The Short End Of The Stick
The state of the housing bubble is the weekend topic. Reuters, “Housing stocks rallied on Friday and the industry group should get more good news next week, though sustained and robust future gains may depend on wage growth and other signs of improving home affordability. The median home became less affordable for the median family between April 2014 and April 2015 as prices rose with demand but new home construction did not, according to the latest data from The National Association of Realtors. Furthermore, average new home prices seem out of reach of first-time buyers. Millennials, those born after 1981, are entering the market more slowly than their predecessors.”
“Entry-level buyers cannot afford new homes because builders are concentrating on constructing higher-end houses that are out of their price range rather than building so-called starter homes, according to Alex Barron, senior research analyst at Housing Research Center. As a result sales volume is about half where it should be, making home builder stocks less attractive, Barron said.”
“Shares of homebuilders jumped on Friday after KB Home posted stronger-than-expected quarterly earnings and revenue as it sold more homes at higher prices. That earnings-bolstered bump may not last unless the market improves more fully, which may take two years or more, said John Augustine, chief investment officer at the Huntington Trust. ‘The best scenario is that the stock market keeps moving up, the baby boomers retire and the millennials get their jobs,’ said Augustine.”
The Press of Atlantic City. “South Jersey millennials are getting the short end of the stick when it comes to homeownership and rent costs. A decade after home sales peaked during the housing bubble, rents and accompanying fees have risen to the point that buying might be the smarter choice. Ciara McClinton, 21, a King’s College student from Little Egg Harbor Township, agreed that millennials — those born between 1980 and 2000 — don’t know much about the market.”
“‘I don’t know how I’ll afford it. Mostly because I don’t understand how the housing market works,’ she said. ‘Our ignorance to the pricing makes it easier for landlords to boost prices and make things more expensive.’”
From KTRH Newsradio. “Bad news for anyone looking to buy a house in Houston as Forbes now says the Houston market is the second most overvalued in the country. The list points out a long trend in the market that has seen prices rise consistently since the housing bubble burst back in 2008. Houston’s average price for a home is now over $530,000, which is up over 5% in just the last week.”
“Michael Weaster with Berkshire Hathaway and Anderson Properties says part of the problem in Houston is the investors and hedge funds. ‘There were the investors that came to town, a lot of the hedge funds came to town and bought up the median priced homes. Anywhere from $100,000 to $200,000 and it really made a lot of buyers unable to buy homes.’”
“Right now the price growth of housing in Houston has far out gained growth in jobs which has created a situation where housing prices continue to rise but sales are declining. Weaster says homes are now staying on the market longer without getting any offers because there just aren’t buyers able to afford the homes.”
The Vancouver Observer. “The most common argument I’ve heard against recent suggestions that we should tax real estate speculators and/or limit foreign buying goes something like this, ‘We shouldn’t make any changes to existing policy because that would be interfering with the free market.’ This argument is completely disingenuous. Very little about the current situation is the result of a free market.”
“Most Canadian mortgages issued today come with a taxpayer guarantee from the Canada Mortgage and Housing Corporation (CMHC). According to their 2014 Annual Report, CMHC insures $543 billion worth of mortgages, which is 42.7 per cent of the outstanding residential mortgage market. They also guarantee another $422 billion, which is 32.8 per cent of outstanding residential mortgages. Combined, CMHC insures or guarantees just over 75 per cent of the entire Canadian residential mortgage market.”
“In a truly free market economy, the lender — not the taxpayer — would take the risk of default. If that were the case, mortgage rates would probably be significantly higher. How many intelligent investors would loan someone a million at 2.75 per cent to buy an East Vancouver teardown?”
“Gains on principle residences are tax-free. Why does real estate enjoy this favourable tax treatment when most other asset classes don’t? Sounds like the government is using tax policy to steer the market towards buying real estate as an investment. Free market?”
“The flood of foreign capital pouring into the Vancouver real estate market is mostly coming from Mainland China. Many seem to have forgotten that China is still a communist country that plays by different rules than democratic, free-market western countries. The Chinese government has deliberately — and dramatically — lowered the value of its currency to gain an unfair advantage over other countries. Since 1981, the yuan has been devalued 75 per cent.”
“The result of this currency manipulation has been a large and persistent trade surplus, which exploded after 2004 and is still growing. In a free market system, China would convert that surplus back to its own currency. This would cause the value of the yuan to rise and diminish the Chinese advantage — something their government clearly doesn’t want.”
“Therefore, to maintain their undervalued currency, China must take those trillions of dollars and recycle them back into Western countries. They do so primarily by buying foreign government bonds. (This is also one of the reasons mortgage rates are so low). But increasingly, they are also buying foreign companies and residential real estate.”
“I have yet to hear these believers in free-market economics ever express concerns over any of these other policies which distort the market and cause real estate values to rise. They only seem concerned when actions are considered which would make housing more affordable. In my experience, when people invoke free-market principles to push back against policy changes what they really mean is the current environment is working quite well for them.”
‘How many intelligent investors would loan someone a million at 2.75 per cent to buy an East Vancouver teardown?’
Or a $500,000 house in Houston? I said a long time ago, we’d know we were back to normal when the government didn’t have to prop everything up. Rather than let the market find its level (incomes, consumer choice, lender risk, all those pesky real world issues), onward we go, plunging into the disaster of Yellen and Watts and zombie Fannie and Freddie.
Looks like our government is learning from the economic ‘miracle’ of China’s command economy.
“incomes, consumer choice, lender risk, all those pesky real world issues…”
… and don’t forget investor cash. The market DID find its level… in about late 2011. While HBB was looking for the next leg down in the crater, bottom feeders declared bottom and fed. (Ben I think you did this too.)
HBB thinks that house prices will drop to what J6P can afford to buy. No, they won’t. House prices will drop to what an investor can buy cash, fix up, and J6P can afford to rent. Th law of supply and demand shifted from home prices to rental rates, and lender risk shifted from individual mortgages to investor margins.
‘bottom feeders declared bottom and fed. (Ben I think you did this too.)’
No, that would be the speculators expecting appreciation. I don’t know what houses should cost. That’s for the market to decide, if the government would let it.
I’m not necessarily opposed to speculators, but do think it’s immoral to drive up basic needs. What me and some others did was decide upon a desired return, in our case 15-25%. Or course, if we could get more, great! Then we hunt; lots of time watching and waiting, inspecting. This return requires assumptions. Prevailing rents, costs to rehab, vacancies, maintenance, taxes and insurance. Then I can come up with a number to offer, probing lower for weak handed asset managers. When a price is agreed to, the work begins.
Risks; did I miss something in the inspection? Underestimate repair costs? Were rents over-estimated? Will rents go down? Is the location bad and I can’t keep it occupied? Will big ticket items break down unexpectedly? This is a risk/reward activity that requires a lot of work. Nowhere in this does the matter of a bottom of prices enter into it. But when I buy a house, Zillow does a nosedive.
“But when I buy a house, Zillow does a nosedive”
A home valuation system that is sensitive to a single sales transaction is a scam.
Donk,
A dead cat bounce isn’t a bottom.
“its’ materials!” Nope
“it’s labor!” Nope
It’s the land!” Nope
You paid a massively inflated price for a depreciating asset and doubled down on those losses by financing it. You made an uniformed decision at your sole risk.
Yup.
“HBB thinks that house prices will drop to what J6P can afford to buy. No, they won’t.”
Take it from a professional chemist: We are witnessing the first-ever mania without end in history. By government decree, the fundamental laws of economics are henceforth suspended, and new buyers are priced out forever.
If investors are creating a bottom in house prices, then any change in their incentives could end it. A financial crisis overseas or a slight rise in interest rates could cause them to start selling in volume while they can still make a profit. Because whoever is holding the most houses when the bubble pops will be the biggest loser.
It’s only a matter of time before Chinese and Canadian investors shift from buyers to sellers.
‘Chinese money has been pouring into Australia for a while, but never to the extent it is now. Much of it is “black money” – often from corrupt officials seeking to park their gains somewhere a Chinese government increasingly perturbed by corruption won’t so easily trace it. The money has been blamed for overheating the Australian property market, and while that claim is not new the racist protests are a new twist.’
‘Australians and the relative few who watch this country may remember Pauline Hanson’s first forays into politics as One Nation leader. The Queensland native’s platform, such as it was, seemed bigoted: against special welfare payments for Indigenous people and more broadly anti-Asian immigration, multiculturalism, and foreign investment. The Japanese have long had business interests in holiday areas around the Great Barrier Reef.’
‘Now again there are angry protests about Asian ownership in Australia. A racist group sent flyers out to Sydney suburbs suggesting it was time to Stop the Chinese Invasion and according to The Sydney Morning Herald, that “greedy foreign invaders” are “pricing locals out of the market.” Now there has been a protest, and toothless and silly as it seemed (one man was photographed in what looked like his wife’s dressing gown and a conical hat), it showed that many Australians are increasingly concerned about the effect of Chinese buyers on the real estate market. As we have previously reported the average housing price is now AUD1 million ($770,000).’
‘But there is more to it than one-note xenophobia. Treasurer Joe Hockey in March forced Chinese property billionaire Xu Jiayin to sell his AUD39 million Sydney mansion. Says Fairfax, “the Treasurer wanted to demonstrate that he was serious about stopping foreigners from evading ownership restrictions and inflating the bubbling market.” Both of these are serious concerns, as is the amount of “black money” pouring out of China’s corrupt official’s accounts and into an already over-heated Australian property market.’
‘Australian Prime Minister Tony Abbott managed to tell Parliament recently that he hoped house prices would keep rising, albeit modestly. Given this is the very thing that is locking younger Australians out of the property market and undercutting that central tenet of his own party’s version of the Australian Dream it seems an odd thing to say, but it’s still better than knighting Prince Philip.’
‘And, as Michael West asked in his Monday column, how are millions of dollars to buy a house taken out of a country that imposes a $50,000 limit?’
Good question.
“As a result sales volume is about half where it should be, making home builder stocks less attractive, Barron said.”
Get slashin’. That’s what happens when you speculate.
‘The best scenario is that the stock market keeps moving up, the baby boomers retire and the millennials get their jobs’
Best for your pocket maybe. What about organic markets that deliver what consumers need and want? The most galling thing about this situation to me is how we are thought of as little widgets to be manipulated into this or that, all to “help the economy” (ie make certain people tons of money and keep others in power).
You know what Mel? We are the economy. Oh, but aren’t you surprised that people are hesitant to put a half million dollar yoke around their necks so some number rings a bell on wall street. You guys are the ones who have your priorities all screwed up, not us.
My economy comes first. ALWAYS.
+1 Ben….
What percentage of baby boomers are retired so far? 25 percent ? Of the 20 year generational cohort born since 1945, 50 percent are between 60 and 70. Those houses getting sold floods supply even further. But the younger generation can’t afford them, by far.
50 percent are between 60 and 70. Those houses getting sold floods supply even further ??
Depends…I can only speak through the lens that I see around me and that lens says they are not going anywhere…Its a toe-tag house…Even if they go to a 24/7 care facility…Kids will just rent the house for the time being…
And, particularly in my valley, there is another dynamic thats at work…Its all because of current tax code reg’s…The older people who have owned for many decades have a tax problem if they sell…Their basis is really low…My neighbor paid $45,000. for their house…Even with a $500,000. exemption, their tax consequence in a sale would be in the vicinity of $350,000 +…No way they will pay that tax…
What they will do though is keep the house until they pass away…The children get a stepped up basis, can now sell the house and pay no federal or state tax at all…
But the younger generation can’t afford them, by far ??
Around here for sure….
Prop. 13 is a big factor in keeping people put too, those who bought long ago in Calif. pay very low property taxes and that is a powerful incentive to spend the rest of your life in the same place.
“Kids will just rent the house for the time being…”
That’s a nice fable but the reality is 35 million houses are just beginning to liquidate. “The kids” are deep in debt.
Massive cognitive dissonance always. Toe tag houses based on personal observation of a tiny area in one state. Please. And they are also dying a plenty and a plenty more, especially by mid 70s. At least one dead, then no need to keep that expensive albatross.
Sell and move to where the kids and grandkids are, cause they certainly couldn’t afford to live near gramps who bought for 45k in the 40s.
“Prop. 13 is a big factor in keeping people put too, those who bought long ago in Calif.”
Oh yeah. In fact I just yesterday (coincidentally) had this conversation about a friend’s aging parents who can’t'afford’ to downsize from the empty nest in CA. Bad policies have lingering impacts.
Toe tag houses based on personal observation of a tiny area in one state ??
Hey toad…I guess you missed this part in my post…
Depends…I can only speak through the lens that I see around me
But then again, you likely didn’t..You, like HA, just enjoy your little daily personal internet attacks…A clear sign of internal weakness…
Prop. 13 is a big factor in keeping people put too ??
Yes, Bluto, I overlooked that…Its a significant factor also…
Fables Dave….. fables.
PB and scdave, I see the same thing here in Monterey County and Cambria and BH in LA. The older parents have initiated family trusts or added their children to the property title after one parent dies and in none of these cases were the children deep in debt but also had a low cost basis on their own property. Many of the children are doing property exchanges to avoid taxes and have the new property closer to where they live.
Revocable trusts are so 1980’s… and have nothing to do with massive debt forcing liquidation of a no longer used, depreciating asset.
Spot on Salinas…I am seeing the same thing here…Lot of 1031 exchanges going on…Its called hot money because its seeking a place to park and its on a limited timeline…
So is it legal to pass on your Prop. 13 tax ceiling to your kids? (Sounds like it should be illegal, but this is California, so nothing would surprise me…)
So is it legal to pass on your Prop. 13 tax ceiling to your kids ??
Answer is yes….
http://www.boe.ca.gov/proptaxes/faqs/propositions58.htm#1
25 counties in California allow a one time transfer of your prop 13 tax base to another house within the county after age 55. This allows those wishing to downsize to a smaller house to do so without dramatically increasing their property taxes.
Santa Clara County where I live is one of those.
http://articles.latimes.com/1990-07-15/realestate/re-480_1_inter-county-transfers
Yes…Thats prop #60….Different than the Prop #58 I speak of above…Although I question if 25 counties still remain under the prop #60 rule…Many have opted out…
CA is a community property state. The federal tax rules are very generous in that the surviving spouse gets a step up in basis for 100% of the community property assets on the first spouses passing, I.e. The surviving spouse can sell for zero gain following their spouses death.
If you know people who are waiting until the second spouse to pass to sell, they need a better lawyer.
The surviving spouse can sell for zero gain following their spouses death ??
Better check your facts ibbots ?? And be very carful not to advise someone accordingly…
Here…I will help you out with it…
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB4QFjAA&url=http%3A%2F%2Fwww.paelderlaw.com%2Fwidows-take-your-step-up-to-reduce-taxes%2F&ei=6vCGVb69A8jboAS656LoDg&usg=AFQjCNEcNbq58TihzWJ-tViA8VyYflXfWA&sig2=a1whc4hTYmr2srS8lMbpiQ
That’s an article on jtros. Cp gets full step up. Tax law 101 bro.
“What about organic markets that deliver what consumers need and want?”
Consumers have been so dumbed down that they do not know themselves what they need nor do they know what they want, instead they depend on the PTB to decide just what their needs and their wants are.
Dumb ‘ em down and profit means allowing others - strangers even - to do their thinking for them.
“The most galling thing about this situation to me is how we are thought of as little widgets to be manipulated into this or that, all to “help the economy” (ie make certain people tons of money and keep others in power).”
Ah, the music …
“The most galling thing about this situation to me is how we are thought of as little widgets to be manipulated into this or that….”
People have simply allowed themselves to be turned into cattle, herded from one bubble corral into another. I was kidnapped and placed on a planet I don’t recognize anymore.
‘Most Americans are still living in the shadow of the housing crisis that began seven years ago, undermining their confidence in the American Dream, a survey showed. Despite some improvements in the housing market over the past several years, 61 percent of Americans believe the country is ” still in the middle” of the housing crisis or “the worst is yet to come,” according to the 2015 How Housing Matters survey conducted by Hart Research Associates and commissioned by the MacArthur Foundation.’
‘Housing affordability continues to be a serious problem for majorities of Americans today. About 55 percent of Americans have had to make at least one sacrifice or tradeoff — including taking an additional job, stopping saving for retirement, accumulating credit card debt, or cutting back on healthy nutritious foods — in the past three years in order to cover their rent or mortgage, the survey said.’
“Decent housing at an affordable price remains a challenge for an increasing number of Americans, even after the recession has formally ended,” said MacArthur President Julia Stasch. “It is disturbing that people feel the American dream and prospects for social mobility are receding. This survey is a wake-up call.”
‘The overwhelming majority of Americans today think it is more difficult for young people to achieve a secure middle-class lifestyle than it used to be, according to the survey. Four in five Americans believe it is more likely for middle-class people to fall into a lower economic class than for people in lower economic classes to rise into the middle class — a belief that persists across political party, age, and income.’
“The idea that downward mobility is more likely today than upward mobility turns the American Dream on its head, and is an indicator of how badly confidence has been eroded,” said Geoffrey Garin, president of Hart Research Associates.’
This is based on the belief that buying a house is the only way to achieve financial security, usually believed by people who have no ability to live within their means. The younger generation’s scepticism about housing will guarantee lower prices in the long term, as tens of millions of baby boomers age and find that young people cannot afford and will not pay the prices set in an age of bubbles.
‘The easing of a Beijing law that restricts the amount of money that can leave the country each year could cause further foreign real estate investment in the Vancouver market.’
‘Currently, China law prohibits citizens from moving more than $50,000 a year per person out of the country. Though many have found creative ways around that rule, most notably to invest large sums in North American real estate where they feel their money is safe from prying eyes, loosening of the law could promote the Yuan overseas and cause a mass influx of Chinese money into the Canadian economy.’
‘Speaking on the increase of Chinese cash in the United States, CNBC reported last year that the $50,000 rule is not heavily enforced, but citizens will move to Shenzhen, a Chinese city on the border of Hong Kong, to transfer “money in the millions” to Hong Kong where there is no such outbound currency limit.’
‘According to the Wall Street Journal, China’s State Council and central bank is set to announce the removal of financial limits on how much individual Chinese and businesses can spend on stocks, bonds and real estate in foreign markets. The initiative will likely be a step-by-step approach, beginning with certain free-trade zones and moving up, in order to avoid mass amounts of money leaving the country at once.’
‘In May, Mayor Gregor Robertson proposed a speculation tax on foreign real estate investment to Premier Christy Clark, however Clark quickly put a wet blanket over the idea, stating that those with equity in the market would risk losing money if housing prices dropped.’
‘A subsequent Insights West poll found that 77 per cent of Vancouverites supported Robertson’s plan for an absentee homeowner tax. And on Wednesday of this week, another survey by Angus Reid found that 20 per cent of respondents in Vancouver were “miserable” with their inability to access the out-of-reach housing market, and 85 per cent of those people were seriously considering leaving Metro Vancouver because of the costs.’
‘Despite the alarming statistics, another recent report by the British Columbia Real Estate Association (BCREA) found that the percentage of foreign buyers purchasing homes in Vancouver make up “considerably less than 5% of the housing stock and not more than 5% of sales activity.” However, the BCREA’s numbers are hardly without bias, as it is the official association for the 18,500 realtors in British Columbia, a group that sees significant financial benefit in soaring housing prices.’
http://www.vancitybuzz.com/2015/06/more-chinese-cash-could-enter-vancouver-real-estate-market-soon/
“builders are concentrating on constructing higher-end houses that are out of their price range rather than building so-called starter homes,”
They built plenty of starter homes… they were just all attached product, not SFH.
You know you have made it when you sign up for a 30 year loan.
You forgot to add the “sh” to it.
You have “been made” when you sign up for a 30 year loan.
“Gains on principle residences are tax-free. Why does real estate enjoy this favourable tax treatment when most other asset classes don’t? Sounds like the government is using tax policy to steer the market towards buying real estate as an investment. Free market?”
Did he miss the word PRINCIPLE? You get the tax free gain only for the house you LIVE IN. That particular market is not free, since people can’t choose to not live in a house. How is this an asset class?
You get the tax free gain only for the house you LIVE IN ??
Up to $250,000. for single owner…$500,000. for a couple if its been your primary residence two out of the last five years…
There shouldn’t be a ceiling on the gain considering the losses associated with decades of depreciation on a house.
Gains on a residence require summing ALL cash outflows spent on that residence, including interest payments, taxes, insurance, maintenance, utilities, and various other fees.
People who look at the (sales price - purchase price) as being the true profit are incorrect. The profit would be (sales price - [purchase price + sumOf(Interest) + sumOf(taxes) + sumOf(Insurance) + sumOf(maintenance) + sumOf(utilities) + sumOf(other fees)])
So to be fair, that’s a high bar for a net gain. Even if someone sells for 250K more than their purchase price, they may well have not made any net profit.
Gains on a residence require summing ALL ??
You analysis is flawed starting with the summation that you would include interest & utilities…You must live somewhere…That roof over your head has a cost….
That’s right. So start calculating the losses on that depreciating roof.
And remember… Rental rates are a small fraction of the cost of paying current grossly inflated asking prices of resale housing.
The analysis is not flawed. If you want to figure out your profit on the house, you must determine the difference between [How Much You Spent] and [How Much You Got Back].
That you have to live somewhere is irrelevant. This analysis applies to any house. The difference between the totality of how much you spent versus the totality of how much you got back is the profit.
This is a pro-deduction statement I’m making. The interest on a house is typically equivalent to the purchase price, on top of which all those other expenditures which must be calculated. So while 200K seems like a lot, it gets them closer to breaking even on the house, without unfairly penalizing them.
You call out utilities too - heating and cooling a large, poorly insulated house is going to be different from heating/cooling a small, well insulated house which is going to be different from heating and cooling a small condo. These are costs associated with the residence.
Agree…I sold my last place in early 2007 (thanks in part to the HBB) and walked away w/$200K cash tax free after living in my place for 10 years and my net monthly outlay for PITI after tax deductions was just about what I’d been paying in rent before I bought it so it was a wash housing cost wise for that period. Spent about $10K on repairs and upgrades over the years and did most of the work myself. The $200K was definitely profit and I still have most of it. I don’t expect or want to see that again in my lifetime and bought that house to live in, not as an investment. May buy again after Bubble 2.0 pops if the fundamentals make sense again…i.e. cost is equal or less than 10 years rent, etc. The numbers were there in 2011/2012 but I was not able to buy with a mortgage, got shut out by 100% cash flippers and speculators several times.
You’re fortunate considering you’d be underwater had you bought in 2010-2011.
Bluto: The numbers were there in 2011/2012 but I was not able to buy with a mortgage, got shut out by 100% cash flippers and speculators several times.
Investors will often use cash to avoid the interest outflow. To entice Joe SixPack to try the flipping game, interest rates must be kept low so he’s got the possibility of turning a profit on a flip.
If you Google “what percentage of home purchases are cash”, you can see the numbers steadily drop from 2013 to now. In 2013, according to Forbes, it was 50%. Now, it’s 36% according to CoreLogic.
Cash purchases are currently probably even less than that where I live in northern Calif, the flippers and speculators appear to have dropped out….but prices are up about 60% from when I gave up on buying in 2012 and renting is a much better option for me at this point. It would take a 30% + price drop to get me interested in buying again…will NOT pay $400K plus for a T111 POS in a marginal neighborhood…fortunately in the meantime am renting a place that works well in the part of town I like.
Forbes now says the Houston market is the second most overvalued in the country.
Forbes list for those who hate to click
Most overvalued
1. Austin
2. Houston
3. Phoenix
4. Riverside, CA
5. Miami
Most undervalued
1. Detroit
2. Cleveland
3. Providence
4. Warren, MI
5. Newark
Turn over I brisk in 22151 but prices not moving much
You sure about that?
Springfield, VA Housing Prices Fall 6%
http://www.movoto.com/springfield-va/market-trends/
You know taxpers is in CA, right?
This donk can’t get a sense of Northern Virginia. All I know about Springfield is that it has a metro stop, Fort Belvoir, and the Springfield Interchange.
The interchange is the system of ramps and bridges where I-95 and I-395 through the city intersects the southern of the I-495 Beltway. It’s so curvy and interlocked that they call it The Mixing Bowl. I think of it as a bad horror movie — you know, the type where the teenage heroes manage to track all the spookies to a single location, and at the end it opens up as a vortex to Hell. Yeah, that’s it.
https://en.wikipedia.org/wiki/Springfield_Interchange
Don’t care where anyone is from or lives Donk. Don’t care.
I guess Forbes thinks that any city that’s affordable is undervalued. The more undervalued, the better.
Hey - housing is affordable in long controlled democrat and bankrupt cities completely controlled by public union goons!
Who says they don’t have their place?
Most undervalued
Nobody wants to live in these towns or when I passed thru did I miss something?
1. Detroit
2. Cleveland
3. Providence
4. Warren, MI
5. Newark
Forbes… unless your magazine lives in a Somewhere in time vacuum, the above towns are always listed worse towns to live, that is why they are undervalued and out of favor, I hope you understand that??
>HBB thinks that house prices will drop to what J6P can afford to buy. No, they won’t. House prices will drop to what an investor can buy cash, fix up, and J6P can afford to rent. Th law of supply and demand shifted from home prices to rental rates<
Oxide, I don’t understand this comment. For it to make sense the investor price would have to be higher than the homeowner price.
I don’t see how this could be the case unless there is price speculation involved on the part of the investor.
We’ve already established this model of investment doesn’t work unless there are outsized bubble gains to be made. All those liars talking about buying to rent out have already been proven false.
There are places in this country where the buy to rent model will work as an investment but I’m fairly certain there aren’t any near DC.
The business model usually involves a property that needs repairs and the investor needs to be able to do the repairs inexpensively.
Slums and oil cities. I’m talking about where most people live.
“In a truly free market economy, the lender — not the taxpayer — would take the risk of default. If that were the case, mortgage rates would probably be significantly higher. How many intelligent investors would loan someone a million at 2.75 per cent to buy an East Vancouver teardown?”
Apparently Canada’s government subsidized housing finance system operates on the same principle as the U.S.’s:
Privatize profits, socialize losses.
Canada has almost one trillion dollars in guaranteed mortgages. No wonder they’re afraid of falling prices.
Canadians think their bubble isn’t a bubble because most loans are recourse, but the job outlook for Canadian debt collectors is lookin good.
Another flaw with Oxide-nomics:
‘To the editor:
If you have cable, you have seen her — Kate Upton in the Game of War commercial. She struts behind two competing players in a plush forested background encouraging them: “Plan quickly. Build quickly or be destroyed quickly.” When I first saw it, I thought it was a Saturday Night Live parody of Alexandria’s political environment.’
‘The 2011 census lists 15 cities with a population between 136,401 and 145,638 people. Alexandria was listed in that group with a population of 144,301 residents. Alexandria stood out among those cities as the city with the densest population — 9,370 residents per square mile. The average density for the other cities in that group is only 4,435 residents per square mile. Alexandria’s population density is 111 percent greater than the average city in the group.’
‘So why have our leaders and city staff pressed for a constant program of build, build and build? They have claimed that the objective is to diversify the tax base and ease the burden on homeowners. They fixate on plans to build large mixed-use buildings near Metro stations. But the business environment has changed dramatically. Even large federal contractors are migrating to virtual teams with employees telecommuting from home in low cost areas, rather than housing large project teams in consolidated office space.’
‘We already have lots of vacant office space and we will likely add to the vacant inventory. We also will end up with more compressed residents and more unfunded infrastructure needs like schools and sewers along with increased traffic gridlock.’
‘We claim the title of “Eco City” but our leaders condone the ongoing construction of a citywide thermal mass of bricks, concrete and asphalt devoid of open green space. It is as if they never heard that irrational exuberance in real estate played a major role in the last economic downturn. Who benefits from all this construction? The developers, the contractors, the investors and the bankers all do, but certainly not the citizens.’
DC is going the way of Ma Bell.
whats good for dc (regs and spending) is bad for the rest of the country
Heh. Just heard the weekly real estate segment on DC news radio, where they interview a real estate agent. The agent recommended 7/1 or 5/1 ARMS for first time buyers because ‘Why pay the 30 year rate if you’re not going to be in the home for 30 years?’ Also, the 7/1 or 5/1 can increase purchasing power according to the realtor (who gets paid on a percentage of the selling price).
The 30 year rate is in the low 4’s.
Both real estate agents, the one listing and the one “representing” the buyer have identical interests - extracting the maximum price out of the buyer.
A friends coworker is trying to sell a house in a 400k neighborhood for 500k because he fixed up the second story as an entertainment area and, of course, granite countertops. I guess he didn’t get the memo.
We are on the verge of the next phase of the financial crisis .. a massive inflation spike. Prices of everything considered a real asset, like well located real estate, and items you need to live, will start soaring in price. This will kill stocks and bonds. It will be scary. Once the inflation really gets going, many will make the mistake and buy undesirable real estate, in a bid to protect themselves. I don’t think that will work. Hang on. The big inflation run is just around the corner. Well located real estate will soar. Undesirable real estate will not. Then, comes the economic drop. Hopefully, we don’t land up with a war.
Prices of everything considered a real asset, like well located real estate, and items you need to live, will start soaring in price.
It sounds like you are forecasting through the rear-view mirror! You aren’t an economist by any chance, are you?
Seriously, if “inflation really gets going”, the Fed will have no way to avoid raising rates. And significant rate hikes will do what to howmuchamonth buyers again? Liquidity will vanish in the RE market, and prices will plunge.
No rear view mirror. I have been saying this for years, and for much of that time on this blog. When inflation really gets going, interest rate hikes will not stop it for quite a while … like years. But, most under 55 have never experienced such an event, so you don’t get it. I know about this because I studied it in college and at my job. You are confusing a liquidity trap with inflation. Liquidity will not vanish in the RE market. Instead, cash drawn from bonds and stocks will rush into RE looking to protect purchasing power. Rates will not matter till long after the move up.
No rear view mirror.
RE _has_ been soaring for the past 3-4yrs; that was the part that seemed real-view mirror-ish to me.
That said, I don’t expect them to soar for much longer.
Commercial property rents have not yet soared (at least not in most places). That part of inflation has yet to occur in earnest.
Another DingBat Story eh Rental_Fraud?
Commercial rents are massively inflated and have a long way to fall. Just like housing.
On the RE price changes of the past 3-4yrs, I’m in agreement with HA (and yes, it shocks me to hear myself say that): it is price-fixing, not inflation.
You sound confused my friend.
Are you attempting to corner the market on wooden nickels? Yuan perhaps?
Liquidate everything you can and get rid of all that debt you’re burdened with and hold on to every dollar you’ve got. You’ll thank me later.
Well located real estate will soar ??
It already has…It can’t go to the moon…Most people can’t afford to buy their own home…If they sell, they usually leave the area…
Sorry…I should add I am speaking for my own area…
Good luck finding a buyer with housing demand at 30 year lows in CA.
Hey PB, I never realized that you were a chemist; my guesses had always been different—even a dismal scientist.
(though the extent to which you poke fun at economists disabused me of that notion fairly quickly…) Figured it was likely some kind of science, though.
Playing the viola gives me a license to poke fun at viola players.
Viola Jokes
I’m not a chemist, but I have a hunch that Oxide is, as she makes up economic theory on the fly.
housing market 101:
1. Buyers want a 2008 deal
2. Sellers want a 2005-06 sale
3. RE agents still ask for 6%
4. Sellers don’t want to pay 6%
5. Sellers are guided by highest priced closed home
6. Buyers are guided by Zillow’s Zestimates
7. Buyers can’t qualify
8. Banks don’t want to loan 30 years at 4.25%
9. Home builders hate the banks, buyers hate the banks and RE
agents, sellers hate the bank and RE agents
10. RE agents still want 6%