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4 current trends in the housing market.
The big motivation for large real estate investors was the yield they could potentially receive from purchasing real estate in depressed markets. Early adopters entered the market in 2008 and 2009 and by 2010 the market was flood by big money investors. Today we are seeing a saturation in terms of investors and yields are not worth the time for many large funds. For example, rents in Arizona and Nevada are down from where they were in 2010 in spite of the rapid rise in housing values. It could be because there is a saturation of rentals in these markets or simply because incomes are weak in these areas. One thing is certain and some investors are losing their appetite for rental real estate. Another interesting trend involves higher inventory and subsequently and ease in the volume of bidding wars. What are some of the trends in the current housing market?
Rental analysis
One interesting trend is the large rise in rents for New York since 2010. Los Angeles rents appear to be steady or falling somewhat according to the median list price. The rental trend in Los Angeles appears the same as it does for the nation.
What is interesting is when comparing housing values:
Los Angeles is one of the markets that has turned around quickly. The trend isn’t evenly distributed as the chart above highlights. The big jump in New York rents is interesting since home values according to the above seem to be fairly stable. Unlike Arizona and Nevada with falling rents and incredible jumps in home values, New York would seem to justify a move up in prices when looking at rents.
The young and in debt
Americans overall receive a large portion of their reported net worth through real estate equity. Since many young Americans bought near or at the peak, they never really had the chance to accumulate any equity growth. Many also bought with FHA insured mortgages or low down payment loans stretching their budgets. Because of this, net worth for older households has largely recovered from the peak but for younger households, they are still down by a whopping 40 percent from the peak:
Source: New York Times
The main reason? Negative equity. The debt still remains connected to peak housing values and while stocks are near record levels, real estate values nationwide still have a long way to go to reach those previous peaks.
Bidding wars easing up
Redfin has an interesting report on bidding wars. Of course the most competitive markets seem to be in California. Take a look at the bidding war trend:
Source: Redfin
The main reason for this? The largest monthly inventory increase in three years might help to ease off some of the insanity in the current market. This might offer some wiggle room around the country but the heat is still on in manic California:
Look how crazy the San Francisco market is in terms of competition. In May, over 96 percent of winning bids were over asking price! Orange County and San Diego had very high numbers here as well. So if you are out there in this mania and are losing out, this is probably why.
Going after strategic defaulters
A large number of people strategically defaulted during the height of the bust and many thought they were off free and clear. Now that prices are up, banks are looking into those strategic defaults from the past:
“(WaPo) [Freddie Mac spokesman Brad German] said Freddie Mac is targeting “strategic defaulters,” which the agency defines as “someone who had the means but chose to go into default, that there were no extenuating circumstances that affected their ability to pay. If you’re choosing not to pay off your mortgage, but you’re paying other bills, we would consider that strategic default.”
In 2011, Fannie and Freddie flagged 12 percent of 298,327 properties they had foreclosed on — more than 35,000 — for deficiency judgments in an attempt to collect $2.1 billion in unpaid mortgage debt, according to an inspector general’s report released in October from the Federal Housing Finance Agency.”
Americans seemed to be shocked that data was being collected on them while they post their entire lives chronicled by the minute on Facebook voluntarily. So it should be no surprise that our GSEs were also tracking those strategic defaulters. Now that times are good and equity is back up, you might be receiving a letter if you strategically walked away from your mortgage and had assets in other investment vehicles.
The trends suggest that rents are tight because incomes are tight. You also see that bidding wars might be reaching an apex in terms of manic fever in some markets. In the end, the momentum is still on the upside but for how long? Can the Fed continue to purchase MBS and risk inflating that $3.3 trillion balance sheet even further? The fact that inventory is rising is a good sign for most Americans.
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This is what happens when the Fed manipulates a market. Housing prices are rising in bubblicious areas such as L.A., but rents are not moving much indicating that the demand for housing of all types is stagnant. The exception is the New York metro area which is witnessing huge rent increases that belie a stagnant housing market. Cheap Fed money has put cash into the pockets of speculators and increased the fortunes of TBTF banks; hence, we observe price increases in speculator friendly markets in the West particularly in L.A., Silicon Valley, Las Vegas and Phoenix and rent increases in New York where young professionals have decent job prospects due to the TBTF banks.
The problem with the housing market is that the price increases are not organic resulting the normal functioning of supply and demand. New household formation and wage growth are insufficient to spur demand, so the Fed has resorted to printing money to increase demand on its own in the hopes that the "recovery" will become self-sustaining. It won't.
Despite the mainstream media's slavish devotion to its housing recovery narrative, the factors supporting growth are absent. Mortgage rates are rising, wages are stagnating, and household formation remains at postwar lows. It seems that the Bernanke Bubble will suffer the same fate as the Greenspan Bubble seven years earlier.
full post with charts, images and links:
http://dareconomics.wordpress.com/2013/06/23/around-the-globe-06-23-2013/
Rents are dipping in my area. My son's friend just told his Landlord he wants 10% lower or he's gone. The Landlord (wisely) gave him the reduction...he understands the huge expense of cleaning and finding a new tenant. Plus, his area is now packed with rental houses.
Where I sold my house last fall, the whole street is up for sale or rent now.
The neighborhood averages around $550K.
Unless you have more money than you know what to do with [and simply wish to build/lock-in a low interest rate], only a complete moron would be buying real estate now.
There are a lot of morons out there. The government has been subsidizing their existence for the past two generations now.
CA is a no recourse state. They cannot come after you for the loss except on a 2nd trust deed. There is no Real Estate Market in CA it has dried up with virtual no one able to make a move. Frozen
<<They cannot come after you>>...unless your contract says otherwise, right?
Also HELOCs (if you're fucking retarded enough to have gambled thus).
"For example, rents in Arizona and Nevada are down from where they were in 2010 in spite of the rapid rise in housing values. It could be because there is a saturation of rentals in these markets or simply because incomes are weak in these areas."
Terrific. The author admits to not understanding the forces driving the market, but is still happy to pontificate on conditions which require said knowledge.
Not satisfied with that blatant admission of ignorance and arrogance, we are next greeted with this gem:
"Since many young Americans bought near or at the peak, they never really had the chance to accumulate any equity growth. Many also bought with FHA insured mortgages or low down payment loans stretching their budgets. Because of this, net worth for older households has largely recovered from the peak but for younger households, they are still down by a whopping 40 percent from the peak:..."
"The main reason? Negative equity."
No, the main reason is age.
drhousingbubble is a master of reaching an conclusion by using a fraction of the pertinent evidence. This is lazy writing.
This guy has been exposed before as a real estate shill. Your comment is nearly dead on. Nearly only because it doesn't smash him more.
Dr. Housing Bubble a real estate shill? Wow, he must have changed. I read him for a couple of years during the bubble, and he was like an Old Testament prophet, describing what an insane bubble it was, how no-one should buy, how everyone was going to go broke as a result of it, how it was destroying the U.S. economy. He was one of the biggest anti-shills in the picture.
I'll admit I stopped reading him when he started to write about how the bubble was returning to Southern California. But it wasn't as if he sounded happy about it. And really, apparently it *has*. It's nuts, it's disgusting, but it has.
His essays are not best read individually. It is best to read him regularly (assuming you care about So. CA real estate), since they combine over a period of weeks to provide a bigger picture.
Anyway, these regional bubbles, however real, are irrelevant to most people. The areas I look at (CT and SW RI) go down, and down, and down, and there's no reason to think that will change in the foreseeable future. Most of the U.S. is in that position.
They must mean the Washington DC and NY markets where the trillions are going.
True, California east (MD) is doing well-govt supported.
its a paper thin recovery. all the lies hidden buried with the truth.
Every number however meager, more proof of the recovery, the headline giveth and the articles taketh away.
Just read past any headline to an explanation of any number of economic indicators and they all prove to be entirely lackluster, especially for an economy this far along since the last "recession" (like we ever really recovered).
The housing market is nationally driven by cash laden investment groups buying up foreclosures on the county steps and turning them into rentals.
Pockets of prosperity remain and these are used to drive the headlines of the recovery in the mainstream media. Illusions of prosperity papered over a world in despair.
Washington D.C and the banking colonies, like NYC, LA and SF propped up by fed and taxes drive the prosperity for the elite while the many are ground into poverty.
That is the 21st century.
Exactly.
It's not entirely conspiracy either. Reporters just don't have the budget to investigate housing in St Louis, Missouri or Denver. No reports of the foreclosure to rental transition there.
All we get are reports from these tiny pockets.
Maybe not conspiracy, but it's not benign. There is loads of real news re the areas you list (St. Louis, Missouri), but the local governments don't want people to think that they're paying insane RE taxes on deflated property values. And articles re falling RE values don't sell; the surge and flip articles sell.
Indeed, all we get is info re the tiny bubble pockets (and to be fair, DHBubble is IN one of them). And, when did you read ANY article, on ANY topic, in the mainstream press re Missouri? It's like the state doesn't exist.
When is the real estate market in Austin, TX going to cool down? People tell me there are 100 people a day moving here. The traffic alone is insane.
pointer, I spent over 8 years in Austin. What is driving the faux economy are the multitude of startups. Once most of those fail taking billions of dollars into the hole, the economy will collapse there. Austin was once cool. That gradually faded away even when I was there just a few years ago. It is now overran by hipsters and just general liberal trash.
The Capital Factory seems to be the "hub" for these start up tech companies from what I read. The housing market didn't really dip much compared to other areas and my leasing agent said there was a "houseing shortage".
There are quite a few cranes over the skyline and lots of condo's being built all over the place.
Yes - hipsters everywhere and Obama bumper stickers...along with lots of bums who own dogs. It is the most liberal city in Texas. No plastic bags are allowed to be used in the grocery stores at checkout. Some have paper, other make you bring your own bags in.
Barton Springs made it legal for girls to be topless in the park - between that, UT and the vast mountain bike trails I will keep me occupied until my lease it up.
Someone told me New Braunfels is like how Austin used to be.
New Braunfels still has a lot of old German bloodlines extant. You know, the hard working independent types that settled the area in order to get away from the statism of Prussia and others. Perhaps they are riding on fumes there too as they get comprimised by the "gentrification" of the lefties that have ruined so many other once fine areas.
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San Antonio in the early 1940's had more German surnames than Hispanic. The old Hispanic families of San Antonio have little in common with the post 1965 flood of low class invaders.
Austin is a very small city compared to Atlanta, let alone NYC or LA. 100 people is a drop in the bucket in a large city, but may make a difference in Austin.
People are not moving to Austin, but from the crumbling destitute jobless areas. Austin has 2 major choke points, its highway system sucks and it has no water. Both of these will act as population control mechanism, by amplifiying the misery.
Austin won't be a pleasant place much longer.
Austin used to be one helluva good place to party. Met Willie one night at friend's place on the lake. Heard some guy picking next door and invited him over for beer and... other refreshments.
According to friends and family, not much reason to go into Austin any more. Before the Yankees and Cali crowd descended, Texas was a halfway decent place. Rednecks were a problem according to some (the cast and crew of Easy Rider refused to pass thru Texas when filming, not that I blame them), but since I were one, I never noticed.
Rednecks are still a problem everywhere they are. They aren't as bad as the Yankess or Cali folk though.
Austin, all the hassles of a big city with none of the advantages.
Oh, and a water system designed 50 years ago for 750,000 people trying to support 2 million.
I heard Austin is turning into a crime ridden shithole- but the rest of TX is anyway. When the SHTF I don't want to be surrounded by millions of surly racist Mexicans.
check it out at - http://www.raidsonline.com/
Austin is just another rat race city, not to mention the most liberal place outside of Kalifornia. Silicon Valley is moving to Silicon Gulch. Everytime Barrons or Forbes or other mags run an article about the great economy in Austin the following month 5000 new swinging dicks show up seeking their fortune-most without a job. How much longer can Austin be an oasis of Prosperity in a desert of Dispair, who knows.
As a side benefit, this city is full of tree hugging gun haters. If it ever gets bad enough anyone with a gun shouldn't have much difficulty convincing a neighbor to share their groceries and if they have a hot wife or daughter now we're talking dinner show.
Now that times are good and equity is back up...
Really?
Sure it is- if you only get your real estate news from that cheerleading cunt Diane Olick on CNBC.
I find that unfair that you slag Diana Olick. She has been one of the few legitimate REPORTERS on that crappy channel.
Agreed - for a MSM reporter she's been pretty good. The standards are exceedingly low, admittedly.
Let's see: the banks control all of the puppet strings, not the least of which is the NSA. Not difficult to compile of list of all strategic defaulters and read their emails to determine whether or not they have the means to contribute to the bonuses of the 1%.
The NSA is too busy front running the data to worry about defaults.
The NSA has secret files on the executive,legislative and Judicial branches, they have the stick to control the entire government.
They make Obama dance, they make the FISA court dance. They strike down the inconvienient and uncomfortable, like Eliot Spitzer and Army Generals with just a leak or two of salictious information to the puppets in the press.
Mortgage defaults are merely crumbs for those who have ultimate power over everyone.
What were foreclosures doing at the same time in these markets?