1) “Peak Housing”: The “Return to Normal”
The take-away from last month’s housing data was that “the market was returning to normal”, which despite the persevering weakness, was viewed as a “great thing”. This overly-simplistic and flawed assumption was made, as the all-cash cohort demand dramatically cooled and distressed supply and sales plunged YoY.
What people are suffering from is a lack of a medium-term memory, as what’s happening today happened in 2007/08; “Peak Housing”.
- Back in 2007, the speculators (every ma and pa in America) driven by exotic credit stimulus without a “mortgage loan house price governor” — that drove prices over years of tremendous incremental and pulled-forward latitudinous demand — went away over a short period of time leaving the heavy lifting to weak, end-user fundamentals.
- Today the unorthodox, new-era buy to rent/flip speculators driven by Fed stimulus without a “mortgage loan house price governor” — that drove prices through years of tremendous incremental and pulled-forward narrow demand — are going away quickly leaving the heavy lifting to weak, end-user fundamentals.
It was the stimulus-driven, unorthodox “things” that drove the “V” bottom in demand and prices yet again, not coincidentally from exactly the time in 2011 that Twist was first announced and yields plunged. Moreover, a rush of incremental and pulled forward end-user demand caused by the nuclear monetary policy that followed, forced end-users to chase spec-vestors. Before you knew it, spec-vestors and end-users were tripping all over themselves piled 30 deep bidding on houses. Prices surged, as the “mortgage loan house price governor” was removed just like from 2003 to 2007.
Although 2003-07 and 2011-13 were basically the same in nature, a big difference is that this stimulus-cycle was much greater in stimulus input over a shorter period of time than from 2003 to 2007. If stimulus “hangovers” are proportional to the amount of stimulus that preceded them, then this one could be a doozy.
Bottom line: a “Return to Normal” is “Peak Housing” this time around too; a huge headwind — just like the “return to normal in 2007/08″ on the loss of exotic credit — to the consensus estimates of 10% to 20% sales volume gains and 5% to 10% price gains in perpetuity. In fact, organic house prices are already on the down — lagging the persevering demand slump — and likely to drop by 10% to 20% over the next 2 years, down more at the high-end.
Remember, house demand and prices didn’t crash at Peak-Housing 2007, they simply re-attached to what end-user employment, income, and mortgage credit could support when all of the exotic credit went away. The same thing is happening at this Peak Housing event, as new-era all-cash spec-vestors and foreigners go away.
History is littered with instances of investors and first-timers leaving the market over a very short period of time. And we know, judging by how rough single-family new-home permits, starts & sales have had it, end-user demand is structurally weak and unable to carry this market on it’s shoulders.
Housing sits in a precarious position. There is no shortage of houses “in which to live”. Just the opposite, in fact. My research shows that in the past six-years houses were over produced by three million units — SHADOW CONSTRUCTION — while household formation remained weak. Moreover, house prices are too expensive. That is, on a monthly payment basis using the popular loan programs of each era monthly payments for the average house are 35% higher today than in 2006 despite prices being moderately lower.
Without foreclosures, short-sales, and spec-vestors house price gains since 2012 would have been notably less. The proof is clear. For example, in CA when stripping out distressed transactions house prices are already flat to lower, YoY. Further, last month NAR announced that the Northeast was the first region to see house prices go red YoY for this stimulus “hangover”. This is important because this is the region with the highest percentage of end-user buyers/least distressed supply, transactions and all-cash spec-vestors. This is an important observation, as demand quickly shifts back atop the shoulders of the end-user buyers from coast to coast.
Bottom line: Without another, larger (than Twist and QE) spec-vestor and end-user stimulus catalyst, this 3rd serious stimulus hangover in 7-years will get worse, while record amounts of multi family and single-family for rent supply hit the market, not a good thing.
2) [Past] Peak Housing Data
This stimulus hangover cycle looks a lot like the other two…
When ex-ing out distressed this stimulus hangover is in full-effect
NAR shows 2.5 year price gains similar to the 4-year price gains from 2003 to 2007, but without meaningful end-user demand, sales volume, credit easing or wage gains.
If volume precedes price this time around as well, prices are already red YoY, they just haven’t printed yet
It’s obvious the impact that all-cash spec-vestors had on the housing market…”up 45% in 2.5 years” and “house prices” should never be in the same sentence unless in a bubble
Why???
Obvious demand trend-changes abound…
End-user, owner-occupant demand at historically low levels
On an apples-to-apples monthly payment basis using the popular loan programs of each era it costs 35% more per month today to buying the averaged price house than it did in 2006.
A real risk to prices going forward is spec-vestor liquidations, which we are seeing in all the top momo regions coast to coast
That’s because vacant rentals are abundant, see So Phoenix for example.
Remember, “for sale” and “for rent” have never been more fungible. As such, when looking at “housing supply” one must include both single-family for sale and rent. When doing so, “month’s supply” is much greater than people think.
And there is no shortage of houses in which to live of lack of construction. In fact, by my math we over built by 3 million units in the past 6 years.
"What people are suffering from is a lack of a medium-term memory, as what’s happening today happened in 2007/08; “Peak Housing”."
You can't get people to remember what they are paid to forget.
Until they aren't getting paid anymore.
And at present, the "Specs" have merely stopped buying. As incomes fall, rents are falling because there is no demand, so rental returns are falling. In stage 2, the "Specs" shift into some other higher-yielding crap and start dumping all the inventory of "Buy-to-rent" properties. So there is another wave down about to happen......
Mark Hanson, aka Mr Mortage...started out making youtube vids telling the TRUTH, now making buku dorrahs telling the truth. Here's a little wisdom from 2008:
http://www.youtube.com/watch?v=pmeBSWI9sF8
Shiller himself says housing is showing weakness.
http://www.planbeconomics.com/2014/10/shiller-housing-shows-signs-of-wea...
Check this out: Flipping, Portland, OR style
http://www.zillow.com/homedetails/1411-NE-47th-Ave-Portland-OR-97213/538...
Guy buys bungalow for $253k on 8/26, fixes er up a bit, lists it for $400k on 9/30. Prolly make a $100k pre-tax...
BEFORE, 8/2014: http://491.mlsimages.movoto.com/076/14007476_0.jpg
AFTER, 9/2014: https://ssl.cdn-redfin.com/photo/84/bigphoto/437/14624437_0.jpg
That house in Oregon has 'good bones' to start with. As far as the value goes, well, it is somewhat similar to what a couple I know is doing right now although not in as pricey a market. Real estate does have micro-markets throughout the US and deals can still be had, it's just a matter of number crunching and informed strategy applied to the investment. My friends have a friend who is an agent with many years of working with distress sales. Here's how their deal is working out right now: the previous owners bought their house in 2008 right at the peak of the market and right as it was crashing through the mortgage and derivatives crisis for $225K.
The previous owners had a business failure that they have been unable to recover from and were in default on it and the lender allowed them to short sell it for a little over half of what they still owe on it for $125K in an area where properties of the same size, condition (generally good & clean) same or similar model and lot size are selling for around $135K to $150K.
I told my friends that I think that they are getting a pretty good deal and we all know that real estate and the markets are setting up for a bigger crash and for them since he has a good pension and retirement set up it makes sense for them because for the same type and size house they would be paying double in rent and they are glad to get out of the temporary apartment rental they've been in for the last few years.
I see a return through around 2017 in many of the micro-markets of real estate where properties have been on the market for more than 6 months to lease options and reductions of as great as 40% for those who are truly motivated to sell their properties.
Dude it's the people's republic of Portland. Probably a rave everynight, plenty of drugs and pot and the party never ends until it does.
I believe Mr. Mortgage
I believe NAR
I shell out a cool 20 million for my 2500 sq. ft. pied-a'-terre at the Colony in Malibu with a fucking Viking range and Surroundsound and a fucking wave busts my front window, the septic is backing up into the lagoon so the surfers want to kick my ass and they tell me Fukushima's knocking at the door and I gotta buy water from Emilio who trucks it up from Baja and now my new movie Zombies in Love looks like a bomb. I'm sick of this shit!
- Herb Gold, "the Bu"
Come on, everyone deserves a 5 bedroom 5 bath with a great teaser rate and 3% down. It's different this time.
No, it's a Right!
Not a dozzy. What simply should of been all along, a De leverage.
If you no havvee mirrion dorrah house by time you 35, your own damn fault. - Jack Ma
He said if you are poor at 35, ur fault. Many of us are not poor, but we need an income to make that McMansion payment!!! In other words, we are one more Obama admistration away from being poor.
and it's unlikely that the Hillary and Huma show will be any different to Obumboy and Michael. So, yes, what difference does it make??
Good read---tu tylers
No Sheeiite.
Do we really need someone with a bunch of worthless charts to state the obvious?
Tell me when the bubble blows douche bag than I will be impressed.
Here is the inflation-adjusted Dow, long-term
http://www.showrealhist.com
Where do you reckon it will go next?
Peak housing 2.0, peak tech bubble 2.0, peak student loan bubble 1.0, peak healthcare bubble 1.0 - a bubble economy on the back of the middle class and the public treasury.
Hangings are due, hangings are overdue.
I remember when those 3,000 square foot "mansions" in Joliet were converted into multi family units back in 1980. Plenty of housing out there. Bond yields jumping will crush this market.
Hanson is by far the best housing analyst out there, he should be taken seriously, he does not write unless he has something to say.
All real estate is local. I live in Minnesota and I don't think we have a real esate bubble here at all. We are diversified and one thing we have going for us, that is rather new, the Twin Cities is the closest large city to the ND oil boom. We supply ND. And thank God they found a lot of oil on private lands or else it would still be in the ground with Obummer in the White House. Now if we could just get a pipeline to move that oil to market..... Oh ya, call Warren...he will send a train.
Real estate is not local. Bubbles are inflated at the federal level, at the fed.
But it is true that there are some places where demand is real and warranted.
Houses are part of the capital economy, which enjoys a tax advantage that inexorably attracts all money until the market literally breaks. Thus, we have bubble after bubble after bubble after bubble in the housing market. Equalize taxation of earnings from capital and labor and many many problems will disappear.
Since the crash in 2007, has NAR once said it was not a good time to buy a home? I say no!
When it comes to real estate low interest rates at some point becomes a double edge sword, that effects both the value by making it easier to purchase thus driving up prices, and at the same time allowing more building to take place and increasing the supply. Often we reach or exceed demand, this eventually has a dampening effect on rents and people stop buying it as an "investment".
Prices must rise and real estate appreciate more then the natural depreciation from the wear and tear from age or the main driver for owning it vanishes. Oversupply is the bane of real estate and crushes the value of this hard and expensive to maintain commodity. Currently we are in uncharted waters, more on this subject in the article below.
http://brucewilds.blogspot.com/2013/12/super-low-interest-rates-disservi...
Fuck the world. I was the original greatest old raggedy ass house saver/remodeler. In the name of bulllshit and your govt job, all the humble old little house of the most spirit and character were torn down because of cheap money. When idiots got free money to default on, all of the loving, fair, caring, spiritual reconcstructors, artists, JUST FUCK IT>
I LOVE Chart Porn
Does anyone remember walking into and old abandoned house on a day or night just like this, and feeling and knowing that an old house is an awesome living thing. FUCK NO.
shit I got a hangover from all them charts!
Someone wants your assets for nothing.
Here is all you need to know:
The RE market cannot, and has not, been able to sustain anything much over 4% rates without collapse for many years now.
5% starts a free fall.
6% an outright depression.
The Fed knows this. Hence the rates despite a "growing" economy and endless threats of rate increases that always seem to be coming "next quarter".
I remember summer of 2013 when Quicken Loans laid off half of their staff because rates went just above 5.000%
They had employees who had ZERO phone calls in an 8-hour shift. Most where sent home, then later in the week they got a pink slip.
That is the new normal. Completely different than the very early 90s huh?
Probably not much is selling in Dallas.
Sales of U.S. delinquent mortgages are accelerating as lenders rush to meet demand from hedge funds and private-equity firms that has sent prices surging.
From August Bloomberg - Hedge Funds Boost Bad Loan Prices As US Sales Increase
It's hilarious to see a house that was worth $80,000 in 1998, now magically worth a quarter million in 2014.
I guess those popcorn ceilings and particle-board countertops got 16 years newer and in-style causing overwhelming demand!
I go on these zillow and trulia type sites every once in a while, and its complete insanity. The houses are decades out of date and out of style, and these market values don't reflect the wear, and tear, and lack of upkeep.
Then on the other extreme, you have the flippers, who plop on a coat of paint, replace a kitchen sink fixture, some wall outlet plate covers that are 99 cents each at Home Depot, and throw in a refrigerator clearanced out from Best Buy, and low and behold the house's value goes up $100k. Nevermind whether the structure is sound or not.
The cost of housing is the absolute biggest joke in America. The costs are completely out of touch with reality.
All of these financial gurus claim that housing should be 30% of your income. For most folks I know, it's closer to 50-60% of their income. They get 2 paychecks a month, and one entire check... GONE towards their mortgage or rent.
When the only jobs out there are offering $12 an hour, part time, home ownership is pretty much unachievable for those under 40.
Plenty of vacant houses on the bank's books, meanwhile you got 30 somethings with student loan debt still living in mom's house.
Something has got to give. This bubble should have popped ten years ago and stay popped.
Well stated, 9thDoctor
But strange enough, here in the Bay Area, people I speak with are convinced that the small, old $250,000 house that's listed for $800,000 will go up in price 20% this year and will just keep on rising and rising.
"There's a shortage of inventory," they say.
Sure, until overseas Chinese stop buying for cash, sight unseen. Then plenty of inventory, and ordinary folks who can only afford $250,000.
My house here in New England I bought in 2003 is still down 50% in constant 2003 dolars.
I'm going to watch Obama's speech about how veeything is much better. Maybe I missed something.
housing is shelter. Not an asset (except to tax collector or rent seeker) but a liability. Well as the currency falls and associated incomes housing should fall. So 2006 peak don't know but the age of home as inheritance or wealth builder is being pounded by reality. Wait until the banksters and lawyers pilfer the "non 1% " class. Nice deal these window breaking usury folks have done to the world. Now claiming no technology without DARPA as the banks get 4X the interest as principle.. oh got to go the State, Federal , local, inspectors are here to check my window glazing, energy efficiency, electrical, fire, sewer, water.... after all this is there asset,,, my liability. Teach your children well..
Well, housing market in singapore has seen lots of potential in this quarter compared in the US. I've seen decline on my housing investment last month. I was quite upset seeing the graph following my friends post being shared on facebook. Probably this is not the best time to invest in properties as the stats are both flactuating. On the other hand, this is the time the buy since the prices are very low as what new condos in singapore appeared to be. I guarantee that before the year ends the table could bring up the incline upward.