 8 2015 at 4:35 PM
How to protect your portfolio when low interest rates normalise

Contrary to popular reading, the savage jump in our government bond yields and, to a lesser extent, the exchange rate, following the Reserve Bank of Australia’s board meeting this week had relatively little to do with the fact Glenn Stevens dared to drop his “easing” bias.

Tuesday’s otherwise unexpected (at least by most) jump in long-term rates was determined by much larger foreign forces. A little appreciated fact is that Australia’s three- and 10-year government bond yields, which are the market’s best guess as to where the cash rate will be on average over those periods, are more than 90 per cent correlated with equivalent US rates. This is true in other economies too.

So why were US yields rising? It turns out that a heterodox case I have repeatedly posited here – whereby the popular and financially convenient “low rates for long” meme is junked by budding US wage pressures spooking bond bandits – has finally arrived. The issue overlooked by most investors is that the 5.5 per cent jobless rate in the US is not far above the cyclical troughs attained before the 2001 “tech wreck” and the 2008 global financial crisis. In both episodes equities were crushed by 50 per cent or more. More significantly, the never-before-seen zero interest rate policy maintained by the Federal Reserve more than four years after gross domestic product growth in the US returned to positive territory has forced the jobless rate through a crucial threshold below which wage pressures tend to materialise.

In 2014 the Fed’s current chair, Janet Yellen, revealed her own estimate of this so-called “non-accelerating inflation rate of unemployment” (NAIRU). “The unemployment rate consistent with maximum sustainable employment is now between 5.2 per cent and 5.6 per cent,” she said.

Based on Yellen’s analysis, we are close to technical full employment, which is awkwardly juxtaposed against the cheapest money in human history.

Comment by Blue Skye
2015-05-09 21:25:43

“budding US wage pressures…a crucial threshold below which wage pressures tend to materialize…with maximum sustainable employment.”

The 10+million more that are not in the labor force must be completely invisible to these people.

 
 
 
Comment by Housing Analyst
Comment by Professor Bear
2015-05-09 13:16:59

Luckily financial markets haven’t run out of stupid people yet.

 
 
Comment by Housing Analyst
2015-05-10 07:54:49

Brightwood Park, Washington DC List Prices Collapse; Down 40% YoY

http://www.zillow.com/brightwood-park-washington-dc/home-values/

 
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