The Housing Market

[LFC]

The housing market has been insane but it’s particularly hard for those trying to buy a starter home. It’s estimated that there is a 4 million home shortage for that market segment. This article cites multiple reasons but the price of land in the areas where people actually live may be the biggest.

www.npr.org/2021/09/04/1033585422/the-housing-shortage-is-significant-its-acute-for-small-entry-level-homes

[goldenvalley]

Sept 6, 2021 14:45:14 GMT LFC said:

The housing market has been insane but it’s particularly hard for those trying to buy a starter home. It’s estimated that there is a 4 million home shortage for that market segment. This article cites multiple reasons but the price of land in the areas where people actually live may be the biggest.

www.npr.org/2021/09/04/1033585422/the-housing-shortage-is-significant-its-acute-for-small-entry-level-homes

It's certainly true here.  And what there is of it is snapped up quickly.  When kid #1 and husband were looking for a starter the few houses there were were sold for asking price or above within 48 hours.  Multiple bidders.  When you need 20% down to get a mortgage going above the asking price is almost impossible.

[Rue Bella]

A house at the bottom of the hill went on the market a week or so ago. House about 60 years old, no view, fixer-upper, significant foundation problems, no landscaping of note - 1.3 Million. Quiet area, close to things, good weather. Would be a perfect starter home for someone willing to put in some sweat equity. But who just starting out can afford that?

[Bact PhD]

This area has been borderline nutso for decades, as we get the expatriates from the even crazier housing market of South Florida,¹ as well as the college kids who liked the area so well they decided to stay beyond graduation. In the housing boom of the early 'aughts, homes appreciated at something like 15% a year, and that was with fairly robust building of both single-family and apartment homes. Although the Great Recession did a number on housing prices, and we still have a few "zombie subdivisions" kicking around, building has returned with a vengeance since 2012 or so. Both in the early 'aughts, when we newlyweds were buying, and now, much of the newer construction has skewed to upper-middle to high end. In one newer planned community not far from me, the newly-built sub-2000 SF homes on what I call "postage stamp" lots go for pushing $400K.

Over the last few years (roughly since Dear Daughter graduated HS), the area has also sprouted "bedroom communities" well away (15+ miles) from the main employment centers featuring newly-constructed and slightly smaller (1500-1800 SF) homes and smaller yards. These properties are running on the order of $280-300K; of course, the drawback is the longer commute (the traffic is on regular streets, not interstates, and is bumper-to-bumper at rush hours; public transportation is nonexistent until you get to the city limits). Still not the article's definition of a "starter home" by a long shot.

Although there's been talk in local government circles about "affordable housing" closer to the major employers since I moved here a quarter-century ago, and an awful lot of housing intended to cater to the college crowd (and their wealthy parents) has gone up, tangible results on the "affordable" front aren't apparent.

In my "Brady Bunch"-era neighborhood, the flippers have been a factor this last half-decade. There have been two just since the first of the year; in both instances, the flipping LLC probably made bank after expenses -- just a hunch. The younger couples/families are buying the houses up, too, at or somewhat over asking price. Interestingly enough, there has even been one couple who bought a "handyman special" who seems to be doing the bulk of the fixer-upper work as a DIY project, and it looks like the family actually resides in the place.

¹Down there, a fair chunk of the properties that once had "starter homes" or even "winter cottages" from the 1950s & early '60s on them have become "tear-downs", now featuring (IMO) hideous McMansions.

[Bact PhD]

Sept 8, 2021 2:57:40 GMT Bact PhD said:

This area has been borderline nutso for decades, …

[snip]


In my "Brady Bunch"-era neighborhood, the flippers have been a factor this last half-decade. There have been two just since the first of the year; in both instances, the flipping LLC probably made bank after expenses -- just a hunch. The younger couples/families are buying the houses up, too, at or somewhat over asking price. Interestingly enough, there has even been one couple who bought a "handyman special" who seems to be doing the bulk of the fixer-upper work as a DIY project, and it looks like the family actually resides in the place.

Update re this particular “handyman special”: It just listed a weekend ago, after about 2 1/2 years under the present ownership. Purchase price in 2019, ~$225K. Listing October 2021, ~$455K, and under contract after barely a week on the market.

[LFC]

Meanwhile China's housing market is massively overbuilt. Either that or much of it was built in the wrong places.

If you drive an hour or two outside Shanghai or Beijing, you'll find something odd. The cities are still tall, and they're still modern. They're also, generally, in good condition. But unlike their bustling, Tier 1-city counterparts, they're basically empty.

These are China's ghost cities.

Their existence has been well-documented. In one prominent example, CBS' "60 Minutes" ran a 2013 segment on China's ghost towns that opened with the correspondent Lesley Stahl on a major road at rush hour with barely a car in sight.

But as China's real-estate market has risen to the forefront of the global conversation with Evergrande's $300 billion debt looming large, so, too, have ghost cities become a renewed source of interest. While they're a testament to China's reliance on real estate as a driver of economic growth and in its belief in the sector as a safe investment, their exact quantity is hard to define.

In 2015, the photographer Kai Caemmerer traveled to China to explore ghost cities. His photos show endless rows of high-rises with barely any indication of human life. They're photos, in fact, that might remind people of what locked-down cities around the world looked like during the coronavirus pandemic.

These unoccupied units constitute a significant portion of China's enormous housing market, which is twice the size of the US residential market and hit $52 trillion in value in 2019. Data from the most recently published China Household Finance Survey, which Gan runs, shows that 21% of homes — some 65 million — were vacant as of 2017, The Wall Street Journal reported.

That many empty units could house the population of France.

But unlike parts of the US and Japan, where homes in various states of abandonment and decay have prompted cities and regions to be called ghost towns, China's are different. They're not abandoned; they're just unoccupied.

As Gan put it, these ghost cities are "a unique China phenomenon."

[Bact PhD]

Tech-assisted buying seems to help institutional landlords over first-time home buyers or even “Mom and Pop” investors.

www.bloomberg.com/news/features/2022-01-07/buying-starter-homes-gets-harder-as-wall-street-uses-zillow-to-buy-thousands?utm_campaign=news&utm_medium=bd&utm_source=applenews

A Bloomberg News analysis of more than 100,000 property records shows that Zillow and the two other biggest iBuyers, Opendoor Technologies Inc. and Offerpad Solutions Inc., are selling thousands of homes to landlords backed by KKR & Co., Cerberus Capital Management, Blackstone Inc., and other large institutions. In many cases, those properties are never even listed, further squeezing average buyers out of competitive housing markets.

Two out of 10 homes flipped by the iBuyers last year wound up with investors and other entities, and the rate is double that in some Sun Belt metro areas, where the companies are most active. What’s more, in some of those markets, the flips are happening at a higher rate in communities of color.

The transactions raise questions about the role the iBuyers are playing in a housing market starved of affordable properties, both for rent and purchase. A diverse range of U.S. political voices, from the Biden Administration to the conservative television host Tucker Carlson, have blamed institutional landlords for crowding out regular families. Populist angst over the role investors play in housing has also expanded from Shenzhen to Seoul and Stockholm to Berlin.

[snip]

Bloomberg analyzed flips in census tracts where the median home value was between the 40th and 60th percentile — neighborhoods where properties should be affordable for regular families. In these parts of greater Atlanta, iBuyers were 60% more likely to flip homes to investors and other entities in predominantly non-White areas, compared with those where White people are in the majority. In metro Phoenix, where iBuyers flipped more than 4,500 homes last year, the rate was 41% higher. In greater Charlotte, the iBuyers were three times as likely to do the flips in non-White areas.

Two things made me go Hmmmm. First, voices from both poles of the political spectrum have seen fit to speak about it; second, much of the buy-to-rent is in non-White areas.

[goldenvalley]

Jan 7, 2022 17:57:55 GMT Bact PhD said:

Tech-assisted buying seems to help institutional landlords over first-time home buyers or even “Mom and Pop” investors.



Two things made me go Hmmmm. First, voices from both poles of the political spectrum have seen fit to speak about it; second, much of the buy-to-rent is in non-White areas.

Even before tech assisted buying the institutional investors were buying up CA houses due to the 2008 recession.  Not just in lower income areas, but middle income areas too because so many people were underwater on mortgages.  

In Orange County (SoCal) Zillow realized it was paying over market because it didn't recognize the market was cooling off.  I imagine the institutional investors started to complain and that's why it was discovered.

[Bact PhD]

Yet more about how the investors are elbowing out regular folks who want to buy their first home. Depressing.

www.reuters.com/business/us-existing-home-sales-surge-january-inventory-record-low-2022-02-18/

U.S. home sales unexpectedly increased in January, but investors paying in cash are squeezing out first-time buyers from the housing market amid record low inventory and higher prices.

The surge in sales of previously owned homes last month reported by the National Association of Realtors on Friday also reflected buyers rushing in to close contracts in anticipation of mortgage rates rising further. Investors made up the largest share of transactions in six years last month.

[snip]

"This is the rush to get in before borrowing costs move higher," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. "Unfortunately, first-timers are being priced out of the increasingly expensive purchase."

Existing home sales jumped 6.7% to a seasonally adjusted annual rate of 6.50 million units last month. Sales rose in all four regions, with strong gains in the Midwest, the most affordable region. Sales soared 9.3% in the densely populated South, which is experiencing an influx of residents from other regions as companies embrace remote work.

Economists polled by Reuters had forecast sales decreasing 1.0% to a rate of 6.10 million units.

This jumped out at me (bold mine):

Tight supply is keeping house prices elevated. The median existing house price increased 15.4% from a year earlier to $350,300 in January. Sales remained concentrated in the higher price brackets, where houses are less scarce.

Sales of homes $250,000 and below, the much sought after price category, continued to decline.

First-time buyers accounted for 27% of sales last month, compared to 33% a year ago. Rising mortgage rates could make home buying even less affordable for this group.

Well no shit, Sherlock! Even dating back before the Great Recession, builders were building more and more in the McMansion category than they were in the “starter home” price points. In some markets, sub-$250K = “condo”.

[LFC]

Just ... wow. No wonder housing costs are skyrocketing.

[LFC]

Ritholtz posted this map of where prices are going up and where they're going down.

[LFC]

Cha-ching!

[LFC]

I have to admit, I thought the lines would have tracked closer.

[pnwguy]

Jun 12, 2023 22:13:19 GMT LFC said:

I have to admit, I thought the lines would have tracked closer

I suspect that rents can't rise as fast as mortgage rates have, especially in locations with rent control.

[LFC]

It's interesting to see where housing prices held relatively fast and where they sunk back down. The West Coast had a serious amount of correction but almost everywhere, not just the high-cost urban areas. Idaho, western MT, NV, AZ, and a big chunk of UT too. Other large drops were in red states as well, including WV and eastern TN of all places. It's an interesting map.

[goldenvalley]

Jul 27, 2023 18:41:50 GMT LFC said:

It's interesting to see where housing prices held relatively fast and where they sunk back down. The West Coast had a serious amount of correction but almost everywhere, not just the high-cost urban areas. Idaho, western MT, NV, AZ, and a big chunk of UT too. Other large drops were in red states as well, including WV and eastern TN of all places. It's an interesting map.

In my part of CA the prices went down for two reasons.  1) All the folks that moved from the San Francisco Bay Area to the Sacramento area during Covid. Their moves goosed the prices considerably and a lot of people sold houses to the newcomers because they could get bids that were over asking prices, not because they wanted or needed to relocate. Of course the latter then had to go find a replacement house and they were somewhat scarce which also raised prices. And 2) There was less demand for Bay Area housing once everyone moved to Sac so that area's prices went down too. 

Don't know what happened in the Southland of CA.

[Bact PhD]

And to add more to the pile, insurance costs are increasingly contributing to putting homeownership out of reach.

www.businessinsider.com/soaring-home-car-insurance-rates-hurting-americans-finances-us-economy-2023-11

The financial squeeze facing the Lyndale Street residents isn't unique. The cost to insure major investments like homes and cars has over the past few years been skyrocketing, hitting owners' pocketbooks and trickling down to renters. Because this insurance is often essential, the increased prices are putting a vise on consumers' ability to spend elsewhere. Economists worry that rising property-insurance costs — on top of pressures like student-loan repayment and dwindling savings — could cause many Americans' household budgets to finally crack and hamstring the driving force behind the US economy's sustained strength.

In the constellation of household costs, insurance is often one of the lesser-noticed line items. Insuring your property is often required by your mortgage lender or state government, making the payments feel more like a force of nature than an active spending decision. For years this price for peace of mind didn't feel too burdensome: Insurance rates have been kept low because of a combination of state regulation and companies' desire to attract new customers. But recently the rising cost of repairs and the frequency of damaging weather events have made the deal go sour. Insurance companies are wising up and raising premiums — or in some cases refusing to offer coverage at all.

Research released in August by Bank of America Institute economists indicated the median total cost of home and auto insurance had risen by 18% since 2020. Increases in homeowners' premiums have gotten even steeper in recent years. While the cost of a homeowner's policy varies by state and the size of the home, the average nationwide annual premium at the start of 2023 was $119 a month for a policy with $250,000 in dwelling coverage, according to the financial-data provider Bankrate, while analytics firm S&P Global projected that premiums would grow by 12% this year. Publicly available data indicates 74 million US homeowners have insurance. If S&P's projection proves accurate, then America's homeowners can expect an average monthly payment of $133 to start 2024. That means Americans could pay roughly $13 billion more for home insurance next year. And the costs don't just fall on homeowners: Bank of America Institute found that renters' payments to insure their belongings, including cars, had increased by 8.5% a year since 2020, an almost 28% overall jump over that time.

I can’t help wondering how much further things go before they collapse.

[AnBr]

Housing valuations here are skyrocketing, too. With all of the new big tech moving in, like the two new Intel plants, a couple of new Amazon data centers (and lord knows how many of its warehouses), two new Google data centers, and the newly announced space science park research facility, along with explosive growth, outside investment companies have been buying up residential properties like crazy. This has set property values soaring through the roof. My own house was valued at more than double that of the last period. I am afraid that what was once a place with affordable housing will follow places like the Pacific northwest and areas in CA where there is no such thing as affordable housing.

[jackd]

The cost of insurance is one of the factors midwestern residents moving to Florida to escape income taxes forget and when they get there feel blindsided.

[goldenvalley]

Dec 1, 2023 17:23:43 GMT jackd said:

The cost of insurance is one of the factors midwestern residents moving to Florida to escape income taxes forget and when they get there feel blindsided.

Hurricanes in Florida and fires in California have insurance companies in a panic.  Can't make money when they are paying out on claims.  In the woodsy areas and scrubby areas of California homeowners insurance companies are curtailing any "new" policies and charging a whole lot more for the existing ones.  

[pnwguy]

Even in safer areas insurance carriers are jacking up rates to offset losses in the areas at higher risk of climate calamities.

[Bact PhD]

Anecdote: There does seem to be a limit to what people are willing to pay for a home in my area of Flori-DUH. The house behind us, IMO priced about $75K higher than it should have been, has been sitting on the market for 4 months with barely a nibble. However, several other places, priced more in-line with what I would expect, have gone under contract within 72 hours of listing. More listings in this area are showing “price decrease” next to them, and “word on the street” is that the market here is “softening” a bit.