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The Most Disturbing Chart Of The "New Housing Normal"
Something doesn't quite add up when the median price of a new home is just shy of all time highs, while the actual number of new homes sold is just shy of all time lows.
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Should be posted by default at the bottom of every ZH story.
To me the chart does make sense.
But it's moar proof of the obscene income inequality we have today cause it shows only very high priced homes are being sold
And I bet most of those are just buyers flipping high end homes to the next sucker.
And it collapses very soon when the Fed starts to raise rates.
Sales decrease as prices increase????
That sounds right.
Price is a function of available liquidity, not just quantity of demand. Very helathy, you know.
Part of the lower sales could be because the available inventory of new homes has dropped - so less sales...just a thought.
Here in Texas we builders can't keep up with the demand for new homes, and inventory is low.
I am enjoying the ride, but I got a feeling cheap oil is going to put the brakes on it though....
Rates are at extreme lows so prices are high. Now, when rates rise, prices will have to come down. Housing is an affordability lever. To keep the same payment (affordability) rates or price must be adjusted.
Rates have to be low and stay low. No level of debt is prudent in a deflationary environment. Taking a low or no downpayment mortgage right now, even with current rates, is stupid, unless you plan to squat. Then its genius.
Builders have been catering to the high end, the consumers in that segment are stronger and more reliable. Entry level is a nasty place to try to build a house these days, people prefer to rent.
The entirety of RE statistics is an Acid Trip of Impressionistic Images. You don't know if what you're seeing is real or if it means what you think it means.
Median is skewed by luxury properties doing well. Volume is miniscule but it's full of knife catchers and money launderers so that's driving up prices in the middle. Low end is trending down o prices because nobody whose buying an entry level home to actually live in it can qualify.
The RE "market" is a cluster fuck orgy of Mr Yellen getting butt fucked by Stephen Schwarzman, while Lawrence Yun sucks his cock, while Bernanke butt fucks Yun, as Stanley Fischer gets blown by Bernanke while tossing Schwarzman's salad. Or something like that...
Sales are a product of ability to get those zero down mortgages that have reared their Fugly heads again, at least where i live.
That's not gonna work in the bubble areas. 2011/2012 was our bottom here in SoCal. Since then the specuvestors drove up the prices to near bubble peaks. A zero down mortgage in SoCal suburbs would put you so far above rent parity. There aren't enough idiots to take that deal for it's availiability to make a diffrence. Negative Amoritization loans made sense (in a way) during Bubble 1.0 because it at least put you BELOW rent parity. Those loans ain't coming back. Housing Bubble 2.0 is already deflating. TPTB are positioing themselves now to profit from the aftermath.
Notice it says median price not mean price in the graph above.....
Mean = average
Median = middle number
Graph clearly shows QE has seriously benefitted the wealthy end of the spectrum while the middle class continues to die off.
thanks for the visual
That was both insightful and funny. Bravo.
This comment was gay as a pink 3 dollar fiat debt note.
This comment is Lemon Party Approved.
Let the mob decide.
"To keep the same payment (affordability) rates or price must be adjusted."
Actually what happens when rates rise is that buyers get less house. If a buyer is approved for $200,000 and house prices rise, then they will get less square footage, or less upgrades, or a cheaper subdivision, etc.
When rates rise house prices might come down a bit in slow areas of the country, but they won't in areas doing well.
Actually what happens when rates rise is that buyers get less house.
Right, which is why they won't. The only way to sustain prices at all is to keep rates at 0%. Regardless of what they do with interest rates, it won't help, deflation is coming, they can't conrol it. We either get jubilee or war.
There is no "less house" as potential buyers are already getting "no house" in this environment. Prices have to adjust downward or incomes have to rise. If you aren't in a really "Prime" area of a major metro you're in for an adjustment. This will be the 4th RE expansion/contraction in SoCal since the late 70's. Every run up has been followed by a correction. Listings are increasing and properties are sitting right now all around the LA suburbs and into the Inland Empire. There are no NINJA loans to put a floor under prices now that the specuvestors have exited. Contrary to popular belief Chinese with suitcases of cash don't buy every house. I live in a VERY Asian part of the San Gabriel Valley in LA County and prices are down 5-7% from last year and the action hasn't even started yet.
You are in a unique market, I know because I lived and built in the San Diego area from 2005 until 2012. When I stopped building in 08 I was selling for about $300 sf. I am selling an equal in upgrade house here in Texas in 2015 for about $125 sf.
California has always been a boom and bust cycle in housing, but most of the rest of the country is much less so.
Agreed. But Prime areas like California are what move the market as a whole. When things go south here it affects the Banks, FHA, Fannie/Freddie, etc. Our markets going cold will definitley affect mortgage rates. The FED is becoming irrelevant and even if they start another QE to buy MBS, theor ios still no incentive for most to buy at extreme negative rental parity. Defaults in Prime areas are what began the last meltdown. This time the defaults will be a mix of over leveraged homedebtors, REITs and specuvestors.
One thing that will keep the housing market from crashing to the historic levels it did last time is the lack of insane loans that everyone was originating in the early 2000's. Stated Income loans have trickled back, but they are like they were back in the 80's and 90's where you had to have 30% down, provide the last 12 to 24 months of bank statements that show money going in and out, and prove self-employment. Giving a loan to anyone who could breath for a number of years was what created the bubble to the extent that it rose to.
Here the price of owning a quite a bit cheaper than renting so there is an incentive to own. What I am worried about here is if the price of oil will stay low for an extended period, and how badly that would affect the Texas housing market.
There headed back to 2011 levels, of that I'm sure. It was the last time you had a semi-organic market where not EVERY distressed home was being bought by specuvestors, loan standards were pretty normal and rates were still low. The run up from 2012 on is no less artificial than Housing Bubble 1.0. As for Texas my limited knowledge tells me that the early 80's bubble was once enough. You're guys RE seems to stay relatively sane. High property taxes percentage wise seem to stabilize things as well. Not that I support the higher taxes of course...
Going back to 2011 prices won't hurt much here, prices haven't risen so much since 08. Texas didn't crash too bad in 08, just loans got scarce for a few years like everywhere else.
Our prop taxes average between 2 and 3%...not too bad compared to a lot of the US, and RE prices are low here so that also helps. The best thing is that we have no state income tax, which more than offsets any prop tax. Also, if you are not building within city limits of a major city, there are no permits required to build here...just buy a lot and start building. In Cali it took 5 to 6 months, and tens of thousands of dollars to get a building permit.
2011 prices means a 30% drop from peak here. We're already down 5% in my neighborhood. Cali is 1% on the taxes and increases locked via Prop 13. If you time the market Cali RE can be very good to you. Mis-time it and your fucked.
Using CA as an example, the definition of "prime" will need to change.
Traffic. Liberals. High taxes/prices. No water. Minorities. Californians......
No amount of these will justify staying for 70 degree weather.
Rates and home prices move in different directions. So when rates rise, home prices can be expected to drop. The time to borrow is when rates ar ehigh, not low.
did you even look at the chart?
Income equality, for sure. I don't follow real estate very closely anymore, but I used to bank some developers in the 80's. Back then, supply was governed almost entirely by bankers' willingness to lend. I remember a builder telling me that if he had money to buy lunch that day, he was underleveraged. Developers built to the full extent of their borrowing ability to keep the cash flow going, keep crews employed, etc.
Banksters are still sitting on plenty of REO and know full well that prices are at least partially propped up by (1) supply being kept off the market, (2) unnaturally low interest rates, (3) foreign money flooding into the US (strong USD), and (4) lack of good investment alternatives. Some or all of these trends will ultimately fail, and banks sure as hell don't want to get stuck holding the bag again the next time the music stops.
Roger that.
Well my house and land was bought and paid for years ago, but it's not a McMansion and I grow food and raise animals on the land so I'm a failure at being a debt peon...tsk...
young Jeff Bridges ending his conference call with the Clinton Foundation
The rent is too damned high!
That's how you get surging prices with collapsing volume.
No deal ?
skewed by DC whores, NY banksters and SF geeks... and nouveau riche Euro-scum buying up South Florida condos...
Why, that looks like a 'gaping maw'...
Supply drys up then prices go up.
If that was the case builders would be scrambling to put new supply on line.... and then you look at the lumber price chart.
You and your facts......pffffttttt!
"Supply dries up"...lol good one. Home-turtling Baby boomer death rates will do nothing but accelerate. What we have here is Big Money swooping in with wads of ClownBux to stall off price discovery (the purest form of seller meets buyer, middlemen removed). Renting is the new buying. Or, you can buy, two incomes, kids and all, and sit in $750k of 3-bathroom monkey habitat with your barely 10% equity parked in your 4-car fantasy net worth.
Real estate agents should be shot, the big money swoopers should be clubbed, and anyone who calls this "free market capitalism" should be tarred. feathered, and paraded.
My area has tons of houses, new and used, for sale. Sales of anything over about $400k has seriously slowed. The few houses that were about $550k were bought by Chinese/Vietnamese professional couples -- dentists, pediatrician, engineers. One was paid for with cash and the other two I don't know but i doubt there's any big loans there since they're Asian also.
The realtors end up broke as shit anyways. A lot of them in my area lost their own homes after 2007.
Perhaps these builders are aware of an unsustainable melt up momentum in prices?
Which explains this post
Yup, but the interesting takeaway is 'timing'. To your point, why are the builders not investing to profit from the momentum melt up? A. Perhaps they think their risk/timing of a housing price collapse is so short/inevitable/unpredicatbale that their fear of getting out unscathed is preventing their investment. So the lack of supply is 'artificially' driving up prices. I guess all that is left for a builder to do is to buy his own stock and put off investment. Tick tock...
Most of the inventory of "new housing" wasn't Newly developed sub's, but existing sub's with a significant amount of undeveloped sites, left over from the crash. These are now completed so they are probably thinking...
People are using low interest rates to buy a bigger house based on payment affordability. Houses, in the short term, are behaving like bonds.
so they are building less homes? brilliant!!
The surviving builders "Since LehmanTM" are the only game in town and are charging a huge premium for their position. Mortgage rates are back stopping it, for now...
That's a good laugh. I know of foreclosures in Maui that have yet to be unloaded by the banks, 5 and 6 years later.
The mortgage fraud cases are still ongoing too. My brother is an insurance investigator so I know that first hand too.
If you look at the housing inventory numbers from yesterday, you'll see they rose in available units and also time/supply.
Its sales, not inventory (supply) on the chart. Sales are demand, not supply. Less demand at higher prcies.
http://ycharts.com/indicators/us_existing_home_inventory
Right, because supply of money (for the 1%) goes to the moon.
Supply dries up? What planet are you on? Supply has not dried up and that is clear as day to anyone walking around on the street.
What happened is that a great culling occurred in 2006-2008 and now the only people buying houses are at the top and standing on the broken backs of everyone else.
I thought housing never went down?
Well, maybe in Canada...you know, all that hot Chinese money and everything.
"I like big guys like you. When you fall you make a lot of noise"
The ugly
hahahaha nice. That's like when silver ran out some months back and the price somehow stayed basically the same or climbed $1. They had three week shortages in some places if I recall. Price didn't rise. niiiiice
This chart s exactly as I would expect. Who has the money? Why would builders build anything under a luxury home in a given area? Profits are in the million buck range.
This'll be awesome, because I would guarantee tax revenue planning at the municipal level necessitates people actually living in the houses paying swollen rates for these meat warehouses.
This is what happens when there's too much money printed. It flows from one asset class to another over time, creating "bubbles". At some point there'll be a resurgence in commodities contemporaneous with a weaker dollar (when ever that manifests itself....remember, it's a race to the bottom and you're not on top.... like the most floationgest turd in the outhouse). Shit happens
They swept the whole fucking thing under the rug knukles...housing values are nothing but a mirage.
TBTF bailout and the suspension of FASB 157 were the two things that made it all possible, not to mention the FED going to ZIRP and staying there since late 2008.
It makes perfect sense. Only high end is selling which increase the median value of all housing. Reminds me of the stock market making new highs with only 20% of all stock doing the same. Welcome to the world of QE "where the needs of the many are out weighed by the needs of the few".
smoke and mirrors mother fuckers.....
indeed - FUCK IT!
Lookin for a few good suckers.
Some still out there.
Course the number of tear down and rebuilds is probably not tracked by that and so that data is effectively lost which leaves an incomplete picture.
So you suppose that the tear down / rebuild rate is much higher than ten years ago?
yes it is ive never seen so many teardowns of 250k POS turning into new 1-1.5M luxury homes ever.
Was sifting through my 1st term economic notes on supply and demand and think i have a strong case for getting my money back.
But those notes would have been predicated on the concept of Perfect Competition. What we have today is about as far from perfect as is imaginable.
I am looking for diamonds in my back yard..one just sold for 22 million....thats a good deal right..
When an economy is tapped and no one has anymore room to "buy", lowering lending standards (ZIRP) is the only way more sales can be realized, which causes asset inflation. House prices went up only because lending standards have deteriorated and brought an incredible amount of future demand forward to the present.
Major headwinds in housing going forward with an aging population and an all-time low lending standard. We currently sit upon the apex of a 30 credit supercycle most notably showing up in housing because a house is the only real tangible asset the banks can lever againts and resell CDS, MBS, etc...
disagree
aging population is meaningless most are lucky to afford anything on ZIRP
the upper 1% shysters come in all ages and have more coin you or i can dream of
lending standards mean nothing when you pay cash
Median price high, volume low.
Many of the new homes (mansions) sold are to high-end real estate investors and the very wealthy?
All we need to do is wait for the trickle-down.
"trickle down economy" = Pure capitalism
but Capitalism only works when it is pure and capitalists actually have to work to create something of value.
Fed pumps money into assets to bubblize those.
Once the Fed money disappears or the Fed is forced to hike rates you'll see these bubbles deflate.
Fed manipulation is not infinite. They realize that. At some threshold they lose control.
Chinese cash buyers (see Or.County,CA) want only $500K+ b/c that's a mansion
the gap is way too big now for trickle-down.
face it.. this country is now the
insanely wealthy upper .5-1%
wealthy upper 2-3%
upper class 3-10%
the 90% poor and degrees of piss poor
and homebuilders aint building to that 90% demographic
Haha, this is like here in FInland. Prices all time high, volume all time low. Who buys?
You could relabel that chart with S&P 500 equity prices/volume, and the story would be the same. It is the same measure of manipulated/distorted/dysfunctional market price discovery. We're all fucked up in this bitch. Will you choose totalitarianism or freedom?
Seems to me another fix of some sort is in.
3.5% 30 year mortgages.
That will support prices quite a bit.
300k mortgage
3.5% = 1350$ a month principal +interest
5.5% = 1700$
7% = 2000$
So if you are sitting on 1500$ a month rent. Might as well buy a 300k new home at 3.5% 30 year.
if you're renting you problably don't have the 60K.. I mean 30K.. I mean 15K to put down. Are downpayments even a thing now?
move along. there's no market manipulation here.
For real fun, if you are around any second-home hotspots -- lakes, mountains, coasts, etc. -- check out how much of the used stock is sitting empty, then poke around and see how much of the "new" actually has a certificate of occupancy. Realtors are listing half-finished property, what used to be a strict no-no, so great is the rush someone's, anyone's name on a title of some sort. The boomers are aging out of this stock and there is no one -- except hedge funds -- to replace them.
yup. I just bought in one such town upstate, and 70% of listings are foreclosure because the property taxes went up 500% since '08. So, everybody just abandoned the places, 2nd homers and seniors especially.
I personally think this is where the bargains are though, you can buy a nice old house for next to nothing on the mountainside with a lake view, an hour from NYC. Pay in cash, fix it up yourself and pay nothing but property tax. Or pay 2K/month to rent a 250 square foot studio in the city.
Coming soon!
The problem isn't in the units, its in the medium of exchange. "Willy Yetsins Giant Money Printing Factory" the rank of rotten curency seeps its way into everything.
Mortgage rates are at all-time lows, so that major factor in housing affordability is at a all-time high. Required down payments are also very low. Therefore, those who can get mortgages can afford to pay high prices for the houses. This would explain relatively fewer houses sold, but at near all-time high prices.
Now now u remember when the truth of predatory home loans finally came to light and the housing market failed that the gov did all they could do to rig prices higher so a true bottom in housing wouldn't be discovered because so many peeps were in the red since they bought at the top.
Most of the peeps who have bought in this price rise from the rigged too high bottom have been foreigners.
I did hear Americans and first time buyers just started hoping in as they are afraid at one point interest rates will go higher from here. Let's just hope they actually get that low interest rate loan of a 30 year fixed or 15 year at nice low rates if they chose and not some predatory loan crap.
Detroit now has 10 or 20 houses with values over $100,000 now-a-days.
It doesn't get any better than this!
Only a complete dumbass would pay 100k for a house in Detroit, even now.
Unfortuantely, there are still plenty of those wandering around.
there are no undistorted assets.
Could the missing variable, as depicted by an overlapped 3rd line to explain the disparity, be currency in circulation or Fed's total balance sheet?
This is happening in Colorado and it makes perfect sense. You can't build an inexpensive new home anymore. Very few new home projects have been built over the last 7 years, and there are higher construction costs due to many factors. Land costs are high because there is little land available that is adjacent to existing subdivisions. It costs a lot to bring services to areas that sit out by themselves.
The market demands homes that are as close in to city center as possible due to terrible traffic and long, slow commutes.
Many resale homes are now rentals occupied by former owners who lost their homes to foreclosure.
As a result, many Colorado urban/suburban areas are in a housing shortage. Multiple offers above the price are the norm here on new listings.
Fewer sales, higher prices due to low inventory. Also, everyone ignores the effect of extremely low rates on prices. People buy based on payment amounts, not the gross price. And payments per thousand dollars of price are extremely low. It can be cheaper to buy than rent again even at the higher prices.
I have rental properties in Colorado. My average length of vacancy over the past year is measured in days, not weeks or months. I've had people waiting for a renter to move so they can move in. And I've raised rents by about 17% over the last year. I am just starting to catch up from a long period of low rents in my area, which is ex-urban.
Okay. Fair points. Maybe you can explain why almost all the job creation in Colorado has been low paying jobs then? And how does this square with people being able to afford higher prices for buying and renting? We all know why. People are paying far more of their total income just to have a roof over their head and eat. Ive seen this happening in many areas and it is a fuckan time bomb waiting to go off.
It is not sustainable.
CTRL+P
Wait, when was Lehman?
If this is normal, then I must be insane.
The bright side is, cardboard box and warm sock prices haven't seen the same increases
Supply and demand on Maui. Since the crisis only two developments, both of which were somewhat mature already, have continued to build new homes. These are not McMansions but are 1200sf 3b2b homes and 3/2 condos. The estimate is that we are short some 11,000 new homes within the next few years.
Rates have to stay low or else all bubbles burst unless all central banks unilaterally chop off / volunatrily default on all (or huge %) of the outstanding debt. Then the debt payments could in theory be managable enough at a normal interest rate again, say 5%.
Of course I do not see this happening. I see the opposite. 100% of the debt/bonds will eventually be at 0%! Thus no interest payment.
What do you surmise might be causing this 'The Valley of FEAR'?
This graph comes from Professor Tony Sanders' 'Confounded Interest' blog published today, entitled:
"VALLEY OF FEAR: MORTGAGE PURCHASE APPS JUMP 15.6 PERCENT YOY, BUT REMAIN 6 PERCENT LOWER THAN IN 2013"
I'm okay with this. Young people have learned their lesson and wouldn't buy an exurban McMansion even if they had the income to service a mortgage or a family to fill it.In a world where people frequently move in search of what little honest work is available, buying a home on credit makes no sense at all.
The remnants of the market are older people with no plans to move again and with more money to throw away on a new condo farther into town. The McMansion gets rented out.
What's disturbing is the massive RE bubble despite low sales. Historical median price to median household income is about 2.6. So with meidan prices at $275k we should expect median household income of $105k. Gosh! Americans must be so rich!
Whoops! Nope. Median household income is still around $50k.
Of course, taking into account affordability linked to interest rates, the existing ratio of about 5.5 is perhaps justifiable...until interest rates rise. Low sales are likely caused by banks's unwillingness to lend to McEmployees. So the median is moving north as the average moves north. Low end sales are dead while the rich gleefully spend their free dollars on real estate.
Fuck you, America...no, I mean, fuck you Wall Street, Washington and the 1%. The rest of you are too stupid and ignorant to really be blamed.
There is no reported data, and therefore no chart, showing how many of your neighbors are able to stay in their homes without paying their mortgages. But I assure you there are lots of such people, at least here in California. Just looking at my clients alone (NOTE: I did not assist them with the mortgage modifications below, but they told me about them):
1. One couple who paid $500,000 for a home in 2003 using a $450,000 mortgage, was able to get a $150,000 principle reduction and re-amortize the $300,000 balance over 35 years at 3.5% fixed.
2. A single mom turned her 8.7% adjustible mortgage into a 2% mortgage with a 38 year amortization.
3. Another single mom obtained a 41% principle reduction and lowered her payment from $2,870 to $1,750 for the next 32 years. Her home would rent for $2,500 today and it has increased in value so much that she has gone from being "upside down" by over $200k to having almost $100k in equity as a result of the principle writedow.
Based upon their income at the time they took out their original loans and the price of homes at the time (which any fool could see was at or near a peak), I believe that any rational person would consider each of them at least foolish and, at worst, fraudulent. We know the lenders were fraudulent and knew these loans would go bad, so both borrowers and lenders should have been punished by the subsequent market collapse, just as foolish/fraudlent lenders and borrowers were punished in the Great Depression.
As we know, that did not happen. Bankers, knowing exactly what was coming and wanting to avoid the consequences of having goosed the home credit markets for their personal financial gain, selected Ben Bernanke as the next Fed Reserve Chairman. As he had written his Phd dissertation on how the Fed could have prevented the Great Depression by manipulating the yield curve, bankers installed him to manipulate rates and levitate asset prices skyward.
The result is the Great Deformation, as Dave Stockman has more eloquently described.
There is no reported data, and therefore no chart, showing how many of your neighbors are able to stay in their homes without paying their mortgages. But I assure you there are lots of such people, at least here in California. Just looking at my clients alone (NOTE: I did not assist them with the mortgage modifications below, but they told me about them):
1. One couple who paid $500,000 for a home in 2003 using a $450,000 mortgage, was able to get a $150,000 principle reduction and re-amortize the $300,000 balance over 35 years at 3.5% fixed.
2. A single mom turned her 8.7% adjustible mortgage into a 2% mortgage with a 38 year amortization.
3. Another single mom obtained a 41% principle reduction and lowered her payment from $2,870 to $1,750 for the next 32 years. Her home would rent for $2,500 today and it has increased in value so much that she has gone from being "upside down" by over $200k to having almost $100k in equity as a result of the principle writedow.
Based upon their income at the time they took out their original loans and the price of homes at the time (which any fool could see was at or near a peak), I believe that any rational person would consider each of them at least foolish and, at worst, fraudulent. We know the lenders were fraudulent and knew these loans would go bad, so both borrowers and lenders should have been punished by the subsequent market collapse, just as foolish/fraudlent lenders and borrowers were punished in the Great Depression.
As we know, that did not happen. Bankers, knowing exactly what was coming and wanting to avoid the consequences of having goosed the home credit markets for their personal financial gain, selected Ben Bernanke as the next Fed Reserve Chairman. As he had written his Phd dissertation on how the Fed could have prevented the Great Depression by manipulating the yield curve, bankers installed him to manipulate rates and levitate asset prices skyward.
The result is the Great Deformation, as Dave Stockman has more eloquently described.