With the serious problems facing the housing market including high delinquency rates creating a massive shadow inventory, a weak economy, tepid demand from owner-occupants, excessive consumer debt, a depleted buyer pool due to credit impairment, and artificially low interest rates, it’s a wonder housing prices aren’t still heading straight down. The recent uptick in prices is largely due to a successful attempt by the lending cartel to restrict for-sale inventory on the MLS. Without this inventory restriction, prices would almost certainly be headed lower.
At some point, the shadow inventory of delinquent mortgage squatters will be cleared out. The liquidation will either lower prices or limit appreciation for a long time while these properties are processed. The big question is, when will this liquidation happen? Right now, the banks are in no hurry.
For lenders to be motivated to process their backlog of foreclosures, they need some reason to act. Ordinarily, the cost push of paying for capital would force them liquidate non-performing loans and put that money to productive uses. However, with the federal reserves zero interest rate program to steal from savers and the elderly, banks have no cost of capital. Banks can borrow all they want from depositors or the federal reserve for nothing.
Since the banks have little or no cost of capital, they can sit on their bad loans indefinitely — and they are. Right now, it’s in the best interest of the lending cartel to sit on their bad loans. The lack of inventory on the MLS is causing prices to go up — although it is simultaneously causing sales rates to plummet. Higher resale prices make for better capital recovery on the loans the banks do process. As long as they all agree to continue delaying their foreclosure processing, they all benefit from higher prices. Of course, this is still a cartel arrangement, and as prices rise, each member has a strong incentive to cheat, particularly the weakest members, but right now, the cartel is enjoying great success driving prices higher.
Until the federal reserve raises interest rates, lenders face no cost pressure to liquidate their bad loans. With no pressure to liquidate, lenders will continue to allow squatters free housing in hopes resale prices will continue to rise. So when will the federal reserve finally start to raise interest rates? Well, they said they will leave them at zero through the end of 2014, but it may leave rates along much longer. In fact, it is likely the federal reserve will leave interest rates near zero until house prices regain their peak, and with 3.5% interest rates, that will be much sooner than most think.
The federal reserve cannot raise interest rates as long as so many loanowners are so far underwater. The member banks of the federal reserve hold hundreds of billions of dollars in second mortgages and HELOCs on their books. If house prices don’t rise enough to put collateral value behind these mortgages, the resulting losses upon liquidation will bankrupt our banking system. This really leaves the federal reserve no choice but to push resale prices back up to peak levels as soon as possible by any means necessary.
As rising home values bring properties above water, lenders will liquidate, but not before. With no cost push, they can afford to wait. And with the threat of bankruptcy looming if they liquidate too early, they must wait. Based on those circumstances, inventory will likely remain in the shadows for quite some time. Prices will go up, transaction volumes will be way down, and prices will not flatten out until they approach the peak where lenders will finally begin their liquidations.
I guess that makes me bullish. I now believe that perhaps the bottom callers were right. I wish one of them would have identified the reasons I gave above. Perhaps I may have been convinced months ago, but now, based on what I believe the federal reserve and the member banks are going to do, and why they are going to do it, I think we may be at the bottom. So much for the capitulatory liquidation regulators would ordinarily require.
Listings down, but ‘shadow inventory’ looms
Low housing stock yields epic bidding wars
July 27, 2012 01:00PM — By Kenneth R. Harney
Though many home shoppers who assume they are still in a buyer’s market find it hard to believe, one of the sobering fundamentals shaping real estate this summer is shrinking inventory: The supply of houses for sale is down significantly in most areas compared with a year ago, sometimes dramatically so. And that is having important side impacts — raising prices and homeowners’ equity stakes, and reducing total sales.
The one thing which could derail lender’s plans is affordability. In many markets, peak pricing is simply not affordable, even with 3.5% interest rates. Further, some markets will recover quicker than others creating “rebound bubbles” in strong markets while the federal reserve waits for the weakest ones to recover.
In major metropolitan markets from the mid-Atlantic to the West Coast, the stock of homes listed for purchase is down by sometimes extraordinary amounts — 50 percent or more below year-ago levels in several areas of California, according to industry studies. In Washington, D.C., and its nearby suburbs, listings are down by 28 percent, reports Redfin, a national online realty brokerage. In Los Angeles, available inventory is 49 percent lower than it was last summer, San Diego by 53 percent. In Seattle, listings are off by 41 percent. According to the National Association of Realtors, total houses listed for sale across the country in June were 24 percent lower than a year earlier. The dearth of listings is often more intense in the lower- to mid-price ranges, less so in the upper brackets.
Shevy recently told me about a short sale listing he has in Rancho Santa Margarita. He put it on the MLS on a Thursday evening, and by 9:00 Friday morning, his voicemail on his phone was full to capacity, he had received 117 emails about the property, eighty of which had offers, and 10 of those offers were all-cash at or above his listing price. That sounds like strong demand, but it really isn’t. It’s normal demand dealing with a lack of inventory to accommodate it. Even the builders are selling out quickly.
Peggy James, an agent with Erick & Co. of Exit Choice Realty in Prince William County, Va., says she gets calls “all the time” from buyers asking, “Where are all the new listings? Are you agents bluffing” — holding back? But the reality is that “there just haven’t been many” listings in some high-demand price categories lately, she says.
In Orange, Calif., Carlos Herrera, broker-owner of Casa Blanca Realtors, says “it’s really strange right now. We have many buyers but few sellers,” forcing purchasers to bid up prices on what’s available.
That’s exactly what’s happening. Anything priced at or near recent comps is getting multiple bids. The WTF priced homes still sit there, but reasonably priced stuff moves very quickly. Also, it is becoming increasingly difficult for borrowers with less than 25% down to get a deal. When faced with multiple offers, sellers will chose the one with the largest down payment, and they will demand the buyer waive their appraisal contingency. If the appraisal comes in low, the buyer must either come up with more cash or surrender their earnest money deposit. In those circumstances, only the strongest buyers with the most cash reserves get properties.
Just south of San Francisco, Redfin agent Brad Le says inventory in Silicon Valley is down so drastically — and demand so strong —that the bidding wars are spinning off the charts. “We’re not just talking about 10 or 15″ offers, he says, “but sometimes 40 and 50.” Some buyers are inserting escalation clauses into their contracts to keep pace with counter-bids, and waiving financing contingencies, inspections and even agreeing to increase their down payments to counter any differences between the accepted sale price and the appraised value. One modest, 1,700-square-foot house recently was listed at $879,000. It drew more than 50 competing offers and sold to an all-cash buyer for $1,050,000 in less than a month.
Earlier this week, my post on the high end getting whacked sparked a lively debate on Patrick.net. Many of the Bay Area readers posted properties getting bid up beyond reason. Lack of supply will do that.
Silicon Valley is in its own special economic niche, but declining inventories are nationwide. In its latest survey of 146 large markets, Realtor.com found that 144 had lower supplies of listings last month than a year earlier. Online real estate and mortgage data firm Zillow reports that some of the steepest declines in inventory are in places that got hit the hardest during the bust, and where sizable percentages of owners still are underwater on their mortgages. In Phoenix and Miami, for example, 55 percent and 46 percent of owners respectively have negative equity.
The huge number of underwater loan owners is contributing to the problem. Ordinarily, rising prices would prompt sellers to return to the market, but loanowners are not motivated to sell. Whether they are underwater by a lot or a little, they are still underwater. If they wait, they might have equity again, so most will chose to wait. Further, those who are underwater and delinquent are committed to squatting until foreclosure, so they are not motivated to list their properties either. So the greater the percentage of underwater loanowners, the more acute the inventory problem becomes. Only lenders can solve this by foreclosing and putting the REO on the market, but for reasons I outlined above, they are not motivated to do that.
Both cities have seen significant drops in inventory, and both are experiencing strong appreciation in home prices. According to data from research firm CoreLogic, Phoenix prices are up 14.7 percent for the year and Miami by 9.7 percent.
What’s behind the widespread declines in listings? Analysts say negative equity plays a major role. It discourages people who might otherwise want to sell from doing so. They don’t want to take a big loss, especially in a slowly improving price environment. So they sit tight rather than list. Banks with large stocks of pre-foreclosure and foreclosed properties are doing the same, creating a so-called “shadow inventory” of houses estimated to total 1.5 million units.
That’s exactly what’s happening. With the exception of potential buyers, everyone is benefiting from the withheld inventory.
Where’s this all headed? Stan Humphries, chief economist for Zillow, says the likely trend is for more of the same: Constricted supplies will lead to price increases, especially in segments of local markets where demand is strongest. Longer term, price increases will gradually rewind the cycle, increasing owners’ equities and convincing more of them to list and sell. This, in turn, should put a brake on price increases, especially under today’s super-strict mortgage underwriting and appraisal practices.
Mr. Humphries incorrectly identifies the mechanizm which will bring more houses to the market. Discretionary sellers with equity will not be who lists. When prices rise above the outstanding loan balances on the properties, lenders will foreclose to get their money back. They will not allow squatters to gain financially by allowing them to sell for a profit. As each property gets above water, that’s when the lenders will act, and it’s the lenders who will ultimately put more properties on the market. Right now, they benefit by waiting, so that’s what they will do.
These people were obviously Ponzis
When borrowers go to get a new loan, their entire borrowing history is on display for a lender. If lenders cared at all about loan quality, it’s pretty easy to spot Ponzis. 
When people consistently tap the housing ATM to cover routine lifestyle expenses, it’s obvious. And it’s equally obvious that Ponzis are going to implode in a default and foreclosure as soon as the music stops. Apparently, lenders thought the music would go on forever.
- The former owners of today’s featured REO bought back in 1995. They should have paid off over half their mortgage by now. Instead, they are living in a new rental. They paid $153,000 using a $150,103 first mortgage and a $2,897 down payment. How many of you have security deposits larger than that?
- On 7/2/1997 they obtained a $42,000 stand-alone second.
- On 12/1/1999 they refinanced with a $193,968 first mortgage.
- On 8/28/2001 they obtained a $40,000 stand-alone second.
- On 4/30/2002 they obtained a $75,000 stand-alone second.
- On 7/2/2003 they refinanced with a $296,000 first mortgage.
- On 9/14/2004 they refinanced with a $370,000 first mortgage.
- On 10/25/2006 they refinanced with a $455,000 Option ARM.
- Total mortgage equity withdrawal was $304,897 plus negative amortization. These borrowers tripled their mortgage!
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Proprietary OC Housing News home purchase analysis
675 North ELMWOOD St Orange, CA 92867
$369,900 …….. Asking Price
$153,000 ………. Purchase Price
8/21/1995 ………. Purchase Date
$216,900 ………. Gross Gain (Loss)
($12,240) ………… Commissions and Costs at 8%
============================================
$204,660 ………. Net Gain (Loss)
============================================
141.8% ………. Gross Percent Change
133.8% ………. Net Percent Change
5.3% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$369,900 …….. Asking Price
$12,947 ………… 3.5% Down FHA Financing
3.55% …………. Mortgage Interest Rate
30 ……………… Number of Years
$356,954 …….. Mortgage
$92,816 ………. Income Requirement
$1,613 ………… Monthly Mortgage Payment
$321 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$92 ………… Homeowners Insurance at 0.3%
$372 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$2,398 ………. Monthly Cash Outlays
($241) ………. Tax Savings
($557) ………. Equity Hidden in Payment
$15 ………….. Lost Income to Down Payment
$112 ………….. Maintenance and Replacement Reserves
============================================
$1,727 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$5,199 ………… Furnishing and Move In at 1% + $1,500
$5,199 ………… Closing Costs at 1% + $1,500
$3,570 ………… Interest Points
$12,947 ………… Down Payment
============================================
$26,914 ………. Total Cash Costs
$26,400 ………. Emergency Cash Reserves
============================================
$53,314 ………. Total Savings Needed
The property above is available for sale on the MLS.
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Nearby Foreclosures
Gain a competitive advantage over other buyers. By locating distressed properties -- before they hit the MLS -- you can discover where tomorrow's REOs and short sales will appear. Most of these properties are not listed on the MLS, but they will be soon. Research properties in advance and get a jump on your competition. Don't miss out on another deal because you couldn't act quickly. Use this tool to your advantage! The red properties are already bank owned. As soon as REO asset managers prepare them for sale, they will be on the MLS. Get ready! The green and blue properties have owners who are not paying their mortgages. They may be offered as short sales, or they may go through foreclosure and become REO. Either way, they will also likely be available on the MLS soon. Find your next home! Be prepared to offer on these properties by researching them in advance or risk losing out to buyers who are have done their homework. Start your research today! To find distressed properties, enter your desired location and press search. Scroll through list by pressing "next."  |
$479,000 732 North MILFORD St |
0.24 miles 4 bd / 2 ba 1,594 Sq. Ft. |
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0.5 miles 3 bd / 2.5 ba 1,459 Sq. Ft. |
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0.51 miles 3 bd / 1.75 ba 1,359 Sq. Ft. |
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0.67 miles 3 bd / 2 ba 1,579 Sq. Ft. |
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0.95 miles 4 bd / 2 ba 1,604 Sq. Ft. |
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$479,900 1693 North FIRESIDE St |
1.21 miles 3 bd / 1.75 ba 1,450 Sq. Ft. |
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1.22 miles 3 bd / 2 ba 1,404 Sq. Ft. |
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1.27 miles 3 bd / 2 ba 1,505 Sq. Ft. |
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1.34 miles 3 bd / 1.75 ba 1,279 Sq. Ft. |
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$625,000 623 East PALM Ave |
1.35 miles 4 bd / 2 ba 1,641 Sq. Ft. |
30 Responses to “What will bring new for-sale inventory to the housing market?”
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“…Anything priced at or near recent comps is getting multiple bids….”
How could such a situation be anything but temporary?
It would seem to me that the total size of shadow inventory is much, much larger than the total number of potential new buyers who can service new debt at still-too-high prices.
Further, when the current pool of new buyers is exhausted, prices *will* then drop, forcing all these current new buyers underwater, thus starting another round of foreclosure activity.
Net effect is that all these new buyers are effectively just adding a few sparks to an already dead fire.
If lenders continue to withhold inventory by not foreclosing on squatters, they can effectively keep supply off the market until everyone is above water. They can deny short sales and stop producing more REO so there is so little supply that either prices go up or the entire market shuts down. That seems to be their intent right now.
Totally disagree. Prices are falling due to affordability. Witholding inventory does not make houses any more affordable. The coming fiscal cliff and probable recession are going to put a stop to the banks plan.
I hope you are right. With super low interest rates, banks have dramatically raised the bar on what’s affordable. They have some room to push prices higher in many markets.
Survey: Delinquency Rates Up, Foreclosure Starts Flat in Q2
The latest National Delinquency Survey from the Mortgage Bankers Association (MBA) showed that delinquencies increased in the second quarter of 2012, a shift anticipated by the association.
The delinquency rate for mortgage loans on one-to-four-unit residential properties increased to a seasonally adjusted rate of 7.58 percent as of the end of Q2, an increase from 7.40 in Q1. It is typical for delinquency rates to increase between the first and second quarters of the year.
The second quarter’s increased rate was still down from 8.44 percent at the same time in 2011.
On a seasonally adjusted basis, the overall delinquency rate increased for all loan types except FHA loans. Subprime loans saw the biggest increase in delinquency, with the seasonally adjusted rate jumping to 19.85 percent for subprime fixed loans and 22.60 percent for subprime adjustable-rate loans.
Delinquency on FHA loans declined, with the delinquency rate falling to 11.89 percent from an even 12.00 percent in Q1.
MBA chief economist Jay Brinkmann said the scale of the increase in delinquency is not as notable as the fact that delinquency rates are no longer falling. It is unknown if the increase in delinquency rates is a temporary situation or a sign of things to come.
“Mortgage delinquencies were up only slightly over the last quarter. Perhaps more important than the small size of the increase, however, is the fact that it reversed the trend of fairly steady drops in delinquencies we have seen over the last year,” Brinkmann said. “This is consistent with the slowdown in the economy during the first half of the year and our stubbornly high unemployment rate. Whether this is just a temporary blip or a sign of a true change in direction for mortgage performance will fundamentally depend on the direction of employment over the remainder of the year.”
Foreclosure starts stayed flat, and the percentage of loans in foreclosure at the end of Q2 fell to 4.27 percent. The serious delinquency rate (for loans that are 90 or more days past due or are in the process of foreclosure) was 7.31 percent, a decrease from last quarter and last year.
FHA reported a relatively large increase in foreclosure starts, with the seasonally adjusted rate hitting 1.72 percent. The jump in starts is not reflective of the performance of the performance of FHA loans, however; MBA attributed the increase to the resumption of foreclosure proceedings after the national mortgage settlement, as most of these loans had been seriously delinquent for some time.
“While the rate of foreclosure filings was unchanged, that rate would have fallen were it not for the considerable jump in foreclosure starts on FHA loans,” Brinkmann said. “This quarter’s rate set an all-time record for FHA loans, but it was only slightly higher than the previous high set in 2010. The jump was due to one or more large servicers of FHA loans restarting foreclosure actions on delinquent FHA loans after the completion of the Department of Justice review and the mortgage servicing settlement.”
While foreclosure starts didn’t seem to be affected by judicial or non-judicial state status, MBA’s survey showed a discernible difference in foreclosure percentages between the two types of state. Of the 12 states whose foreclosure percentages exceeded the national average, 11 are judicial states. The only outlier was Nevada.
Maryland saw the greatest number of foreclosure starts by far, with 1.95 percent of loans going into the foreclosure process by the end of the quarter. In terms of total foreclosure percentages, Florida ranked number one with 13.70 percent, nearly double the second-ranked state (New Jersey at 7.65 percent).
“Among the states, the rate of new foreclosure actions in Maryland was the highest in the nation during the second quarter, more than double the national average. The Maryland numbers, however, were largely driven by the resumption of foreclosures following the servicing settlement,” Brinkmann said.
“In terms of the percentage of loans in foreclosure, Florida continues to lead the nation at 13.7 percent, more than three times the national average, followed by New Jersey at 7.7 percent, Illinois at 7.1 percent and New York at 6.5 percent. In contrast, Arizona and California, two of the states hit hardest by the housing downturn, are at 3.2 percent and 3.1 percent respectively, both more than a full percentage point below the national average.”
IR:This really leaves the federal reserve no choice by to push resale prices back up to peak levels as soon as possible by any means necessary.
————————————————————————————————
Oh, I see, similar to what the BOJ has been able to accomplish in Japan, post crash. Got it.
Good point. Of course, they inflated bubbles so massive, no amount of lowering interest rates could make prices reasonable.
Rising rates will be the key catalyst that flushes ‘shadow’ out into the open. The fed can keep the funds rate at 0 infinitas, but mort rates can still rise despite ZIRP. And….rise they will.
3 signs it’s time to put a fork in the bond rally
In the wake of a disappointing treasury auction this week, U.S. bond yields are well off their lows of late July, when the 10-year yield fell below 1.4%.
http://blogs.marketwatch.com/thetell/2012/08/09/3-signs-bonds-are-finally-turning-around/
The Fed can purchase all agency MBS and effectively keep mortgage rates low, despite the 10Y UST rising, no?
Of course. But, by doing so, they will be dilluting USD further which will jeopardize US petro$ hegemony earned post WW2, and piss-off bondholders worldwide, because they DON’T want to be paid back in cheaper paper.
Do you think the Fed knows that? I’m asking because nothing they do seem logical. Why are they devaluating the dollar?
Here’s on interesting article on point suggesting the Fed could introduce “Operation MBS Twist” in September.
http://ftalphaville.ft.com/blog/2012/08/10/1113711/still-waiting-on-looser-lending-standards-for-mortgages/
“Why are they devaluating the dollar?”
Devaluing the currency increases exports, and it rebalances the trade deficit. We have been running a trade deficit for such a long time now that a certain amount of currency devaluation is necessary and inevitable. A devalued dollar would help the economy right now.
You forget to mention that the cost of holding onto these houses is huge. Property tax and maintainance will have to be paid so any rises will be swallowed by these costs.
Real recovery in home prices not expected until spring
Here’s how home prices are faring in some of the nation’s major markets — and where Fiserve Case-Shiller expects them to head in the upcoming year.
Los Angeles
Prices March, 2011 – March, 2012 -4.6%
Forecast March, 2012 – March, 2014 -0.4%
The mantentance cost in costal CA with the mild weather is not the large in CA compared to the mid-west with snow in the winter and very hot humid summer. FL humid for rot is a real money pit for wood frame construction.
Property tax is another matter. It seems like 1 to 2% is a widely used tax rate for many counties across the USA. Higher basis = High year outlay.
In retrospect if I would have bought in CA when I was a student, I could have retired years ago. I bought in the mid-west, I would need to be still working, which I am. 1950′s cost in L.A. and in mid-west were about the same. The mid-west prices have not changed that much, but you don’t need to sink 50% of your income into housing. 25%-30% is the mid-west range for a new loan owner.
BHO and the bankers have done a wonderful job in keep US interest rates low by destabilizing countries to have their money flow to safety in the US. After the bad loans are rewritten or sold and rewritten to GSE-backed loans, the bottom will be allowed to drop out leaving the able US taxpayer to foot the bill. Indentured servitude or the continued sell of US assets and IP. The banks also get a fee for each transaction and more when there’s massive transactions needed in a short time.
The question is do I buy overpriced RE in CA locking in interest or keep renting facing possible inflation. My field the average tenure is only 2-3 years at a company. And 5 years for major relocation.
If you are going to buy and sell every 7 years or less then renting is always the best option.
Let’s review…..
Lower rates = higher cost basis = negative
higher rates = lower cost basis = positive
Lower rates reduce the benefit of mort tax deduction = negative
higher rates increase the benefit of mort tax deduction = positive
Owning in the new economy (post crash):
*home is NO LONGER a productive asset; ATM machine is closed
* debt-based = negative
*heavily exposed to chronic systemic instability = negative
*asset is not moveable = negative
*equity capital (if any) is no longer deployable = trapped
*asset is illiquid = negative
*to obtain, most buyers will have ‘all of their eggs in one basket’ which is investing 101 FAIL
*RE is a fixed target which will be taxed as needed, or even confiscated (owners have to pay prop taxes even if they don’t have a job)
* values are now being administered by bureaucrats. LOL
* acquire deeds to trillions in real assets with single keystroke at fed = positive
On of the places I rented between 2005 and 2008 increased in price from $800k to $1.2 million and settle to $950k now. The rent was $2800 for 2800 sf for a one floor ~2001 constructed house (nothing included in rent, but a great price). Granted 2005 was a bust for the Silcon valley dot com and neighborhood had lots of vacancy and redistriced to not so good schools for Jr. High and HS. It would of been great to get the price appreciation, but when calculating the cost of ownership (without appreciation), it made more sense to rent at the time.
However the risk is great, a co-worker bought a large new house in a poor school district (blue colar area) for ~ $1 million. The bottom dropped out to $500k and it now has settle $600k even with the low interest rates. A large down payment keeps him in the house.
Seems like timing and location are the main factors in RE investment.
The way how college financial aid is allocated the more money you put into house, the more money is awarded. Get some now and maybe lose it tomorrow.
For the next decade or longer residential real estate in Southern California will not be an investment. Your home will be a place to live, a lifestyle choice, and an expense.
People who keep debating on whether or not buying a home now or later is better are asking the wrong question. Buying a home now is a poor investment. Buying a home five years from now will be a poor investment.
Buying a brand new BMW now is a poor investment. Buying a brand new BMW five years from now will be a poor investment. Buying a BMW is a lifestyle choice and if you can afford it and enjoy it, good for you. It is your money, but it is an expense, not an investment.
Awgee,
Is there any place to buy a house for either living or renting out that make investment sense?
In the 1960′s and early 1970′s the were lots of property that easily gave near to positive cash flow even in areas such as West Los Angeles and lots in the suburbs.
My friends who have invested in Las Vegas with a few houses have a hard time getting good renters for long-term. Always getting new renters due to failed attempts to negotiate for a lower lease. The renters are mostly moving to less desirable neighborhood for a lower price.
It would need to have positive cash flow including time for vacancies, cost of upkeep, etc.
Anyplace?
I dunno. I only pay attention to So Cal. IR seems to think that LV has some positive cash flow, but I am ignorant of LV and other areas.
I forecast that US farmland would appreciate and be a good investment. It is and will be for quite some time.
“The question is do I buy overpriced RE in CA locking in interest or keep renting facing possible inflation. My field the average tenure is only 2-3 years at a company. And 5 years for major relocation.”
Boy, that’s the question in a nutshell. This is what a lot of buyers are wieighing in their heads.
It’s a good time to be a banker and a squatter. But what you’re basically saying is the housing market will be paralyzed for the foreseeable future. Even another year of this would be a painful grind for non-investors looking to buy. During the peak we had multiple offers on properties but that was a euphoric consumer frenzy. In the current market many are settling for a house that’s not ideal due to lack of inventory and then finding themselves outbid by multiple cash offers. Where’s the fun in that? Add flat appreciation to the mix and you have a recipe for consumer burn-out. It sounds like this “new normal” takes a lot of the emotional thrill out of buying a home, which is part of why I think it’s unsustainable for average consumers.
“They can deny short sales and stop producing more REO so there is so little supply that either prices go up or the entire market shuts down.”
I think we are witnessing a second bubble. Let it be.
It seems like there will be limit to how much the banks can push house prices up. If home prices rise to the point where it becomes profitable to build new houses, then home builders will start to build again. So the banks will not be able to constrict supply indefinitely. The longer they do so, the more incentivized home builders will be to take up the slack.
At the end of the day, higher home prices will only be supported by higher wages and higher affordability. If you constrict the resale supply enough, the home builders will build houses at the right price point to meet the demand.
I think this is the Fed’s real intention. We know that home building usually leads the economy into and out of a recession. This recovery has been week because home building is still weak. But if the Fed can constrict the supply of resale homes long enough, then they can entice the home builders to start building again. Money starts to flow and the economy starts pumping again. Wages go up, which lends itself to even higher house prices.
“If home prices rise to the point where it becomes profitable to build new houses, then home builders will start to build again. So the banks will not be able to constrict supply indefinitely. The longer they do so, the more incentivized home builders will be to take up the slack.”
This is already happening. The builders in California are doing very well now that the MLS supply has evaporated. Builders will never provide so much product as to impact the market. Only the banks processing REO have the volume to do that.
“At the end of the day, higher home prices will only be supported by higher wages and higher affordability.”
That’s why the federal reserve has worked to lower mortgage rates down to 3.5%. Affordability is great right now, and there is capacity for prices to move higher within the reach of local incomes. Ultimately, this will be the barrier, but the limit keeps getting raised as interest rates fall.
I’m convinced we’re at the peak of seasonal pricing, and that the bottom is not in. The graphs at Zillow are still downward tendancing with homes in high density metros breaking out to the upside rt now because of seasonal pricing. Look at the 10 year graph for San Francisco sale prices its clear as a bell. The worst junk is for sale in January tho and that might be why prices are lowest then. So the bottom is not worth waiting for.
I’ve been learning how to ad stone accents to my apt building, Looks great, I think I’ll refi my house to pay for a decent paint job on the building to tie in the different colors and textures of the slate and ledger stone. Then I should squat, right?
In boxing there’s a saying; The more you train, the better your luck gets.
We are likely at the peak of seasonal pricing. The real question is how much downward drift will we see through early next year. With such low inventory, there is no pressure for prices to fall, so I doubt the downward drift will be enough to take out this springs lows.