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The Making Of A Housing Market
The decrease in nationwide inventory is an ongoing trend. Keeping supply constricted has clearly helped with pushing prices higher as demand is now competing for a smaller number of homes. A lower mortgage rate has also pushed the monthly payment amount lower thus allowing home buyers to purchase more home with stagnant income levels. The recent employment report should come as no surprise. The recent moves in the housing market are spurred on by record low interest rates and constrained inventory. Yet this should not be mistaken with an improving economy that is pushing prices higher which would be healthier. We have a limited horizon before the summer selling season comes to an end and the market is put to a bigger test in fall and winter. Looking at market data from a variety of perspectives shows that the market is far from being normal.
Orange Country Snapshot
Orange County is seeing a solid jump in sales this year. We have seen a good amount of short sales hit the market recently. If we look at MLS inventory and last month sales we have approximately two months of inventory! This is back to the days of the mania. Yet this is only part of the story. Take a look at the total Orange County market:
Short sales are a big part of the visible MLS inventory making up roughly 30 percent of all inventory. Look at how tiny the REO listings are. But take a look at the yellow foreclosure pipeline. These are homes in the foreclosure process. This figure is nearly twice the size of the non-distressed visible inventory. These are households unable (or unwilling) to pay their mortgages in an expensive county. Does that seem healthy to you? Just because banks are selectively leaking out inventory does not mean the market is healthy.
It is an interesting observation on human behavior when you examine the thought process of those buying.
“Banks can do whatever they want and I need a home to start a family.”
“These record low interest rates are making it tempting to buy.”
It is fascinating that many do thoroughly understand what is occurring. That is, the market is like a Hollywood set and is fake. It is a façade yet the financial system that proclaims “free market” capitalism all the way through is more than willing to let a command-control housing market take place. The irony of this all is that many of the programs holding up the market (i.e., FHA insured loans, GSEs MBS, etc) at their core are set to keep housing affordable for Americans.
So what you see for example in Orange County is a surge in home sales:
Price gains are seen in condos and new home sales. Prices declined a bit in resale homes. The jump in sales from last year is solid.
Foreclosure filings still occurring
In spite of home prices moving up and visible inventory going down, foreclosure filings are still occurring at an elevated level:
These are fresh filings entering the pipeline. These are filings that will go to the yellow column above. The good news is that year-over-year the number of filings has declined substantially. This is a positive for the market. At this rate we are years away from any semblance of a normal market.
What needs to be taken into context as well is the desire to modify loans and also, the jump in short sales. Banks seem to be willing to agree to short sales (if a place like Orange County has 30 percent of visible MLS inventory as short sales this is definitely a strategy that is being pursued). Short sales by definition will likely push prices lower in metrics like the Case-Shiller that look at repeat home sale.
Nationwide inventory
The trend of lower inventory is occurring on a nationwide basis:
Inventory is back to levels last seen in 2005. The strategy of leaking out inventory in a controlled fashion while leveraging low mortgage rates seems to be the ongoing plan. If you speak with many investors in the trenches their investment strategy really is dependent on the moves the banks and government make. If you truly looked at the market as being transparent and open, you would likely jump in with both hands since visible supply is low and demand is still there. Yet you are contenting with a multitude of other factors:
-If the market is healthy, why are we seeing a large number of short sales?
-If supply is so low and demand is here, why are banks restricting inventory?
Bottom line, banks are trying to maximize profits via re-writing accounting rules and using massive government bailouts to their benefit. Short sales do better than foreclosures. Constricting supply obviously will push prices higher. The Fed owns trillions of dollars in MBS and we are left with a record low mortgage rate. The market is looking for lower priced housing while the financial system is determined to do everything to keep prices inflated. Financial scandals are hitting left and right and no solid reform are ushered forward.
Moving in with mom and dad
The increase in prices and sales is a short-term trend unless the overall economy gains traction. What will be important to see play out over the next decade is how younger Americans will perceive housing. This will be a less affluent generation. Many are already massively in debt for their pursuits of a college degree. Since the recession hit, many have moved back home with parents:
2.25 million adults have moved back home for a variety of reasons since the recession hit. You wonder if this generation is willing to dive into massive debt to purchase a home simply because a mortgage rate is low. How many will qualify if they have lower wages, a bigger student debt obligation, car loans, and other forms of debt?
What is more likely is that demand for rentals in the short-term will be stronger and we are seeing this with increases in rent nationwide. You also see many of these people unable to qualify for mortgages in a tighter lending environment. The typical pattern goes:
Live at home >> go to college >> rent >> buy a home
In the past it was easier to go into the workforce as a blue collar worker and still qualify to purchase a home. Yet many Americans are now competing for lower paying service sector work so college or vocational training is the only route to a stable lifestyle and what one would consider middle class. Couple this with the massive baby boomer wave of retirements and we are certainly entering a different time.
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http://confoundedinterest.wordpress.com/2012/07/14/is-the-housing-bust-o...
Housing market growth while in Purgatory? PULEASE!!!!!
Good article with solid charts/data/facts, snakeeyes. His chart below is a real eye-opener and tells why the "Bust" is nowhere near over:
http://confoundedinterest.files.wordpress.com/2012/07/unscore0707125.png
The housing market is in PURGATORY. And the banks will release foreclosure inventory as it deems approrpriate.
ndedinterest.wordpress.com/2012/07/14/is-the-housing-bust-over-or-in-purgatory/
Who wants a 30 year loan when they don't know where they will be next month? It's like a lead weight around your ankle. Americans are super-mobile these days.
As far as beng a landlord...it might work for some but if your tenant does $18k of damage, it's a real hurt especially when they skip out in the middle of the night and are judgment proof. I been there once...never again.........
When rates eventually rise (as they always do) house prices will fall much further and become even more unaffordable. It will be a bear trying to sell one and costlier to buy one.
Good luck!
"Renting is cheaper then Buying" the NYT wrote the other day. As property taxes rise and maintenance costs soar, renting will look more and more attractive and drive the RE market lower.
Why buy when you can rent?
Lots of good reason to buy if you can put down a small down payment.
1) 3.75% 30 year financing
2) You control how long you libve there not the landlord (who will probably end up short selling from under you sooner or later.)
3) Call option on the value of the home
4) Put option - if you can find somewhere lese to live thta you like better give the home back to the bank.
Not for nothing but I include property and income taxes in determining what rent to charge. One yr leases until the tax bill for all this spending comes in and I am certain enough of future costs to lease beyond that.
I think it's fairly obvious that banks are cooperating with each other to restrict new supply to that which can be easily absorbed.
This will continue so long as banks can borrow at zero cost.
It was dramatically different in the early 90s, when banks & S&Ls were forced into liquidation because their cash flow dried up and they could not borrow cheaply enough. So the market quickly cleared and within a few years the boom cycle returned.
This time housing will be dead in the water for a very long time.
Quote, "The Fed owns trillions of dollars in MBS". They do? I thought all they own are Treasurys...
So just a couple of questions.
1. Am I correct in thinking that unless there is some 'real' underlying economic activity bouying house prices, that any stabilsation in house prices is no good to anyone? Or is it actually worth 'maintaining' house prices in order to prevent the ponzi scheme from collapsing?
2. What happens to the banks' plans to constrain inventory when the baby boomers literally start dying or downsising? If we suddenly get a whole lot of homes, that are fully owned, going on the market that will lower the price of homes no matter what the banks do with their underwater assets right?
There does not appear to be an organic way to keep house prices inflated.... something has to give?
Restricting inventory can work very well for a long time. One only has to watch the 100 year success of deBeers.
Cool. Blood houses. I see a movie.
When foreign countries allow their citizens to consume their own production thru foreign currency appreciation they will do well and we will be in serious trouble. The control the global financial mafia exerts on those countries and the fallacy of danger of currency appreciation being hawked to the public around the globe has prevented that from happening.
What's really a struggle for me is "what is the people's breaking point" in all this mess. All these vacant homes "but if you don't have 400,000 you can't have one." Some of these places aren't even neighborhoods yet. "Bring in the bulldozers"? Criminal in my view...but i'm not from out that way so i understand if you say "you don't understand." Interesting story on using the powers of Eminent Domain to start taking down the "MBS monster." I myself would use the power to foreclose on any vacant real estate and start getting the market cleared "at any cost." And of course that could never happen because how does a good politician game the system so that we the folks will wind up being worse off for it?
Good stuff. One minor quibble: the filings for delinquency and notice of sale are not always new filings. There are often repeat filings, such as when a filing leads to negotiations that fall apart and so the bank refiles. I don't know California but in NY there are many technical reasons why banks often have to file multiple lis pendens, multiple actual suits and multiple notices of sale. Then there are the homes with two mortgages from different lenders, that doubles the number of filings.
Ther picture you're painting is spot on, but you can't simply take the number of filings to be the number of homes entering the foreclosure process. So far as I know nobody counts the number of homes entering the foreclosure process because it would take too much time sorting through all the notices and figuring out which are new and which are getting multiple notices.
No worries. The NAR said the aliens will arrive any day now to buy all these empty houses --as long as those sun spots don't interfere with their landing.
Dr Housing Bubble, how do we a sustained housing recovery when 1) more people are going on the dole than getting jobs and 2) money velocity is at its lowest point since WWII???????????????/
http://confoundedinterest.wordpress.com/2012/07/13/lockhart-thinks-more-qe-will-be-needed-as-more-people-go-on-the-dole-disability-and-food-stamps-than-become-employed/
tinyurl.com
The shadow inventory is 10X+ larger than the current for sale inventory. Foreclosures have been almost halted and the average period of foreclosure is over a year and a half in most cities. Normally these homes would have been on the market, but the banks and the NAR don't want them to be.
If the shadow inventory were to be made public, home prices would fall another 20% in a month. I know of 16 homes within a mile of my house that are vacant but not listed for sale anywhere. Some even have notices for sheriff's auctions on the door that are over two years old that haven't been taken down.
Guess who owns all of these homes, Fannie and Freddie. Or should I say the US taxpayer. Vacant homes free for illegals and hood rats should be starting very soon.
The government will say, "Wouldn't you rather have someone living in that home instead of it being a blight on your neighborhood?"
Actually no, when the occupiers will turn my neighborhood into metro Detroit.
poor analysis. millions of retiring baby boomers opens millions of jobs for genx and gen y. Rising rental rates make owning more attractive either for a land lord or a homeowner. Foreclosures and short sales mean the market is clearing. Lack of inventory means a bottom is forming.
Follow dr housing bubbles advice and in a couple of years be making one rent payment that is two times what a mortgage payment taken out today would cost.
Housing is the best US dollar short there is for most people.
Another NAR "realtor" moron comes spewing their sell side bullshit on ZH.
You "realtors" are fucked. Your industry and jobs are collapsing. RE market will never come back in America, it's over permanently.
Nipping at the old jug there Howie ?
Baby Boomers are retiring ? Baby Boomers can't afford to retire unless they are Gubmint employees, the UAW, or the filthy rich.
And ultimately, unless there is a new tax base coming (from Mars ?), Gen-X won't be paying taxes to support retired Boomers.
1) "housing" won't improve until all existing inventories AND foreclosures are sold. That will require people having jobs and banks making loans. If you bought near the highs, then your ONLY two options are to stay and pay, or sell for a loss. Homes were never designed as an "investment". Property Tax is the scam.
2) If you think NOT paying "boomers" their Soc. Sec. is a good idea, you better PRAY you don't invest in the "next" gubmint retirement program......that your kids and grandkids will steal from you!
If you (the govt):
Return the $3.5 TRILLION "borrowed" from the SS fund, remove the "cap" on the SS tax (now set at $106K), and start paying the traditional SS tax, which has been reduced for the last 10 years under the "Bush Tax Cut"....the fund will be fine. DON'T act like you're doing me a favor paying me the retirement $$ I've been paying into since I was 15.
>>Homes were never designed as an "investment".<<
Homes have been pitched as an investment for many years, but the truth is a home (otherwise known as a house) is simply a capital good sitting on a parcel of land which may, or may not, be a good investment depending where you live (Flint Mich. vs. Vancouver BC) and where you're situated in the greater credit/money cycle. There's a lot to consider beyond price and the present cost of money, not the least of which is, where's the next buyer coming from and how much will they be able to afford when the future, as it tends to do, becomes the present.
You must be a professor at Princeton.
Probably a real estate salesman
Nah, chair of the feduperalpusserve.
All of the above.
Nice try, thou.
I also add the bwawaaaa hahahaha haaaaa ha haaaaaaaaaaaaaaaaaaaa.
Millions of retiring baby boomers means millions of jobs disappearing forever. If it doesn't disappear it will turn from a good paying $75k job into a $25k job with twice the work.
The boomers destroyed the world because of total selfish greed. The only thing most boomers care about is Me, myself, and I.
Ha! Just for that I'm NEVER going to retire. Screw you punk. You can have my job when they pry it from my cold dead hands!
Agreed. As a boomer I can categorically state that I do not care about you, yourself, or you either. Ciao'
WTF????? Lack of inventory means the bottom is in? HAHAHAHAHAHAHAHA.... no really, BWAHAHAHAHAHAHAHAHA, it means that the banks are controlling the inventory via slow leak. Hello, McFly? Anyone home? Once those jobs are cleared by Baby Boomers, they will NEVER be reopened at the current wages, and what is more, is those jobs will most likely head overseas.
What are you smoking? Perhaps you could share your hopium with everyone else...
Average American Owes $78,000 in Debt
Posted on Feb 22, 2012 1:31pm CST
According to a recent study by Experian, the average American carries about $78,030.00 in debt.
Here is the debt breakdown by age:
U.S. debt and credit scores
Generation-Debt-Credit Score
Greatest Generation (66+) $38,043 829
Baby Boomers (47-65) $101,951 782
Gen X (30-46) $111,121 718
Gen Y (19-29) $34,765 672
U.S. average $78,030 751
http://www.oc-bankruptcylawyer.com/Orange-County-Bankruptcy-Law-Blog/201...
you lost me at Greatest Generation
Every generation has a name. Greatest Generation is just one of the names.
http://en.wikipedia.org/wiki/Generations#Western_world
Most of the greatest generation is now dead or on medicare!
It's the one all the politicians claim to come from.
Alzheimers does that.
Doctor Bubble's last post was good too. FHA delinquencies up 26% yoy and new foreclosures are outnumbering foreclosure sales at a rate of 3 to 1.
FHA is officially the government's 3rd " bad bank " ! The other two are full up.
http://www.doctorhousingbubble.com/fha-bailout-inches-closer-fha-defaults-surge-26-percent-foreclosure-starts-up-orange-county-fha-loans
Fed is the ultimate bad bank. Alll the worthless debt paper will end up on Fed's balance sheet.
“Banks can do whatever they want"
If we keep this attitude and do nothing, we'll end up with exactly what we fucking deserve.
Let us know how you make out with that citizen's arrest.
Take Occupy whereever and march into the prosecutor's office. With statute in hand, seek to present the Grand Jury with information seeking indictment. Don't get pushed aside, present the facts. Once the indictment is issued, watch what happens next.
As I understand it, people are anxious to get their short sales over and done with before the end of 2012 because The Mortgage Forgiveness Debt Relief Act and Debt Cancellation expires on December 31. Is this wrong?
http://www.irs.gov/individuals/article/0,,id=179414,00.html
I know personally several people in MN trying to get a foreclosure(no longer in house) or a short sale donee for this reason, they are well aware of it and have no faith our dysfunctional Congress will extend this. They all say even f a bill to extend this is proposed, it is very likely they will attached something like Keystone pipeline or tax cut for rich and thus hold bill hostage, and like get it rejected by senate or vetoed by Prez. So they have no faith in extension.
I have a feeling this will get extended... I say let the system clear itself out. many people bought homes they could no afford, or through traditional lending standards would never have qualified for.
.....traditional lending standards...LMAO. How so last....I mean last,last century.
He's still breathing! Quick, lend him some money!
It is just one of the myriad tax modifications that either will or won't get extended. Right now there doesn't seem to be much good will toward anything that will help those who would benefit from any tax help. But it'll sure have immediate impact on those who don't see it coming.
"In the past few weeks, both Los Angeles Mayor Antonio Villaraigosa and Chief Administrative Officer Miguel Santana have said that the city of LA is on the verge of bankruptcy unless the city moves forward with tax increases and citywide layoffs.
Currently, LA faces a $222 million budget shortfall, and that figure is expected to rise to $427 million by 2014-15. Blame for the financial situation has gone to rising employee costs and flat-lining city revenues. Employee costs are said to be high despite the fact that the city has laid off nearly 4,900 workers in the past few years.
To solve the financial crisis, the city is recommending new taxes, more lay-offs and privatization of some city services. New taxes would possibly include raising the parking tax and doubling the documentary taxes (taxes on real estate property sales)."
http://www.oc-bankruptcylawyer.com/Orange-County-Bankruptcy-Law-Blog/201...