Skip to comments.The housing-recovery myth
Posted on 07/09/2013 8:39:02 AM PDT by AngelesCrestHighway
Its often said theres never been an economic recovery without a rebound in real estate. And for investors desperate for any sign of a housing rebound, the last year has been a tonic. Youve read the headlines. This is a great time to be a home buyer. Interest rates are still near historic lows. Prices have edged up, but only slightly when compared to the long-term trend. Some markets, such as San Jose, Calif., Las Vegas and Phoenix, possibly are overheating. Thats the good news. The bad: very few homeowners are seeing the benefits. In other words, the housing recovery is bogus. Heres why: while its true that housing appears to be a great investment, its only a good investment for a select few: those who can get ample credit and those who arent tied down to expensive housing purchases made in the years before the financial crisis.
(Excerpt) Read more at marketwatch.com ...
The article says something else: that investors make up 20% of recent sales in all cash deals.
Makes sense. If savings accounts pay 1%, and net cash flow is 5% on real estate.
Net result: continuation of rentals for the workers.
The only housing boom going on is investors buying. My wife and I flip houses. We like to buy repos that usually quite distressed. The competition for these is huge. These houses go up for sale and usually are gone in a day or so. We go look at a house, do an impromptu inpsection, and make a full price offer insode a house and still can’t manage to buy one.
The vast majority of houses in some (mostly) high-priced towns are going to overseas buyers (mostly Chinese, some Indian and others). In one community (average used tract house around 2 million dineros), the leading realtor reports 3/4 of sales are to these buyers.
This pretty much defines the (SF Bay Area) housing market, with some of the lower-end properties still going to investment bankers. The investment bankers, for their part, define most of the cheaper markets like Sacramento.
The average local worker-type person is mostly NOT able to participate in these markets now. First, because so many of the overseas and investor bids are ALL CASH offers. Sellers like All Cash offers and usually take them in preference to the more risky credit-dependent bids submitted by most local American worker type people.
And second, the Chinese (and other) overseas bidders have so driven up the prices in many communities that 99.44 percent of American workers cannot even dream of being able to afford, live in those towns anymore. The overseas bidders have, in effect, taken over those territories (at a high price, since they are pretty much bidding against themselves, but nevertheless they control those markets).
These markets are “recovering” ... in that they are enjoying bidders again, and this is firming up the prices. But the majority of bids are from these two non-traditional sources. The traditional local American worker is thus not able to really participate or benefit very much at all.
One comment where the above facts pertain, control the markets: these special sources or types of bidders may very well be “more unstable” sources than the traditional American worker. Meaning, the overseas bids could dry up very quickly under several possible scenarios. And there is already evidence that some of the investment banker bidding may be drying up (less of it visible in some areas where there was much more a few months ago, also a couple of the bankers have stated that they’re finding the maintenance and management of small properties, spread out over entire cities or counties, to be much more challenging or difficult, and expensive, than they’d anticipated).
So, the markets are “recovering” in a technical sense, but not a sense that is “real” to the average American. And, there are some questions just how reliable or sustainable this “recovery” may prove to be... (to be determined...)
Not to mention the 8 or 10 million (getting precise numbers is difficult since the banks keep data proprietary) defaulted properties still overhanging the market.
The bottom line is that housing prices are still 300% or more greater than the value of the land and house on it.
Market forces allowed this to happen only because of government intervention, much like the ridiculous prices in higher education tuition, worth far more than the degrees offered.
So truthfully, if you want a well built house today, it either has to be a rebuild from an older, quality built house, or a custom built, with you being your own contractor and licensing sub-contractors to do the work.
The advantage to this is getting much more home, at far better quality, for the same price. Also, being tailor made, it can have many important extras that would not typically be included.
It is a “weird recovery” to say the least...I have no confidence at all in it.
I’m thinking that in order to get your money’s worth you have to be far away from any urban center where these overseas cash influences are...
Another reason for investing in real estate: both the property’s value and the rent will increase along with inflation. Equities generally go up with inflation, but not always.
It`s mostly companies scooping up the best foreclosures and then resisting them for near double.
“Investors, who look to buy properties and rent out or resell them, make up about 20% of the overall market and two-thirds of the market for distressed properties”
That is what`s going on in Vegas, real estate companies and institutional investors are creating a bubble. It`ll pop, soon.
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