my neck of the woods, north of NYC. I believe it is also true for other
parts of metro NY. In my opinion South Florida has also turned a
corner. I don’t have a handle on other parts of the country, but I would
be interested if others would chime in.
My thinking is that we have completed the extremes of the cycle. From
the silliness of 2006 to the 50% (average) drop in 2010 the process of
re-pricing may be completed. We shall see if this lasts. Some reasons why it might be happening and a few that make me wonder if it will continue.
-MERS problems have shut down the pipeline of distressed homes.
There was, and continues to be cash buyers of stuff being sold by the
financial players (REO). In South Florida hundreds of apartments have
been bought (paid with cash) and taken off the market. There is still a
lot of junk, but the supply of nicer properties has gotten smaller.
-In NYC the market is good. Apartments are selling faster and at
higher prices. The City has always been the driver of RE in the burbs.
With prices over 1,000 a foot in town the ‘country’ looks better at
under 500.
-There are cash buyers. Some of this is overseas money. To some
extent the 100% rise in equities has to be the source of the money. I
can imagine the conversations that took place two years ago:
“Honey, we got hammered in the stock market. If we ever
get back to “X” we are going to sell half and buy the house we always
wanted.”
The Russell 5000 is up $7 trillion in two years. Some of those X’s are being reached.
-A common theme that I’m hearing is “What's the new construction cost for this property?” The answer to this is that costs have been rising very fast of late. According to Reed Construction Data
materials cost rose in the three months ending in January rose at an
annualized rate of 5.6%. Some of the contributors: Concrete +10.9%,
metal joists 5.5%, tile +6.5%, site preparation +8.5%, fire protection,
plumbing and HVAC +19% (copper).
These are January numbers. There will be a big jump again in February/March. Everything is energy driven in construction. Want a new roof? Get it fast. Asphalt shingles are a “buy”.
Net-net there is a “cost pull” that is influencing pricing of older homes. This is exactly what Bernanke has been trying to engineer.
-I don’t know if prices are “cheap” today or not. I know they are a lot lower. Where I live we are back to 2003 levels.
-Brokers have a great selling line to prospective buyers today.
“Mortgage rates will be rising, the availability of mortgages will be
curtailed in future years due to the wind down of the GSEs. Better to
move now.” This is just brokers pushing buyers. An old game. But in
this case there is truth to it. The days of the mortgage with a “4”
handle are gone. I doubt we’ll see that again in a very long time. The
question today is, “Are they going above 6?”
Don’t read this to be some bull case for RE or the great comeback in the
US economy. It's just an observation of where I think we are in the
spring of 11'. I think residential RE is a lousy investment. Ownership
cost is twice rental. You need 5% annual appreciation just to break
even. That’s not going to happen.
Property taxes are going up all over. The cost of maintenance is way up.
Interest rates have just started to rise. In a few years they will be
much higher than today. Then there is that wild card of energy. The last
place you want to be is in a big home and $200 crude.
If I’m right about this you will see it in the foreclosure stats. The
bottom rung always has to get a lift first. Outside of the MERS issue
the Chairman of the Federal Reserve is bringing this to you. He is
responsible for almost all of the factors I mention. But in about six
months he is going to be forced to take away the punchbowl.
Every country/economy is different, guys. Different influences, hence, different outcomes. The "reported" inflation numbers are easier to manipulate in the U. S. if wages are kept to a "manageable" level by the BLS BS numbers. If you think this is going to be your textbook case, perhaps you should read some different books.
I live in South Florida. No evidence I see that RE is heading other than flat to down.
CRE Bank clients (2 today as a matter of coincidence) are talking about increased "live" deals coming through the door. Seems like the bubble was bigger this time than 1990-1994 & have not seen the puke phase yet, so I remain unconvinced. I completed two small remodels recently and I would have been better going out and putting the money down on a couple of other houses and just doing some cosmetic work. The labor was cheaper than during the bubble, but the costs still added up.
The RTC thing was different this time - the roll-out REOs through the "merger" approach has been extended. I wonder how much the loss share agreements will cost the FDIC? Also, during the "S&L Crisis" when banks were shuttered the employees hit teh street - this time they keep their seats. I wonder if this isn't a form of "make work" or "welfare" b/c there is no way they need the same number of employees.
In nominal terms, sure RE seems to be stabilizing.
Priced in Gold and Silver prices are still dropping like a rock.
I'd say do NOT invest in real estate unless it's a crazy foreclosure. Buy AG, Buy AU, Buy Rice, Buy Oil, Buy Corn, Buy a Coffee Farm in Gautemala.
+1,430
here where I am now (middle Tennessee) housing is booming to some degree. Of course, this is one of the richest counties in the US (Williamson County), so the bust never did seem to have as much effect as other places - except, of course, for poor and middle class people.