A Recipe For Asset-Price Bubbles
It’s Friday desk clearing time for this blogger. “Is another housing price bubble looming? The question is being asked with increasing frequency and also with great anxiety. Many of those commenting on the question, however, don’t understand what a price bubble is. It is not a marked rise in prices. Sharp price increases are common, and pose no threat to the stability of the economy. If a rise in price immediately stimulates an increase in supply, any bubble will quickly disappear. Housing meets that condition because the stock of houses is large relative to new construction.”
“My view is that we are a long way from another house price bubble. Home buyers, lenders, investors and regulators now understand that a nationwide decline in house prices is possible. It will probably take another generation to forget what we learned. Furthermore, even if the lesson was forgotten tomorrow, changes that have occurred in the housing finance system would make it very difficult if not impossible for the system to support a bubble. I don’t expect to see another one in my lifetime.”
“Real estate agent Barry Sulpor said he’s seeing increased demand in the beach cities of the South Bay — an area that never really saw a slowdown like other Southern California communities. A three-bedroom town home in El Segundo recently had 14 offers, he said. It’s about to close escrow for $810,000 — $41,000 over the asking price, Sulpor said. The ‘open house was standing room only,’ he said.”
“Agent Carey Chenoski said her client recently sold a three-bedroom house in San Bernardino to a couple for $15,000 over asking price. That, she said, probably wouldn’t have happened last year. ‘It’s actually pretty strong,’ the Beaumont resident said. ‘On my street, three houses closed in the last week or so.’”
“Something spurred a surge in home buying in Lawrence, according to the latest figures from the Lawrence Board of Realtors. The median selling price of newly constructed homes is up significantly. It checks in at $337,495, which is a 10 percent increase from a year ago. At the end of 2011, the median selling price for a newly built home was $245,000. We’ve seen an increase of 37 percent in median price in less than four years. Back in 2011, the gap between the median selling price of an existing home and a new home was about 45 percent. Thus far in 2015, the gap is about 110 percent. As I’ve been known to say when my key no longer works in my home lock: I don’t know exactly what this means, but it seems significant.”
“Single-family and condominium sales are up across a broad swath of Connecticut, particularly among first-time buyers, lenders and Realtors say. Michael Sheahan, retail lending manager for Chelsea Groton, said its first-quarter volume of purchase and refinance mortgages is running ahead of the comparable period in 2014. ‘We are excited about the level of purchase transactions transpiring to date, including first-time homebuyer and home construction projects,’ Sheahan said.”
“The mortgage industry, too, is showing sensitivity to the plight of Millennials and other potential homebuyers saddled with student-loan debt. According to Sheahan, at least one private mortgage insurer is offering to medical- and dental-school graduates a mortgage insurance product that enables them to qualify for a mortgage despite their student debt. Lenders typically require private mortgage insurance on loans with less than a 20 percent downpayment.”
“Mortgage broker David Ford thinks he has found the right way to describe the Lower Mainland’s market for single-family homes. ‘Detached housing is BANANAS. It’s real estate pandemonium,’ he writes in his latest newsletter. The default rate for mortgages in Canada is less than one per cent, Ford says, noting that buyers are being assisted by revenue from basement suites and laneway unit rentals, which can increase monthly income by $1,800 or more.”
“He is looking to purchase a one-bedroom condo in downtown Vancouver, with a budget of $450,000. He has no qualms about taking on a $400,000 mortgage to do it. As long as people hang on to their investment for a while, he says, they will be fine because land in Vancouver has always appreciated.”
“With the latest effort by Sweden to cool its housing market postponed by a court, concerns are escalating that political stagnation, a faulty institutional set-up and high household debt risks sending the triple A economy into a tailspin. A move to force homeowners to pay down the principal of their mortgages — what many economists say is the very least needed to avoid a housing bubble — was postponed after a court in April said the Swedish Financial Supervisory Authority lacked a legal mandate.”
“The market is so frenzied that buyers in Stockholm often bid by text messages to brokers before they even inspect homes. There are fears households have grown accustomed to ultra-low interest rates. In a recent survey more than half of the respondents said it would be a big or fairly big problem if housing costs in Sweden rose by 50 percent. ‘The housing market in this country is dysfunctional and households are borrowing more and more and more,’ Stefan Ingves, the Governor of Sweden’s central bank. ‘This is one of those places in the world where the indecision bias has figured prominently and we are still seriously heading in the wrong direction.’”
“Frenzied construction by developers hoping to tap the real estate potential of the Iskandar region is ironically leading to a glut that is depressing property value in the southern economic development corridor. Worryingly for the primarily China-based developers is that most of these projects are already in progress even as demand is tapering off. One such developer, Country Garden, has 45 condominium towers with a combined total of 9,500 units set to come online in 2017, but has received bookings for less than a third some two years after construction began in 2013.”
“Aside from the obvious glut, other factors depressing sales in the region are the prices that have ballooned to levels comparable to the national capital of Kuala Lumpur and property controls that limit foreigners to buying property priced at no less than RM1 million. According to data by Asean Confidential, the effects on property value growth in Iskandar is already palpable. Going into 2012, it began climbing steadily to eventually outstrip the national average, before peaking at 25 per cent in annual appreciation. But it began falling almost immediately, plunging to 10 per cent last year, less than a percentage point over the rest of the country.”
“Some mining workers have gone from the high life to homelessness, from six-figure salaries to sleeping in cars, as the state’s resources industry is savaged by job cuts. OzHelp, a not-for-profit group specialising in suicide prevention and wellbeing in the mining industry, said the ‘wholesale slaughter’ of mining jobs had left some sacked workers unable to afford a roof over their head.”
“Nicole Ashby, head of the support and training service FIFO Families, said many axed workers were struggling to find new jobs and those who were still employed feared the next round of cuts. ‘One family was made redundant at Christmas, the husband still can’t get work,’ she said. ‘He’s defaulted on his mortgage, he’s been out of work for four to five months and they’re stressed out of their brains.’”
“Federal Reserve Bank of St. Louis President James Bullard warned that keeping interest rates near zero risks inflating asset-price bubbles, saying officials should raise borrowing costs this year as the economy improves. A prolonged accommodative stance is a ‘recipe for asset-price bubbles and a lot of mischief to happen,’ Bullard said in a Bloomberg Radio interview. ‘Asset price bubbles have been a devastating feature for the U.S. economy in the last 15 years.’”
“‘We need to get going once we have the opportunity to get going,’ Bullard said. ‘The economy is getting back to normal, but policy is still on an emergency setting.’”
“Books on the crisis typically fall into two categories. The first off the presses were the journalistic accounts. Later came the more thought-through academic analyses. Easy Money falls somewhere between these two categories. As the title suggests, Vivek Kaul zeroes in on the all-too-familiar culprit of the crisis - the access to easy money - and lays the blame for it firmly at the door of the central banks. He repeats the accusation that the United States Federal Reserve under Alan Greenspan left interest rates too low for too long after the dotcom bubble burst at the start of this century, which, inevitably perhaps, created a bubble in the real estate sector.”
“The chapter ‘Print Money, Buy Tomato Ketchup’ highlights the inherent contradiction of the current policy stance. As astute observers have also pointed out, policymakers are essentially trying to engineer a consumption boom to get economies out of the current problem, believing it’s a problem of aggregate demand, while it was excess debt-laden consumption that landed them there in the first place.”
“Professor Rajan and Luigi Zingales succinctly sum it up: ‘The way out of the crisis cannot be still more borrowing and spending, especially if the spending does not build lasting assets that will help future generations pay off the debts they will be saddled with.’”
‘Bubbles can only arise in markets where the stock of items is very large relative to new production. If a rise in price immediately stimulates an increase in supply, any bubble will quickly disappear.’
‘We’ve seen an increase of 37 percent in median price in less than four years. Back in 2011, the gap between the median selling price of an existing home and a new home was about 45 percent. Thus far in 2015, the gap is about 110 percent. As I’ve been known to say when my key no longer works in my home lock: I don’t know exactly what this means, but it seems significant.’
How many parts of the US have we read of land prices doubling and tripling in just the past few years? Even places like Lawrence Kansas or Bozeman Montana, where there’s obviously a shortage of land.
Shortages everywhere, huh?
‘The Wall Street Journal reported that from 2012 to 2014, 82% of the 370,000 multifamily rental units constructed in 54 U.S. metropolitan areas were in the luxury category. In cities such as Atlanta, Denver, Tampa, Baltimore and Phoenix, nearly all new apartment construction has been targeted to high-end renters, Laura Kusisto reported.’
“I don’t believe there ever has been a time where we have produced so much luxury rental housing,” Susan Wachter, professor of real estate at The Wharton School of the University of Pennsylvania, told Kusisto.’
‘The boom in luxury units has been great for the affluent, while “many middle-class and young workers are straining to rent the units, in part because they have few others choices,” Kusisto wrote.’
And Mississippi, shortage!
‘The housing market in the Jackson area and across the state is in the first phase of a rise in construction. Residential permits in Mississippi for one- and two-unit dwellings rose 15.7 percent for the first four months of 2015 compared with the corresponding period last year, according to the U.S. Census Bureau on Wednesday.’
‘Several factors — a shrinking inventory of previously owned homes, a healthy rise in prices and low interest rates — have led to that.’
‘The number of homes on the three-county market of Hinds, Madison and Rankin, for example, dropped 10.6 percent from April 2014 to last month, according to the Central Mississippi Realtors Association.’
‘In the year-to-date period ending April 30, new listings in the area dropped 1.4 percent and the median sales price rose 10.2 percent to $162,000, according to the association.’
‘Low levels of housing inventory listed on the market might not be the problem most people think it is during this busy spring and summer buying season, based on data provided by the Multiple Listing Service of Greater Cincinnati Inc.’
‘For-sale inventory of single family homes and condominiums in Greater Cincinnati shrank 10 percent in April from the year before to 8,295 listings last month, the most recent information available, according to the realtors group.’
‘But last year, and for several years before that, the market was still cleaning up the glut of foreclosed and bank-owned homes for sale in the midst of a financial crisis.’
“There is no such thing as normal in the housing market,” said Mark Meinhardt, president/broker of Star One Realtors Inc., with offices in Fairfield, West Chester Twp. and Cincinnati.’
“Either you’re a buyer that can’t find a house that you want because there’s not enough inventory, or if there’s too much inventory, you’re a seller that can’t get their price or can’t sell their house because there’s too much,” Meinhardt said.’
“It’s a good thing if you’re trying to sell right now because lack of inventory tends to create urgency for the buyers and also it helps the sales price increase,” Meinhardt said. “More and more lenders are requiring potential buyers get pre-approved so they know what they can afford… and so they can act quickly.”
There’s a shortage of good investments now that government bond interest rates are negative for like 30% of the worlds bonds. The supply/demand issue is less supply of houses and more supply of dollars, which is up big time as the fed flooded the economy for 7 years with basically free money. Real Estate, fine art, whatever.
I just wonder what it will take to trigger a flight back into cash, and a dumping of these ‘investments’. Greek Euro Exit? Wider War in the Ukraine or Middle East?
trigger a flight back into cash, and a dumping of these ‘investments’ ??
If there is a flight back to cash, who will they “dump” the investments on ??…
I remember vividly after September 2008…the years that followed you could have purchased homes around here at values that went back 10-20 years…But very few bought…..Why ?
FEAR…………………
BS, they were being held off the market in limbo OR being sold to insiders and collectives like hedge funds buying with “cash”.
Then a floor was put in sometime in 2010. Ask Bluto, he’s been saying this for years.
Also, historically unprecedented actions by the Fed and government to stop the bleeding played a major part. Suspension of mark to market allowed financial institutions to overstate the value of their real estate portfolios and prevented mass liquidations. Through ZIRP, investors could purchase RE with “cash” that they borrowed. Purchases of toxic loans by the government. We can go on and on about why prices never found their natural bottom.
Why are people buying at the top? Fear and greed.
Many were shut out of buying following the 2008 crash…I am one of them. I tried to but in 2011 and 2012, had a preapproved mortgage and enough cash for 50% down but my offers (all full price or slightly more) on several houses were ignored in favor of flippers or speculators offering 100% cash (and likely no contingencies) , gave up in disgust after a year of that. May try again after Bubble 2.0 pops if prices drop at least 30%, in the meantime renting is a better option locally (Sonoma Co., Calif.)
Bubble land prices lead to “luxury xxxxxx” as developers and builders have to try to justify their purchase prices. Any market which has an excess of “luxury houses/condos/rentals” is suffering from bubble land prices. PERIOD.
It’s a new paradigm, and everybody who doesn’t buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.
Renters, and anybody born in a future generation, will not be able to afford a $10,000,000 starter home in 15 years. They will live in tent cities, and Hondas.
This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.
Sounds like a Debt Donkey Utopia.
California Housing Demand Plummets 9% As Houses Sit Empty
http://files.zillowstatic.com/research/public/State/State_Turnover_AllHomes.csv
I heard the comment at lunch yesterday: “you can’t lose with real estate, recent history shows if it goes down its going to come right back up. And even if it doesn’t the government is going to bail you out.”
There it is.
SAD. People who think, or worse yet actually speak it will ultimately get what they deserve.
MA Housing Sale Prices Plunge 16% YoY Statewide As Housing Bust Spreads
http://www.zillow.com/ma/home-values/
Chino Hills, CA Housing Prices Fall 6% YoY
http://www.zillow.com/ca/home-values/
“My view is that we are a long way from another house price bubble. Home buyers, lenders, investors and regulators now understand that a nationwide decline in house prices is possible. It will probably take another generation to forget what we learned. Furthermore, even if the lesson was forgotten tomorrow, changes that have occurred in the housing finance system would make it very difficult if not impossible for the system to support a bubble. I don’t expect to see another one in my lifetime.”
My view is that people who discuss all the reasons for high U.S. housing prices but omit the role of deliberate government intervention to reflate the bubble are complete morons.
What lesson have we learned? That prices will shoot right back up? That the government will always bail you out? That short sales and walking away won’t stop you from buying a house only three years later?
We’ve learned about moral hazard, but not in the way we’d like.
We’ve learned that rules are for fools.
Granpa, tell me a story again about FASB 157.
I’ve got a ways to school my 7 year old when we play Monopoly. He buys all the property he can then goes BK on his third turn around the board. We’ve coined the new version “Moral Hazard Monopoly”.
Are you trying to raise your kid to be a real estate investor?
teach them that slow and steady wins the race. It’s why Monopoly takes so long to play.
only 4 trillion or so
BTW anyone have a bid on fed sludge ?
80-60 cents on the buck ?
“The expectations of price increases that drove the house price bubble of 2000-2006 was not limited to consumers looking to buy houses. It also engulfed lenders who financed house purchases, and investors here and abroad who purchased the securities that were issued against home mortgage collateral. Indeed, they were the crucial players in the bubble.”
It seems all the factors that led to the 2000-2006 bubble price runup are in play again. Although it seems investor activity in the post-2008 period was more focused on direct real estate ownership than MBS, as the Fed’s massive purchases of the latter would’ve tended to crowd out private investment.
Why would you have any underwriting standards at all? It’s just going to be sold off and it’s guaranteed by Uncle Sam. If it goes bust, well, you’ve got your fee, but it ain’t your problem.
What are they going to do?
Make you eat 5% of any mortgage that isn’t fully amortized Day 1?
That’s what the Credit Risk Retention rules and Qualified Residential Mortgage under Dodd-Frank were all about. Bought-off Congress made sure those regs were watered down, but they at least put a check on the I/O ARMs.
And the Republican Congress wants to repeal Dodd-Frank altogether because it’s a “crushing regulation.”
because it’s a “crushing regulation.” ??
Yes it is…They through out the baby with the bath water…
Dodd Frank is a terrible law.
Rather than hit the problems head-on, debate the issues in a public forum, and pass laws that were absolute, they passed a massive law with the important rules to be written later through a lengthy process that was out of the spotlight.
And the most important of those rules were massively watered down through the lobbying process.
So, we got large numbers of new rules, and the important rules won’t work because they were watered down because of the gutless process employed.
they passed a massive law with the important rules to be written later through a lengthy process that was out of the spotlight.
This lengthy process has been SOP since Congress passed the Administrative Procedures Act in 1946. (Before then, it was even more erratic.) Congress sets out some goals, and then hands it over to the experts at the regulatory agencies to carry out the goal by passing specific regulations. Most regulation, be it aircraft maintenance or clean water or drugs or safety standards for pipelines, follows this formula.
What if Congress DID have to pass specific laws, instead of handing it to the regulatory agencies? Do you think Congress would be LESS subject to the lobbying process?
Those regs would be even MORE watered down, if you could get any regs at all.
Sure, the supposedly neutral regulatory agencies are vulnerable to regulatory capture, as the senior experts or management are lured away or retire early to join the private sector dark side. Well, I guess that’s what happens to a regulator when he is disparaged at every turn as a stupid lazy “non-essential” faceless union goon bureaucrat who gets paid too much and should be blown up along with the rest of “DC.” Can’t say I blame them for seeking greener pastures.
By the way, regulations are subject to federal review. If someone doesn’t like a regulation, they can sue, and the courts can overturn a regulation if it doesn’t meet the goals, or doesn’t comply with the seminal Congressional law, or even doesn’t involve the public enough. And, if Congress sees a specific regulation they don’t like, they can pass their own law to override it directly. So I encourage you to get on your Congresscritter to pass stronger laws, or to sue the government that you didn’t have enough involvement. Good luck.
Yes, but they need to write the rules subject to the law.
Instead of writing a long law with general guidelines for hundreds (literally) of rules, they should have written a shorter law with more detailed guidelines for fewer rules.
And of course lobbying would have been involved, but once it gets to the SEC rulemaking, it is largely out of the mainstream public’s eye. I would rather the lobbying happen before the law is passed–and thus still in the MSM for debate/discussion.
The CPA we use noted to me that a lot of the crap thrown into Dodd Frank was crap that the left had been trying to accomplish for YEARS prior to the crash (and wasn’t related to the crash). They never had both houses, or political cover to pass the crap. They used their legislative power, and political cover of the great recession to finally get all that sh*t into Dodd Frank.
In other words, they were political opportunists rather than thoughtful legistlators trying to solve a problem. And by being political opportunists, they ultimately didn’t solve any problems (as evidenced by non-specific law leading to QRM policies that effectively require no down payment).
F them.
The FAPA act, and handing stuff off to legislators, is still SOP, no matter how angry you are. However, I don’t disagree that this issue is high profile enough that Congress should have taken on some transparent direct law-making.
Anyway, what about that crap Congress couldn’t get passed? Maybe they were trying to be thoughtful legislators on that crap too, but got stymied by filibusters or Harry Reid or some other poison pill. And it won’t be the first time that “unrelated” stuff was added on to a bill. Would it give you a heart attack to know the Obama put some student loan stuff into Obamacare?
And why is HBB still so damn fixated on no down payment? That is NOT what blew up the bubble, not by itself. What really blew up the bubble was those I/O neg-am ARM loans. You don’t see those any more. Loans are now fully amortized from Day 1. That’s enough to stop every bank in its tracks even with no down payment.
Lenders willing to lend to crazy standards are meaningless without people irresponsible enough to take the money.
Having a meaningful down payment is a proxy for people who have their financial house in order, and who actually care about the price of the house, not just “howmuchamonth”.
The bulk of Dodd Frank was sh*t unrelated to the mortgage mess and credit crisis. There were something like 200 separate rules to be written. The two big rules were QRM (gutted due to the process), and the Volcker Rule (which I don’t think has even been finalized yet).
Being thoughtful is the same as being long-winded and complicated. Glass-Steagall was not long, but very effective for a long time.
How about the following as two rules.
1. GSEs can guarantee any mortgage loans they want as long as the down payment is equal to or greater than 3% + (The year the loan was made - 2010)/200.
In other words loans in 2010 F&F needed at least a 3% down payment. 2011, 3.5%. 2012, 4%, and so on.
Then take your f’ing hands off the wheel and let government backing for mortgages slowly die, and instead of the capital flowing to buy Fannie/Freddie paper, it will go to buy pools of mortgages from more traditional lenders.
2. Make it illegal to opine on the quality of any part of a pool of mortgages if less than 95% of the pool is made up of mortgages with income that supports the highest required payment possible on the mortgage.
In other words, you can make whatever crazy-assed loans you want and try to sell the pool to investors. But unless the vast majority of borrowers in a loan pool has proven income to make any potential payment, you can’t ask Moody’s to slap a AAA rating on any part of the loan pool–the investors are on their own to analyze and judge the risks, they can’t put a AAA rating under their pillow and go back to sleep.
Now get out of the way and watch lenders underwrite with logic.
OK good. At least this is meaningful conversation.
I’m still not sold on needing a % down. If people can’t get their financial house in order, you’ll know about it on Month 2-3. I don’t like your plan of guaranteeing “any loans they want” with 3% down. I prefer 3 years of full payments with 0 down over 3% down and an I/O loan. And I’ll just review: the howmuchamonth is already an indicator of price! This is not 2006. In 2006, if you didn’t like you HMAM, you could get a teaser rate or an I/O or I guess a 40 year mortgage. But now, if you have a fixed-rate amotized loan, the ONLY way to bring down that howmuchamonth is to bring down the price.
While the idea of getting government out of housing is morally satisfying, it will NOT work.
I swear, HBB can NOT seem to let go of this idea that the price of housing should be magically tied to Joe6pack incomes by some natural law. And that if only “government would get out of the way” prices will conveniently do exactly what you want them to do. This will not happen. The barrier to lower prices is not government regs. It’s investors with piles of cash who can outbid J6P every time.
If the government takes its hands off the wheel, what you will have is wages staying stagnant but the price of housing going up with inflation — this has already been happening for decades. And now you want joe6pack to put down more and more cash, which he is less and less able to save? At that rate J6P won’t even make it into the bank, much less get any underwriting of any stripe. All that will happen is that house prices drop to where cash investors can pay and bid each other up, but still out of reach of J6P (especially when you make him put 25% down). And now we’re back to a small class of owners and a proletariat of renters. Just like it was in 1300.
Donk, you cannot seem to grasp the fact the houses are only worth the input costs less depreciation.
If you have to borrow for 15 or 30 years, you can’t afford it nor can you afford it.
‘HBB can NOT seem to let go of this idea that the price of housing should be magically tied to Joe6pack incomes by some natural law’
Hey, Oxide is learning! This makes for a good week.
Though I should point out it’s not magical law, it’s centuries of observable history.
‘HBB can NOT seem to let go of this idea that the price of housing should be magically tied to Joe6pack incomes by some natural law’
It amazes me that we have long-time readers who have yet to figure out that this episode is a passing anomaly!
I guess people who never sat through a college econ class shouldn’t be expected to realize that the standard model of household demand assumes, with strong empirical support, that prices are tethered by a budget constraint to household incomes. Government interventions can only go so far to override this fundamental principle before the economy is seriously SNAFU’d.
Thank God all those democrats aren’t bought and paid for also.
Where did I say “Dems?” I said Congress.
If u weren’t Govnic you would hate Dodd Frank
“Professor Rajan and Luigi Zingales succinctly sum it up: ‘The way out of the crisis cannot be still more borrowing and spending, especially if the spending does not build lasting assets that will help future generations pay off the debts they will be saddled with.’”
Are they suggesting the ‘Hair of the Dog’ hangover cure is not a universally accepted remedy for a debt bender?
‘Shanghai’s stock market just experienced a Wile E. Coyote moment. For weeks, investors had been chasing higher and higher returns. On Wednesday, however, they suddenly looked down to find their road had disappeared.’
‘The realization came courtesy of China’s central bank, which had decided to drain cash from the financial system, and jittery brokerages, which had just tightened lending restrictions. That one-two punch didn’t just send Chinese stocks down 6.5 percent, the most in four months. It also raised existential questions about one of modern history’s greatest asset bubbles.’
‘And it is a bubble. The 127 percent gain in the Shanghai Composite Index over the past year defies financial gravity. It’s been driven not by optimism about China’s economic fundamentals or corporate earnings, but record growth in margin debt.’
‘What makes China’s bubble unique is the government’s direct role in creating it, feeding it and now managing it. Last August, for example, as the Chinese stock market threatened to sag, state-run media started prodding the Chinese public to pile their life savings into shares. During a single week in August 2014, Xinhua News Agency put out eight features espousing the wisdom and patriotism of owning equities. Beijing also reduced trading fees and allowed individuals to open as many as 20 accounts. The implicit message was that the Communist Party could and would protect stock investments, if need be.’
‘The plan succeeded beyond Beijing’s wildest expectations, leaving it with an epic challenge: How do you deflate a giant bubble without enraging the masses or losing control of the economy?’
‘China, the world’s second largest economy, is now in completely uncharted territory, struggling with a huge and unsustainable market that it can’t allow to crash.’
“Shanghai’s stock market just experienced a Wile E. Coyote moment. For weeks, investors had been chasing higher and higher returns.”
Wrong! For weeks, investors had been chasing higher and higher PRICES.
Higher prices aren’t higher returns until what has increased in price has been sold. Only after it has been sold do you get a return.
Until then the only return you get to enjoy are bragging rights, unless the price drops, at which point you get to enjoy some despair.
said the ‘wholesale slaughter’ of mining jobs had left some sacked workers unable to afford a roof over their head.”
So who’s not buying that Iron causing the layoffs ??
Iron ore exports generated $74.6 billion for the nation last year, but flagging demand from China has driven a price plunge to a low of $US50 a ton, down from a peak of four times that.
This sort of propaganda is not unlike our own. Just substitute any number of Western media entities for “Xinhua News Agency,” and substitute the Fed, or any Western central bank, for the Communist Party. And the West has the identical epic challenge and also is in completely uncharted territory with unsustainable markets that, in their minds, they can’t allow to crash.
True, but they aren’t saying that the economy is growing 7%. They’re still lying, of course, just a smaller lie.
“Is another housing price bubble looming? The question is being asked with increasing frequency and also with great anxiety. Many of those commenting on the question, however, don’t understand what a price bubble is. It is not a marked rise in prices.”
No, it’s a marked increase in DEMAND that is driven by a marked increase in prices. Econ 101 say this should not happen but there it is, there it is happening, happening right before your lying eyes.
People want to get into the market and BUY because the prices are rising. They do this with stocks and they do this with houses because stocks and houses are investment-type thingys but people don’t do this with most other things such as food and cars and gasoline because these things are consumable-type thingys.
People are smart, at least they are smart about some things, not so smart about other things.
Macy’s knows people are smart because the way Macys can create demand is to lower prices of the consumables that it wants its customers buy.
But the investment industry (which includes the housing industry) knows that people are not so smart when it comes to their investment decisions because, unlike Macys, the investment industry will create demand by RAISING prices.
Raise prices and - presto! - you have just raised values. It’s a true miracle, and people are drawn to these miracles and are willing to plunk down some hard earned cash, cash earned today and lots of yet-to-be-earned-hard-earned-cash promised from tomorrow to get a piece of this miracle before the ever-rising price of this miracle rises out of reach, rises beyond the abilities of their ever-stretched ability to make the required monthly payments.
Monthly payments? Did I say monthly payments?
Monthly payments = the fuel that powers the bubble. A miracle in itself, monthly payments act to REDEFINE the term affordable.
Another miracle: If a house buyer works it right he can set his finances up in such a way to make the ever-rising price that translates to ever-rising value also translate to ever-rising equity cash outs, and then he can take some of the money from these equity cash outs and use it to help make the monthly payments.
So, in effect, he can set up his finances in such a way that the house ends up buying itself.
This concept looks really stupid if one was to limit his thinking about the term “affordable” to price alone, but it makes perfectly good sense to one who decides to cleverly extend his thinking beyond price and delve into the wonders offered by the Monthly Payment Plan.
The Monthly Payment Plan: What should never be yours can somehow seem to be yours.
If you have to borrow for 30 years to buy something, you cannot afford it.
‘Not buying a home right now will cost you, because home prices and interest rates are going to rise. Many renters would like to own, but they can’t afford down payments, or don’t qualify for mortgages.’
‘Those two conclusions, drawn from separate reports released this week, sum up the housing market dilemma for many young professionals: Buyers get more for their money than renters — but most renters can’t afford to enter the home-buying market.’
‘The penalties for waiting to buy tend to be greater in smaller metro areas, especially in California, according to Realtor.com. For example, the estimated cost of waiting one year on a purchase was $61,805 in San Jose and $65,780 in Santa Cruz. Over the course of 30 years, homeowners save more than $1 million in Santa Cruz, the largest amount of any U.S. city.’
“It shouldn’t be a surprise that the places where you can have the highest reward over time also have the highest prices,” said Jonathan Smoke, chief economist for Realtor.com. “It’s not true that if you’re a median-income household that you can’t find a home that’s affordable, but in places like San Jose and Santa Cruz, less than 10 percent of inventory would be affordable.”
‘Or as Logan Mohtashami, a senior loan officer at AMC Lending Group in Irvine, Calif., told Bloomberg Radio this week: “The rich have no problem buying homes.”
Realtor.com funded studies that say home prices will go up when rates go up. So as the cost to buy a house goes up, demand will increase, because people will have a higher monthly payment, and an even higher monthly payment if they wait, and therefore more people will buy, thus driving up prices even more? I wonder how many suckers will fall for this line of logic?
Jonathan Smoke is a true nimrod and a latter day David Lereah, have read other nonsense from him at http://www.realtor.com/author/jonathansmoke/
It will be interesting to see how he spins the inevitable pop of the echo bubble.
‘The former chairman of the US Federal Reserve, Ben Bernanke, believes rising asset bubbles don’t present a risk to Australia’s economy. That’s why he suggests the RBA should lower rates further if the economy needs a stimulus. And he doesn’t think this poses a problem for assets like stocks or properties.’
‘Mr Bernanke is wrong about asset bubbles. The record growth in assets like housing is perhaps the largest concern facing the economy. Why? Because they indicate that the RBA’s fiscal policy isn’t working.’
‘Yet Mr Bernanke actually believes his policies have been effective. Here’s what he had to say: “At least so far, [monetary easing programs] haven’t had many of the bad side-effects that people were saying were bound to come”.
‘Yet Mr Bernanke actually believes his policies have been effective. Here’s what he had to say: “At least so far, [monetary easing programs] haven’t had many of the bad side-effects that people were saying were bound to come”.
It’s pretty incredible.
You’d believe it to if you were paid $250,000 every time you stood up and said so.
Alan Greenspan, Ben Bernanke and Janet Yellen - the trifecta of dumbassery.
Sleeping on sheets whose thread count you can only dream of.
To say that cheap money doesn’t pose a problem for stocks or real estate is like denying the laws of physics, but that’s the kind of message that people will pay handsomely to hear.
I almost think that the demand for myth is outstripping the supply of people able to purvey it. The demand for truth, on the other hand, is minimal.
‘The Grand Strand’s spring home-buying season is showing significant growth over 2014, extending the time of the area’s robust real estate market and reaching from inland to the coast. Penny Boling of Century 21 Boling and Associates said she believes investors are once again beginning to see condos as good rentals, which would undoubtedly bring more buyers into the market.’
“We have broken records all the way back to 2006,” she said of her agency’s business.’
‘Boling said her agency is seeing customers primarily from some of the Strand’s stronger feeder markets — the Northeast, Connecticut, Massachusetts and Maryland. But there was also one couple recently from the state of Washington.’
‘She said they traveled the West Coast to the southern tip of California and didn’t find what they were looking for. So they headed East to continue the search, and stopped and purchased when they got to Myrtle Beach.’
“We’re experiencing multiple offers again,” Boling said, which is translating into sales at full asking price or even a little better. And she said that attendance at Sunday open houses is about double this year over last spring, when a Sunday open house would draw about 100 lookers.’
‘As enthused as she is about the area’s real estate market, though, she’s still not willing to call in bad spirits by using the wrong words to describe it. “It’s not a bubble,” she said. “It’s not a boom. We have a strong market.”
‘CYPRUS: Need for asset management units for banks to recover’
‘The Chairwoman of Hellenic Bank has called for the creation of asset management vehicles or companies so that banks can properly deal with the vast problem of non-performing loans and the glut in the property market. ‘
‘Existing home sales in Maryland surged more than 20 percent in April, compared to April 2014, according to the Maryland Association of Realtors. Pending units, homes under contract, also rose significantly, by almost 20 percent.’
‘Average price declined 2.4 percent, and median price declined by 1 percent, spurring renewed interest by consumers, who also saw mortgage rates rise during the month.’
“April is traditionally the beginning of the spring selling season for residential sales, but this is an exceptionally strong market,” said MAR President Janice Kirkner. “Clearly homebuyers are seriously shopping, and there is some pent up demand across the state.”
“He is looking to purchase a one-bedroom condo in downtown Vancouver, with a budget of $450,000. He has no qualms about taking on a $400,000 mortgage to do it. As long as people hang on to their investment for a while, he says, they will be fine because land in Vancouver has always appreciated.”
How much LAND is included with that f-ing floating box of air?
How much LAND is included with that f-ing floating box of air ??
The number of units divided by 100 but its a undivided interest unlike the air space in the condo…
To take it a step further, although you have a undivided interest in a condo complex its still a interest…And if the location is constrained by land availability, cost of construction, zoning laws, regs etc., then owning a interest in a condo complex has the same net effect as owning real estate fee simple…
Yes, you legally own the “air space” in a condo…You are paying for the exclusive use of that air space…But don’t discount the effect of owning a undivided interest in the condo complex itself…
Don’t discount the fact that a high rise condo is probably worth less than a shoe box.
One factor that could put a damper on the red hot Echo Bubble: Increasing signs the U.S. economy is on the brink of a new recession.
Finance U.S. economy
Why the U.S. may be headed for a recession, in one chart
by Chris Matthews
@crobmatthews
May 6, 2015, 5:04 PM EDT
April saw a spike in demand for commodities like copper Photograph by Oliver Bunic — Bloomberg via Getty Images
A sharp increase in the value of energy and metals in April could spell bad news for the U.S. economy.
It’s been a pretty miserable couple of weeks for the U.S. economy.
Last week, the Commerce Department announced that GDP growth in the first quarter of 2015 fell dramatically to 0.2% on an annualized basis. But after new data released Tuesday showed that the trade deficit in March was far higher than economists had expected, it’s likely that GDP in the first quarter actually shrank.
For now, most economists expect that the economy will bounce back in the second quarter of 2015, just like it did last year, and that overall real growth will beat last year’s performance of 2.4%.
But a new analysis from Jodi Gunzberg, global head of commodities at S&P Dow Jones Indices, argues against this consensus, and instead makes the case that we’re headed for another recession.
Gunzberg points to the outstanding performance of commodities in April as measured by the S&P GSCI index, which gained 11.1% that month, the 19th best month since the index first starting tracking these commodities back in 1970. Two groups of commodities–energy and industrial metals–did particularly well, rising by a combined 12.67% in April. It’s not common for these two groups of commodities to surge in value at the same time. According to Gunzberg, the two indices have only moved in tandem about 30% of the time since 1983. And there have only been 12 months in which the energy and industrial metals sectors have risen more than they did in April:
Screen Shot 2015-05-06 at 4.22.56 PM
As you can see, the months in which these sectors did well are clustered around times leading up to a recession. Gunzberg argues that this is because firms that rely on these materials—like oil and natural gas in the energy sector, and copper and aluminum in the metals sector—start buying up these materials in bulk when they sense their performance is about to start waning. “When you look at broad economic cycles,” says Gunzberg “equities lead the cycle, while commodities are on the cycle.”
In other words, as the market nears a top, and companies are flush with cash and capital, but short on faith in their future performance, they start to hoard the basic commodities that power the global economy. But eventually their performance takes a turn for the worse, and so does demand for raw materials.
Of course, Gunzberg’s data goes back by just 30 years, and it predicts only three recessions. It’s possible that these data only point to strange coincidences rather than something with real predictive power. But with the U.S. in its 70th month of economic expansion–the sixth longest the U.S. economy has had since 1850–the slowdown in the first quarter may very well be more than just a blip.
Bulletin Chicago-area purchasing gauge falls sharply
Market Pulse
Chicago PMI falls back into negative territory in May
By Greg Robb
Published: May 29, 2015 9:54 a.m. ET
WASHINGTON (MarketWatch) — The Chicago PMI plunged in May to a reading of 46.2 from 52.3 in April. The decline was led by a fall in new orders but all five components of the index weakened below the 50 breakeven mark. The solid reading in April had led analysts to think that the slowdown in activity in the region in the first quarter was temporary. But the May data “suggest this was a false dawn and that sluggish activity has carried through to the second quarter,” said Philip Uglow, chief economist at MNI Indicators. The Chicago PMI is the last of the regional indicators before the Institute for Supply Management’s national gauge, which is due for release on Monday.
Couple of nice posts Pbear…Thanks..
Tens of millions paying hundreds more monthly for “subsidized” ObamaCare insurance that covers less with massively higher deductibles might be slowing the economy just a tad.
Nothing like having $300 less at the end of every month, 12 months a year, to stimulate economic growth.
Yeah. I’m more to the left than most here, but I don’t get that either. The two groups who won with the ACA were the uninsurable and health insurance companies. If you weren’t in one of those two groups, you lost. My premiums continue their inexorable march upwards with no change. Last year I compared my grandfathered policy to exchange options and was very disappointed to see that the options offered less coverage with higher premiums and deductibles and co-pays.
We’re led by people who can’t grasp that more money spent on healthcare means less money spent on anything else. Or maybe they grasp that all too well.
Socialism fails and regs always raise costs
The Scandinavians and just about every other developed country in the world seem to have got their health care systems in order for less per capita than the USA.
Opinion: The economy actually is not in a recession
By Rex Nutting
Published: May 29, 2015 9:43 a.m. ET
Everything is up — hiring, incomes, lending, housing — even as GDP contracted
Real median incomes are rising.
U.S. gross domestic product declined at a 0.7% annual rate in the first three months of the year, according to a government report released today, but don’t think that means the economy is actually contracting.
The report doesn’t accurately reflect what’s happening in the real economy, where more workers are being hired, incomes are rising, credit is expanding, businesses are optimistic and housing is turning the corner.
…
Canada’s GDP shrank 0.1% in 1st quarter, Statistics Canada says
Oil and gas sector losses more than offset expansion in utilities and finance
CBC News
Posted:May 29, 2015 8:45 AM ET
Last Updated:May 29, 2015 9:01 AM ET
Canada’s economy shrank at an annualized pace of 0.6 per cent in the first quarter, Statistics Canada said. That’s the first quarterly decline we’ve seen in almost four years. Norm Betts/Bloomberg
Canada’s economy shrank by 0.1 per cent in the first three months of 2015, as the economic impact of oil’s gloom spread to other sectors.
It’s the first time the economy has contracted on a quarterly basis since 2011.
Statistics Canada said Friday that many sectors, including mining, quarrying, and oil and gas extraction, construction, wholesale trade and manufacturing were in negative territory for the three months between January and March.
There was growth in finance and insurance, utilities, as well as the agriculture and forestry sectors, but not enough to offset weakness everywhere else.
Expressed as an annualized rate, GDP contracted 0.6 per cent in the first quarter.
For comparison purposes, the U.S. economy shrank by 0.7 per cent over the same period, according to initial estimates.
The loonie reacted swiftly to the bleak number, shedding about half a cent to trade below 80 cents US early Friday.
…
Economic Report
Consumer sentiment drops to six-month low in May
By Ruth Mantell
Published: May 29, 2015 10:49 a.m. ET
WASHINGTON (MarketWatch) — In a negative sign for an economy that contracted in the first quarter, data released Friday showed that consumer sentiment dropped in May to a six-month low.
The University of Michigan’s gauge of consumer sentiment fell to a final May reading of 90.7, compared with a final April level of 95.9. Economists polled by Dow Jones Newswires had expected a final May level of 89.5, compared with a preliminary estimate of 88.6.
“Consumer optimism retreated in May as consumers adopted more modest prospects for a rebound following the economy’s dismal 1st quarter performance,” according to the University of Michigan.
…
WSJ DOT COM
Heard on the Street
Bond Yields’ Broken Link with Growth
Yields have defied predictions to rise; the 10-year German Bund still at odds with the economic outlook
A U.S. flag flies on top of the Federal Reserve building in Washington, D.C. Photo: Bloomberg News
By Richard Barley
May 28, 2015 11:31 a.m. ET
April’s bond market squall has subsided. Ten-year yields in the U.S., Germany and the U.K. are around 0.5 percentage point above their lows for the year. But by historical standards, including relative to other economic and financial indicators, they remain extraordinarily low.
One rule of thumb for yields that has a decent historical track record is that they track nominal growth in gross domestic product. In the U.S., for instance, 10-year Treasury yields lagged behind nominal gross domestic product as inflation built in the 1970s, but then tracked lower as the U.S. Federal Reserve moved to rein in prices. Between 1980 and 2003, the two rates moved together relatively closely.
Since then, the picture has become more confused. 10-year Treasury yields rose between 2003 and 2007, but not by as much as the pickup in nominal growth might have suggested; that was at the heart of former Fed Chairman Alan Greenspan’s bond conundrum. And since the start of 2010, U.S. nominal GDP growth has averaged 3.9%, while Treasury yields have averaged 2.5% based on quarterly data. Yields have persistently defied predictions that they would rise.
In the eurozone, the economy has taken a bigger hit, but even so, 10-year German Bund yields had departed from reality in April when they reached 0.05%; at 0.5% now they still are at odds with a brighter economic outlook for Europe. Yields are still negative for German bonds out to January 2020.
Clearly, central bank policy since the global financial crisis, and in particular massive waves of quantitative easing, has pushed bond yields to levels lower than they otherwise would have been. But that seems unlikely to explain the disconnect fully. Bond yields appear to be painting a picture of permanently depressed growth and inflation; that seems hard to justify in the longer term.
One suggestion is that the risk of new financial or economic trouble is hanging over investors and depressing bond yields. That might be being reinforced by the continuation of ultra-loose central bank policy, since some policy makers stress heightened uncertainty as a reason for keeping rates low.
…
‘The Chinese dictatorship (CCP) is facing one of its most difficult years as economic growth stalls and a top-level power struggle intensifies. The anniversary of June 4, the culmination of the ‘Beijing Spring’ and a day that will always be remembered for one of the most barbaric massacres ever perpetrated against peaceful protesters, is a cause for much official unease, and this year more than ever. The Chinese regime is grappling with unprecedented problems with a debt-laden economy, burst real estate bubble, and growing unease among workers and poor farmers.’
‘We have seen this in recent weeks with massive protests in Sichuan’s Linshui county, protesting a decision to re-route a railway line (May 16-17), and in Guangdong’s Qianshui township, with demonstrations against a proposed waste incinerator (May 20). Both these movements gathered tens of thousands and met with fierce repression. Many smaller but still sizeable protests have taken place in other parts of China during recent months. In most cases, some concessions (the ‘carrot’) are also offered, but these are rarely substantial and in many cases amount to empty promises designed to get the protesters off the streets – promises that are soon broken.’
‘The past year has seen a wave of mass protests ripple through China’s ‘periphery’ with the Hong Kong Umbrella Movement, which actually lasted longer than the Tiananmen Square protests of 1989, and the biggest ever anti-government protests in Macau, which was formerly held up as a model of ‘stability’. We should of course not forget the political earthquake of the Sunflower Movement in Taiwan, which saw the biggest demonstration in that country’s history (with half a million people), and shifted its political ‘axis’ as shown by the electoral massacre of the CCP-friendly government of Ma Ying-jeou in November. These movements are a portent of what awaits in China, where social and political grievances are potentially even more explosive.’
‘Just as Beijing’s ‘stimulus’ policies have created an economic time bomb in the form of crippling levels of debt, its repressive measures are creating a political time bomb. When this detonates, which is only a question of time, then China could witness a wave of mass struggle that puts even the events of 1989 into the shade.’
Just wait until ordinary Chinese citizens figure out how much money they lost on their real estate investments. Should get interesting!
I’m guessing this is the reason for China’s recent saber rattling. Nothing distracts the unwashed like some grade A patriotism.
“one of the most barbaric massacres ever…”
Have they forgotten what the CCP did to them 65 years ago?
Best article on real estate in a long time.
http://www.theburningplatform.com/2015/05/28/something-smells-fishy/
Money quote:
A critical thinking person might wonder how median single family home prices could possibly skyrocket by 37% in the last three years when household incomes are falling, living expenses rising, and the number of houses being sold are at recessionary levels. The stinking rotting fish again sits in the hallways of the Eccles Building in Washington D.C. Janet “Yellowfish” Yellen has inherited the bubble blowing machine from Ben “Blowfish” Bernanke and has continued to inflate a new housing bubble, because one housing bubble just isn’t enough.
‘If a rise in price immediately stimulates an increase in supply, any bubble will quickly disappear. Housing meets that condition because the stock of houses is large relative to new construction.’
While this guy admits there was a housing bubble, he also says a bubble is impossible. But he is on to something. Why haven’t more affordable houses been built? Why is there a glut of $30 million condos in NY or Miami, a glut of $350k houses in Bozeman and Lawrence? We recently heard of hundreds of new, vacant apartments in Minneapolis, where not long ago there was also a “shortage”. And why would this large stock of older houses, built for much less, go up at all?
‘A prolonged accommodative stance is a ‘recipe for asset-price bubbles and a lot of mischief to happen,’ Bullard said in a Bloomberg Radio interview. ‘Asset price bubbles have been a devastating feature for the U.S. economy in the last 15 years.’”
“‘We need to get going once we have the opportunity to get going,’ Bullard said. …‘The economy is getting back to normal, but policy is still on an emergency setting.’
I was thinking about this last night. You have to go back in time; why did Greenspan leave rates so low for so long? Why are they doing it today? I remember. “The economy is too fragile, we can’t raise rates.” Same as today. So why do we keep doing this if it fails to produce a ‘recovery’ that can stand on its own feet?
I’ll say it again; there was a time when the central bank would cut rates a few quarters, and then back off. At some point under Greenspan, this frailty took hold. It got to where recessions were to be fought off in advance. Then the whole sh*t-cart, stocks, houses, became a disaster just around the corner, continually swooning and having money thrown at it.
Ben - I think this has something to do with what Rental Watch commented on yesterday regarding regulatory costs on dirt prior to the actual purchase of the dirt.
‘regulatory costs on dirt prior to the actual purchase of the dirt’
Yeah, that’s all BS. We could build affordable houses for 200 years in this country but now we can’t. The builders in Bozeman HAVE to build $350k houses because land prices doubled in 3 years. In 1996, DR Horton was selling brand new houses in Buda Texas for $50k. When I was there in 2010, they were $150k. Zero down and low rate financing too.
You don’t have to take my word for it. Artificially high prices will result in a glut of something. McMansions, condos maybe. In 2009, there were new houses with pools being sold in Phoenix for $50/sq ft. And you could take your pick among hundreds.
“Yeah, that’s all BS. We could build affordable houses for 200 years in this country but now we can’t.”
No, it’s not that we can’t.
It’s that we’ve set our priorities in ways that makes it very difficult.
It’s been a death by a thousand cuts.
Modern building codes make homes safer, but also more expensive to build (sprinkler systems in all new homes in CA, for example).
Modern views on environmentalism require more significant investments in infrastructure (on-site water retention/drainage rather than runoff and storm drains).
Laws like Prop 13 have limited municipalities revenues from property taxes, and so they have shifted more and more of the revenue burden to permits and fees.
Laws like CEQA have limited development approvals, which gives more pricing power to the landowners.
If we had no CEQA, 1970’s building codes, and impact fee and permitting costs consistent with 1970’s costs (inflation adjusted), we could build lots of affordable homes.
+100
Like I said yesterday, the massive buried stormwater detention vault (mandated by our over-the-top clean water act regulations) at the 4-lot short-plat behind my house is adding $60K to the price of each lot.
Add that to the shared cost of putting in a wider street, curb, sidewalk, mow strip, mailboxes, streetlight, private drive, private sidewalk, all underground utilities to each lot, site fencing and landscaping, and you easily have $100K+ PER LOT of additional costs above just what the raw land cost. And that’s before a stick of lumber goes up.
This cannot be ignored.
“This cannot be ignored.”
Yes it can. Don’t play where stupid plays.
If the site calls for a half million $ underground pool, maybe it shouldn’t be built upon.
That kind of money in my area would get you up to 500 acres of green grass and forest, and 400 years worth of rain is stored in the lake at the bottom of the hill.
The site doesn’t call for the underground pool.
The government calls for the underground pool.
That’s the problem.
One of those above ground pools isn’t good enough? JK.
When they’re done above ground, they are more of a pond than a pool.
So, when your rain water accumulates in this big pool under your house, can you use it (like the ancient Mayans did) or does it belong to the government?
All those reasons don’t account for resale prices 300% higher than long term trend Rental_Fraud.
No the “big pool” is to deal with stormwater retention so when it rains, your water doesn’t drain off your property onto your neighbor’s property, or go into a storm drain.
It goes into the “pool” and then slowly percolates into the soil.
As I understand it, there are stormwater recapture systems, in order to capture rainwater for landscaping. But that’s not why the government has put the on-site water retention rules in place.
For more efficient water for landscaping, I’ve recently seen grey water lines being installed in parallel with potable water. Don’t drink from the hose…
“Why haven’t more affordable houses been built?”
First of all, we should define “affordable”. Perhaps I’m jaded living in CA, but I see “affordable” as sub-$300k–ideally in the low $200’s for a single family home.
The two reasons that I’ve heard (and I believe both to be credible, depending on the market):
1. The bubble years pulled forward demand from marginal buyers (ie. those who would buy lower priced homes)–many of those families lost their homes and are now damaged goods in the eyes of lenders. There simply aren’t enough creditworthy borrowers at the moment.
2. It’s too expensive to build truly affordable homes in many markets when you add fees, new building codes, etc. Despite HA’s protests, it is a fact that in many parts of CA, the starting point for building a finished lot is $100k (even if the land was free). And even if you are building a modest, 1,500 square foot home for $50 psf (direct hard costs), that takes your total cost to $175k, and then you need to add on cost of finance, marketing, sales, small amount for land (ag value), other indirect costs, etc. You pretty quickly get to a cost that is equal to what I would say is an “affordable” price point.
10+ years ago, we met a guy who tried to make it his business plan to be able to sell homes in CA with a starting price in the high $100’s. He needed to do all sorts of creative stuff…smaller lots, made deals with cities for lower fees in exchange for BMR units, he built smaller homes, etc. And he sold out quickly everywhere he went, but it was really hard to find a project that had all the characteristics to make his formula work…so it wasn’t a large volume business.
I can’t tell you the last time I saw a subdivision where the home prices started in the $100’s in California. Do you see such things still in AZ?
The wonders of the internet…I looked on Zillow for new homes in CA, and took out manufactured homes (although one could argue that MFG homes are just as valid for shelter).
The cheapest subdivision I found was one being built by K Hovnanian, starting in the high $100’s ($175k+ to be precise). In Bakersfield, the “Four Seasons”, east of town.
Most of the actual sales seem to be a tad over $200k.
There is a globe full of land and 95% of it goes undeveloped.
Dirt is essentially worthless.
“Dirt is essentially worthless.”
That certainly seems to be the case in Bakersfield.
Where it is doesn’t much matter.
“The mortgage industry, too, is showing sensitivity to the plight of Millennials and other potential homebuyers saddled with student-loan debt. According to Sheahan, at least one private mortgage insurer is offering to medical- and dental-school graduates a mortgage insurance product that enables them to qualify for a mortgage despite their student debt. Lenders typically require private mortgage insurance on loans with less than a 20 percent downpayment.”
___________________________/
This is “sensitivity”? Who writes this stuff? If I had to come up with copy like this the level of cognitive dissonance would be overwhelming.
Sensitivity tfo being able to feed off their sweet, young life force.
“…..seems significant”
It is. Because Lawrence is “special”
-State government workers in Topeka (especially management types) commute from Lawrence (why do you think the first place the Kansas Turnpike got widened to six lanes is the 20 mile stretch between topeka and Lawrence?)
-I-35 and I-435 traffic is becoming an intergalactic Charlie-Foxtrot/imitation of DFW. Although it is double the miles, it takes less time to get from Lawrence to downtown KC, than it does Olathe/Overland Park to downtown KC.
-As Lawrence is the only spec of Democrat-controlled blue, in a sea of Republican red, all of those Socialist Professors believe in the “Takes a Village” (of taxpayers) stuff, and vote for people who actually adequately fund the school system.
Just couldn’t get this across to my neighbors, who didn’t want to vote for tax increases for “wasteful projects”
(like installing air conditioning in the schools that didn’t have it…….school starts in mid-August, 90-100 degree temps in August September are the rule, rather than the exception).
Tried to tell them that the additional $50-100/year you might pay in property taxes for schools was cheap insurance compared to the hit you would take if the school system went to crap due to inadequate funding.
Ya I know I must be bored posting as much as I have today -
Anyway - my sister in law and her husband live IN Tyson’s Corners VA - and what this missive speaks of UNDERESTIMATES the magnitude of what is going on there - Go down Lawyer’s Rd there and you cannot imagine the demo going on with subsequent big ol houses on small lots. Frightening!!!
http://www.housingwire.com/blogs/1-rewired/post/34022-trending-thursday-more-mcmansions-ferguson-home-values-and-more
Mclean, VA Housing Prices Fall 18%
http://www.movoto.com/mclean-va/market-trends/