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Hot Air Hisses Out Of Housing Bubble 2.0: Even Two Middle-Class Incomes Aren’t Enough Anymore To Buy A Median Home
Wolf Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
As home prices have soared in cities around the country, sales have cratered. The weather has been blamed, though the weather has been gorgeous in California where sales have crashed too, even in temporary boom town San Francisco. The “lack of inventory” and other excuses have been dragged out as well. In reality, homes have gotten too expensive....
Even for hedge funds, private equity funds, REITs, and other forms of Big Money with access to the Fed’s limitless free juice. They’d become powerful buyers over the last two years, gobbling up vacant homes sight-unseen by the thousands, in order to get them off the closely watched for-sale list and shuffle them over to the ignored for-rent list, where they might languish undisturbed. The hope is that they might rent them out somehow and sell them later at a big fat profit, to the dumb money via a ridiculously hyped IPO. But now their business model has collapsed.
“Prices have gotten to the stage where we cannot buy a house, renovate it, rent it, and still make a reasonable return,” explained Peter Rose, a spokesman for Blackstone Group, a private equity giant whose real-estate division, Invitation Homes, has grown in two short years from nothing to the largest landlord in the country with 41,000 rental single-family houses to is name. “There was a moment in time where it made sense,” Rose said.
Not anymore. Blackstone already cut its purchases in California by 90% last year. It wasn’t alone. Another mega-buyer with access to nearly free money, Colony Capital, is doing the same thing. Oaktree Capital is trying to dump its portfolio of 500 homes before prices head south.
“Private capital made a lot of money early, and now they’re starting to pull back,” Dave Bragg, head of Residential Research at Green Street Advisors, told the LA Times. “Home prices are up significantly, and houses are definitely less attractive.”
With these mass-buyers out of the market, volumes have collapsed to a four-year low, according to Redfin, an electronic real-estate broker that covers 19 large metro areas around the country. Because, let’s face it, who can still afford to buy these homes?
Forget first-time buyers, the crux of a healthy housing market. In February, they only bought 28% of the homes, down from 30% a year earlier, down from the three-decade average of 40%, and down from the mid-40% range during good times. That hapless lot has been pushed out of the market a while ago.
And the middle-class household, supported by one earner? Teachers earning on average $69,300 in my beloved state of California, are facing a housing market where the median home lists for $485,000. With their salary, they can only afford a $260,000 home – or only 17.4% of the listed homes. Where exactly are all these high-income people who’re supposed to buy the remaining 82.6% of the homes? Sad fact: they don’t exist in those large numbers.
In the inland areas, teachers have a better chance for being able to buy a median home. But forget it in the coastal areas. My zany city of San Francisco topped the list: exactly 0% of the homes listed were within reach of a teacher’s salary [read.... California Housing Bubble: Now Even Teachers Can No Longer Afford To Buy A Home].
Turns out, even two middle-class incomes aren’t enough anymore for a median home in many cities around the country. Real wages that have stagnated for the last 25 years – thanks to that wondrous elixir of inflation – are now colliding with soaring home prices. Based on non-distressed homes listed on the Multiple Listing Service as of March 30, Redfin reports that in 40 large cities, only 10% of the homes are affordable on one median salary. It defined an affordable monthly payment as 28% or less of gross monthly income. And it found that “just 41% of homes currently for sale across 40 US cities are affordable for a family earning two median incomes.”
In San Francisco, where the median home lists for nearly $1 million, and in Santa Ana in Southern Cal, only 7% of the homes were within reach of a family with 2 median salaries. In San Diego 9%, in LA 12%, in Miami 19%, in Denver 23%, in Nassau (Long Island) 24%, in Austin 32%.
There are some cities where the fiasco is less pronounced. For example, in Atlanta a family with two middle-class incomes can afford 59% of the listed homes – but even there, who is going to buy the other 41% that are priced beyond the reach of two middle-class incomes?! The richest 1%? Or people who have to overextend themselves and become house-poor for years to come, assuming that another housing downturn, or a layoff, or an illness doesn’t wreck their homeowner status?
And where the heck are all the high-income people who will buy the median homes when investors, speculators, and PE firms that have become the largest landlords in the country are pulling up their stakes? There aren’t that many high-income people around, and they don’t like to live in median homes. Sales are already heading south. And last time this debacle happened, prices followed soon after. So this is going to be, let’s say, an interesting scenario.
And a direct consequence of the Fed’s policies that engineered an environment where Wall Street can borrow unlimited amounts for nearly free, buy all manner of assets, drive up prices, take huge risks that it then shuffles off at peak valuations to other entities, hopefully to the unsuspecting public via over-priced IPOs, toxic synthetic structured securities of the kind that blew up the banks during the financial crisis, and other shenanigans that end up getting stuffed into conservative-sounding funds that people buy for their retirement.
It starts here: evictions in San Francisco hit the highest level since 2001, when the dotcom bubble was disintegrating. Everything these days gets benchmarked against the last bubbles: the dotcom bubble that blew up in 2000, the housing bubble that blew up in 2007. Read.... Bay Area Home Sales Plunge To 2008 Levels, Prices Soar
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The distance back to the mean will feel the same no matter which '90s recession we perilously papered over to get here
A lot of countries can print fiat to buy US homes, businesses and land. The world is a banksters paradise. Until the petro dollar collapses.
I wonder when THAT will happen?
http://www.zerohedge.com/news/2014-04-04/us-threatens-russia-sanctions-o...
http://voiceofrussia.com/2014_04_04/Russia-prepares-to-attack-the-petrod...
http://www.bing.com/videos/search?q=china+russia+petrodollar+moves&qpvt=...
http://investmentwatchblog.com/the-countdown-to-world-war-3-the-petrodol...
Don't buy if you have a renter mindset. Do buy land with water and a decent house and become a self sustaining as possible. At least that's my plan as the flyover still has 15 acres with everything for under 110k. Think legacy, not trendy.
Location
Broadmoor Colo sprgs colo
NOT Colorado.
OH, FUCK.
Here in Omaha, thanks to the largest home builder going tits up a while back, we are seeing a shortage in houses and prices are going up pretty quickly. A house similar to mine is on the block for about $20,00 more than I paid for mine 16 months back. I already told the wife if these prices go to ludicrous speed to get her crap packed because we are selling and renting in a town a few minutes south from where we are living.
Sorry, I misread that.
I thought you said, 'Here, in Obama'...'.
I guess it doesn't matter, though. You didn't build that.
...A house similar to mine...
A fucking Chinese-drywalled slab-built tract house in a fucking subdivision with a communist neighborhood assosiation, you mean, don't you? DON'T YOU?
'A house similar to mine' means, AN EXACT DUPLICATE, doesn't it? DOESN'T IT?
'ON THE BLOCK' means that the people who got reposessed couldn't keep up with the exorbitant mortgage rates, and they are selling it for TAX LEINS, doesn't it? DOESN'T IT?
Good luck.
Hmmmm, maybe we can import the 1%'ers from China? That have money on the move.....
Please, let's not pile all the criminals up in one place. It would be too inviting a target for our own good.
Fist Question the Mortgage Company asks is " Do you Have a JOB, ( Nuff Said )
Here in beautiful downtown Land O Lakes, FL the foreclosed (and empty) homes are perhaps 10% of the total even in the nicer neighborhoods. These are "shadow inventory" held by banks in some zombielike state of near-suspended animation litigation even as they claim to the legislature and the state's Supreme Court that they need the laws protecting homeowners gutted so that they can foreclose faster.
When uncontested (or nearly so) foreclosures creep along at an unnecessarily slow pace, do they really have a case for turbocharging what they refuse to drive along at more than the speed of a NASA crawler?
I bought my former house in 1988 for $320,000. The price did not move much through 2002 same as other similar houses in the neighborhood. Then holy moly...it shot up to $898,000 within 4 freak'n years.It has sold twice and now is listed on Zillow at abuot $696,000.
Salaries have barely budged in that area so there is no secret the average couple cannot afford these overpriced houses without 100% financing [or close to it] and become debt slaves forever.
Oh yeah, by the way, property taxes have skyrocketed with the house prices. I don't know how an 'average familiy' can afford this stuff anymore.
I bought MY first house in 1990, for $22,500.00.
Four bedrooms, two stories, a quarter-acre lot, fresh-water well on the property, detached 2-car garage, etcetera.
My pasture in the house I'm at now is bigger than that lot was. I have a 4-stall horse barn as well, and I suppose I should buy a few. My biggest issue is deciding which plants can withstand the constant nano-aluminium/nano-barium bombardments, in the garden. I think I pay about $375.00 a month, for everything (not including utilities).
NO, this is NOT in jest.
What the fuck is 'Zillow', anyway? is that like the 'Fair Issiac' of real estate? The 'FICO' of 'estimated real estate valuation'?
Interest rates dropped. We were home shopping during those years. The builders know their demographic and what they can afford. Rates tick down, home price ticks up lockstep. Payment stays the same. Drives up "values" of surrounding homes, new and existing.
Does the hadline suggest that more subprime loans be made to maintain the propping up of house prices? Or should there essentially be a buyers strike - the result of real payable loans made using traditional loan requirements (Remember those?) - so that house prices can fall back to reality?
the fed can just buy mbs till ten at 2.5 but the problem is there balance sheet is loaded. the telecast says something different, so short end got hit. now i see 5 below 1.7 again(was 1.6 pre fed). then there is teasuries at the margin-the unkown seller/buyer net china and fear trade... i don't know! cross current city...
and suffice to say i'm in the market for a home. hmmmm.
wow, as rent exceeds piti by 400/month and my cash gets .007 interest.
bent over with a fed dick up my ars, and standing up and running is potential equity loss of 10-20 percent if home is purchased.
loss 5k per year on monthly bleed or loss it over next 2 years as price fall back to afordability.
zirp is sure working out swell for blackcock up my ars. their risk: zero = my monthly bleed.
plez jump you muther fuckers. jump, i want to read moar taken out by any ways or means.
jump, nail gun, mafia hit, or "accidents" pleeze, pretty pleeze....
OR
take a hundred grand and put it all-in gold and continue renting, hmmmmm
because arise of 10 percent (1350 to 1500), is completely feasable imo.
decisions, decisons.
any bankers jump while i was typing?
No, but they are calling your name to walk the plank, and don't run cause you can't hide.
thank you for your opinion(s). although renting sucks as half of my shit is in boxes and life seems to be on hold, it is the way it is going to have to be. no banker dead yet? what is there issues? don't they know they are suposed to die today?
message to any banker- today is a good day to die! just do it...
if you plan on staying in the home for 10+ years, it makes a lot more sense to buy.
<<if you plan on staying in the home for 10+ years, it makes a lot more sense to buy.>>
Problem is Merikans move every 5 years on the average. And no with jobs losses, etc there may be more higher frequency of moving.
Problem is, you'll spend the next xx years with no money with which to enjoy life. Just work and sleep and stress, until inflation erodes the relative size of your mortgage ( assuming you have a fixed interest rate and assuming you can maintain / increase your income ).
Opportune time to resurrect this one ( approx one hour, skip first six minutes if you must ) :
http://www.youtube.com/watch?v=akVL7QY0S8A
Yeah, just hope that none of your family members get sick.
totally agree! and even if one of us loses our income we would be good.
problem is i'm in mn and at 57 don't know how long i can endure polar vortexes.
on an interesting note, i have driven 6000 miles in the last 4 weeks looking long and hard at homes in longview tx area and last week in pennsecola to panama city and even northern pan handle area. very affordable compared to mn, but sooo many people everywhere along the coast, and many too many dumbo pigs looking prime for the slaughter.
man oh man is usa a sickly country from my offhand observations. so back to my comfort zone where the family is...
hey, the sun was nice and warm in fl.
OH...
OH...
OH...
I wrongly assumed you were someone who would not even consider "getting out of dodge" and living somewhere sensible. But since you noticed the USSA is a sick country, maybe I should have encouraged you to get the hell out while the getting is good.
I did, over 3 years ago now, and I am totally glad I did.
After MN, I think you should check out the Ecuador Andes. Inexpensive life, much nicer weather, but not as radical as most places I love (atacama-andes, south-pacific, etc).
Ecuador/Andes - if i am correct beam me back to simpler times, earthy living and people that are not uptight.
http://www.geographia.com/chile/ interesting...
like the fact that I could spend a day not seeing another human if I choose!
i will say you have some moxy to get out of here(for whatever reason). yes this will be a mess when i comes unglued. my other half is of the mind set to fight the fight whatever it will be. but see has said "what about costa rico?" or ? but then that family thingy tugs at the heart strings grandchild... rock(rational left side) meets hard place (emotional-right side) and that is some serious mind/messing stuff. was packing stuff(memories of kids) and broke down in the garage planning the first attemt to get out of the tundra...
Don't stay.
And especially, don't fight!
Besides the fact that "you can't win", why waste your life?
Remember the following before you decide to "stay and fight".
First, what are you fighting for? To get your way over the other 350,000,000 sheeple-chimps on the north american continent? Do you really imagine that you will prevail against those other 350,000,000 chimps (or the predators who manipulate their opinions)? Do you see any evidence that you have any chance to convert 50% of them to sanity? If you do, you are probably delusional beyond the point of no return.
Besides, do you think it is right to attempt to impose "your system" upon them? Of course, it is possible you've managed to formulate a "system" that does not involve you imposing anything on them, but only prevents them from imposing upon you. That puts you FAR ahead of the pack, but again, do you see ANY evidence that you could POSSIBLY, even in your most optimistic moments, imagine you [and other like-minded folks] convincing anywhere near 50% of the sheeple-chimps to this viewpoint?
YOU CANNOT and YOU NEVER WILL.
So why throw away YOUR life for an impossible and therefore pointless battle that you cannot win... when you CAN go elsewhere and live a better life for yourself.
As for the "other family" problem, here is my comment. I know of a few gringos who moved elsewhere. For the first 2 or 3 years, their "family" would not even visit them. After 3 to 5 years they visited. After that, it was all downhill. Which means, they recognized how much better the life was elsewhere (often grudgingly), a few moved there relatively soon, and gradually more moved there. In the end, the "seed" becomes the "family hero". In the short run, the "seed" is the outcast. So decide whether you want to help or not, and if you do, prepare to be the outcast for a few years, after which the roles [gradually] reverse.
Fortunately for me, I abandoned every last vestige of "family" the moment I finished high school [and moved to the other side of the continent... then later to hawaii... then later to the extreme boonies where I live today. Usually I don't see another physical human being for 2 to 3 months, at which time I fly my tiny little 2-seat airplane to a small town to buy the few supplies I need from the external world at this point.
Best advice: GET OUT OF DODGE !!!
JUST DO IT.
Stay and fight. You will die someday eventually anyway, make it worth remembering. You can run but if the bad guys do end up winning there will be no corner of the earth safe for you or anyone.
RENT.
RENT.
RENT.
And be as frugal as you can. Put your savings into physical gold (or SP500 put options if you're brave). Absolutely the last thing anyone should do now is... buy a freaking grossly overpriced home just before the next crash and downleg in the depression.
Forget rent, buy a tent. As long as you're feeding them (rent or mortgage), they're bleeding you.
My town: Minimum wage = $500 per week (after tax), cheapest rent = $300 pw, cheapest mortgage = $450 pw. If your wage only covers a roof over your head and nothing else, why work?
Yes, yes, I know - easier said than done.
True, but in fact "buy a tent" is almost what I DID.
I explored for 5 years (off and on), then moved.
I chose a place in the extreme boonies, ~125km from the nearest human beings, designed a dwelling as several modular pieces that fit together, had them constructed and hauled out to my site, and paid them to help me "bolt them together" and install certain systems that I could not (sewage).
Fortunately for me, I lived alone at a remote self-sufficient (except food) scientific outpost for several years, and so I learned to operate and repair self-sufficient systems like "solar-panels", "wind-turbine", "battery-banks", "water-collection", "water-storage", "water-filtration", "water-purification" and so forth. So it wasn't that difficult for me to chose and install the off-the-shelf systems for my own place. Where I needed help was sewage and tanks for water and gasoline (because I want to have at least several years supply of gasoline for my little airplane, which is my only means of transportation).
So yeah, it is easier said than done, but I'm just a 5'5", 105 pound wimpy girl, and I was able to do it with only the help I mentioned (and zero day-to-day help). Anyone can do it, if they want.
Perhaps the biggest issue. I lived a FRUGAL life, never borrowed a dime, never suckered for a house during the housing bubble (which I understood to be an obvious bubble). And so I had saved over $350K to implement my dream. Since my cost to live is now near zero (perhaps $200 per month when I don't fly, and $500 per month during the few long trips I've taken across and around the south-pacific in my little airplane), I never have to earn another dollar to live out my life.
While nearly everyone else lived the fancy life on credit, I abstained. Now they're debt slaves and I can live the rest of my life without income... or SS or other fraudulent schemes.
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BTW, a couple people contacted me about establishing a small collaborative, probably in the [remote] atacama andes in northern chile or southern peru (or just over the border in argentina, but probably not). I am helping them converge on a favorite location and figure out the best implementation of a collaborative (which means sharing the cost and benefits of the land, self-sufficient infrastructure and any other shared goodies like jacuzzi, pool, etc). If anyone is potentially interested and HAS at least $200K in savings (prefer $350K savings), contact me here or send email to my ZH username at ymail dot com.
Thanks for sharing. It'll be a looooooong time before I get anywhere near doing anything like that. In that area, I still regard myself as "clueless". Sometimes life just doesn't go to plan.
Ann, will drop you an email.
As long as my mortgage payment is less than rent - I actually like owning - but it really depends on your priorities. I've got a small house, well located, in Seattle, (where I work) and also a 17 acre farm about 45min North. Getting the farm prepped for OTG self-reliance if need be right now. This way, we're pretty much covered: City money while the system holds together, and the farm's in reserve until it's done (and we abandon city-life for good).