Posted on 08/04/2015 7:15:45 AM PDT by SeekAndFind
People complain about high prices when theyre buying, not when theyre selling, and thats why housing bubbles are always politically popular: The sort of people who own homes are the sort of people who vote and volunteer on political campaigns and make donations. And the fact that tax revenue tends to increase as housing prices rise doesnt go unnoticed by the nations mayors and governors. Renters tend to have more sensible views youll never hear a renter say, Hey, my rent is doubling this year thats awesome! The economy must be doing great! But nobody listens to them.
And thats why weve inflated a second housing bubble.
In some ways, the current housing bubble is even more bonkers than the last one which, if youll recall, sorta-kinda almost destroyed the worlds financial system.
As of this writing, the median U.S. home price is just 3 percent shy of its 2007 peak. (Existing-home prices already are at a record high.) But that does not even begin to capture the story. In San Francisco, the median price of a single-family home has doubled since 2012. The median San Francisco home is now nearly $1.4 million, or 50 percent higher than it was at the peak of the last bubble. The median household income in San Francisco is about $77,000. Put another way: The median home price in San Francisco is now 18 times the median household income.
Does that sound like a stable position to you?
Elsewhere in California, a less dramatic version of the same situation can be found. In a dozen or more Los Angelesarea ZIP codes, housing prices today exceed their levels during the bubble, mostly in high-income areas such as Irvine and Los Feliz.
It isnt just California. Prices in Austin are up 13 percent in one year; central-Florida prices are up 28 percent in a year; Chicago prices climbed 11 percent in six months; in Texas, prices are up 8 percent for the year; in greater Seattle, prices are up 10 percent for the year, the median crossing the half-million-dollar mark for the first time.
If the value of your home has improved dramatically, take a momentary break from dreaming about what youll do with that money once you cash in and ask yourself: Why? Why is my house today worth twice as much as it was five or six years ago? Its five or six years older, for one thing, and unless you are in possession of a charming New England stone colonial, houses are not like wine, growing better with age. Maybe home prices are up because of good ol supply and demand, with housing construction failing to keep up with population growth. No, thats not it, either: Housing construction is soaring, up 26 percent since last summer; needless to say, the number of U.S. households is not up 26 percent since last summer, executive amnesty be damned. Its not like a bunch of old houses disappear from the market in a flash SMOD 16 doesnt arrive for a while yet. Its not like weve all put in Snaidero kitchens and saltwater pools; most of us havent done much of anything to our houses (and some of you really need to).
So, why the high prices?
There are local forces at work: San Francisco, having been governed exclusively by progressives for a generation, has been transformed into precisely the sort of place that progressives say they fear: The one in which the multimillionaires and billionaires effectively run everything, a city in which a family of ordinary means has practically no hope of achieving such a small thing as owning a house with a little yard for the children to play in. California urban anthropology is a fascinating subject, a grand collision of big technology paydays, liberal self-segregation (Welcome To West Los Angeles: Poor People, Please Make the First U-Turn), geographic realities, epic NIMBYism, etc. It is probably going to end badly it is difficult to see how the difference between median income and median home prices in San Francisco, or in California generally, can be sustained but we probably dont need to worry too much about mid-level Google employees defaulting on their mortgages.
But most of the country isnt very much like the Bay Area, and when house prices are rising at 6 percent or 7 percent a year (and rents rising even faster) while U.S. incomes are growing at their slowest rate at any time since Beyoncé Knowles has been walking the Earth (NB: Beyoncés income is doing just fine, thanks: She just spent $300,000 on a pair of diamond-encrusted stilettos from House of Borgezie) it isnt supply and demand at work.
Instead, housing prices are going up for the same reason that college tuitions are: because the government facilitates lending people money at concessionary rates to purchase them. The Fed has, despite the occasional sobering gander in the direction of reality, been keeping the cheap-money sluices pretty much wide open. The federal regulators have loosened their grip over Fannie Mae and Freddie Macs lending activities, and, according to a Fed report released Monday, banks are once again loosening up their lending standards.
This ended badly the last time. Itll end badly this time, too.
Kevin D. Williamson is roving editor at National Review.
yes, low interest rates (due to, and intended to ameliorate, the economic depression) and loose lending do tend to artificially prop up realty prices
but
the author discusses California real estate without a single mention of the one primary factor driving up California real estate prices, namely
foreign money (mostly from Communist China, some from other Asian countries) flooding into California housing ‘investments.’ In some neighborhoods, this accounts for the majority of purchases, but it is a major factor almost everywhere in the state.
Just saying, trying to blame the factors the author cites... portrays a very inadequate picture of what’s going on in California in particular. (If home prices are skyrocketing in places where Chinese, etal “investment” is not a major market factor, such as maybe where? Indianapolis perhaps? Little Rock, maybe?...... if home prices are skyrocketing there, if houses there are pushing $2 million and up a pop, then the author is correct.
There is one big difference between this one and the last one: Rent.
With the last one, the bubble was sucking people out of rental units and apartments. I rented a house for $1,600 a month that, had I bought it, would have cost me over $3,500 a month to own.
This time rents are up too.
The cycle will also be a lot faster this time. It won’t build for ten years. Maybe five.
I seriously doubt there is a real estate “bubble.” If indeed one exists it is not in my middle class neighborhood. There is nothing even comparable to 2008. If ‘roaring’ home sales exist in some locales, it must be foreign money. There is not enough loose domestic money to fuel anything, including recently reported slumping car sales.
Colorado is creating a real estate bubble by increasing the valuations of property to increase tax income. I expect many other states are doing the same. If the 25% of Mexico natives go home that will leave 12 million vacancies in housing. How many OTM are here form south America and the rest of the world?
May collapse in NY, CA, no bubbles in rest of US. Still seeing prices in the 2003-4 levels in much of Florida, outside of the condo madness in Miami. Texas never had a ‘bubble’, with steady price growth, funded by business and job growth in much of the state.
Not sure I agree with this as my home value is a good 20% below its’ peak. Daughter and her husband are currently buying a new house, nicer than mine, for less than my house appraisal. Looking at the author’s examples, I think they have heavily influenced the overall market. I’d like to see more regional and city specific examples with home value brackets. I speculate that there has been far more growth in upper value ranges than in middle and lower ranges. As to health of the real estate market, I like to look at the volume of sales. Most states, counties and/or cities derive income from real estate recording fees. If gross dollars decline, they will either have to reduce personnel and services or look for other ways to take money from citizens. Any of these options will have a trickle effect on the overall economy. Hence the volume of sales can be both an indicator or partial cause of an economic slowdown.
“Instead, housing prices are going up for the same reason that college tuitions are: because the government facilitates lending people money at concessionary rates to purchase them. The Fed has, despite the occasional sobering gander in the direction of reality, been keeping the cheap-money sluices pretty much wide open.”
They have to, it’s the only way to forestall disaster at this point, but unfortunately, every day they continue to do that makes the inevitable coming disaster worse.
I watch those shows too but turn them off when a queer “couple” comes on, which is more and more frequently.
I also don’t understand how young couples, maybe in their mid twenties or younger can afford to buy houses that are $800K and upwards.
Home demand is definitely up, if home construction is booming again.
Home construction is a trailing indicator, because developers never start projects until the home demand starts growing, and it six months or more to complete construction once you start. So if new home construction is already high, that means demand was growing at least a year ago.
Los Feliz mentioned.
I too switch channels when the “odd” couples show up - which again begs the question - why are they pandering to the 1%?
While I agree with some of the points the author is trying to make... much of the data he is quoting is either intentionally exaggerated or wrong which always is a red flag for me. When I looked it up... I found that in some of the areas he has mentioned he has confused the percentage of increase in sales volume with percentage of increase in median prices. More sales activity typically would lead to an increase in prices but not necessarily by the same percentage.
Areas like San Francisco and Seattle have had rapid increases in median prices over the last year which are not sustainable. But housing in most of the country is appreciating at a sustainable rate that is part of the recovery that is happening despite Obama’s policies. This is a good thing because it means that a lot of people who have been under water are finally getting to a point where they could sell their house if they wanted to. That is a good thing for the economy not bad, and certainly not something to be wringing our hands over.
There are plenty of things to be worried about... this is probably one of the items that should be lower on the list unless you live in one of the areas that has a hot market... if you do... sell and use your profits to buy a place without a mortgage.
We’re in Florida and know many mid 20 year old couples who have bought houses.
Housing prices, for a starter home, are affordable. They could get a better deal if they had had time to save up more than the down payment. They are mostly buying houses in the $150Ks that don’t need a ton of refurbishing. $150K doesn’t buy a huge home, but it will buy a 1000-1200 sq ft home in a middle class neighborhood.
They could get a better deal if they could buy a fixer upper, but most of the “fixer uppers” are being bought by investors, and are foreclosure buys, most only take cash.
As far as the young folks regular fixer uppers (that aren’t foreclosures), they’ve saved money for the house and can afford the payment/ins/taxes (which is many times cheaper than paying rent)...but they have no reserve money to “fix up” a “fixer upper.” The bank will only lend them money for the price of the house, no extra cash to fix up.
If you’re a parent selling your home to your child, you can gift equity to the child and their spouse, to the tune of $52,000 ($13,000 gift per parent to child, and per parent to DIL or SIL..I don’t think this is just Florida, but any state.) That helps them have equity in the home, even though it’s newly bought, avoids mortgage insurance added requirement, plus it does not bring down home values of your neighbors just because you’ve decided to give your kid a good deal on the house :)
Real estate values are dependant on interest rates. The interest rates are at their low, and will only go up. This will sap the equity out of homes again. Back a generation or two ago people never considered houses to be investments. They were depreciating assets. We are about to go back to that.
That is one of the primary factors driving up prices in Seattle and Portland also while surrounding areas are appreciating at sustainable rates. As you say the author doesn't even mention it. This makes one wonder how well he understands what is happening in the real estate market.
you are exactly correct.
The Communist Chinese money typically drives up Seattle and Portland in the last stages of pushing up California realty prices (as some Chinese investors decide in each cycle that they’d rather get 4 houses in WashState or Oregon instead of one little old shack in San Fransicko).
Vancouver BC has been another big showcase for Communist Chinese investment (also immigration).
And most recently, some of the PRC money has started going into Texas. This is pretty new for them and the amount seems so far not nearly as great as their plunges into weat coast properties, but you have to expect the PRC people to recognize Texas is where most of the economic growth is in America these days.
The omission of these key facts from the article does indeed, as you say, raise the question of just how knowledgeable the author really is about this subject. Methinks, not very.
Ha, yes in a sense “we” are getting some of that Walmart money back.
To be fair, Sam Walton did try to stock WalMart stores with 100 percent USA goods. They had to abandon that campaign when so many shelves wound up empty due to lack of remaining American manufacturers. Since then, the company has become the leading importer of PRC-made merchandise, of course.
If the Communist Chinese regime re-imposes effective currency export controls, that will reverse the realty bubble into a direct downward plunge, due to the relatively light domestic demand for housing (in real economic terms).
Also, as you say, when interest rates rise again (which will happen if and when the current domestic regime decides they can’t print any more fake paper “money” . So far, amazing as it may be, they’ve gotten away with it. Still ,most of it has been inflating the stock market rather than real estate, if only because the stock market is the banks’ primary investment arena for surplus funds.
My sentiments as well.................
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