The folks at www.1worldonline.com like to poll their audience, and last month they used a bubbleinfo.com blog post in one of their surveys. Their readers voted on this question:
Is the increase in real estate value a sustainable trend? Home prices have increased substantially in the last year compared to the previous seven years. Is the increase a sustainable trend, or just a miniature housing bubble?
https://1worldonline.com/#!/poll/773
Chris says 55% of respondents believed another crash was going to come, with more Republicans strongly believing in a crash.
Those who voted for another crash may have been influenced by the opposing blog post to mine, which talked about the millenials facing a weak job market, and shrunken workforce in general.
This was his summary paragraph:
With investors fleeing the real estate market because of higher interest rates, with fewer people working and those that are working are earning and saving less, who is going to be able to buy houses in sufficient volumes to keep the real estate “recovery” going? It doesn’t matter how low interest rates are if people don’t have the incomes, savings or credit to buy homes. Rising interest rates can only make a bad situation worse.
My rebuttal, which, like my blog post, pertains to our local market:
-
Investors fleeing? Supply evidence please, or is that just a guess? I still get emailed every day by investment groups wanting me to send them deals. If there are fewer investors buying, it’s because there are fewer deals, which would mean prices are holding up or going higher – too high to make sense for flippers. Investors are supplying the floor to the market.
-
Unemployment has been terrible, with little or no improvement in the last few years – yet our real estate prices have gone up 20%. Apparently, the local real estate market is NOT influenced by unemployment.
-
Savings or credit? You can obtain an FHA loan up to $697,250 with 3.5% down payment and a FICO score as low as 580. PacTrust Bank will give you a 30-year fixed rate around 5% even if you have had a short sale in the last year. Most anyone can get a mortgage if they want it bad enough.
Even if it’s not as bad as he says, we keep hearing how ‘demand has been pulled forward’. If so, it’s a good question – who will be the future buyers?
The future buyers will be the first-timers and others who want to finance their purchase, especially with a lower down payment, who have been shut out by the big-money investors and cash buyers in general. This future-buyer pool will likely have a limit on their resources, so the appreciation trend will probably moderate, and prices will fluctuate from area to area.
But with a county population of 3.14 million people, we don’t need everyone in the pool – we only sold 3,466 homes in the county last month. You could exclude 90% of the population from the market and we’d still have enough demand…at least until the baby-boomer liquidation sale starts around 2020.
The boomer transition is going to be more of a shuffle than a liquidation. The phrase “Prop 60” is going to be on everyone’s lips.
Agreed – those who could use the money will shuffle around California, and those who need all the money they can get will probably consider leaving the state.
Places where you can buy a home for less than $100,000 should fill up quickly.
Visited my mom. South Florida end of June. She lives in a “hurricane magnet” in Venice. She bought the trailer home next door to handle the overflow of relatives and visitors so she won’t be too inconvenienced. Pocket change for her. Cost of living there, all in, is so low as to boggle we Coastal Californians. Me? a couple acres in Occidental up north or similar sounds fine. And yes, it would be a Prop 60 “shuffle.” Whomsoever buys my primary residence gets the golf course and the superlative school district. 10 years from now there will be a lot more people in the state looking for housing than housing will be built to accommodate. The percentage of people able to buy the best houses will shrink but the raw number will increase.
10 years from now there will be a lot more people in the state looking for housing than housing will be built to accommodate.
Yes, and maybe sooner with home building being so limited already. There are no areas left around SD County to build the fancy new planned developments, so if you want to live within 30-45 minutes from Carmel Valley-to-downtown-SD you have to buy resale. But few want to sell.
There are new components to the equation that we haven’t had before, and like you said years ago, we need to forget all previous assumptions.
“Like you said years ago, we need to forget all previous assumptions.”
You have a long and excellent memory. This is a remade market. I’m used to having to wait years before my insane claims come true. This is no exception.
Will prices “hold?” I think we may see a soft patch or mildly down period as we adjust to higher rates and such. No crash by any stretch. Indeed, I expect the softness to be more of substitution than overt resale over resale equivalent metrics. Substitution for lesser properties will be possible as the investor corps discover the business is not as easy to hold as it was to acquire. This will free up a more normal price distribution in the inventory.
I see the boomers either aging in place or being forced to sell because of health reasons. This doesn’t give me great confidence that there will be any kind of great boomer sell off in the near future.
Prop 60 reshuffling may sound appealing, but there is a lot of inertia to overcome for those boomers that have been living and raising their kids in the same area for the past 40 years. Those boomers have a very well established network of friends that would make it hard for them to leave.
I do see a lot of the kids coming back home to inherit the house or buy from their parents. But that would further restrict inventory.
As long as we oldsters can keep the minivan out of the pool we certainly can stay in our respective single level homes as long as we desire. And that was you observation lo those many years past. Single level, wide halls, no interior steps, etc., amenities are going to command super premiums. My total bath remodel included partly sinking the tub and widening the shower door while lowering the threshold. Cost almost nothing as part of the update. Worth five digits on the back end.
I see that your memory is still sharp – 140,000 miles and still running fine:
https://www.bubbleinfo.com/wp-content/uploads/2013/09/Acura-in-the-Pool-002.jpg
I’ll make it a separate blog post, but for starters here’s one previous assumption that’s out the window:
1. If you don’t make your payments, you will lose your house.
Homebuyers never have to worry about that again – we now know that the government will backstop the banks at all costs, and if times get tough they will either modify your loan or just let you live for free.
While I doubt that homebuyers will be as reckless as before the crisis, what it does mean is that the inventory will be restricted to just those who want to give up their house voluntarily – and we’ve seen how ego and greed have ramped up as a result.
If you don’t have equity and you stop making your payments…
Right?
I kind of scratch my head I hear folks saying that investors are running for the exits. I don’t see any institutional investors having any real impact on housing prices even where they are operating, and that is certainly not San Diego county.
The investors I know are kicking themselves for not buying more in 2009-11 and redoubling their efforts, not running for the exits. They are hoping that interest rates going up will have an impact on prices.
Rates gradually increasing are the best thing for the health of the real estate market IMHO. It will keep the affordability equation from getting out of whack like it did in the last bubble.
But with seasonality about to kick in, it seems the bears will no doubt be out in force pointing to monthly prices slowing or reversing. The year over year data will be ignored.
Jedi mind trick! “That is not the minivan you were thinking of.”
If you don’t have equity and you stop making your payments…Right?
Yes, it seems the current banking policy is to foreclose only on those with equity.
No equity = no foreclose = shadow zombies.
The investors I know are kicking themselves for not buying more in 2009-11 and redoubling their efforts, not running for the exits.
And the flippers are good for appreciation – they push for retail-plus, and usually get it.
The future’s so bright I gotta wear shades (to shield my eyes from the flash). 😉
Seriously, SD will always fare better than most, but IMHO the most “interesting” times lie ahead of us, not behind. As Taleb puts forth “the steady march toward artificial stability makes us more vulnerable to large shocks”.