Jan252016
Millions of homeowners trapped in entry-level homes for over a decade
With housing markets only now reaching the peak of the housing bubble, many have been trapped in their homes for over 10 years.
In 2005 most people who bought their first homes believed they won the lottery. In the five preceding years, house prices more than doubled, and since most people extrapolate short-term price movements to infinity, most homebuyers in 2005 believed they were on their way to being billionaires.
It didn’t work out that way.
Most people who bought in 2005 are only now above water — and that assumes they had an amortizing loan and dutifully made all their payments. Those with loan modifications had the fees and missed payments tacked on to their mortgage balance, and many (if not most) private loan modifications don’t amortize, so those borrowers are likely still underwater. Those borrowers are still trapped in their entry-level homes 10 years later.
For many homeowners, the last ten years in borrower purgatory felt more like borrower hell, trapped beneath their debts. Any remedies for their situation carried negative consequences. Many people opted to strategically default, and I openly encouraged this action for years because it immediately relieved the emotional distress and put people on a path toward building a new future. However, those who strategically defaulted had to pay a price of a lowered credit score and lingering debt collection issues. Many others borrowers opted to sell short, but this too had credit implications. A few even sold the house and paid the shortfall out of savings, but these sellers were the exception rather than the rule.
By far the majority of these people are still trapped in their entry-level homes. Many obtained loan modifications, but many others struggled to make sky-high mortgage payments, and they struggle to this day.
Property ladder
Houses are expensive. Most renters who would like to buy a home lack the down payment necessary, and many are early in their careers when their income is lower. As a result, first-time homebuyers must purchase the lowest-cost properties available for sale in the housing market, and they must use the highest-cost financing options due to their low down payment.
Most first-time homebuyers use an FHA loan and buy a low-cost property. The reason for this is simple: it takes too long to save 20% for a down payment on a conventional loan. First-time homebuyers use FHA loans because the 3.5% down payment is within reach. Further, once these buyers are in a property, they wait five or ten years for the wage-based appreciation to magically give them 20% to 30% equity in a property to use on their move-up purchase. (See: Renter’s guide to preparing for home ownership)
With 20% down, the first move-up buyer has access to lower-cost conventional financing, and since several years have passed since their first purchase, they often have a higher qualifying income. Combine these two factors, and first move-up buyers can outbid first time buyers by a significant margin, and they ignite the chain of move ups that reverberates through the market.
Lack of move-up equity
Despite the fact house prices moved up 50% or more since early 2012, this hasn’t created a large number of move up buyers because a relatively small number of buyers participated in the market while prices were low.
The majority of those who bought between 2003 and 2010 are either underwater or just barely above water and unable to execute a move up. Those that bought in 2014 and 2015 haven’t acquired enough equity yet as prices haven’t moved much higher.
This lack of move-up equity and lingering problems with underwater borrowers explains the unusually low levels of for-sale housing inventory.
While reflating the housing bubble has done much to alleviate the plight of underwater borrowers, it’s created a secondary problem that’s a direct side effect. By inflating house prices well above trend, many first-time homebuyers are priced out, and many others are concerned about buying into another housing bubble.
Back in 2013 I wrote the Housing market impact of 25 years of falling mortgage interest rates. In that post I noted, “House prices have been boosted about 30% due purely to the decline of interest rates from the mid 90s to today.” This artificial inflation of prices shows up in charts like the one above and the one below.
So while one generation is no longer trapped, the next generation isn’t eager to become their bagholders. Potential first-time homebuyers fear rising mortgage rates will cause another house price crash — or at best result in below-average rates of appreciation while the 30% overvaluation of the market is caught up to by fundamentals. It’s a rational fear, a fear keeping many first-time homebuyers out of the market. In fact in 2014 the first-time homebuyer rate hit a three-decade low. Millennials, those born approximately between the early 1980s and early 2000s, who will soon become the majority of the workforce and the next generation of homebuyers.
The Millennials currently cope with excessive student loan debt, which is also preventing them from buying houses. Millenials are delaying marriage, and they are not forming new households at the same rate as previous generations. Most housing market analysts blithely assume Millennials will follow the same path as preceding generations once they have opportunity, but what if Millennials decide not to buy homes? Baby Boomers don’t want to think about that possibility.
What happens to the housing market if first-time homebuyer rates fall to record lows and remain there for many years? Over the next decade, we’re going to find out.
Perhaps an improving economy, strong job growth, and strong wage growth will cause house prices to rise as much over the next 25 years as they did for the baby-boom generation. If mortgage rates remain permanently below 4%, that could happen. But how likely is that?
Due to the stability in housing brought about by Dodd-Frank, I don’t believe today’s homebuyers have much to fear, but that same stability means prices won’t shoot up wildly like past bubbles either, so today’s homebuyers don’t have much to gain. Buying a house as a family home is still a good idea. It’s reverted to the old stable and boring retirement piggy bank it used to be. And in my opinion, that is a good thing.
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The Kleptocrat in Apartment B
On a recent trip to Geneva, I was chatting with a local resident when he told me that the watch industry has been suffering. Sales of Swiss watches were down, he said, and he offered a fascinating explanation: over the last few years, the government of China has instituted a broad crackdown on official corruption—and particularly on the giving, or receiving, of extravagant gifts. As a case study in the butterfly effect of international graft, it seemed almost too neat to believe. But it’s true. In fact, the whole luxury sector was affected by the regulations, from designer handbags to high-end spirits. Last year, when consultants from Deloitte surveyed Swiss watch executives, eighty per cent of them indicated that demand was down “due to anti-corruption legislation” in China.
This question of how one country’s graft might fuel the economy of another arose again last week, when the U.S. Treasury Department announced an initiative to track the secret buyers behind the trade in luxury properties in New York City. It is a truism, at this point, to observe that financiers and deep-pocketed foreigners are remolding Manhattan into a gilded citadel. But if you’re part of the élite, this may be something to celebrate. “If we could get every billionaire around the world to move here, it would be a godsend,” Mike Bloomberg said, in 2013. Sleek and skinny super-luxury buildings spring up around Central Park, and single apartments sell for nine-digit figures, adding credence to the caricature of Manhattan as a club for global plutocrats.
For many New Yorkers, this is not, in fact, a godsend: exorbitant prices in the tens of millions of dollars pull up prices in the lower end of the market, driving working- and middle-class people out of the city. And as a contemporary Jane Jacobs might observe, had she not been priced out of the West Village, billionaires don’t necessarily make good neighbors. Because luxe Manhattan real estate generates a good return, many people don’t actually live in their investment properties. If they’re not residents, they’re paying no local income tax here, and because of a steep tax abatement on certain luxury properties, they can often pay very little in real-estate taxes. (According to the Times, the annual taxes on a unit that sold for a hundred million dollars recently come to about twenty thousand dollars.)
Could These Be the 6 Worst Landlords of All Time?
The landlords who terrorized tenants with the works
Like other landlords on this list, Kip and Nicole Macy thought they had a brilliant idea to cash in on the up-and-coming real estate market in San Francisco: Buy an occupied four-unit apartment building and force the tenants to move out. According to ABC News’ “20/20,” the contemptuous couple terrorized their tenants from September 2005 to December 2007 by engaging in the following:
* Cutting off phone lines
* Shutting off power
* Boarding up windows
* Changing locks
* Entering apartments and soaking tenants’ beds, clothes, and other belongings in ammonia
* Sawing a hole through the floor of a man’s apartment from below, while the tenant was still in the apartment
* Cutting beams to compromise the stability of the building after asking an inspector which beams would compromise said stability
All of that—and more—got them arrested in 2008 and sentenced to four years in prison—where we hope they enjoyed a small taste of the deprival of privacy and basic human rights they dished out to their tenants.
http://abcnews.go.com/US/exclusive-landlord-hell-defends-terrorizing-apartment-tenants/story?id=20875476
Why the December rebound in home sales?
Sales of existing homes jumped 14.7 percent in December compared to November, according to the National Association of Realtors, but not because the housing market is suddenly outperforming all expectations. The jump in December had all to do with the nearly 11 percent monthly drop in home sales in November, and that drop in November had all to do with something in the mortgage market called “TRID.”
“(Friday’s) data just confirms that the November drop was due to delays in closings that were pushed to December,” said Lawrence Yun, chief economist for the NAR.
TRID went into effect in October, and first began to delay closings in November. Even though lenders had over a year to prepare, shifting their computer systems and adapting to the new protocol did cause problems. These delays, in addition to November having the Thanksgiving holiday, pushed a fair amount of closings to December.
“Someone might see the average closing time go from 46 to 49 days and assume that’s not significant, but when you look at the amount of homes that close in a three-day time span on average (not to mention some additional unmeasured delays occurring before the loan application is taken), we can almost fully account for the massive drop in existing home sales in November,” said Matthew Graham of Mortgage News Daily.
Bottom line, now that the initial TRID bumps are behind us, delays may continue but not so significantly. A bigger problem facing the housing market today is sheer lack of supply of homes for sale. That situation does not appear to be improving, and as we head toward the historically busy spring market, it throws another wrench into an already uneven housing recovery.
Hoocoodanode?
You were right.
More than half (53%) stash their cash at home
When banks pay 0.1%, why not?
It may be tempting in the middle of a market meltdown to stash your cash in your mattress instead of investing it in the stock market. But if you want to buy a home, you may not be able to use that cash for the down payment.
A majority of consumers ( 57%) say they keep their cash savings in a bank, according to a 2015 financial survey from American Express, but more than half (53%) also say they keep their cash at home in a secret location.
Still, when you’re closing on a home you’re not going to be able to come to the settlement table with duffel bags full of Benjamins like Al Pacino in Scarface.
Lack of verification of income or assets is one of the biggest reasons contracts fall through, said Scott Alexander, operations manager for Assurance Financial, a Baton Rouge, La.,-based lender.
Only a cashier’s check from a bank will work. “Cash on hand is unacceptable nowadays. No title company is going to accept (physical) cash as funds at the close,” Alexander said. Even if the money has been stuffed under a mattress, “the mortgage company is going to have big doubts about where that money came from,” he said, and will treat it as if it was gained illegally.
In fact, because real-estate agents are increasingly on the lookout for money laundering, even just bringing cash to the settlement table can trigger a real-estate agent to file a Suspicious Activity Report with the U.S. Treasury Department’s Financial Crimes Enforcement Network or (FinCEN).
30-year mortgage rates continue to fall
What’s up with mortgage rates? Jeff Lazerson of Mortgage Grader in Laguna Niguel gives us his take.
RATE NEWS SUMMARY
From Freddie Mac’s weekly survey: The 30-year fixed rate dropped 11 basis points, landing at 3.81 percent from last week’s 3.92 percent. The 15-year fixed landed at 3.10 percent, 9 basis points lower than last week’s 3.19 percent.
BOTTOM LINE: Assuming a borrower gets the average 30-year fixed rate on a conforming $417,000 loan, last year’s rate of 3.63 percent and payment of $1,903 was $42 less than this week’s payment of $1,945.
The Mortgage Bankers Association reports a nice 9 percent increase in loan application volume from the previous week.
WHAT I SEE: From rate sheets hitting my desk that are not part of Freddie Mac’s survey: Locally, well qualified borrowers can get a 10-year fully amortized fixed at 2.625 percent with 1 point, 2.75 percent with zero points and 3.125 percent with no cost. The 20-year fixed can be had at 3.50 percent with zero points and 3.625 percent for no cost.
Contact Jeff Lazerson at 949-334-2424 or [email protected] or on Twitter @mortgagegrader_
Has success overpriced O.C.? Big Orange Index shows 6 years of growth, but there could be trouble ahead
Success does come with a price tag.
Orange County’s economy begins 2016 on a six-year winning streak. But the extended upswing is creating challenges that may limit the local business climate’s advance.
My Big Orange Index, a compilation of three dozen benchmarks of local economic performance, hit a new record at the end of 2015, powered by an ongoing hiring spree that fueled record spending by consumers.
But trouble lies beneath the surface. Most notably, 2015’s fourth-quarter gain was the second-smallest increase since the long-running upswing began in 2010. And three of the six subindexes that make up the Big O were down.
The Big Orange Boss Index, a measure of local CEO confidence, declined for the third consecutive quarter. Clearly, the executive suite feels pressure to create greater profitability when competition is stiff and costs such as labor and real estate are on the upswing.
Local shoppers, too, are getting antsy. The Big Orange Consumer Index fell at the end of 2015 for the first time in four years. While most metrics of consumer life are positive – from employment to spending patterns – the financial pressures from bosses seem to be trickling down to the workforce.
And there’s no better example of the strange economic intersection between growth and the headaches it creates than real estate. Local job growth has created steep demand for places to house both corporations and consumers.
A limited supply of real estate to buy or rent, though, has driven prices to sky-high levels and limited choice and closed transactions. Thus, the Big Orange Property Owner Index has fallen in three out of the last six quarters as real estate costs stretch buyers’ and renters’ ability to pay up.
The steep cost of living may be costing Orange County growth.
The Optimistic Spin on Housing
Ignore the possibility of rising rates, and everything is great!
One housing expert says housing sales are increasing, and the CEO of KB Home agrees with her, kind of.
Housing expert Ivy Zelman had some good news, here on CNBC, after existing home sales rose to 14.7% in December, a record monthly increase.
According to the piece:
Ivy Zelman thinks today’s report is indicative of the sector as a whole. While Wall Street experiences record volatility swings, the housing market is in good shape. Zelman notes that inventories are at 30-year lows, while affordability is at record highs. She argues that people — especially millennials — are thinking about buying homes again, which will continue to drive up demand and sales. So while the sector has been recovering since 2012, there is still a long way to go.
KB Home CEO Jeffrey Mezger tells ABC that housing markets are not fully “normalized,” but there’s nowhere to go but up.
“We’re bullish in that the housing markets have a long way to go to get back to historical levels. As much as they’ve improved, there’s still a lot of room to run. Between our backlog position and our communities that are open and the way we’re performing, we’re projecting continued improvement in revenue, margins, profit — all the metrics,” he said.
Mezger added that affordability is “compelling” right now.
One market that undoubtedly agrees is Orange County. After years of destabilized housing shifts, one local publication said the market is back to normal.
The Orange County Register article, written by Jeff Collins, cites several exact examples and uses some great data to back up the claims:
The full-year median – or price at the midpoint of all 2015 sales – was $610,000, figures from Irvine housing data firm CoreLogic show. With sales totaling 36,588 homes, 2015 was the second-busiest year since the recession.
On the other hand, last year’s 4.8% price appreciation rate was the lowest since 2011.
And despite last year’s 7.4% gain, 2015 transactions lagged behind 2013’s tally and were 13% below average, CoreLogic figures show.
The Republican Establishment Is Losing at Its Own Game
A little more than a month ago, Ted Cruz tweeted: “The Establishment’s only hope: Trump & me in a cage match.”
Today, the cage match is well underway. And as Mr. Cruz implied, it’s exactly the sort of event that could lead to a late shift in the Republican race, much in the same way that John Kerry surged as Howard Dean and Dick Gephardt attacked each other in the weeks ahead of the Democratic Iowa caucuses 12 years ago.
But the establishment-backed candidates aren’t taking advantage. They’re locked in their own cage match.
Their internecine attacks are only the latest example of how the party’s establishment isn’t merely being beaten — it’s failing to take advantage of the strengths that usually allow it to decide the nomination.
The G.O.P. establishment is at a disadvantage against outsiders across nearly every dimension of primary strength, even on the matters where the establishment usually has an edge, like fund-raising, media coverage and support from moderate voters in blue states.
What’s even more remarkable is that the party’s weakness comes when it would seem to have tremendous incentives to coalesce behind a single mainstream option. Rarely, if ever, has a party faced such a credible threat from true outsiders, and yet the Republican establishment is both split and on the sidelines.
It’s a challenge not just for the mainstream of the party, which is in serious danger of losing the party’s most coveted prize to a candidate it dislikes (Donald Trump or Mr. Cruz), but also for analysts trying to make sense of an unusual nomination fight.
How much is the outsiders’ strength a reflection of the weakness of the establishment, the strength of a unique candidate like Mr. Trump or an unusually angry Republican electorate? That can be hard to untangle.
Many people who typically vote for the GOP, including some who vote for the democrats, have had it with the establishment. If the GOP nominated anyone outside of Trump or Cruz, I would simply not vote come election day. There’s millions of us who feel this way. This is the very reason why we do not have President Romney now. Obama is the current president, but it sure has nothing to with him being a success, and it has everything to do with the GOP nominating insiders who protect Big Banks, Big Business, Wall Street, Open Borders, etc …
Trump is likely going to become the next president … I hope he goes to DC and ravages the place.
The more the establishment bashed Trump, the more powerful he becomes.
Prediction from 1996:
[S]ooner or later, as the globalist elites seek to drag the country into conflicts and global commitments, preside over the economic pastoralization of the United States, manage the delegitimization of our own culture, and the dispossession of our people, and disregard or diminish our national interests and national sovereignty, a nationalist reaction is almost inevitable and will probably assume populist form when it arrives. The sooner it comes, the better… [Samuel Francis in Chronicles]
http://theweek.com/articles/599577/how-obscure-adviser-pat-buchanan-predicted-wild-trump-campaign-1996
I thought Obama’s election in 2008 was this populist moment, but he didn’t move far enough to the left to quell the unrest. The problem is so bad it has crossed over to the political right and now propels both Bernie Sanders and Donald Trump. Populist discontent will drive the 2016 election.
Are We Headed for Recession?
Source article loaded with links and charts
People who ordinarily ignore economic forecasters are eager for whatever intelligence they can glean. What’s grabbed their attention is the January plunge in the U.S. stock market, the worst two-week start on record. If the bears are right, profits and economic growth in general are going to be weak in 2016. Even if the bears are wrong, the drop is making investors less willing to spend. Nobody knows what’s going to happen next. “The fact that economists have a particularly poor track record of calling turning points in growth only adds to underlying anxiety,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities, wrote to clients on Jan. 19.
Weakness is emanating from China, where pessimism has driven stock prices down 40 percent since June, vs. a decline of 12 percent in the U.S. With trade declining, there’s been a sharp drop in the Baltic Dry Index, a measure of cargo shipping rates. Oil prices are also down, reflecting not just an increase in supply but falling demand. That’s bad for businesses and workers in the U.S. oil patch. One way trouble abroad gets transmitted to the U.S. is through a rising dollar. When other economies weaken, the world’s investors flood into the U.S. in search of higher returns, buying dollars as they do. The strong dollar is already showing up in a decline in import prices
—bad news for U.S. companies that compete with imports. The Morgan Stanley Business Conditions Index fell this month to its lowest level since February 2009. Ellen Zentner, Morgan Stanley’s chief U.S. economist, headlined her report, “Losing Faith.” Auto sales, which had been climbing steadily for years, have fallen from their peak. Manufacturers, more sensitive to trouble abroad because of their reliance on exports, have seen a sharp drop in their main index of activity. The economies of more than 9 in 10 U.S. counties
still haven’t gotten back to their prerecession peaks. Analysts estimate that profits of Standard & Poor’s 500 companies
in the last quarter of 2015 had their biggest drop from the year before since 2009, according to data collected by Bloomberg.
While all this is going on, the Federal Reserve has its finger on the interest rate trigger. The Federal Open Market Committee has already raised the federal funds rate target once, to a range of a quarter percent to a half percent. The midpoint of the “dot plot” of Fed officials’ forecasts is for the federal funds rate
to reach 1.25 percent to 1.5 percent by the end of 2016, a level that bears think could stop the fragile U.S. expansion.
“What’s grabbed their attention is the January plunge in the U.S. stock market, the worst two-week start on record.”
The recent plunge in the stock market happened to occur during the first two weeks of the year, not as a result of a change in the calendar. The stock market has fallen much farther than this during a single day, it just didn’t occur during the first week of January. Please stop reporting this non-story, it just makes the reporter look stupid.
“Weakness is emanating from China, where pessimism has driven stock prices down 40 percent since June, vs. a decline of 12 percent in the U.S.”
Stock prices were over-inflated by at least 40 percent during the last two years as a result of the Chinese government propping up the stock market. Keeping consumer prices too high for too long is recessionary for the consumer economy. Why is this any different for Chinese stocks? Allowing stock prices to find their appropriate level will discourage mal-investment in speculative companies.
“With trade declining, there’s been a sharp drop in the Baltic Dry Index, a measure of cargo shipping rates.”
The Baltic Dry Index has fallen because the supply of ships that carry bulk material supplies has risen, not because demand has fallen. Take Uber, for example. The supply of drivers has driven down rates for cab companies, not a drop in riders as a whole.
http://www.forbes.com/sites/timworstall/2015/11/20/dont-abandon-ship-what-matters-is-why-the-baltic-dry-index-is-falling/#772f23524cd0
“Oil prices are also down, reflecting not just an increase in supply but falling demand. That’s bad for businesses and workers in the U.S. oil patch. ”
Except for seasonality, demand hasn’t been falling. Demand is at about 94.6 million barrels per day for 1Q2016 vs. 93.5 a year ago and 90.7 3 years ago. Excess global oil supply has been rising by 2.5 million barrels per day for the last 24 months. The oil business is a boom and bust sector. It always has been. The lack of job security along with the difficult and dangerous nature has driven salaries to a relatively high level. While falling oil prices will like harm this sector, that doesn’t mean the overall economy will fall into recession.
https://www.iea.org/oilmarketreport/omrpublic/
“One way trouble abroad gets transmitted to the U.S. is through a rising dollar. When other economies weaken, the world’s investors flood into the U.S. in search of higher returns, buying dollars as they do. The strong dollar is already showing up in a decline in import prices — bad news for U.S. companies that compete with imports.”
Even “U.S. companies” import a lot of their raw materials, piece parts, or even large scale sub-assemblies. Many “foreign” companies like Honda, Toyota, and BMW, have significant assembly plants in the US. The engines and other major components are imported and assembled at US plants. If the cost of the major components drops, then salaries can rise for US assembly workers. The higher salaries for US assembly workers then go farther when the put gas in their tanks, and buy imported goods with a strong dollar. It’s not all that clear that a rising dollar is bad.
“Auto sales, which had been climbing steadily for years, have fallen from their peak. Manufacturers, more sensitive to trouble abroad because of their reliance on exports, have seen a sharp drop in their main index of activity.”
Not sure what to say about this except: check your facts. Sales may have fallen since November 2015, but that happens every year. It’s hard to project YOY change based on MOM seasonal decline. Even without seasonality, auto sales don’t rise steadily month-to-month. And besides, fewer cars sold doesn’t mean lower profits. It really depends on the sales mix. If more profitable cars are sold because gas prices have fallen, then profits can rise significantly even if volume falls significantly. See the US housing market, for example.
http://www.wsj.com/articles/auto-industry-looks-for-bumper-year-in-2016-1451659667
“Economic signs point to 2016 being the healthiest domestic auto industry in decades thanks to an improving labor market and low interest rates greasing U.S. demand. Cheap gasoline also is spurring sales of more profitable trucks and sport-utility vehicles, while the average cost of a vehicle sold is rising enough to offset rising sales incentives.”
Falling oil prices has hurt profitability for energy companies and their suppliers in 2015. This has already played out. The story in 2015 will be either stable or rising energy industry profits.
“Analysts estimate that profits of Standard & Poor’s 500 companies in the last quarter of 2015 had their biggest drop from the year before since 2009, according to data collected by Bloomberg.”
The rising dollar has hurt profits by other companies with significant foreign operations as they translate those sales back into US dollars. It’s not that sales have fallen, just that the dollar equivalent of sales revenue has fallen. And what happened to S&P500 earnings and profits in 2010?
The collapse in commodity prices has adversely affected the energy (down 71%) and material sectors (down 32%), while telecom services and consumer discretionary are up 19% and 9%, respectively. If you look at online retail (up 63%) and hotel/resort/cruise (up 40%) you start to get a whole different picture of what corner the economy is turning.
In 2008 it was easy to look at the glass half empty and see more reality than projection. Now in 2016, it’s easier to look at the glass as half full and see reality. There are always economic indicators that point up or down. If they all pointed up or down at the same time, that would probably be a good contrary indicator that the economy or the market was about to do the opposite.
Personally, I believe the economy will do well in 2016 — at least as well at the federal reserve will allow. Inflated asset prices are a different story. While the economy does well, asset prices will be volatile, and the crap supported at artificially high prices over the last eight years will finally be allowed to fall.
Why Does Pessimism Sound So Smart?
“For reasons I have never understood, people like to hear that the world is going to hell,” historian Deirdre N. McCloskey told the New York Times this week.
It’s hard to argue. Despite the record of things getting better for most people most of the time, pessimism isn’t just more common than optimism, it also sounds smarter. It’s intellectually captivating, and paid more attention to than the optimist who is often viewed as an oblivious sucker.
[That’s because the media is full of oblivious suckers who get coverage for spouting mindless, optimistic nonsense. Just read anything out of the NAr or realtor.com, and see what I mean.]
It’s always been this way. John Stuart Mill wrote 150 years ago: “I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage.” Matt Ridley wrote in his book The Rational Optimist:
If you say the world has been getting better you may get away with being called naïve and insensitive. If you say the world is going to go on getting better, you are considered embarrassingly mad. If, on the other hand, you say catastrophe is imminent, you may expect a McArthur genius award or even the Nobel Peace Prize.
In investing, a bull sounds like a reckless cheerleader, while a bear sounds like a sharp mind who has dug past the headlines.
[Which is generally true.]
Yep, from 2009-2011 it was cool to be a housing bear, and those of us refuting that and telling others to buy at the bottom were ridiculed for being clueless shills. It turns out that following the cool crowd is a costly mistake in investing.
Classic ‘cart before the horse’ mumbo jumbo 😉
ie., before the so-called “bottom” you speak-of can be fully validated, the low MUST be re-tested/hold AFTER the QE/ZIRP “temporary emergency measures” era has ended.
Oops!
Great, because I’d love to pick up more property at those prices.
I agree with that sentiment. The 2012 housing market bottom prevented me from picking up several more properties.
That being said, buying from 2009-2011, particularly in California was too early. You’re fortunate you didn’t end up like the people who bought in 1992 who waited 6-8 years before rising above water.
I was a little early but the benefit of that was we were able to take a full 3 weeks to evaluate our property without fear of other bidders swooping in. We were actually pursuing another property ahead of the one we bought, went into escrow on that one, and backed out after the inspection turned up some nasty issues. Then we spent some days walking the neighborhood and interviewing neighbors before finally submitting a bid on our house.
That entire time I wasn’t worried about competition from other buyers because there were no other buyers. When we finally did make an offer my Redfin realtor was horrified and the seller was angry… LOL. But eventually he got over it and accepted our offer because it was heading into the slower Fall season and he was starting to get anxious.
Those conditions ceased to exist in 2012. The ability to fully evaluate a property without engaging in a bidding war was pretty much non-existent by then. So even though the deals were slightly better (5% cheaper on average) the amount of buyer’s remorse was probably a lot higher at that time due to the increased competition from other buyers.
*QE; residual momentum of QE pulling future demand/price forward to today(transitory)
*Pan-Asia–>US capital flows parking cash/borrowed cash(transitory)
*Tin-horn thief’s from around the globe parking cash in places like Cali, NY, Miami(transitory)
*Inventory squeeze(transitory)
*lowering credit standards(transitory)
As a result, the pool of those being “trapped” in homes continues to fill-up.
The biggest fear these people should have is the rising cost of debt. If buyers can’t afford prices high enough to allow them escape, they will remain trapped, and as borrowing costs go up, the pain of being trapped will get worse.
In home ownership as in much of life expectations are very important. People who bought homes expecting rapid appreciation and a move-up to luxury housing, or a sale to reap a gain and move out of the area are of course disappointed. People who were looking for a place to live that served their needs well should not be disappointed. They have enjoyed 10 years of life in a nice home. Could they have achieved the same thing by renting? Maybe, but there is no way to know that with certainty. Over five years ownership is an uncertain proposition (though over many five year periods it has been a good idea). Over 10 years I think an analysis of post-war data, at least in So Cal, would show it to be a good idea – provided you can afford the home. Part of the secret to happiness in life is wanting what you get. It’s always nice to get what you want, but that is not always possible.
There have only been two 10-year periods since WWII when owning was not a good idea. The first was from about 1990-1999, and the second was from 2006-2016. Basically, if you don’t buy into the peak of a housing bubble, owning is generally the better choice.
Im surprised that you included all of 2006-2016. Can you explain why exactly?
Well, I bought a condo in 2006 that is just now getting back above water (still not to where I purchased it though).
Well I guess the point I was trying to make was if anyone bought in early 2012, they are sitting pretty right now in 2016.
[…] The housing bubble severely disrupted the housing market. It prompted many people to buy into a market frenzy and many others to refinance their homes at peak price levels. As a result, many people were trapped beneath their debts when house prices crashed. (See: Millions of homeowners trapped in entry-level homes for over a decade) […]
[…] The housing bubble severely disrupted the housing market. It prompted many people to buy into a market frenzy and many others to refinance their homes at peak price levels. As a result, many people were trapped beneath their debts when house prices crashed. (See: Millions of homeowners trapped in entry-level homes for over a decade) […]