I've warned on several previous occasions that the much-hyped 'housing market recovery' isn't a recovery at all - in fact, the housing market's mired in a slump that's actually getting worse. All the estate agents advertising that 'There's never been a better time to buy/sell your home' (delete whichever verb isn't applicable) are basically lying in their teeth in most markets.
That's just been confirmed by no less an authority than Freddie Mac.
The bad news keeps piling up on the housing front, this time with glum statistics from mortgage giant Freddie Mac, which declared Wednesday that many of the nation’s housing markets are stalling.
The third installment of Freddie’s “Multi-Indicator Market Index” (or MiMi), which sizes up homebuying activity and other factors, found that only 10 states and the District of Columbia fall in the “stable” range, as do four of the 50 metro areas included in the index – San Antonio, New Orleans, Austin and Houston.
The outlook for the rest of the housing market looks bleak. “Less than half of the housing markets MiMi covers are showing an improving trend, whereas at this time last year more than 90 percent of these same markets were headed in the right direction,” Frank Nothaft, Freddie’s chief economist, said in a statement.
. . .
Even before the index came out, Freddie had revised its forecast for the housing market downward. Earlier this month, Nothaft said there are “various imbalances” holding it back, most notably the job market. “Housing needs stronger, and just as important, sustained levels of job creation to get the housing engine firing on all cylinders,” he said.
Other industry gauges show that sales of existing homes were down nearly 7 percent from the same time a year ago, home prices are starting to moderate, and builders still lack confidence in the housing market.
There's more at the link. Sobering reading, and very important for every property-owner.
I've said it before, and I'll say it again: I believe the housing market is headed for another correction at least as severe as the last one, possibly worse, because consumers are 'tapped out'. They simply can't afford (or qualify for) the kind of loans that will be needed to buy expensive homes - which means prices will have to drop. Furthermore, older couples looking to downsize to smaller houses or condos for their retirement years have a huge problem. They expected to be able to sell their McMansions to up-and-coming younger buyers who needed the space. Now those younger buyers can't afford what the older folks think their big houses are worth. The latter can't afford to drop their prices (because otherwise they can't settle their mortgages and have enough left over to put down a deposit on their retirement home), but neither can they afford to keep up payments on those mortgages, given their reduced retirement income. They're in a world of hurt. So is everyone in the housing market who hopes to build and/or sell their retirement homes to them. Except for certain high-demand markets, their buyers have dried up.
I can't make decisions for anyone else; but if I owned property right now that I was thinking about selling, I'd do so at once, even taking a loss on it if need be, because I probably won't get a better opportunity for some time to come. On the other hand, if I were looking to buy property, I'd hold off for a while longer. In a year or two I expect I'll be able to get a lot more for my money.
Peter
Once again, the banksters for the win. They won in the 1970's when the 'Get Big or Get Out' farming boom bust occurred by foreclosing on farms that didn't make it by going into debt.
ReplyDeleteI have only a bit of sympathy for buyers of McMansions. They fell for the hype that someone would pay huge amounts of money for their homes in the future. They wanted to live the 'High Life' now.
Homes are places you keep your stuff and raise your families, not a show case of how successful you are. If you feel otherwise - well, its your life.
If you are in the world of government or colleges where the salaries and jobs are guaranteed then things look wonderful. No pay increase in my part time job and my health care is going up $500 and I don't even go to the doctor. Things look wonderful on TV.
ReplyDeleteIt's different down here in Boom Town. The Eagle Ford has inflated prices and taxes. My land taxes tripled in one year as they went from a blanket to square foot valuation.
ReplyDeleteIf you aren't making a 100K plus in the oilfield, rent is unaffordable, housing is scarce, and taxes are getting higher (due to increased valuation). I'm ready to shuck this house and find a quiet little hideaway.
Didn't mention the crime rate. It's going up as fast as the taxes. With thousands of men coming down to work, prostitution and drugs are becoming prevalent. We were warned to watch out for human trafficking!
This was a dirty little spot to start with, now it's just plain ugly. And folks are paying top dollar to live here.
Maybe it's just confirmation bias (Because the topic holds a lot of interest for me) but it seems to me that there are an awful lot of news stories going around these days about the 'tiny house/home' movement.
ReplyDeleteThe tin-foil-hatter in me wants to see... not so much a 'conspiracy', but more of a 'quiet social engineering' effort to get folks to think about going smaller/cheaper when they move on from their McMansion. Theory being if it's 'their own idea' because they 'though it would be cool', then the 'loss' won't seem as much of a negative as it would were they 'forced' into the downsize/loss.
Get folks to do what *you* want (and keep them happy) by making them think it was their own idea.
Here in NE Colorado, we are having a minor boom in the energy sector. Lots of new houses being built in the $250,000 and up range. I just shake my head as I drive around on my part time job inspecting and reporting on homes in default. My work hasn't slowed.
ReplyDeleteAll real estate markets are local. Generally, I think you are spot on, Peter. Another painful correction, but from a higher debt base and with greater currency inflation under out belts.
ReplyDeletePhssthpok - yup, mostly agree. I've seen some of the "cottage" developments... Um, NOT for most Americans. Too little utility for far too much money.
Around here, Microsoft and Amazon keep hiring, so prices are insane.
Here in Central Florida, a general contractor I know tells me he can't find a home to buy in a few selected neighborhoods. We seem pretty busy here.
ReplyDeleteBut the nationwide trend that most houses are bought for cash, not on mortgages, indicates that most houses are being bought by bankers, management companies and other like that. Homes are largely not being bought by kids in their 20s buying their first home, or people trading up but still keeping a mortgage.
One of the main purposes of the QE* was to raise house prices again to protect banks. It seems the inflation they are creating will protect banks - and put a knife in the back of retirees and anyone else living off savings.
Here's hoping that my wife and I weren't stupid went we bought a house last summer. Fortunately, DFW area is doing well, Plano especially has seen housing prices go up, what with State Farm and Toyota USA moving their HQ here, along with a lot of other Good Things. But we bought a house based on "what can we afford to pay mortgage on if one or both of us lose our jobs" and we have to scramble. We'd been renting (from someone successfully transitioning to slum-lord, and against whom we have an uncontested judgement for non-refund of security deposit. We might have looked at renting still, but rentals are going through the roof here. At least one of us is in a thriving medical office, but I, alas, work in a field where if AT&T sneezes, we catch pneumonia. And I suspect Huawei sees the work from our ever-growing China division before we do. :(
ReplyDeleteHousing market here in Silicon Valley is still way overheated; I'm expecting my neighborhood to continue inflating for a little while yet, what with all the new office buildings going up and some of the corporate serfs maybe favoring a little old $600K single-family crackerbox over a brand-new $750K condo made of particle board.
ReplyDeleteI'm looking at "downsizing" to something more affordable (and bigger, and with vastly more land), probably in TN. My banker thinks selling soon and buying later, with cash, is a good strategy. (Funny, he's not trying to sell me a mortgage. I wonder if his manager knows of this.)
So, I'll be wandering through TN in the near future (as work schedule allows), and most likely shopping for interim accommodations in some general area that appeals. Later, there'll be time to shop for that farm....
The current housing market is dominated by investment buyers, not homeowners. Do not forget this. The market started to pick up steam over the last 24 months because the fundamentals for buying investment real estate were very sound and the money folks figured out how to start up companies and fund them to capitalize on the opportunity. Houses could be purchased, professionally managed and then rented for an average ROI of near 10% just on the rent (cashflow), with any potential appreciation being on top of that. That spurred a huge buying frenzy by investors looking to find long term cashflow investments (which have been turning in much lower ROI than that for the last 10 years or so).
ReplyDeleteHouses were selling for about half of their replacement cost in many markets. Prices starting at $50 per square foot (2009-2011) and moving up to $80 per square foot (2012-early 2013) were common. No builder can build for that, even before the cost of the lot is added in.
In the markets I follow, prices are now near or over $100 per square foot, which is where the investment buyers stop buying willy-nilly, and either look for careful opportunities or exit the market altogether. This is still below the cost to build, though, so although the prices have come up, the builders still can’t enter the market in quantity.
Prices have stalled because we are STILL OVERBUILT for the need. The bubble inflated a bunch of building that was surplus to need based on speculation, funded by stupid lending policies and. . . . Well, everything that inflated the bubble.
Now that the investors have picked up the easy nuggets and the markets have come up from the fire-sale level, the volume of purchasing is lower, as expected. We still need another year or two before it will be safe for builders to build in quantity in many markets. If prices fall substantially, the institutional investors will be back in the game in days, buying on the intrinsic cashflow value of the rental markets.
FormerFlyer
Cont'd:
ReplyDeleteThis, by the way, will likely put a pretty hard bottom on any downturn in the market. There are too many people like my wife and I who would put an offer in on any house in our area that could generate a double-digit ROI. Someone said we must be rich to buy a number of rental properties, which is very NOT TRUE. I pointed out to the parking garage at our office and told him to count the BMW’s and Mercedes’, and then go look at my 15 year old Toyota Echo. I told him that anybody that owned one of those European luxury cars could have done what we did, if they were willing to drive crap cars and eat at home instead of restaurants.
The guidlines for INDIVIDUALS buying their own homes are the same as they have always been. Buy if you will likely be living in an area for at least half a decade. Buy when the cost of the mortgage is SUBSTANTIALLY below the rent for the same unit (because there will be other costs than the mortgage). Buy when you have sufficient financial wherewithal to stand unexpected costs (a cash reserve, NOT the potential of a line of credit based on equity, because that can go away in a heartbeat). Do not use the equity in your house as a complicated Visa card. PAY OFF YOUR MORTGAGE AS SOON AS YOU CAN, and don’t borrow against your house ever again unless it’s an emergency (trips to the Orient, cool cars/RV’s/boats, even kids going to college are not emergencies). Nothing allows you to consider early retirement like living in your own home without a mortgage.
Then ignore the fluctuations in the equity value of the house, pay your mortgage, keep your house up, and LIVE THERE!
My agent brought me an offer on a house I bought last summer for almost twice what I paid for it, and was stunned when I told her I wasn’t interested. She said since I was an investor, shouldn’t I take my profit and move on? I said that real estate is for buying and holding, and that my houses wouldn’t be for sale until my executor put them on the market. I bought them for the cashflow, I intend to keep them for the cashflow. My retirement is more important than speculating on the market.
YMMV. Void where taxed, licensed, regulated or prohibited. Especially void if you think you need a 3500 sq. ft. house to live in. Do not taunt Happy Fun Ball.
FormerFlyer
By the way, Eric’s advice above about “selling soon and buying later, with cash” may work out, but it is SPECULATION! It is little safer than putting your money on the pass/go line in Vegas. You may do quite well, or you may get flattened.
ReplyDeleteI have a buddy from High School who is one of those Wall Street types. You know the ones, flying around on private jets, an annual salary that looks like a phone number (they even call it that, “You’re nobody on the street until you’re earning a Phone Number.” he says). I asked him for big picture advice once. He said to keep my investment’s out of the hands of guys like him (loaded mutual funds, individual stock purchases, high-volume trading, commodity trading, etc.) because there was no way I could figure out how to get more money out of his services than he and his boss would get out of it. I might win, but his firm would always take the lion’s share, and would keep eating whether I was making money or not. He said, “Flyer, bulls make money and bears make money, but pigs go to slaughter.” No speculation, no market timing. Buy solid investments based on fundamentals and hold them, don’t plan on getting rich quickly. I asked what he was invested in, and he laughed and said that his portfolio looked like something our grandparents would own (or Warren Buffet, for that matter). Nothing fancy, nothing risky, ready to fund his retirement as soon as he got tired of riding the tiger.
Do not speculate on your HOME. If you want to buy in TN, then go find what you want to buy. Put your property in Silly-con Valley on the market when it is time for you to make the transition.
Buy less house than you can afford. Your grandparents would be shocked at your McMansion. My parents raised my two brothers and I in a 2/2 (bedroom/bathroom) house in the suburbs with just over 1000 square feet on a tenth of an acre. We had room for water fights, campouts in the backyard, extended family gatherings of 35-40 people on Thanksgiving, Christmas and Easter. My brothers and I shared a room until I was 14 and my oldest brother moved away to college. We were not poor, nor rich, and we had plenty of house to go around for a FAMILY. Such a house, in most markets, will cost today between $100 and $130K, and will have a mortgage of about $600 to $700 a month including taxes and insurance. There is nothing wrong with living this way, and no shame in it. It’s time we quit being idiots about houses.
This is not exciting advice, but it will keep you from losing sleep at night or being forced to look for the cheapest rental house in a not-too-high-crime neighborhood when “Life Happens” and you have a slight upset in your financial picture.
FormerFlyer