With mortgage rates dropping steadily, the buying power has increased 9% nationally this year:
Who has benefited around NSDCC?
Of course we’re just looking at averages, your mileage may vary. But it look like both buyers and sellers have benefited – prices are up slightly, which means that the buyer’s payment should actually be a little lower than anticipated:
| Sept-Nov | # of Sales | Avg SF | Avg $/sf | Avg SP |
| 2010 | ||||
| 2011 | ||||
| 2012 |
If this year’s rising prices were entirely driven by dropping rates that have now flattened, could next year be disappointing for sellers? Can sellers just live with this year’s prices?
I don’t think buyers are married to an exact payment; if they can get close to their desired goal (within a couple of hundred bucks per month) they will proceed with the purchase. But if sellers ask them to bump it up another notch, will buyers give in?
http://firsttuesdayjournal.com/homebuyer-purchasing-power-pushes-the-recovery/
It’s not just lower rates.
It’s also the likelihood of inflation.
Unless Barry & Boner come to a substantial “grand bargain” and Zimbabwe Ben stops printing money, these nominal prices are likely to look like bargains in the rear-view mirror.
But will the reality or threat of inflation be enough to cause buyers to pay more? I don’t think it is, because it isn’t tangible enough in the moment.
It is real, and stuff we talk about on the blogs, but in crunch time does a buyer use inflation as a reason to go higher.
Plus, you never hear Suzanne say, “pay more because of inflation”.
There’s no guarantee that increases in CPI or inflation will show up in housing. The expansion of credit/money will show up somewhere but where it shows up is anyone’s guess. Right now most of the inflation is showing up in college education and health care. That’s been the premise for all of these bubbles we’ve seen over the years. An expansion of cheap credit chasing the hot asset class. The hot asset right now seems to be a college education.
We saw extreme house price inflation in the 1970’s, even though the economy sucked.
Inflation is the most important variable in a buy/rent calculation by far. Assume 0% inflation and almost no house is worth purchasing. Assume 5% inflation and almost any house is worth purchasing.
Now many of today’s buyers may not be thinking about inflation, but I suspect enough of them are to make a difference as the marginal buyers.
I see inflation all around me…
– Price of gas
– Price of housing
– Price of food
– Price of clothes
In the 80’s + 90’s it was generally around 70 cents Canadian to every US dollar. Now the two are equal. What appened to the 30 cents?
In todays economy it’s best to buy as many hard assets as possible. (That don’t have some kind of depreciating value or maintenance cost)
My boss who is a top fund manager secretly sold over 1 million in stock and just bought 3 rental houses in san marcos because he believes runaway inflation is coming soon!!
Ever wonder why the housing inflation in the 70’s did not result in a bubble/crash ?
Lookup owners equivalent rent, and you will understand why we had the bubble/crash housing market since from 1981 on, and why will continue to have it in the future.
Hint it was not all only about finance.
I’m with Shadash, inflation is everywhere.
Say home prices go higher, the affordability thingy kicks in and real estate ends up being a rich man’s game.
Back to the Haves vs Havenots equation – the low & middle classes are going to get left out.
Every time I go to the store my proportions seem to keeps shrinki g for more money. Its a joke now
I think Blackstone is counting on inflation and they are one of the masters.
Agree, inflation is everywhere, at least in needs: food, utilities, housing, gas, health care, education.
Wants, not so much: flat screens, iPads, etc.
Low & middle classes are being left out. But buying a nice house right now with a 3.75% 30-year-fixed rate mortgage is like hanging on to the last helicopter out of South Vietnam.
Housing did well in the 70’s due to the rise of the dual-income household.
Only wage inflation will translate into higher housing prices. Otherwise, inflation in the cost of energy, food & healthcare will leave less for housing.
Only wage inflation? That’s old school.
The rich people could take over.
We’d need a lot more of them!
p.s.: I’m working hard to become one, but not there yet.
My wages are not going up 5 – 10% next year. So, I don’t know what sellers are hoping or expecting from me next season. I have been watching my target area closely and if I see a 10% bump in the asking price (which I can expect) next season, then it looks like another year I will have to wait. After all, mortgages aren’t going anywhere.
sorry…mortgage RATES…aren’t going anywhere.
Personally, I think this is a little more straightforward than macroeconomic analysis. Does not really matter about inflation expectations IMHO. These are my thoughts for the coming year.
So for how long can inventory stay at these levels and not affect prices?
Is inventory going to increase from distressed sales going forward? I don’t think so. I think short sales and foreclosures will be going down as a percentage vs. traditional sales. Lenders will not be dumping inventory onto the market. Equity sellers are relatively few and looking for higher prices.
Is buyer demand going away? Trend seems to be up. Bidding wars are not really abating on well priced inventory.
And when the overbidder closes, a new higher comp is created for the next buyer. The next sale appraises higher. No one in the market takes seriously the comps on fraudulent short sales. A year from now, median prices may be a lot higher than any of the ivory tower types are predicting. This will naturally be trumpeted in the media.
And interest rates are kept low for an extended period by the powers that be. When the issue of lender liability for having to buy back government backed loans gets resolved (and it probably will over the next year or two) money will get a lot easier with government and Fed encouragement.
The builders are selling their inventory and land is finding a market again, although still at lower levels. Demand is there. If anything, builders seem to be underestimating demand.
And construction employment is increasing from low levels. It is even increasing in the inland empire.
Which eventually leads to migration back to California.
And as has happened before, the whole psychology changes.