Will America Ever Recover From The Housing Crisis
This is advertising, but not blatantly so, and is an informative infographic on the current status of our housing crisis. Will America Ever Recover From The Housing Crisis
Relevant and even prescient commentary on news, politics and the economy.
Something that’s out there in the real estate market, but never mentioned: the transaction costs of selling a home put many more homeowners underwater, or deeper underwater, than realized. Here in Pittsburgh the rule of thumb is to allocate 10% of the sale price to closing costs. That means that the owner of a home with a $180,000 mortgage, who sells the home for $200,000, doesn’t really have any equity in the home, and leaves the closing with $0.
Rdan,
Another garph I found a while back. The housing bubble has not totally died down. If you want to know when its died find the cost of housing in the 1996-2000 time frame (before the dot-com bubble blew and the money fled to houses) and then inflate it at the inflation rate. Or just find the yearly median family income in the area and multiply by 2.5-3.0 to find what teh median home price should be. (The multiple should be 4-5 in some locals like NYC and SF for example).
Once we get back to teh historical line, homes bought in the bubble will still be underwater. And will be for a long time. The idea that we recover to the housing prices of 2005-2006, at the height of the bubble, is silly. If you bought at the high you basically are going to lose money on the deal no matter what you do….
Look at the graph I attached. You have to get back to the historical trend line to be ‘over’ the bubble. And its a long, long way on that trend back to 2006 prices….
Islam will change
I can follow up later this week….
My observation is that lately, at least here in Akron, big money is getting into the “buying 2- 12 unit apartments and single family homes” biz. It used to be possible to buy and fix up a single family home at about $45K all in (i.e., include the cost of purchase and the cost of fixing it up) which grosses about $800 a month. Those opportunities seem to be completely missing since about January. Based on the offers that sellers are no longer accepting, it seems what used to be a $45K all in house now goes for $65K to $80K.
My guess – someone (actually, a number of someones) are paying more for these properties than the rent will justify, unless they are planning to operate as a slumlord and/or are expecting price appreciation to bail them out. I imagine in a few years there are going to be some hedge funds that decided to so buy a lot of rental properties that are going to be sitting on massive losses, though I also imagine they have great accountants.
My finance friends tell me that in some markets, not all, there is some momentum in housing as younger people begin to worry that prices will go up as the market recovers.
Not widespread enough, perhaps not yet a trend, but perhaps a small ray of light in an otherwise dismal picture.
My answer to everything is re-balancing power in America’s post apocalyptic labor market.
Only (roughly — not working from a lot of precise stats here) 90-97 percentile incomes have kept up with the doubling of average income since 1968. Median wage has remained essentially stagnant since 1973 (at least roughly).
Like I said to my family doctor about median wage stagnation: “Who is going to pay you as medical costs grow due to medical progress? Ballplayers who get contracts that could build half a stadium — $245 million for one shortstop — don’t have 1000 livers to fix.”
Ditto for paying off family housing once the bottom dropped out. Shift income share back from the top 3% to the bottom 90% — causing plenty of inflation along the way which happens to get homes back from underwater nominally; which works — and people will have enough money to pay off their mortgages.
Legally mandated sector wide labor agreements — where every worker in the same occupation in the same geographic locale works under a common contract with multiple firms — is the only worldwide, decades proven way to balance a labor market and insure adequate political punch for the average person.
But somebody has to start the national conversation on the topic.
Freaky evolution of behavior theory (sociobiology)?: Individual gathering (nuts and berries) human females can think for themselves and are willing to consider and promote any practical idea solely on merit. Little hunting pack human males (Jamie Galbraith, Dan Crawford? :-]) find it impossible to promote anything that is not already on the table of the giant hunting pack of 300,000,000 — no matter how practical or desperately needed or in fact easy to sell. The one and only true solution ejects from their right ear faster than it arrived in their left ear. Gone.
wrt housing, we’re going to enter a period of maximal demographc pressure soon, with the baby boomers, gen x, and gen y all competing for housing.
Gen y is the same size as the boomers, and they are turning 30 now.
Excluding immigrants, the age 25-35 demo peaked in 1989 at 42M this was the peak of the baby boom). 2006 was the minimum, at 32.2M. 2012 shows a rising population, now at 36M.
By 2030 we will be up to 40M, and 2040 should see us at 44M.
Adding in actual net immigration would increase these numbers dramatically, especially in high-immigrant markets.
So the demand fo housing is certainly present. What we have is a price problem. And with low interest rates, what this really is is a price-of-land problem, which is odd, since land is free.
Demand assumes the ability to pay — not just to need — which no longer coincide in the post apocalyptic American labor market (weakly named by academic progressives as “inequality” — “Does inequality matter?”; try “Does the great wage depression matter”?).
Everywhere I look rentals are being converted to condos — and the portion of the population who cannot afford to buy is being squeezed into fewer and few units — for accordingly higher and higher rents. Help!
That portion that cannot afford is no longer few at the bottom — but perhaps at least half — the median wage not having grown much since 1968, from whence average income doubled.
Valuations will eventually adjust to the market-clearing price.
Unfortunately, the market is being distorted by investors and speculators buying up the supply.
What happens to rents this decade and next is the interesting question.
If the Republicans win their policy preference of shifting taxes onto the masses (“broadening the base”), while cutting spending ON the masses (“reform”), well, that’s pretty deflationary to rents IMO.
Land valuation is a function of simply how much money we can afford to bid up the monthly cost of housing, either via rent payments to a landlord or the loan repayment to a lender.
Valuations can fall a lot further from here. Not sure they will, but they can.
As has been observed elsewhere the housing crisis is also contributing in some (likely difficult to measure) ways to depressing wages. Earlier recoveries have offered workers with opportunities in other cities the chance to move and take advantage. But this recovery is geographically sticky for workers – if you have the bad luck to have an underwater mortgage in AZ, FL, NV, parts of CA etc. you probably can’t unload your house. If you bought at the wrong time you probably can’t rent it enough to cover the mortgage either.
So a crappy housing market also contributes at least indirectly to keeping wages down which… keeps the housing market crappy… among other things…. Around and round we go….
I should add that the newfangled idea that employers should discriminate among applicants according to credit score provides another layer of economic sluggishness. So an underwater household can’t even choose to default or BK their way out of a bad house purchase to get back into recovery. Smell the freedom!
AS,
The way around this is to get the job (and the move) and for the employe to move ahead of the family. He/she arrives, starts work, and buys a new house with the great credit he still has (or rents ect) and then BK on the old house. If in non-recourse states (see real estate attorny) they just mail in the keys. Timing is everything…
Islam will change
No, competent macroeconomic, lending regulation and housing policy is everything.
People should not have to choose between their credit ratings and taking a job. Employers shouldn’t be able to discriminate against job candidates because they are having trouble paying their bills.
I don’t expect to convince you, I half regret wasting the time to read you much less respond.
AS,
The government discriminates this way all the time (at least the Feds do).
I agree competent policy is everything. And we are not seeing it with Obama for sure.
But I was just pointing out a way (that is being done BTW) around the issue you pointed out. You can read the housing bubble blogs for this and other advice for getting out from under water homes. Another is to divorce and transfer the house into one of the partners names during that and then have that person BK, then remarry.
Bottom line, unless we get a lot of inflation to let people pay back their debts with less valauble money (which I would love since my mortgage is fixed at a very low rate!) they are not getting out from being underwater. See that chart I posted.
Now add the huge student loan debts and you have a real whopper of a problem.
Islam will change
So to net it out the best way to fix a scam is another scam. Gotcha.
AS,
Basically – yep. The other choice is to hunkerdown and pay down the principle until you get out from being underwater. Short of Volker type inflation, burning your savings (if any) or BK there is no other options. If you are $100K underwtaer on a $500K (when bought now worth $400K) there is not many other choices…
For whatever reason , some people went out on a limb and bought houses well past their ability to pay. I remember when I moved to DC (’95) the horror stories of guys (in the military) who had to show up with $20,000-$30,000 at closing becuase their houses were under water. Everyone was told to rent….so I bought.
Islam will change