Let’s stay on this topic because a break-through may be close.
The media’s guesses about the real estate market keep coming, and most are just the same regurgitation of negativity – unaffordability, winter weather, tight credit, underwaters, and fewer investors.
Diana Olick did mention in the video that we should compare to the market in 2000, when we had the same credit standards as today. She claimed that today’s payments are 50% to 60% higher today, than in 2000. In San Diego they are about 33% higher, which is just under the rate of inflation.
But at the end of the video, Diana says that she refinanced her own home onto a 15-year mortgage and hopes to pay it off in 10 years!
People across the country are doing what she did – hunkering down and staying put. It is the cause for low inventory (getting worse around here), and the sellers’ hyper-optimism, which leads to over-priced listings.
Between the fewer listings overall, and those that do hit the market being at the top of their range or higher price-wise, there is no wonder that sales are slower – especially when they insist on comparing to last year’s super-frenzy.
If Diana would just look at her own state of affairs and apply the same reasoning to other Americans, maybe it will open other possibilities for her.
Here are links to the media’s latest guesses:
http://www.cnbc.com/id/101633197
Residential sales in San Diego County between Jan. 1st and Apr 15th are down 12% compared to 2013, and that’s with average pricing up 18%, and mortgage rates up 24%. We should be celebrating how well the market has endured those changes!
I keep saying it – the real value of home ownership accrues after the note is paid. The gift that keeps on giving.
In my opinion the media seems to be focusing on why people are hunkering down and staying put. I wouldn’t argue that that indeed is a reason/cause for the low inventory. The problem is people didn’t used to hunker down and stay put. They traded up they, relocated for jobs, etc. Why aren’t they doing that now? That seems to be the question the media is trying to answer. Maybe it’s the wrong question, I don’t know.
The answer to that question could be a lot of things. Is it a fundamental shift because people are getting older? Is it because of some of the reasons the media sites such as higher interest rates, lower equity, high student loan debt, etc. It’s probably a little bit of everything.
I think the fear is that new home construction is a pretty big piece of the economy and if everybody is going to stay put and not trade up into that new house it will be a negative for the economy.
Jim —
How has the present state of the market: low inventory, higher prices, higher & tighter financing, impacted those who toil in the industry? (I imagine some are doing better than others, but there are a lot of unhappy campers.)
I personally think that if the market had been left alone and the market did what it was supposed to do, it wouldn’t have wound up so constipated. But the underwater homeowner had to be rescued no matter what, and here we sit. Not a natural market.
How has the present state of the market: low inventory, higher prices, higher & tighter financing, impacted those who toil in the industry?
Everything about those who toil in the business is related to number of sales.
Those who were REO or short-sale “specialists” have had their business decimated, and are trying to covert to organic sales.
Not only are sales down this year but they feel more spread around, with no one picking up market share. So everyone is feeling it, not just the REO/SS-related folks.
There have also been a number of big agents change companies, which is a sign of agent frustration with the status quo.
Because there doesn’t appear to be any imminent game-changer, the battle on the street for business will probably continue and intensify. The commission-cutters may appear to pick up some market share, but they aren’t making more money – they are just happy to have a job.
There are obviously many perspectives out there, but comparing payments now to 2000 (and saying that they are about the same when factoring in inflation so therefore prices are reasonable) ignores one major fundamental issue: interest rates are no where near where they were in 2000 (average 30-year rate was 8.05% that year). It may take a bit of time, and zig zag a bit, but interest rates have no where to go but up. The FEDS and their intervention have been unprecedented and now that is beginning to unwind. Asset values have been pumped up (as have all riskier assets) since any NPV calculation uses the current risk-free rate (treasuries) to home in on a reasonable discount rate and calculate valuation. But in the end, price does matter (not just payments). Buying an asset while interest rates are rising (under some assumption that the asset value will not decrease during that period just like the decrease in interest rates pumped up the value) will not be a prudent decision in my opinion. Sure, historically, interest rates have climbed because the economy drove that increase (GDP was booming, salaries were increasing, etc.) so some say rising interest rates mean things are better and therefore prices will keep going up because buyers can afford more. Historically that was a true statement. But, rising interest rates now (especially to the 6% range) just starts getting us back to where we should have been all along prior to quantitative easing.
She said it, not me.
I appreciate your analysis, but you and livinincali and others who insist on sticking to the fundamentals are ignoring the government’s willingness to intervene. Sure, rates should be rising soon, but only if the economy warrants (read: rich people say so).
Without touching politics….I think anyone would agree that this isn’t your grandma’s democracy. And I don’t see any sign of the revolution that would be needed to oust today’s powers that be, and install a true democracy based on free enterprise and the invisible hand.
I used to be driven by the fundamentals too – history says they always apply eventually. But they will spend/waste another $10 to $20 trillion to prop it up first, and see if they can beat the odds.
I’ll keep going.
We need low-level revolutions first – some beginner revolutions to get the general public used to the idea.
But have you seen anybody revolting over the funding of pensions for government workers? Like them or not, they will bankrupt this country. But you don’t hear a peep out of anyone from our leaders to Joe Six-Pack. When you start to see some groundswell about the smaller problems, then you can say there is hope. In the meantime, we’ll plod along and call it the New Normal.
From a personal business perspective, I hate this environment. I would do much better in a free market, where good honest people prevail and bad guys go to jail. But instead, we all look the other way.
Remember 3 1/2 years ago, Jim? Your advice was instrumental in helping me move out of CA. But it also was a headline in the Santa Barbara News-Press that caught my eye and really propelled me forward: “County Pensions to Reach $1 Billion In a Few Years”. Add to that fact, the houses I looked at had annual property taxes of $6K- $10K a year (and I wanted to get my last kid through a UC school without student debt. Also I remember calling Santa Barbara County to ask what the homeowner’s exemption was. She replied: $50. I said, “Wow that isn’t very much each month! She chuckled, “It’s $50 a year! I could see the writing clearly on the wall and gave notice on my rental a few days later.
And I agree with what you said, Jim. I wish honest people like you were the norm, and the corrupt, lying “whoever” were in jail. But that just isn’t going to happen…
I know more than a few people who got pump faked into believing that because we foresaw the biggest stock and housing bubbles in human history that they also knew how and when (one without the other is useless) markets would “naturalize”, as if there is anything natural about man-made man-manipulated markets. You’d think the last 15 years would dispel that notion.
Agreed, and we’re left with comparing today’s real estate market to the ‘peak’ which was the greatest manipulation of all-time (so far), thanks to Angelo.
Mozilo is to blame – he twisted the neg-ams to make them super-toxic and was then a hero to Wall Street. Others like WaMu had to follow, and instead of them all crashing and burning, they got bailed out.
Angelo plays gold every day, instead of wearing pinstripes.
To touch on the revolution aspect…we are nowhere near that end zone yet. The masses are too stupid and reactionary which means they won’t act until they get really uncomfortable. There has been a little pain in the form of rising costs (gas, food, utilities, insurance), but not nearly enough to get people to hit the streets. The other problem is that people think the government is hear to help / is the answer, when in actuality all it does is hurt them long term. Speaking of, what did Reagan say? Something to the extent of, “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.'”