December 2014
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Housing Recovery! What Recovery?

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!!!


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4 comments to Housing Recovery! What Recovery?

  • [...] GuideCosts for First Time Home Buyers – Ann Arbor Real Estate BlogFirst Time Home Buyers GuideHousing Recovery! What RecoveryFirst Time Home Buyers Guide .recentcomments a{display:inline !important;padding:0 [...]

  • Prices have become a little more stable here, but that is the best I can say. There are good reasons for lower home prices in my opinion such as being more helpful to younger people with dreams. I feel those of us who were hit with the correction of the bubble should just suck it up for the greater good it brings others if we are in a position to do so.
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  • In Los Angeles, the prices of homes have been rising. I just can’t afford to buy a home in my local area. It may not be a real recovery, but I wonder if there will be some course correction happening in the next year or two.

  • John W. Zimmer

    Hi Katie,

    While I don’t have a crystal ball – some observations are, while home prices are increasing in most areas and unemployment is not as bad – companies still are not hiring like they used to.

    The economy is being propped up with the money flow for now.

    The stock market is heated up based on the money flow.

    The garbage loans are gone for now so that means that as home prices rise – eventually they will reach an affordability ceiling. Unfortunately that is higher than I want to buy right now.

    Home inventories are low so prices are not likely to come back down until home inventories are higher again.

    In Los Angles – home and condo inventory when from (May 2012) 28,925 to (May 2013) 15,697 and asking prices have climbed from (May 2012) 349,475 to (May 2013) 479,000.

    What is out of our control is the economy and the next bubble (bubble is where the buy/sell is out of whack and someone takes advantage at the expense of someone else).

    Our economy could crash if other countries economies crash or any number of unexpected wars, political events and such.

    So this was a long winded way of saying I have no idea if a correction will happen soon… for now the economy has been slugging along and people are starting to spend some money again.

    While renting is not ideal if one can afford to by cheaper than renting (assuming the total cost of ownership vs almost no costs other than rent if renting)… renting has little risk and lots of flexibility (One can move somewhere else for a job opportunity fast if need be).

    Sorry but I guess I did not shed much light on the correction – good luck Katie!

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