Trulia has issued their 2014 predictions:
Jed the Economist predicted some changes in the market – here is his #3:
Repeat Buyers Take Center Stage.
2013 was the year of the investor, but 2014 will be the year of the repeat home buyer. As prices rise, buying homes will become less attractive to investors as well as first-time homebuyers, but repeat buyers will be able to offset the higher price of the home they buy with the higher price from the home they sell.
This idea probably looks sexy from his perch in the ivory tower, but on the street it is much harder to accomplish.
Yes, there will be people who won’t mind paying more for the next one if they can get more for theirs. The difficulty is with the logistics.
If you are thinking of moving up or down, here are the choices:
1. Offer to purchase a home, contingent upon selling yours. While this provides great convenience to you, there’s not much chance any seller will go for it. If it is a decent house and priced correctly, there will be enough non-contingent buyers that you’ll get kicked to the curb by the listing agent who won’t give you the time of day – even if you are the highest bidder.
2. Sell yours first, and rent. This is the best solution if you want to use the equity in your home to buy the next, but nobody likes the double-move. Plus, if the prices keeps moving and/or your criteria is so tight that few homes are a match, you could be left waiting for a while.
3. Buy first, then sell. If you can use other money for your down payment, and qualify for the payments on both homes, you got it made. My rule-of-thumb is that you need to pay 50% more for your next house to make it worth it – spending 10% to 20% more only gets you another bedroom or bigger yard. How many people can qualify for their current house, AND the new house that is 50% higher-priced?
4. Leave town. You still have to juggle one of these three options, but if you move to a cheaper area then the qualifying for both loans is a little easier.
5. Take an ARM. There are lenders now who will allow you to rent your old house, and apply the new rent amount towards your income for qualifying purposes. But you will get a portfolio product, which means a 7-year, or 10-year ARM, not a 30-year fixed rate.
None of these options look very appealing to most homeowners, and it’s one of the main reasons the inventory has been as low as it has – staying put is usually the best alternative.
To accomplish a move-up, you have to be really motivated – either the old house is killing you, or you have money burning a hole in your pocket.
If the market will be depending on the move-up buyer as a primary source of sales, it’s going to be a slow year.
I doesn’t seem that Trulia has taken into effect the recent increase in rates. Most of the buyers and owners have recently either bought into or refinanced into lower long term rates. The majority of owners have locked into these rates with plans of going nowhere. I spoke to a buyer of mine that purchased in April of 2012; he got a bank deal, he paid $593,500 and then refinanced in October 2012 at 3.5%. The last model match in his neighborhood just sold for $710,000. If he were to sell now he would net about $200,000 that would give him 25% to put down on the lowest price upgrade in Carmel Valley/ Pacific Highlands Ranch, but with the new rate at 4.5%, taxes and HOA his payment would increase $1200 a month. Unless all of these owners have had salary increases of 10%-15% in the last year, I believe that they will be staying put for a while.
I do not see move-up buyers making much of impact on the real estate market in 2014. Trulia seems to be out of touch with the market.
Agreed, and all of these guys who get quoted a lot are guilty of the same thing. Lawrence Yun, Robert Shiller, etc. are all imagining scenarios that would go along with their data.
Sometimes they are right, and sometimes they are wrong, just like with any guessing.
Here’s another guy who lays out all the facts, and calls it black or white – either we’re affordable or we’re not.
His theory is because we are now in his unaffordable range, this won’t last.
http://www.dsnews.com/articles/california-coastal-housing-unaffordable-again-2013-12-10?utm_source=DSNews.com&utm_campaign=7cfccf8456-Daily_Dose_copy_10_12_11_2013&utm_medium=email&utm_term=0_1924082bfe-7cfccf8456-174702277
His final paragraph:
As we mentioned, it is possible for markets to remain unaffordable for a period of time, but it is very hard to imagine significant, sustained home price appreciation in the California coastal markets until incomes begin to rise—something that has proved elusive throughout this economic cycle.
But he ignores the possibility that prices could remain at this level and even go higher if the sales volume drops, and there are enough rich people left to keep the party going.
The only person who guessed that we’d see 20% appreciation this year was Bruce Norris, and when you dissect his quote it sure seems like he was referring to the Inland Empire.
So crazy unbelieveable things have happened right before our eyes, and for all we know, others like it could keep happening – like prices keep going up even though incomes are stagnant.
More guys taking wild swings in the dark:
http://blogs.marketwatch.com/capitolreport/2013/12/11/soaring-home-price-growth-to-slow-down-in-2014-analyst/
What about the haves vs have-nots argument? People stuck in the wage stagnation sector of the economy (85-90% of the working population) are just going to priced out as all of the prime coastal areas become occupied by the haves, including the global haves wanting to own their piece of the american. The middle class is evaporating, so there will be no fringe. The NY finance guys own the Ranch and Del Mar, the russians own la jolla, the chinese are buying up carmel valley; not sure who is gong to step in a buy encinitas and carlsbad, but they will. Oceanside and southern OC are still up for grabs, for now.