Jan262017
Expect low for-sale house inventory for many more years
For the missing MLS inventory to return to the market, borrowers need debt forgiveness, and house prices need to move even higher.
I advise buyers to be sure they plan to live in the same place for at least two or three years for prices to rise high enough for them to sell and cover the sales costs. In a normally appreciating market like we have today, it still takes seven to ten years for prices to rise high enough to pay the costs and leave a first-time homebuyer with the 20% equity needed for the down payment on a move up.
The breakeven barrier of two or three years keeps most properties off the market unless the buyer is under extreme duress. Once that threshold is met, the move-up down payment barrier is a practical choice made by those intending to climb the property ladder. Both of these key price thresholds serve to keep properties off the market.
Since real estate markets generally enjoy gentle home price appreciation, there is generally a steady supply of homeowners with sufficient equity to sell, cover their expenses, and provide at least a 20% down payment for the next house. It’s only when the market is disrupted, like the bubble and bust of the 00s, that the system fails to work properly.
With house prices at or near the peak on most markets, the number of people who can’t sell because they can’t at least breakeven is greatly reduced from 2012 levels. However, since very few owner-occupant buyers participated during the down years, the ranks of those with sufficient equity to execute a move-up is seriously depleted. People are no longer trapped by the need to break even, but they are trapped by choice because they can’t make a move up trade.
Is this really a problem?
The financial media inundates us with stories about the “problem” of low MLS inventory that supposedly holds back first-time homebuyers, who are buying in near record low numbers. Whether or not this is a real problem or a fiction of the financial media depends on your point of view.
Bankers don’t consider low MLS inventory a problem; after all, bankers engineered the MLS shortage in order to drive up house prices to restore collateral value to the bad loans they made during the housing bubble. Homeowners are happy to go along for the ride. Neither bankers nor homeowners consider low MLS inventory a problem.
realtors, lenders, and current entry-level home shoppers consider the lack of MLS listings a huge problem. realtors and lenders consider it a problem because fewer transactions make for fewer commissions and less income. Entry-level home shoppers are frustrated by a lack of choice and high prices for what they might want.
With no consensus on whether or not this is a real problem, there is little political motivation to solve it, particularly if the solutions presented by advocates have a high cost — and workable solutions would be very costly.
Why the supply of homes for sale is the lowest since 1999
Diana Olick, January 25, 2017
House hunters out this spring will have to pound more and more pavement to find their home sweet home.
The number of for-sale listings fell again in December to the lowest level since 1999, according to the National Association of Realtors. There were just 1.65 million homes for sale at the end of December, which at the current sales pace would take only about 3 ½ months to exhaust. A normal, balanced market has about a six-month supply.
This, as the busy spring market is already on the verge of starting. “To say early buyer demand is strong in early 2017 is an understatement — it is titanic. Redfin data shows that buyers are out touring in droves, ready to pounce on new listings that fit the bill,” said Nela Richardson, chief economist at Redfin.
Did they legalize pot in Seattle too? I want some of what she’s smoking.
“The only thing missing is homes for sale to satisfy demand, because there just aren’t a lot of homes available to buy right now. We are in a real estate black hole until those listings show up again.”
Notice it’s the realtors crying about this so-called “problem.”
The shortage is being driven by surging demand and weak home construction. Single-family housing starts continue to rise, but very slowly each month. Builders are still operating at well below normal construction levels, and that doesn’t even account for pent-up demand from the housing crisis and growing household formation.
(See: Is pent-up housing demand real or a realtor fantasy?)
“The homeownership rate is at a near 50-year low, and it could remain at this level,” said Lawrence Yun, chief economist at the NAR. “I’m not sure if this is the trend that America wants.”
It’s certainly not a trend American realtors want.
Tight supply is pushing home prices past their peaks in some markets and well past income growth nationally. Mortgage rates were historically low in 2016, helping to offset the higher prices, but that is not the case this year. Rates are already up significantly since the election and are expected to continue higher.
Which is why I predicted that Home sales are likely to fall in 2017.
Only a few of the big volume home builders are putting resources into the starter home market.
“I continuously say that the industry and the first-time buyer need more homes priced below $250,000, but the high costs of lots, labor and regulations puts tight margins on this price point. In coming months we’ll watch to see what influence the rise in rates had,” said Peter Boockvar, chief market analyst at The Lindsey Group.
It is extremely difficult to provide homes for less than the conforming loan limit anywhere in California. Even if land residuals were zero, due to the costs of improvements and fees, it’s very difficult to build at price points first-time homebuyers can afford. This will drive a trend toward higher density during the next building cycle.
First-time buyers continue to make up less than a third of the sales market; historically they are usually at about 40 percent. Affordability is weakening, but mortgage credit availability also continues to be difficult.
As rates rise, fewer potential borrowers qualify for the strict debt-to-income levels lenders now require. Some are looking to the Trump administration to loosen regulations on lenders,
That worked out poorly last time… just sayin’.
but that could take time and is unlikely to happen before the spring season. The administration already froze a last-minute cut in the FHA insurance premium by the outgoing Obama administration, which might have opened the market to more homebuyers.
“Constrained inventory in many areas and climbing rents, home prices and mortgage rates means it’s not getting any easier to be a first-time buyer,” said Yun. “It’ll take more entry-level supply, continued job gains and even stronger wage growth for first-timers to make up a greater share of the market.“
None of which will happen quickly.
With low inventory, high prices, rising mortgage rates, and tight lending standards, 2017 is not going to set any positive records for sales.
California Housing Crunch Prompts Push to Allow Building
Marco Gonzalez spent more than a decade suing real-estate developers in California over housing proposals that would have spoiled wetlands and gutted hillsides. The environmental lawyer won cases that stopped scores of units from being built.
Now he is on the opposite side, fighting cities and neighborhood groups in Southern California that fail to provide enough new housing units.
Mr. Gonzalez is among a growing group of advocates across California who are taking a once unthinkable approach to development in their backyards: They are trying to force cities to allow more of it.
The backlash comes as California’s lack of housing supply is becoming a crisis. After a postwar building boom gave birth to a labyrinth of freeways and sprawling suburbs, coastal metro areas in California between 1980 and 2010 added new housing units at about half the rate of the typical U.S. metro area.
During that period, California built an estimated 90,000 fewer units per year than were necessary to keep home price growth in line with the rest of the country, according to the state legislative analyst’s office. California—the nation’s most populous state—ranks 49th in the number of housing units per capita, ahead of only Utah, and it has the second-highest rate of overcrowding in the nation, trailing only Hawaii.
The supply shortage has driven up prices. In 1970 California home prices were about 30% higher than the U.S. median; today, California is more than 2.5 times pricier. In all, seven of the nation’s 10 most unaffordable markets, based on the amount of income spent on a mortgage, are in the Golden State.
But California’s complex land-use and regulatory structure gives opponents of development extraordinary powers to stymie new projects.
Environmental reviews intended to preserve California’s picturesque coastline and hillsides also provide a means for residents to challenge ordinary development proposals. If a review finds adverse impacts on parking, traffic, noise or air quality, elected officials can’t approve it until they have addressed opponents’ concerns.
Even after a project is approved, opponents can file environmental challenges, a process that can delay projects by two to four years.
Mark Vallianatos is an environmentalist, former urban planning professor and founder of Abundant Housing LA, a group that is part of the emerging YIMBY (“Yes, in my backyard”) movement. He said in housing debates there are often advocates for affordable housing, along with developers pushing their own projects, “but no one’s out there pushing for more housing of all types.”
“It shouldn’t be such an onerous task to build housing when we have a housing crisis,” he said.
Mr. Gonzalez, the lawyer, has fought developers building sprawling projects in San Diego’s backcountry, while also representing builders and affordable housing groups he feels are pursuing smart projects. His conversion from environmental warrior to affordable-housing advocate came when he realized his actions were thwarting projects in areas where new supply is desperately needed to ease rising costs for owners and renters.
“I just saw it as untenable,” said Mr. Gonzalez. “This was a group of people who essentially believed their job is to stop the evolution of our community.”
This is an interesting development. It would be a change from what I’m still seeing right now. What I see a lot of are “advocates” with cognitive dissonance. They scream for affordable-housing but fight tooth-and-nail against every proposed project. I’m not sure what they are really looking for? The housing fairy to give every poor or working-class person a cheap place to live exactly where they want to?
California’s mountains are officially buried in snow
Thanks to a series of atmospheric river storms that have pummeled California, the Sierra Nevada snowpack is reaching record-breaking numbers. In early January, parts of California received over 28 inches of rain and up to 17 feet of snow, causing flooding, avalanches, and a major shift in the California drought monitor map.
More storms followed, and in the most recent weather cycle Mammoth Mountain picked up another 4.5 feet of snow. Altogether, more snow has fallen so far in January 2017 than in any other month on record at Mammoth Mountain, the resort says. The previous record was 209 inches in December 2010, but Mammoth recorded 241 inches this month as of Monday.
In Lake Tahoe, the meteorologists at Open Snow say that 237 inches have fallen this month alone. That beats a 1973 record of 159 inches of snow that fell in January of that year. In total, the Lake Tahoe snowpack at 7,000 feet has received 80 percent of the seasonal average—and we’re only 43 percent of the way through the ski season. There’s even more snow at higher elevations.
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I’m headed to Big Bear for Presidents Day weekend. Not sure if I’ll make it to the slopes, but we should have some epic sled runs with kids. 😀
That would be great fun. I grew up with winter recreation, but I’ve only seen snow twice in the last 25 years.
You should head up to Mt. Baldy. It’s a short drive and the ski slopes have had snow for the first time in many years. There is some sledding along the side of the road leading up.
Millennials still enjoy living at home with parents and are reluctant to reignite the McMansion Baby Boomer Utopia.
City centers from Los Angeles to Miami to Seattle have all seen a massive revitalization thanks to hipster loving Millennials that enjoy good restaurants and access to nightlife versus the white picket fence McMansion propaganda brought on by the baby boomer generation. Zero lot condos and homes make up the new housing demographic where builders try to max out every square inch of their buildable land so they can pack new buyers in like sardines and you can hear your neighbor’s sleep apnea roaring at 3am. This is the modern day dream. Being able to waste your entire paycheck at Whole Foods and eating organic falafel at your new trendy restaurant. But Millennials are choosing to go their own way. For one reason, many can’t afford to buy an overpriced particle board crap shack so they ended up staying at home living with their parents deep into their late 20s and 30s. Many are also addicted to housing lust shows where reality star wannabes flip or flop on big real estate purchases. A modern day Lifestyles of the Rich and Famous. Yet most are not famous and many are certainly not rich. Ideals have simply changed and the market has transformed for Millennials.
For many of the open houses I’ve been too recently (areas with homes in the $1 million range) you have investors (foreign and domestic), older buyers, and a handful of late 30s professional couples. And these homes are mediocre at best – a slight step above a crap shack. Let us call it a shining turd of real estate potential. Millennials just have different tastes and this is impacting decisions on home buying and where they choose to live.
Which is it? Are Millennials living with their boomer parents in the suburbs or are they living in the city to enjoy their organic falafel?
I’m not sure what Dr. Housing Bubble is getting at here.
I think it’s probably a combination of both. Either way, they aren’t buying houses.
Well, I will point out there are also millenials with kids who already own homes… the generalizations are ridiculous.
President Trump To Cut Regulations By ’75 Percent’ — How Real Is That?
In a meeting with business leaders, President Trump on Monday made an eyebrow-raising claim.
As part of an effort to make America more business-friendly, Trump said: “We think we can cut regulations by 75 percent. Maybe more, but by 75 percent.”
Republicans do seem serious about some kind of regulatory reform. But even conservative economists say that number is not believable.
It has been said that the president likes to have an adversary. And at the meeting, Trump took aim at government regulations that stifle business.
“We’re gonna be cutting regulation massively,” the president said. “The problem with the regulation that we have right now is that you can’t do anything. You can’t, I have people that tell me they have more people working on regulations than they have doing product.”
Of course, there are all kinds of government regulations. The Occupational Safety and Health Administration aims to keep workers safe. The Food and Drug Administration makes sure we have food that’s safe to eat. The Environmental Protection Agency protects the environment.
Trump suggested that there wouldn’t be a downside to the important goals of the nation’s myriad federal regulations.
“Now we’re gonna have regulation,” he said, “and it’s gonna be just as strong and just as good and just as protective of the people as the regulation we have right now.”
“We’re gonna take care of the environment, we’re gonna take care of safety and all of the other things we have to take care of,” said the president.
It’s a bit unclear what Trump means when he says he thinks he can cut “75 percent” of regulations. Does that mean of all government regulations? Or 75 percent of the burden on American businesses overall? And even if that were possible, how could that be done with no downside to the important missions of regulators?
Peter Van Doren is an economist with the Cato Institute, a free-market think tank. He edits Cato’s quarterly journal, Regulation. NPR asked him if Trump’s “75 percent” statement was realistic or if it makes any sense.
Van Doren chuckled and said, “Well, President Trump, he’s about signaling.”
Van Doren says that as an economist, he’s a bit more delicate than the media.
“We have all these fancy words for what you might call ‘lying,’ ” Van Doren said. “This is a game and Trump is signaling his supporters that he’s serious.”
When Michael Moore predicted Trump’s victory he made a very astute comment. Basically, he said that Trump’s opponents took him literally but not seriously while his supporters took him seriously but not literally.
Since so many things out of Trump’s mouth are impossible to implement, the left thought he was a buffoon blowing smoke. There mistake, though, was that Trump was signalling to his supporters about the kinds of actions he would take. Very few Trump supporters really believed Mexico would pay for a wall or Hillary would be prosecuted, for instance.
The left and the mainstream media still doesn’t get this. The media is obsessed with pointing out the inaccuracies in his statements and trying to beat him with some big “gotcha.” They still don’t grasp that his supporters don’t care. They can call him out on his misstatements and lies all day long, and it makes no difference — and they can’t get their minds around this fact. The media is so used to being able to topple politicians that they fail to recognize they lost this power.
At some point, the media will realize they are no longer the kingmakers they thought they were. Then they might try actually decoding what he says and see how that matches up with his actions.
Just like Mexico is not going to pay for the whole wall but I am starting to believe they might pay/build parts of it in some type of trade deal.
Honestly I never thought the wall had a chance in the first place and can’t believe it’s actually happening.
Sure, his supporters won’t care. But they are a minority in this country. Keeping the rest of the country informed will drive them to the polls to toss him in 20/20 if he just drives up the debt with nothing to show for it.
That certainly appears to be their agenda. Unfortunately, the era of impartial reporting is gone. We now have a new regime of selective reporting of facts (or non-facts) to support a particular political viewpoint. Great Britain has had this for years, but this is a new development here in the US.
I saw a comment from Steve Bannon this morning that branded the mainstream media as an opposition party, and from the perspective of a Trump supporter, that is true.
Agreed, I wish the press was this hard on Obama as well. He did plenty of things that should have been called out. Would have given them more credibility for now when they turn it on Trump.
Consumer Financial Protection Bureau director says Trump won’t change agency’s aggressive efforts
The nation’s top consumer financial watchdog, who some Republicans want President Trump to fire, said Tuesday that the new Republican administration won’t change his approach to aggressively hold banks and other financial firms accountable.
Richard Cordray, director of the Consumer Financial Protection Bureau, wouldn’t comment on what he would do if Trump asked for his resignation but said it was important that independent federal agencies not get “mired in partisan politics.”
The new administration “really shouldn’t change the job at all,” Cordray said in his first public comments since Trump’s inauguration,
“We’re expected to work with different administrations of different points of view,” Cordray said at a forum held by the Wall Street Journal. “We have … an independent mandate to do what we do and we will continue working to protect consumers.”
Whether the president can fire the head of the independent consumer bureau, which was created by the 2010 Dodd-Frank financial regulatory overhaul, is the subject of an ongoing legal dispute.
Cordray’s five-year term doesn’t expire until July 2018, and an agency spokeswoman has said he has no plans to step down.
The agency has been praised by Democrats and consumer advocates for cracking down on abuses by financial firms; it was a key player in the $185-million settlement Wells Fargo & Co. agreed to pay last year for the creation of as many as 2 million accounts without customer authorization.
This month, two Republican senators called on Trump to fire Cordray, echoing the views of many GOP lawmakers who believe the agency’s efforts have restricted lending and reduced consumers’ choices.
Asked Monday if Trump was going to shake up the bureau’s leadership before Cordray’s term expires next year, White House Press Secretary Sean Spicer said “no decision has been made at this time on that.”
Rep. Maxine Waters (D-Los Angeles) and 37 other members of the Congressional Black Caucus wrote to Trump on Tuesday saying they “would strongly oppose” any attempt to remove Cordray and “would view such an action as an illegitimate abuse of power.”
“Director Cordray has done nothing to give the necessary cause for his removal from office,” the lawmakers wrote. “Communities of color and, indeed, all consumers in America will benefit from having director Cordray remain in his position and continue to independently implement the mandates imposed upon him by Congress as the director of the CFPB.“
Either way Cordray is gone by 2018. Note that he still claims credit for the Wells Fargo crackdown despite his own auditors completely missing the signs. Doh!
I’ve started to notice more short sales on the market in OC.
Is this something new, or has there been a slow trickle of short sales the past few years?
There has always been a slow trickle. They nearly disappeared when the government stopped forgiving taxes on the forgiven debt, but since then, as people are forced to move due to life circumstances, if they are underwater, they sell and take their medicine. Many of these short sales are probably tied to a bankruptcy where the debtor will avoid the taxes by pleading hardship.
I know it’s been covered here many times.
But it’s amazing to see short sales in 2017… on homes purchased in early 2000s when the current market in prime areas is over 2007 pricing.
Yep. Those people probably maxed out their mortgages at the peak of the housing mania, then they got loan modifications that added a bunch of fees and other costs to the mortgage balance, so even now with prices above the peak, many of these people are still underwater after sales costs.
It’s also why so few homes are on the market.
It’s like the lived in a house free for almost 2 decades, it may have even been better than free
Reminder: The fed couldn’t PREVENT the last housing bust; even GS had to be bailed out.
Too bad.
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speaking of bail outs… Larry, thx for the assist 😉 Much appreciated.
Glad to help. When you want to paste an image, I usually right click and “copy image address”. The system will only show an image when it finds the actual .jpg .png, or some other file format it recognises.
We’re approaching the one year anniversary of when people freaked out about the ‘Rocket Mortgage’ commercial during last year’s Superbowl. Now they play commercials all the time and it’s being rapidly normalized and adopted. The silly thing is the ‘rocket’ is supposed to signify rapid closing times and customer convenience, not loosened mortgage standards.
P.S. Speaking of the upcoming Superbowl… Larry, sorry my Falcons had to embarrass “the greatest QB of all time” like that. It must have been difficult to watch. 😉
With the mercy of recorded television, I managed to avoid the devastating event.
I usually record football games and start watching about 45 minutes into the show. That way I can avoid the commercials. On Packer games, I will check the score to make sure it’s not a blowout. Since this was a lopsided game from the start, I never turned it on. I deleted the recording without watching it.
It reminds me of the scene in Star Wars when Obi Wan wanted to see the security tapes of Anakin killing younglings at the Jedi Temple. Yoda told him not to watch because he would only see pain.
I would rather avoid the pain.
In the 2007 and 2012 when the Giants beat the Packers in the playoffs, I lost sleep for a few nights after. I didn’t want to go through that again. Deleting the recording without watching it was the right choice for me. I avoided a lot of pain.
Now if I could just shed myself of this attachment to Packer football, I might find inner peace.
You must still be a Wisconsin at heart because Californians aren’t known for having that kind of attachment to sports teams, and if our team loses in a playoff run we get over it quickly and move on to some other form of entertainment. Can’t take the boy out of the country I guess. 😉