Posted on 03/21/2016 9:24:11 AM PDT by SeekAndFind
The next housing crisis is here.
And this time the crisis is all about one thing: supply.
Following the mid-aughts housing bubble that saw homeowners across the country get themselves upside down in homes and mortgages they couldn't ever afford to repay — a crisis that was as much about too much supply as it was about too much bad financing — the market has gone the complete other direction.
First-time home buyers are crowded out, with Trulia's chief economist Ralph McLaughlin writing Monday that the number of starter homes on the market has declined 43.6% in the last four years.
Homeowners that want to move from a starter home to something better can't afford the next step. McLaughlin notes that the number of "trade-up" homes on the market is also down about 40% over the same period.
Meanwhile, mortgage lenders, despite record-low rates, are still reluctant to extend credit to less-than-superb borrowers.
And as investors look for places to earn whatever return on capital they can muster, the low-end of the housing market has almost ceased to exist as the investor class has bought up homes with the plan to flip them.
On Monday, the latest report on existing home sales showed the pace of sales fell 7.1% to an annualized rate of 5.08 million in February. Compared to last year, the pace of sales is still up 2.2% from a year ago.
Additionally, this report showed that sales to individual investors — or buyers who intend on flipping the home for a profit — accounted for 18% of existing homes sold in February, the highest share since April 2014. Almost two-thirds of these buyers paid cash.
(Excerpt) Read more at businessinsider.com ...
There is no supply shortage. The banks are holding millions of foreclosed homes off inventory to be able to pass stress tests. Low inventory is a BS canard.
Many, and in some areas most, of these houses will need to either be completely gutted or demolished. This is especially true in areas of high humidity and even more true when the banks didn't have the houses completely cleaned after the foreclosure.
Yes true. If these house were properly administered and brought to market in a responsible manor the distortion in the RE markets would be lessened. There are some of us paying elevated property taxes on higher assessments then would otherwise with less market distortion.
I know someone familiar with inventories of foreclosed homes in my area and he told me that probably 75% of homes that have been vacant for over a year will be uninhabitable due to mold issues.
But, as you said, it's better for the banks to keep them on the books with a distorted valuation.
So that’s why there are so many.Where I live there is a shortage of houses to buy.
Doesn’t the Census Bureau track all sorts of figures on the number of households, population, age, gender, marital status, housing units, etc. by geographical unit (i.e. State, County, Metro Area, City/Town, Tract) that can be used to figure out within good reason the vacancy rates for housing? Sure there may be some shadow inventory out there but I’m sure seeing a lot of markets with some serious shortages in inventory.
I certainly don’t think there is any real “shortage” on housing for the long haul and that any deviation in home prices from the 3.2 to 3.6 range for the national ratio of the median home price to the median household income in the USA will face correction back into that range. That’s because there are plenty of raw materials and land left in the USA that can be developed into residential housing, not to mention the huge supply of retail, industrial, government, and other types of real estate that could also be converted back into residential housing. Supply can also skyrocket by not changing the total number of units as basements get converted into apartments, homes become duplexes, etc. In addition, the demand (number of households) is very elastic as during bad times we see families move in together, kids don’t leave home as soon, senior parents come live with children, homelessness rises, the “vacation” home becomes a regular home, etc.
According to NAR (i.e. http://www.realtor.org/sites/default/files/reports/2016/embargoes/2016-q4-metro-home-prices/metro-home-prices-q4-2015-single-family-2016-02-10.pdf ) it was 208.4K for the median sales price in the country as of 2014Q4. Then in 2015Q4 we saw the median home price rise to 222.7K.
According to the Fed (i.e. https://research.stlouisfed.org/fred2/series/MEHOINUSA672N) the median household income was $53,657 at the end of 2014. Let’s assume that household income growth rose 4.4% in 2015 the same as personal income. “Personal income increased 4.4 percent in 2015” (source: http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm ). This would put median household income at $56,018.
The ratio is at 3.97 now. That’s why IMO home prices are about 15% overpriced right now. The biggest reason for this IMO is because mortgage rates are so low. This is creating a huge deflationary risk that our “leaders” aren’t taking seriously enough. Take a look at the tip of the iceberg on the national debt (i.e. 19,188,228,962,810.34 - http://www.treasurydirect.gov/NP/debt/current ) to see what I mean. Thank you so much Dubya and Balanced Budget Barak for this :( But we must not forget to thank the Speakers of the House because only the House controls the purse strings and they have all been pathetic watchdogs of our Country’s future because they have been so reckless with our country’s finances.
I say “deflationary risk” because so much of the games going on in Washington DC, our housing market, economy, and everything in the USA is now dependent upon long-term US Treasury Rates staying tremendously low and the investment funds (particularly pension funds for government employees) getting tremendously much higher returns. That just isn’t mathematically possible. Once this bubble bursts then there is going to be a lot of pain felt on balance sheets everywhere, especially in “government” ones. For example, take a look at the “Federal Reserve” balance sheet at http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1. What we see is “Unamortized premiums on securities held outright” at $186.345 billion out of their $4486.333 billion assets, $4446.787 billion liabilities, and $39.546 billion equity/capital. All that this house of cards needs is a very tiny little breeze to wipe out just 25% of that “premium” and the Fed is under water. If confidence in the system collapses then there will be great panic. Thus the best thing to do IMO is to stop playing games, be honest about how dire the fiscal situation is, and start addressing it all responsibly.
>> Meanwhile, mortgage lenders, despite record-low rates, are still reluctant to extend credit to less-than-superb borrowers. <<
Blame Clinton, Bush, and Executive Order 13166.
That order that killed the economy in 2007 mandates that if you lend to x-number “anglos”, you have to lend to y-number non-English-speakers. In other words, illegal aliens, since products of our own school system are allegedly English speakers, and most categories of legal immigration require you to speak English.
After 2007, when the Left demanded that people who tried to comply with their set-asides by enticing “minorities” to buy housing be sent to prison, banks simply can’t find such “minorities” to qualify for home loans... so they can’t lend to native-born white people, either.
While what you say is totally true there does appear to be a big shortage of available homes on the market. Our Zillow estimate for our house is up $30,000 in about 9 mos. We are actually going to walk away with some money in our hand. Who knew? :-)
Congrats, you’ll be out before the next bubble bursts.
Yes sometimes life works out. I bought the place to fix and flip but lingered too long and got stuck in it. Now a little more fix up and we are going to make out OK.
Just wait a little while. All of the boomers are getting to the point in their lives where they are dumping their 2500 sq ft homes for something a little more manageable.
I know. I am one of them.
My neighborhood has turned over in the past two years. When we moved in, it was all kids. Now we are the old ones on the street (I am 55). I would guess 50% of the homes on my street have changed hands. There are a ton of kids around now.
Keeping them off my lawn is a full time job!
But the prices will come down as the supply goes up.
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