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Category Archive: ‘Market Conditions’

Renters On The Rise

My takeaways:

  1. Rents should be under intense pressure over the next few years.
  2. Growth of U.S. households since this blog began = about 8 million!
  3. The affluent are winning.

Hat tip to Kerry for sending this in!

LINK

Ten years after the U.S. housing market crashed, some things have gotten worse instead of better.

More U.S. households are headed by renters than at any point since at least 1965, according to new analysis of Census Bureau data by the Pew Research Center, a nonprofit think tank in Washington, D.C. “The total number of households in the United States grew by 7.6 million between 2006 and 2016,” it found. “But over the same period, the number of households headed by owners remained relatively flat, in part because of the lingering effects of the housing crisis.” And the rise in renters is significant, even accounting for the growth in the population over the last half-century.

The number of households owning their home has fallen since the peak of the U.S. property bubble in 2006, Pew found, while the percentage of households renting rose to nearly 37% last year from just over 31% in 2006. The 2016 rate is slightly less than the 37% in 1965. “Certain demographic groups ­— such as young adults, nonwhites and the lesser educated — have historically been more likely to rent than others,” Pew found. “However, rental rates have also increased among some groups that have traditionally been less likely to rent, including whites and middle-aged adults.”

Adults younger than 35 continue to be the most likely of all age groups to rent. In 2016, 65% of all households headed by people younger than 35 were renting, up from 57% a decade earlier. Last year, 41% of households headed by someone aged 35 to 44 were renting, up from 31% of all households in 2006. Rental households headed by someone aged 45 to 64 rose to 22% of all households in 2006 from 28% in 2016. But among baby boomers and the oldest Americans — those 65 or older — the rental rate remained steady at around 20%.

One reason so many people are renting: Only 45% of renters on average can afford the payments on a median-priced home in their area, according to a report on the state of housing from Harvard University’s Joint Center for Housing Studies released last June. Buying a house is even more out of reach for renters in expensive markets such as the West Coast, the Northeast and Florida. In these parts of the country, as few as 10% of renters could afford the mortgage payments if they bought a home, the report found. Economists recommend spending no more than 30% of gross income on housing.

LINK

Posted by on Jul 20, 2017 in Jim's Take on the Market, Market Conditions, Real Estate Investing | 3 comments

Bubble Talk

This survey of ivory-tower guys indicates that the threat of a bubble-bursting is low. The last bubble was full of people who couldn’t afford to hang on; this one has been built by the affluent.

Historically, Thornberg has been the most rational analyst:

LINK

Will prices keep rising? Are prices close to the top?

We asked a half-dozen economists and industry analysts what the future holds for home prices in the region. Among their answers:

Southern California home prices aren’t about to drop. In fact, they believe prices will keep rising for two more years, at least, and possibly longer.

The market isn’t in a bubble — yet — although bubble talk is starting to “raise its ugly head” at cocktail parties, one economist said. Some analysts are saying Southern California home prices are showing signs of being overvalued.

If you’re thinking about buying a home, now just might be the time to act — provided you don’t overextend yourself and you plan to live there awhile.

Here are five key questions about where Southern California home prices are heading in the future:

ARE WE AT THE PEAK?

Not one of the economists we interviewed thinks we are, at least not for entry-level homes.

Luxury homes, priced at $2 million and up, may have reached a price peak and are facing an oversupply of listings, analysts said.

Nominal home prices have surpassed prerecession highs in Orange and Los Angeles counties. Riverside and San Bernardino counties are about 18 percent below their price peaks. But none of those counties has reached prerecession peaks in inflation-adjusted dollars.

Another fact to consider: During the last market run-up, Southern California home prices increased year over year for 126 consecutive months, or 10½ years. That’s twice as long as the current streak in home price gains.

Lastly, analysts say home prices aren’t rising that much. Price increases averaged 6.3 percent in Southern California in the past year.

HOW MUCH LONGER WILL PRICES GO UP?

Two years at least, most economists interviewed said. Possibly longer.

How much longer prices rise depends on what happens to the overall economy.

“At some point, there’s going to be a correction, but I don’t see it on the horizon,” said Pat Veling, president of Brea-based Real Data Strategies. “Sellers want more than sellers got six months ago.”

Projections by the California Association of Realtors show a gradual decrease in home price appreciation over the next few years, said Oscar Wei, a senior economist for the group. For example, CAR projects prices will go up 5 percent statewide in 2017, 4 percent in 2018, and 2.5 percent in 2019.

Assuming the gross domestic product continues to grow at 2.5 percent and mortgage interest rates stay below 4.5 percent, Southern California home prices could be going up at 6 percent a year for the next six to seven years, said Christopher Thornberg, a founding partner of Beacon Economics and a former UCLA economics professor.

At 6 percent a year, the median home price could reach $800,000 in Los Angeles County by 2023.

“Given the supply shortage and the strength of the California economy, (that’s) perfectly reasonable,” Thornberg said. He added: “Reasonable here means it’s not a bubble and they won’t collapse.”

Read full article here:

LINK

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Posted by on Jul 19, 2017 in Bubble-Era Pricing, Jim's Take on the Market, Market Conditions | 0 comments

Home Sales to Foreigners Rise

Foreign purchases of U.S. residential real estate surged to the highest level ever in terms of number of homes sold and dollar volume.

Foreign buyers closed on $153 billion worth of U.S. residential properties between April 2016 and March 2017, a 49 percent jump from the period a year earlier, according to the National Association of Realtors. That surpasses the previous high, set in 2015.

The jump follows a year-earlier retreat and comes as a surprise, given the current strength of the U.S. dollar against most foreign currencies, which makes U.S. housing even more expensive. Apparently, the value of a financial safe-haven is outweighing the rising costs.

Foreign sales accounted for 10 percent of all existing home sales by dollar volume and 5 percent by number of properties. In total, foreign buyers purchased 284,455 homes, up 32 percent from the previous year.

Half of all foreign sales were in just three states: Florida, California and Texas.

Chinese buyers led the pack for the fourth straight year, followed by buyers from Canada, the United Kingdom, Mexico and India. Russian buyers made up barely 1 percent of the purchases.

Read full article here:

http://www.cnbc.com/2017/07/18/foreigners-snap-up-record-number-of-us-homes.html

Posted by on Jul 18, 2017 in Jim's Take on the Market, Market Conditions | 3 comments

Zillow Threatens McMansion Hell

I think Rob Dawg might have started this one – his blog is where I heard of the McMansion Hell on Friday, and now Zillow is chasing her around like a felon:

https://www.theverge.com/2017/6/26/15876602/zillow-threatens-sue-mcmansion-hell-tumblr-blog

McMansion Hell is a Tumblr blog that highlights the absurdity of giant real estate properties and the ridiculous staging and photography that are omnipresent in their sales listings. The blog, started by 23-year-old Johns Hopkins graduate student Kate Wagner, began in July 2016 as a way to poke fun at pretentious architecture. It has since gone viral, but now she’s facing potential legal charges by real estate site Zillow for allegedly violating the site’s terms of service by reproducing the images on her blog.

A typical McMansion Hell blog post will have a professional photo of a home and/or its interior, along with captions scattered throughout by Wagner. She also adds information about the history and characteristics of various architecture styles, and uses photos from the likes of Zillow and Redfin to illustrate how so many real estate listings inaccurately use the terms.

Under each post, Wagner adds a disclaimer that credits the original source of the images and cites Fair Use for the parody, which allows for use of copyrighted material for “criticism, comment, news reporting, teaching, scholarship, and research.” In a cease and desist letter to Wagner, Zillow claims Wagner’s reproduction of these images do not apply under the Copyright Act. Additionally, the company claims McMansion Hell may “[interfere] with Zillow’s business expectations and interests.”

Zillow got sued for using photos without authorization, so now they are going after the little people with a vengeance?  Where will they stop?

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Posted by on Jun 26, 2017 in Jim's Take on the Market, Market Conditions, Zillow | 5 comments

Will Prices Keep Going Up?

The N.A.R. Chief Economist Lawrence Yun was befuddled in his previous press release, and now this:

“Home prices keep chugging along at a pace that is not sustainable in the long run,” Yun said. “Current demand levels indicate sales should be stronger, but it’s clear some would-be buyers are having to delay or postpone their home search because low supply is leading to worsening affordability conditions.”

Yunnie is an old-fashioned guy who relies on historical norms.  But more people are probably thinking the same – this run-up in pricing isn’t sustainable.

Or is it?

We are in an environment where we are peppered with lottery ads daily.  People dream about getting rich quick, and selling your house is about the closest most people get – and it’s not enough just to sell your house for an all-time record price.  Instead, every seller wants more than the last guy got.

Unless that mentality changes, prices will keep going up.

Won’t there be a point where we run out of ready, willing, and able buyers?  Yes, but unless a seller NEEDS to move, they aren’t going to budge.  They aren’t going to lower their price until they are absolutely convinced that they must – and it’s more likely that sellers will withdraw their listing and try again later.

If sellers do need a solution, there are more alternatives than ever:

  1. Reverse mortgages.
  2. HELOCs
  3. Share with family.
  4. Share with others. (H/T daytrip)
  5. Loan mods.

Once we reach the point where the market stalls, it will stagnate for years until sellers and realtors realize they must adjust their price to sell.  Realtors themselves struggle to accept the rules of supply and demand – they just keep hanging onto their listing until the market catches up.

Rising rates, economic downturns, political drama, world calamities – none will be as influential as a seller’s ego when it comes to adjusting on price.

Watch the number of sales – they are the precursor.  If/when sales start to decline, all it means is that fewer sellers are willing to adjust enough on price.

Will their reason for moving be powerful enough to not seek an alternative, and sell for what the market will bear?  It’s doubtful, and as a result, a market that is this hot will take time to re-calibrate – if it does at all.

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Posted by on Jun 22, 2017 in Boomer Liquidations, Boomers, How Hot?, Jim's Take on the Market, Market Conditions | 0 comments

San Diego Bubble: Not Yet

A bubble perspective from our friend Rich Toscano!

http://www.voiceofsandiego.org/topics/economy/theres-still-no-san-diego-housing-bubble-yet/

With the median San Diego home price recently having exceeded its prior bubble peak, there is some concern that the housing market may be entering bubble territory again. But while San Diego’s housing market is certainly hot, and its home prices a good deal more expensive than usual, it’s hard to make the case that this is a genuine bubble.

A bubble is more than just a market that’s become pricey. Investment bubbles are characterized by extremes in two areas:

• Valuation: Prices become exceptionally high compared with the economic factors that have typically driven pricing in the past. Often, prices and valuations will experience very rapid increases.

• Psychology: Investors are optimistic to the point of euphoria. They are dismissive of risks (and skeptics who raise them), and seem to fear only missing out on further gains.

San Diego housing in the mid-2000s was an absolutely classic bubble. From 2001 through 2005, local home prices increased 63 percent faster than incomes and rents. At their peak, home valuations reached 73 percent above the historic norm; the highest it had gone previously was 12 percent above normal, and that had led to a six-year downturn. By mid-bubble, prices — already totally unhinged from their fundamentals — were growing at a blistering pace, as much as 33 percent in a single year.

As for the sentiment … I was a housing skeptic on these pages, so I could go on at length. Suffice it to say that one reader informed me that by not buying a house, I was dooming myself and all my descendants to be part of a new permanent underclass of non-homeowners. That was one of the nicer comments.

Things look quite a bit different in 2017.

Read full article here:

http://www.voiceofsandiego.org/topics/economy/theres-still-no-san-diego-housing-bubble-yet/

Posted by on Jun 5, 2017 in Jim's Take on the Market, Market Conditions, Rich Toscano | 3 comments

SD Median Price Hits New Record

Glad to see the U-T relying on Rich for an explanation!

LINK

The San Diego County median home price hit $525,000 in April, passing the region’s previous peak reached in 2005, real estate tracker CoreLogic reported Tuesday.

High demand and tight supply appear to have pushed the price beyond previous milestones. There were 3,618 homes sold in April — the lowest for that month since 2012.

Supply is dwindling, too. In April, there were 4,763 active home listings in San Diego County, said the Greater San Diego Association of Realtors. That is down from 5,754 listings the same time last year and the 6,386 in 2015.

When adjusted for inflation, the nominal November 2005 peak of $517,500 would be roughly $644,500 in 2016 dollars. Still, the San Diego median price is noteworthy for increasing 7.4 percent in a year and outpacing most of Southern California.

Housing bubble fears are likely with the new median but home prices would have to rise 40 percent (assuming no income or rent growth) to be as overvalued as much as they were during the last peak, said Rich Toscano, who predicted the last housing crash on his blog Professor Piggington’s Econo-Almanac.

“Homes are definitely expensive when you compare purchase prices to rents and incomes,” he said. “They are the most expensive they’ve been outside the bubble. But, it still doesn’t compare to the expensiveness of the bubble.”

Toscano said low interest rates are keeping the monthly mortgage rates somewhat affordable and home valuations high.

“In theory, for as long as low rates persist, they could keep supporting the prices,” he said. “The big question is if that will continue to happen and the smartest people in the world disagree on that.”

There were 2,306 resale homes sold in April, bringing the median home price to $575,000, a new peak surpassing the previous record of $574,000 set in May 2006. The resale condo price was $385,000 with 1,108 sales — still $15,000 away from the peak set in April 2005.

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Posted by on May 24, 2017 in Jim's Take on the Market, Market Conditions, Rich Toscano | 2 comments

Trump Tax Plan and the M.I.D.

Hat tip to SWM for sending in this clarification regarding the point at which the M.I.D. is an advantage.

http://www.seattletimes.com/business/real-estate/trump-tax-proposal-would-make-mortgage-deduction-useless-for-most-homeowners/

U.S. Treasury Secretary Steven Mnuchin has taken pains to stress that the Trump administration isn’t out to kill Americans’ beloved mortgage-interest tax deduction — but a side effect of the plan could turn it into a perk for only the wealthy.

President Donald Trump has proposed rewriting the tax code to raise the standard federal deduction to a level where about 25 million home­owners would no longer take advantage of the century-old break.

A married couple would need a home-loan balance of about $608,000 — almost triple the mortgage on a median-priced U.S. home — before using it would make sense, according to a new analysis by property-data provider Trulia. That would be up from about $322,000 today.

Without the incentives, along with a proposed end to local property-tax deductions, home sales may be hurt in cities where prices are rising quickly and buyers are stretching to afford their purchases, from Denver and Portland to Boston and Washington, D.C. Reduced demand would weigh on values, causing price declines nationwide, according to the National Association of Realtors, which opposes the change.

The proposal “is a backdoor way of rendering the mortgage-interest deduction close to worthless,” said Mark Zandi, chief economist for Moody’s Analytics.

Prices may fall 10 percent on average nationwide, taking into account the lack of deduction for state and local property taxes, according to a preliminary estimate prepared by a consultant for the National Association of Realtors. Zandi, of Moody’s, said the proposed deduction changes would reduce prices by about 4?percent nationally, including the property-tax impact, with bigger decreases in pricier parts of the country.

Economists have been critical of the mortgage-interest deduction because it disproportionately benefits people with more expensive properties, including many who would have purchased even without the break. It also inflates home prices because buyers often overestimate their tax savings when they’re budgeting for a purchase, said Dennis Ventry, a professor at University of California, Davis, School of Law who has studied the program’s history.

Trump’s plan might boost homeownership rates over time because a drop in prices would improve affordability and the standard deduction would give buyers more money to spend on a house, Ventry said.

The real-estate industry is lining up against the proposal, including the powerful National Association of Realtors, which spent $10.2 million lobbying Congress in the first quarter, more than any other organization except the U.S. Chamber of Commerce, according to the Center for Responsive Politics.

Trump’s plan also targets tax deductions for state and local taxes paid — a provision that would hurt homeowners in states where property taxes are high.

“One of the big reasons for homeownership is the ability to deduct property taxes,” said Coldwell Banker Realtor Kevin Cascone, who’s based in Westfield, New Jersey. “If that’s eliminated, what’s the difference between renting and buying?”

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Posted by on May 18, 2017 in Jim's Take on the Market, Local Government, Market Conditions | 3 comments