From my favorite reporter!
The perception of affordability, combined with the fact that home prices compared with rental rates are at levels last seen in the early 2000s, is making it tempting for people to think now’s a good time to buy a home.
“We are currently in a carnival funhouse mirror,” says Stan Humphries, chief economist at Zillow. ”Homes seem quite affordable when at base they are not.”
Humphries says there’s a lot that worries him. The main tool the Federal Reserve uses to fix the broader economy—lowering rates—”could, if it hasn’t already, reinflate a bubble in the housing sector.” If incomes start to grow more, home values could move more into line with historic norms, but that’s not likely.
More likely, in his view, is that as rates rise and push mortgage payments higher, people are going to realize that homes—and not just mortgage payments—are overpriced for what the nation as a whole earns, which in turn could send home prices tumbling again.
Humphries’s outlook is unsettling. He says many people think that once home prices corrected from their overinflated bubble levels, the market would be back to normal. But that’s not the reality he sees. “It’s really a period of oscillations that will be disorienting for buyers and sellers, and I think we are far from done.”
Doesn’t every one of these ‘experts’ say at least one time that the sky might fall, so if/when it does, they can point to the time they predicted it?
I hope this article gets wide-spread attention around our North San Diego County Coastal region, and scares half the buyers back to the sidelines.
Then we will only have 3-4 buyers for every house.
They should get interest rates to zero and really watch homes fly off the market.
Isn’t charging interest illegal in some parts of the world?
Nice Photo Jim, Greinke is a punk, glad Carlos took him DOWN HARD! Hitters deserve to retaliate after being thrown at by 90-100MPH baseball. Its like a kid on the playground, one has a rock and one has to stand there and get thrown at. Kind of like what it felt like for a lot of people who were selling their home 3-4 years ago!
Best of all, we had Vin Scully describing it:
http://www.usatoday.com/story/sports/mlb/2013/04/12/quentin-charges-greinke-after-being-hit-by-pitch/2076525/
It kept going after the game – some good photos here:
http://www.usatoday.com/story/sports/mlb/2013/04/12/dodgers-matt-kemp-confronts-padres-carlos-quentin/2076637/
Glad to see old-man Kotsay right in the middle of it too.
We live in a boom bust economy. It’s easy to predict boom when things are busting and bust when things are booming, you’ll be right eventually. Jim got the bottom call right last year and wasn’t one of the early ones that got it wrong in 2010. The bulls should be able to hold the “I told you so” podium for a few more years. It will be time to worry when we all laugh at or ignore the fools that got it wrong.
If Humphries is selling, I would be happy to buy his house. He and Robert Schiller must be drinking the same kool-aid.
I think this article demonstrates the value of the JTR blog. Most of these are articles are quoting people sitting behind a computer in their ivory towers. Getting real-time datapoints from whats happening in the market in your area much more valuable.
Thanks sdbuyer!
Guys who are supposed to be legitimate economists should refrain from using words like “carnival funhouse mirror” and “disorienting” – those sound like scare words meant to sex up the article, not to give factual evidence to support a point.
Shiller usually mentions that real estate is local too, which should be a primary point by anyone who gets quoted. To be espousing any theories or guesses based on national data or trends doesn’t do anyone a favor.
Funny, the bullish comments here sound remarkably reminiscent of the 2000’s bubble. The median price to income ratio was one of the best indicators of a burgeoning problem before and it is again — leverage is great on the way up and devastating on the way down.
Jim’s comment about “real estate being local” is partially correct. The bubble was national, mortgage rates are national, and the government support is national. However, SD — Jim’s playground — is anything but.
Here in LA I live right around the corner from all the major studios. I see $100K+ autos daily, and the higher end restaurants are always busy. It warps your perspective, because 90% of the country isn’t like that.
SD is an affluent place to start; throw in a highly limited RE supply and there’s bound to be price increases. The fact that the supply remains so limited despite those increases is itself an indicator of “the new abnormal”.
I understand your fatigue at the alarmist reporters, Jim, but that green income to price ratio chart doesn’t lie.
Am I the only one who thinks that the chart will eventually correct to historical norms once the giveaway interest rates are allowed to rise? If not should we just set our expectations to spending a greater percentage of our income on housing?
No fatigue here, I’m ready to go.
You, tj, and Stan himself should take a good look at the argument presented – it is a joke.
I didn’t include the whole article, please click on the link for the entire piece.
It starts with this:
Then Stan rolls right into his carnival funhouse comment because the median-price-to-income is 15% higher than historical???
He doesn’t cross-reference the two graphs, but he should – they are directly connected.
Instead, we get this:
But there is no bubble-bursting to come when properties are being purchased so conservatively. There have been 9,236 attached and detached homes sold this year in SD County. Here’s how they were financed:
FHA/VA – 22%
Cash – 31%
Conventional – 47%
He wnats to scare you to think that home prices will tumble, just because the median-price-to-income is now 15% higher than normal??? He must be scared of his own shadow!
If prices do tumble, it won’t change anything for the vast majority of today’s buyers – it is obvious that they are in for the long haul when they could choose to leverage to the hilt at the cheapest rates ever, yet 31% prefer to pay cash, and another 47% have decent skin in the game.
This comment is just flat-out insulting:
“It’s really a period of oscillations that will be disorienting for buyers and sellers, and I think we are far from done.”
Buyers have advanced tools, and are paying closer attention than ever. Yes, it seems nutty that people would be offering 10% over list and waiving appraisal contingencies, but if it is their money that has to make up the difference, they MUST be committed for the long-haul.
For once I’d like to see one of these jokers examine what will happen if the market holds up. What if it is all true, that rich people are taking over, and prices stay at this point – or even go higher, and stick. It is possible, and when you consider how much big cash is being thrown around, it looks more and more probable.
FYI
Attached and detached homes sold in 1Q05:
FHA/VA – 1%
Cash – 6%
Conventional – 93% (mostly low-or no-down payment)
That’s enough to scare Stan.
Or let’s go back to the last time the graph shows 2.5x income – 1Q96:
FHA/VA – 19%
Cash – 9%
Conventional – 57%
Other – 15% (back in the day of seller financing and AITDs)
Interest rates were right at 7% during the quarter.
I’d take today over either of these for safety and security. Today’s conventional loans are full-doc, all-doc with conservative appraisals and no neg-ams. In 1996 the Big 4 (Great Western, Home, World, and Downey Savings) were churning out plenty of neg-ams.
The bearish case is silly at this point in time, like the bullish case was in ’06ish. “Numbers will confess to anything if tortured long enough.”
When monthly rentals are higher than mortgage bond repayments the decision to purchase becomes a no brainer. Particularly since the transaction costs in the USA are so low.
The bearish case is silly at this point in time, like the bullish case was in ’06ish. “Numbers will confess to anything if tortured long enough.”
Pretty much, which is why Jim’s insight is invaluable here. A bunch of long term buyers getting in when they can lock in a cheap monthly mortgage payment should be considered a good thing. Unless we expect a crash in the rental market as well (which didn’t boost at all during the housing boom) most people buying in San Diego right now are making a good move financially. IIRC, Jim was pretty good about calling the start of the crash as well.
Now Stan backtracks and says that it is today’s buyers who are expecting short-term appreciation that might be disappointed:
http://video.foxbusiness.com/v/2296821683001/where-are-the-best-values-for-home-buyers/?playlist_id=937116503001
Weak, dude, weak.