Let me start out by saying that I live in one of the four boom and bust markets, California, Nevada, Arizona and Flordia (CA) and we have seen lots of oppertunity early on in 2009. Back in 2009 prices came down to more reasonable numbers. The reason for this post is supposedly we are in a housing recovery now according to the news talking heads.
Lets examine what is happening now:
- House prices are still low
- One can still get loans
- Mortage rates are low
- Inventory is low
- House filliping is back
- Stock market is suspect
- Investors are competing for lower priced homes
- First time home buyers still cannot afford a big price – maybe up to the median
In this post I’ll talk about each bullet point… maybe you will see why this is NOT a real recovery right now from my perspective.
Low House Prices: In the mid-2000′s everyone started realizing that to afford a home – they were going to need some creative financing, especially the mortagage companies and congress. While I don’t have any specifics everyone knowingly or unknowing colluded in “creative financing” so ever more expensive homes could be “affordable” to people that could not afford them.
This is the main reason that prices are going to stay low I think because if they get too expensive – the number of possible buyers will decrease with no “creative” loans available.
Loans: While “creative” loans are not avaliable – FHA still is around as an option for first time home owners. Unfourtainally as our agent always tells us – “Cash is King!” Then convential and then FHA loans are considered by sellers. Convential loans now require a higher credit score. Kind of a catch 22 – to get the higher credit score – owning a home makes easer to get it.
Mortage rates: Yes the loan inerest rates are very low now so there are many buyers that since the job recovery has started – are having more confidence to try and buy the American Dream (home ownership)!
Inventory is low: Yes in most areas there is not much to look at. One one zillow page I saw a page to see if you are in a buyers or sellers market. Interesting that the difference in one metric (time on market) seemed to be one month to go from sellers to buyers market. The thing that evaluations like this seem to leave out are the investors.
Houseflipping is back: Did you see that? House flipping is back! In the old days an investor had to hold on to a home for a while before he could resell it… that was not an issue because with prices inflating due to “creative loans” – he was sure to make money from apprecation even before any improvements! Now home price discounting for cash and improvements mean that flipping is back!
Stock market: I don’t know if you’ve noticed but the market has basically gone sideways for the last decade. It seems like some investors are hopping off the stock rollercoaster and investing in homes as landlords in droves. Apparently even some mutual funds according to the news.
Investors: As I’ve already said – Cash is King. Investors nowaways are buying homes at a discount and flipping them fast. I think the rules about holding on to homes for a certain legnth of time have gone away. That mean only the supply of new homes limit investors’ ability to make more money. Arguably it is good that some have figured out a niche to make money in this economy.
First time home buyers: All of this mean while mortage rates are at historic lows, the average first time home buyer cannot find a home to buy in many cases. He/she has to compete for the lower than median priced homes with cash investors in a reduced inventory situation.
Luckily since the garbage loans (creative loans) are gone – home prices can only go up so much. Eventually assuming the economy does not go into the tank (meaning jobs are lost in a new recession), rules again will tighten again to allow new family and other first time home buyers to get into the housing market.
I’m not saying that first timers cannot do it now – I’m just saying the deck is stack against them for all of the reasons above. In late 2011 I noticed that San Diego transitioned to a sellers market. When we tried to buy a home – all of a sudden instead of two or three other offers (like 2010) – we started seeing 20 other offers.
So no matter what the news says – there is NO HOUSING RECOVERY YET!!!