We keep seeing more bubble-bursting articles being published – and the perception may be more important than the reality if consumers are addicted to soundbites and read no further.
This article promises proof that the bubble is about to burst:
But there is no proof in the article, just more speculation from an ivory-tower type who rattles off the same tired speculations, including lagging incomes, unaffordability, FHA, blah, blah, blah.
Regurgitating the same old beliefs ignores the reality – the market is driven by the affluent. Because listing agents give preference to cash buyers, the rich folks have a distinct advantage, and they have been gobbling up investment properties and most of the quality homes in which to live.
I am really sick of this old adage – from the article:
Without housing affordability there cannot be a rise in first-time buyer participation.
Without the entrance of first-time buyers, those wishing (or hoping) to move up to a larger home or relocate into other neighborhoods will not be able to so, at least not readily. This can produce a cascade effect on housing prices, starting to drive them downward to reflect a decrease in demand.
There are many first-timers buying homes – they pay cash, or have a big down payment so they can compete. Besides, first-timers aren’t the only buyers interested in the cheaper stock – BlackRock and other investors are happy to buy up all of the cheaper homes so those sellers can move up.
Here’s another from the same article:
If housing prices begin to fall, wouldn’t one expect the investors to at least consider dumping homes onto the market to minimize potential losses? If they did so, the aforementioned cascade-effect would drive prices down even further.
This is the new normal, where we have learned that unless sellers can get top dollar, they aren’t interested in selling. Investors have already gained 10% to 30% appreciation, if they lost some or all of that, they wouldn’t dump at any cost – they’d wait until next time.
The new lesson has been learned right before our eyes – don’t dump properties; instead let’s resort to any other means necessary, including bending the foreclosure and accounting rules. Ben Bernanke said as much here:
https://www.bubbleinfo.com/2014/03/03/bernanke-stopped-the-flood/
The general public needs to become wise to these gyrations. The fix is in, and the new normal is unlike anything we have ever seen or imagined. Wall Street will conspire with BigGov to ensure that there is a floor – and you might as well get your share while you can.
The media insists on scary headlines, rather than exploring the truth – and they wouldn’t mind if we did pop another bubble, whether we need to or not.
Don’t believe anything you read, and only half of what you see!
Jim,
One blog post can hardly be considered mainstream media. Most of posts and articles taking this same view of the housing market, a negative one, are few and far between. Indeed, the mainstream media, along with NAR, continually proclaim the real estate market to be improving all the time.
Too bad too little of the former analysis was absent in the lead up to the big housing dump.
As I understand it, the hedge funds have moved away from real estate in a big way. As prices jumped, the numbers for rental units don’t work out anymore, at least as nowhere like they used to. Hedge funds borrowing billions at super low interest rates (thank you FED), sucked up thousands of single family homes and converted them into rentals. These REITs now steadily return about 5% to their investors. Not bad in today’s market.
In the past few years, these big investors were a big percentage of the buyers in many markets and put a floor on prices. Now they’ve either stopped or considerably slowed their purchases. I don’t look for this to restart anytime soon unless for prices do dump. But it does remove a chunk of buyers from the market.
I do agree with you we now have a new normal with the FED and gov. through their manipulations perverting the market. Hey, it is what it is.
The real question has to be is the FED omnipotent? Can they keep it going? I don’t know the answer but suspect they are not and will someday lose control. When?
Anyone’s guess, until then party on!
Indeed, the mainstream media, along with NAR, continually proclaim the real estate market to be improving all the time.
An interesting thought – I’ll keep track of the positive vs negative articles.
My gripe is that neither are based on facts; instead, they trot out the same old general themes and apply them to today’s market AND THEN TELL YOU IT’S PROOF OF A BUBBLE BURSTING. Granted, I only live in my little world but there is no bubble bursting around here.
I’m not buying the fed and government have it all under control and nothing bad will happen to the real estate market in the future. There’s no historical evidence that government or the fed can control the economy to that degree. It would be the first time in history that they’d be successful at controlling asset prices. They never see the bubbles and never have been able to prevent them from popping. Every government and fed intervention during the popping of the bubble provides a little short term relief but never stops the inevitable.
Will real estate fair better than other assets classes when then next bubble pops? I’d buy that, but I’m not buying they’ll never let real estate prices fall again and that they have the ability to stop that from happening. I have more faith in math and market principals than the hopes, desires, and wants of the government and the fed but hey who knows. Maybe the investors gobbling up real estate at 4% cap rates are right and we return to a serfdom era.
There’s no historical evidence that government or the fed can control the economy to that degree. It would be the first time in history that they’d be successful at controlling asset prices.
I think they want the prices to flutuate – everyone who makes money on the churn prefers a choppy ride.
It’s the changing of the rules when they don’t suit their banker/Wall St. buddies that bothers me. And they could keep doing that, whether we are aware of it or not.
Not everywhere is CV IMO,
Most outlying areas have not recovered price wise near as much as the prime areas.
And Credit is still extremely tight, THAT (tight credit) is the biggest obstacle for first time buyers in non prime areas.
Not everyone has to live in CV (or prime coastal areas).
In a way, the Fed is engineering an extremely slow recovery LOL, (well in at least the non-prime areas).
Credit is tight?
It is what it always was. Let’s stop using normal underwriting guidelines as an excuse.
The smug author of the article ended it with the now-standard, “have we not learned anything?”
It’s another common gripe of mine because we did learn that mortgage guidelines are a good thing.
It is extremely hard to get approved with anything below a 700 credit score or a 20% down. That’s harsh MO.
They had to draw the line somewhere. They drew it at “homeownership is for rich folks”.
P.S. FHA available with 3.5% down and sub-600 FICOs. Insurance might feel harsh but money is available.
That is the numbers they advertise but in reality it’s not going to happen (3.5% down and sub-600 FICOs)
Did you see that realtor quote yesterday?
“You can still buy a nice house in Ramona for $350,000”.
Lots of choices available.
Those are the numbers they advertise but in reality it’s not going to happen (3.5% down and sub-600 FICOs).
Meanwhile, others are blowing right past us.
I have three sets of buyers in escrow to purchase new homes. One of the tract salespeople told me that at their Yorba Linda tract, 96% of the buyers are Asian. Most pay cash.
My point exactly, it’s not a bubble until you have everyone involved.
You just have prime areas being prime is all.
Bill Gross: “These economic and/or financial food chains depend on lots of little fishes in the sea for their longevity. Decades ago, one of my first Investment Outlooks introduced “The Plankton Theory” which hypothesized that the mighty whale depends on the lowly plankton for its survival.”
We’ll see how long the NCSD whales can survive without the plankton. 🙂
I’m with you Jim. The game is rigged and gov / the fed isn’t going to let assets fall in “value” again willingly.
The only and I mean only way things will change is if the dollar dramatically loses its value in the worlds eyes. If this happens it would force gov / the fed to stop printing money and live within its means. Chaos would ensue.
This sort of content sells / generates clicks because skepticism and vagueness is often mistaken as wisdom. Same as it ever was.
First time buyers paying cash…really Jim? Unless they are getting loans from the Bank of Parents, i can’t see this even in rich coastal areas.
But why should anyone be able to buy a house with less than 700 FICO and 20% cash on hand?
Yes, that’s harsh. But that’s what guidelines for plain vanilla no insurance mortgages had been since the 40s until early 2000s. And it made for a relatively healthy market. So, we’re going back to normal. It should be good news.