This page has been archived and commenting is disabled.
Guest Post: Has Housing Bottomed?
From Simon Black of Sovereign Man
Has Housing Bottomed?
After an almost uninterrupted period of decline over the last few years, US home prices now have some positive momentum.
For one, the S&P/Case-Shiller index of property values in 20 cities has seen its highest increase in more than two years. In addition, JP Morgan CEO Jamie Dimon recently stated that his bank was seeing a surge in mortgage applications.
And perhaps most importantly, the National Association of Realtors has reported that the nation’s inventory of homes on the market has dropped to its lowest level since March 2006, while the median home price is 11.3% higher than a year ago.
These are definitely good signs for housing. But remember, nothing goes up or down in a straight line. Just like a stock market that suffers a serious crash, housing has been due for an upward correction.
But it is a false premise to conflate ‘rebound’ with full blown ‘recovery’. The market could just as easily improve, then decline once again in a few months’ time. Positive data is great, but doesn’t necessarily portend long-term growth.
Here in LA, the median asking price of a home is now $361,390. This is 12.2% higher than in January 2012. Good news. But over the last few years, the LA market has gone through similar periods of growth, followed by more declines.
Between February 2009 and January 2010, for example, the median asking price in LA increased 14.0% from $369,125 to $420,975. Home prices then reversed this trend and declined 20%.
People readily accept that stock markets can turn on a dime and move in the other direction. Fact is, housing can do the same. Over the long-term, it’s fundamentals that count. That means demand, supply, and policy:
1) Demand is ultimately about population and income levels. If the number of households is increasing, demand will increase. If income levels are high, demand will increase. Yet the long-term trend for both of these in the US is negative.
- Unemployment is still high (and surging in the northeast). This typically portends fewer households as people ‘bunch up’ during times of financial difficulty. In fact, the number of adults aged 25-34 living with their parents has exploded to over 40% according to the US Census Bureau.
- Census data further show that population growth in the US is tepid; the nation’s fertility rate hit an all-time low in 2011, continuing a four-year trend. Not to mention, America’s strict immigration policy tends to keep wealthy foreigners away.
- US median household income continues its 4-year slide and is back to 1996 levels.
2) Supply of homes in the United States continues to increase. Since 2002, housing inventory in the US grew 10.7%, far outpacing population growth. As further evidence, the Census Bureau reported that 18.15 million homes in the US are vacant– 13.6%.
By way of comparison, this vacancy rate was about 8.5% during the peak recession years of the 1970s. Bottom line, there’s still a lot of inventory out there.
3) Interest rates are at all time lows, currently around 3.5%; this helps people afford higher priced home for the same monthly payment. At 3.5%, for example, $2,000 per month buys you a $441,000 home. At 7%, it only buys you a $298,000 home.
Consequently, when mortgage rates rise to their historic norms, housing prices could fall drastically.
In the meantime, while low rates make principal and interest payments more affordable, the Fed’s loose monetary policy is pushing up the ‘other’ costs of home ownership– HOA dues, insurance premiums, property taxes, etc.
So in a way, Bernanke is lowering one cost of home ownership, but simultaneously inflating others.
This means that it may be too early to uncork the champagne bottle and declare an end to the housing crisis in the US.
It only takes a few years so build millions of new homes, but it can take decades for demographic shifts to mop up all that supply. It’s foolish to believe that the crisis has abated simply because the Fed has printed a ton of new paper.
No doubt, it makes sense to refinance a home at 3.5% (possibly the best way to bet against the dollar). As does buying high quality, well-located properties at today’s prices. The general rule is if you can buy it for less than construction cost, it’s very hard to get hurt.
But these deals are few and far between. So before writing big checks for mid-grade investment properties, it’s definitely worth taking a long-term view of the fundamentals. On an inflation-adjusted basis, the market still has major headwinds.
- 18347 reads
- Printer-friendly version
- Send to friend
- advertisements -


"Has Housing Bottomed?"
Day #1, 634 asking the same question.
I will Know when housing has bottomed when they kick my lucky assed deadbeat son out of his house in Miami that he has not made one single payment on since Feb 2009. He uses all his saved would be rent money to make paments on another place that he has rented out and makes double and triple pmts. The little asshole is only 50K from a clear title and will move there when if ever they kick him out.
So far nothing but crikets chirping
The little asshole is only 50K from a clear title and will move there when if ever they kick him out.
************
Well you can't say he's not a survivor-it's always those who can think and adapt the quickest to changing circumstances that make it out alive and in one piece-
NFW!! One week ago Monday, was one of two investors at a foreclosure of a 3,900 s.f. 2006 built, 6 br, 5 bath on five acres overlooking (approx 400 feet above lake level) small town and lake - views for 4 miles. Sold in 2006 for $920k. Assessed one week prior to auction at $820k, down from $970K. Taxes approx $7k. Second mtg foreclosure...bank bids $485K. No other bidders. Neighbor at auction nearly has heart failure. The "evidence" of housing rebound is bottom bouncing, plain and simple.
Are there any bears out there on Non-Agency RMBS? Any solid bear cases? It seems everybody in the industry is now a bull except for endowments and pensions that got burned on it the first time around and won't touch the non-IG ratings now.
It's about taxes. They local authorities tax property owners to death in a lot of areas. They keep going up.
And rising home prices are good because................
Dont Piss down my back and tell me its Raining!!!
One thing is certain... the price of fuel/gas will continue to increase and the roads will get more and more clogged. Houses in suburbia will drop in price in relation to the commute/gas/time/$$ involved those in proximity to places of work will hold their value or increase in value the most. If one of the 70% get a motorhome, park it close to your work (and other people's work) and rent out spaces in it... be your own mobile slumlord and make $$. Then keep buying more motorhomes with the proceeds and "rent them out"... driving them to the places that will pay the most for their use. No mowing lawns, watering, no property taxes, etc. If the local job market falls apart, drive to a new place... be a rich nomad!
Florida Never Loooked so Good! - - Lookup zip code 33064 - Pompano Beach
This Zip code went up the most - and down the most during the bubble.
Beautiful Townhouses: Year 2000 = $100k, 2007 = $240k, 2009 = 35k! - Current ~ 60K
You can still find some bargains, but the bidding wars are heating up again! -
And.... as far as hurricanes go - we are now fortified - all gas stations and grocery stores have generators, as well as most of your neighbors.!
Get your disaster check and move on down...! Thisis the best time of year and High Speed Internet connection is all u need!
" Has Housing Bottomed?"
No, Mainly because of this > The State Own's it All
http://www.barefootsworld.net/admiralty.html
Can someone just summarise for me please, I don't live in the states but I certainly don't believe this bullshit article. To me it seems that house prices are rising or steady because of banks restricting foreclosed property.
the real estate market has bottomed in the sense that it has become the local market it should be. there are good markets for investing and good markets for scavenging. some markets are still contracting and some are firmly rising. things are much more like normal even if there are a few trillion of underwater mortgages on top of the few trillion in unresolved foreclosed mortgages. has some sort of counterbalance been established where high foreclosure areas and less to normal foreclosure rate areas are resembling real market opportunities? i can attest to the fact that south florida is loaded with deals even though i think the best deals have been gone for awhile. i bet other hard hit areas have similar deals still available. on the other hand, i see areas of the country that never had much of a bubble or just a short lived bubble reestablishing stable real estate markets for new buyers and old owners. there are even a few growing areas worth noting.
now is a great time to be in debt. it is also the worst time. it is not both.
Housing bottom or not, prepare for property tax increases, bitchez...
http://www.latimes.com/news/local/la-me-la-tax-hikes-20121101,0,6236176.story
NO. NOT BY A LONGSHOT!!
Spoke with a real estate broker friend in the Chicago burbs and she said that the only real sales are cash short sales on property worth less than 150K.
1. 90-95% of financed purchases involve some type of GSE. (Artificially induced financing with no real price finding mechanism.)
2. Rates are artificially low due to FED actions and monetary policy. (Do you think private lenders would lend in the 3's for a 30-year or 2's for a 15-year?)
3. Many states are screwing with supply and demand of properties by limiting foreclosures with robo-signing laws limiting the ability of financial institutions to foreclose in timely fashion.
4. Many properties that should be in foreclosure are now being offered modification / principal reduction as a result of the big bank settlement with the states.
What does the above mean? There is no market supply and demand function at work in the residential market. Conversely, the "market" consists of a hodge podge of government support, control, financing, and rate manipulation that creates an environment where true market analysis is meaningless. Political / government insight is much more important in this market right now than any supply / demand factors.