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People Came Into The Year With A Lot Of Inventory, Because The Fourth Quarter Stopped

A report from CNBC. “Why aren’t builders rushing to put shovels in the ground? Speaking at CNBC’s Capital Exchange event in Washington, D.C., Sheryl Palmer, the CEO of Arizona-based Taylor Morrison Homes put it bluntly: ‘The fourth quarter [of 2018] was probably, holistically, the worst quarter we’ve had as an industry since the downturn, and we ended the year with a tremendous amount of inventory,’ she said. ‘In December, if you were to talk to anybody, there was, potentially, a house was never going to be sold in the U.S. again. It was that bad.'”

“After a robust first half of 2018, consumers were hit with higher mortgage rates, a government shutdown and uncertainty in the stock market, leading them to wonder if it was the right time for such a huge investment. Demand fell suddenly, and builders were stuck holding the bag.”

“Homebuilder sentiment is now rising, and while housing starts rose month over month in April, they were still not as strong as last year and still well below historically normal levels of production. ‘People came into the year with a lot of inventory, because the fourth quarter stopped,’ said Palmer. ‘You can’t just pick up that machine and say, ‘Okay, it’s time again, I need new starts.'”

“‘No one can figure out how to build more affordable without some type of change in either the regulatory structure or some form of additional subsidy,’ said David Brickman, incoming CEO of Freddie Mac. ‘It is just fundamental economics of building. It is very difficult between land costs, building costs, availability, regulations, it’s difficult to get entitled land where people want to live. So cost of building a single apartment unit exceeds what you can rent it out for.'”

“During the last housing boom, builders were mitigating costs by developing land further out from major metropolitan cities. The so-called exurbs allowed them to build a larger volume of more affordable homes, but today’s homebuyers are not like previous generations.”

“‘The consumer dynamic has changed,’ said Palmer. ‘The whole ‘drive ‘til you can buy’ isn’t nearly as attractive as it was many, many years ago when we look at this millennial population, and it’s about a third of our business. They’re choosing to wait until they can buy what they want. They don’t want that hour commute.'”

From Consumer Affairs. “Millennials have helped fuel the rebound in the housing market by purchasing their first homes. But a recent survey by Clever, a real estate website, finds many of these millennials wish they had kept on renting.”

“When it comes to millennial homebuyers, nearly half admitted to having a case of buyer’s remorse. The survey found the source of that stress is mostly financial. Two-thirds of millennial buyers put less than 20 percent of the purchase price down, resulting in large mortgage payments. In addition to paying ore in interest, buyers putting down less than 20 percent also have to pay mortgage insurance.”

“Millennials are also planning to make a lot more improvements to their homes than baby boomers. That may be due to a recent trend of first-time buyers purchasing a fixer-upper to save money. Millennials are planning 49 percent more renovations. They’re also three times as likely to finance the work with a personal loan and twice as likely to use a credit card — both very expensive types of loans.”

“Finally, many first-time buyers may be discouraged by the chores that homeownership brings Forty-three percent admitted to being surprised by the cost of maintaining their homes.”

“Perhaps because of all these things, more homeowners have decided to sell. A Harris Poll conducted for NerdWallet found just over 12.1 million homeowners — 16 percent of U.S. homeowners — plan to put their home on the market within the next 18 months.”

“The reasons are varied, but some sellers point to a changing market. About 44 percent of those planning to sell point to recent shifts in the housing market that are prompting them to sell  sooner than initially planned. ‘Homeowners can see that we’re moving away from a strong seller’s market in many areas. So their feelings and motivations are shifting, too,’ said Holden Lewis, NerdWallet’s home expert.”

This Post Has 49 Comments
  1. ‘No one can figure out how to build more affordable’

    You paid too much for the land Dave, and you are fooked.

    ‘So cost of building a single apartment unit exceeds what you can rent it out for’

    I’ve said this was coming for years. Cap rates don’t include financing. These guys are building holes in the ground into which will go their money.

  2. ‘Demand fell suddenly, and builders were stuck holding the bag’

    I bet Diane made a little brown spot on her ever present skirt when she typed this.

    1. Sheryl Palmer is full of it.

      All of them should just come right out and admit they have zero interest in building affordable homes for the majority of the market any longer. It’s all about luxury for the 1% now.

      1. All of them should just come right out and admit they have zero interest in building affordable homes for the majority of the market any longer. It’s all about luxury for the 1% now.

        Absolutely on the first part – but let’s cut them some slack on the second part – they’ll take anyone who can afford to buy it.

        More to the point, instead of ‘building what the market needs’ being the question the developer ask, it’s “how do we get the maximum possible return?”, which is followed up by “how affluent a buyer can we attract and sell to?”

        Every situation has to be min-maxxed. Maybe we could argue it’s always been that way, but I’m not sure. I think the post WW2 suburbia boom, and I think the focus was on serving as large a slice of the market as possible, rather than trying to identify and cherry-pick only the very most profitable segment.

        I’ve used the Seattle apartment boom as an illustration before. There have been almost no ‘family sized’ apartments built ( see https://seattle.curbed.com/2019/3/5/18252410/seattle-two-three-bedroom-apartment-shortage ). The market is not only screaming for it, but building larger apartments would also address the SFH shortage* by providing actual alternatives within the city.

        If I was a developer, this (3br+ apts) is what I would want to build as there is a much larger pent-up/un-served demand for it than all the other crap being built. But… it (typically) doesn’t generate as much revenue per sq/ft as sub 900sw/ft 1-bed/efficiency units.

        * = all the reddit Seattle young hip liberals (who have yet to have reality crack their skulls open with a sledgehammer) want all the single family homes inside (and out) of Seattle up-zoned, torn down and turned into multi-family townhomes/apartments/condos with zero parking – and can not comprehend that there are normal people who actually want a detached home and no shared walls – they just call them “degenerates” and “deplorables” (while eating $15 avocado toast I suppose).

  3. Funny how we had plenty of “affordable housing” with smaller government, lower taxes, less regulations, higher interest rates, banks eating their own bad loans and government not guaranteeing any mortgages.

    1. in the 1950s-1970’s taxes were higher and we had nice things like new roads, freeways, schools, affordable housing, affordable college, jobs, mfg-ing and airports. not much infrastructure since “trickle down.” That $1 trill per year we add to the debt will break us if rates ever go up back to normal. 70 yr old politicians don’t care.

    2. This isn’t really government’s fault. This is the fault of corporations shifting from producing quality products to seeking ever-higher earnings for their shareholders. That bottomless maw has led to private sector to speculate in the breadstuffs of the country — the prime example of this being land. As Ben says, expensive land is driving a lot of this.

  4. ‘just over 12.1 million homeowners — 16 percent of U.S. homeowners — plan to put their home on the market within the next 18 months’

    Oh dear, and just at the wrong time:

    ‘The reasons are varied, but some sellers point to a changing market. About 44 percent of those planning to sell point to recent shifts in the housing market that are prompting them to sell sooner than initially planned’

    Initially planned? You mean they weren’t planning to put up a picket fence and raise unspecified gender children? Why that means they were really just planning to cash in the sweet equity all along and at the first sign of that going away, they’ve panicked! Attention millennial speculators, don’t all head for the exits at once – orderly people!

    1. Geez sounds like a much of speculators were trying to time the market! Just like you can’t time the bottom, you can’t time the top either…

      1. Top, bottom, left, right, it don’t matter. Just roll with it or be priced out forever!

      1. What grandchildren millennials cannot afford them. If they have children they are already living with their grandparents?

  5. “‘No one can figure out how to build more affordable without some type of change in either the regulatory structure or some form of additional subsidy,’ said David Brickman, incoming CEO of Freddie Mac.

    It matters not, Dave. Once the Fed’s Everything Bubble craters, millions of FBs are going to be mailing in their keys and walking away from their underwater shacks. When banks have to auction off the massive inventory of foreclosures on their books, I’m pretty certain the “affordability” issue will be overcome by events. In the meantime, I think I’ll just recline here on my lawn chair, celebratory adult beverage in hand, and watch the carnage play out as a bemused observer.

  6. “When it comes to millennial homebuyers, nearly half admitted to having a case of buyer’s remorse. The survey found the source of that stress is mostly financial.

    Millennials, who grew up devoid of traditional virtues like financial responsibility and honoring your obligations, will have no qualms about walking away from their underwater shacks.

    1. Investment Radio guy said people are taking on more debt now cause they feel so good about the future and can pay it off. LOL!

      1. Investment radio guy. I just want to take a second and ask how and why people are drawn into these types of ads and classes and programs. It may be my skeptical Gen X nature, but I’ve never thought of any of these things to be remotely viable. I’m fascinated by things like these flipping classes and MLMs and whatnot that draw in the 3am infomertial crowd.

        But what makes this crowd tick? Why do they think they have all of the answers after seeing these commercials and reading the books? Is it loneliness? Maybe they’ll get some money and find a spouse? Respect? Boredom?

    1. “Well, it’s the weather! Plus it’s a waxing gibbous moon AND the Rockies are in fourth place. But next week is the BEST time to buy”

      -Your local UHS

    2. Oh man, the listing for this shack is hysterical. The pix have a DOG spouting realtor talking points. “Ruff ruff! I love this new carpet!” Yeah, I bet that dog loves the new carpet.

      Ugly dog too.

  7. This was just posted on the previous comments:

    New single build on a formerly empty lot here on the central coast of California.

    At this sub $600k price point, this house would have been gone quick two years ago.

    On the market for 365 days.

    Appears to be in pre foreclosure.

    https://www.zillow.com/homedetails/898-Prosperity-Way-Nipomo-CA-93444/108252081_zpid/

    My reply:

    $549,0004 bd5 ba2,000 sqft
    Price cut: $20K (5/14)898 Prosperity Way, Nipomo, CA 93444
    New construction Foreclosure

    4/23/2019 Home in default $441,029 past due
    5/1/2017 Loan issued $375,000

    New construction foreclosure in California. Are we there yet?

    1. MOTIVATED SELLER BRING US AN OFFER! Walk into Sweet Equity in the Lovely New Home in Nipomo!!Featuring over 2,000sqft of open and inviting living space! Living room, family room, dining room are all on the first level. High end finishes throughout. Open kitchen with granite countertops and stainless steel appliances! Great west side location on a huge 10,000sqft lot with park views. Walk to town for some light shopping or visit a local restaurant with a casual stroll from you new home. So many upgrades this is a must see. Builder is ready to get this sold, all reasonable offers will be considered. Make this your Central Coast oasis today!

      https://www.redfin.com/CA/Nipomo/898-Prosperity-Way-93444/home/51607795

      1. Everything in this new shack looks like it’s from the clearance rack at Home Depot. The outside looks like chit, driveway looks like they hired there unlicensed electrician pave it, Sits on a busy ass road which is great for any family that wants there kids to play real life frogger. They should have burned it down for the insurance money and slapped a mobile home on it.

        1. Something about it is screaming “I’m (just) a box” – probably the simple design and exterior walls.

  8. They can build cars people can afford. They can grow food people can afford. They can manufacture electronics people can afford. They can build boats people can afford. They can extract and refine oil that people can afford. They can make clothes and jewelry people can afford. But now for the first time in the history of human civilization it’s just not possible to build affordable housing.

  9. “‘No one can figure out how to build more affordable without some type of change in either the regulatory structure or some form of additional subsidy,’ said David Brickman, incoming CEO of Freddie Mac. ‘It is just fundamental economics of building. It is very difficult between land costs, building costs, availability, regulations, it’s difficult to get entitled land where people want to live. So cost of building a single apartment unit exceeds what you can rent it out for.’”

    – Same result for U.S. .edu. Completely unaffordable for most now and $1.6T steaming pile of student loan debt (taxpayer-backed, of course). Housing, education, healthcare, etc. There are no free markets, so don’t be surprised by the results… Statists rule!

    https://www.merriam-webster.com/dictionary/statism
    Definition of statism
    : concentration of economic controls and planning in the hands of a highly centralized government often extending to government ownership of industry

    “Insanity: doing the same thing over and over again and expecting different results.” – Albert Einstein (misattributed) – Narcotics Anonymous

    – “If you put the federal government in charge of the Sahara Desert, in 5 years there’d be a shortage of sand” – Milton Friedman, Nobel Laureate Economist

    “Nothing is so permanent as a temporary government program” – Milton Friedman, Nobel Laureate Economist

    “Everything a government touches, turns to crap.” – Ringo Star

    “Funny how we had plenty of “affordable housing” with smaller government, lower taxes, less regulations, higher interest rates, banks eating their own bad loans and government not guaranteeing any mortgages.” – 2banana

    – Hit the nail on the head. Need a job framing?

    – Finally, a summary of where we are and the “benefits” of financializaion.

    https://www.oftwominds.com/blogmay19/21st-economy5-19.html
    The Economy Has Fundamentally Changed in the 21st Century–and Not for the Better
    Charles Hugh Smith | OTM | May 15, 2019

    “The family home remains the mainstay of middle-class wealth, but its value is now determined by credit bubbles and busts and the relative burdens of property taxes. In the pre-financialization / pre-neoliberal era, house prices tended to rise by a modest percentage over time, more or less the equivalent of a savings account drawing interest as the homeowner paid down the principal and accrued equity.”

    “Now every homeowner has been transformed into a gambler who must time the market swings when buying or selling. One mistake can wipe out decades of paper gains. How do we quantify this erosion of the reliability and safety of homes’ market valuations?”

    “This happy story of the wunnerful benefits of turning everything into a tradable market is not what actually happened. What actually happened is that the new markets were quickly dominated by monopolies and cartels, and previously safe assets were financialized and securitized, in effect stripmining the unwary of their income and assets.”

    1. You can thank bankers. People like Bernanke, Yellen, Blankfein and Dimon need to die horrible, painful deaths. They have absolutely ruined tens of millions of lives.

      1. Amen.

        We could make a drinking game where you have to name something (not already named) that has been ‘financialized’ – and it would go on all night.

  10. From Consumer Affairs. “Millennials have helped fuel the rebound in the housing market by purchasing their first homes. But a recent survey by Clever, a real estate website, finds many of these millennials wish they had kept on renting.”

    – Have millennials really be buying enough to “[help] fuel the rebound in the housing market”? Where’s the data? How many millennials are actually able to buy without some ridiculous DTI or LTV, subprime, or help from Mom and Dad for the down payment? Not a lot I think, based on these articles:

    1) https://latest.13d.com/baby-boomers-millennials-real-estate-housing-downsize-97186b0e0ed2
    As Baby Boomers downsize, an unprecedented generational unloading of houses looms on the horizon.
    Is this one more sign the cycle of wealth accumulation is turning?
    13D Research | May 14, 2019
    “Baby Boomers are downsizing, but few Millennials want their homes, especially if they’re big and outdated. According to a recent report by Fannie Mae, “homeownership demand from younger generations is insufficient to fill the void left by multitudes of departing older owners.” “

    2) https://www.businessinsider.com/student-debt-preventing-the-us-from-having-normal-housing-market-2019-5
    Student debt is preventing the US from having a normal housing market
    David Rosenberg, Gluskin Sheff | May 10, 2019, 3:09 PM
    “There is now $1.6 trillion of outstanding student loans, a number that has soared close to 40% in the past five years and by more than 130%‎ over the past decade. The late-payment rate is well above 10%, and there is no way to restructure this debt in today’s environment. If you are in arrears on this type of debt, forget getting a FICO score and forget having the leeway to secure any sort of loan for years after missing a payment. “

    “The lack of opportunity has, in turn, led to the share of ‘kids’ between the ages of 25 and 34 that are living at home rising to 17% from 12% a decade ago. A long cycle of monetary and fiscal polic‎y juice and the asset inflation that followed didn’t end up easing this burden.”

    3) https://www.bloomberg.com/opinion/articles/2019-05-15/millennials-are-helping-to-sound-the-credit-card-alarm
    Millennials Are Helping to Sound the Credit Card Alarm
    Young Americans have fallen seriously behind on their payments, adding to angst about the true health of U.S. consumers.
    By Brian Chappatta | May 15, 2019, 4:00 AM MDT
    “Some 8.05% of outstanding credit card debt among Americans between the ages of 18 and 29 was delinquent by at least 90 days, the highest level since early 2011, according to data released this week by the Federal Reserve Bank of New York. That’s by far the highest share among age groups and up from 5.37% at the end of 2013.”

    4) https://www.cnbc.com/2019/05/10/62-percent-of-millennials-say-they-are-living-paycheck-to-paycheck.html
    62% of millennials say they’re living paycheck to paycheck
    Megan Leonhardt | Updated Mon, May 13 2019
    “As a generation, millennials also are facing systemic financial issues that can feel overwhelming. They generally carry more debt than previous generations did at their age, for example. One major reason for that is student loans. The number of households with student loan debt doubled from 1998 to 2016,”

    1. One of the better tells in that first link was this:

      Millennials have much less of an attraction to owning a single-family home and a car. They’ve got much more of an attraction to a lifestyle and a job. And many of them, especially in the United States, have become skeptical of this notion of a house as an investment.

      I think Millennials as a group do not anticipate the job security and employment durations that their boomer parents had, and many more of them comparatively expect that they’ll be moving around a lot during their working years.

      So before we even get to Student Loan Debt or earning crap wages compared to prices, we have a larger percentage of the cohort thinking about renting over the long haul – even if they are in family formation mode – and extra wary of being attached at the hip to a (illiquid) house out of fear of all the possible downsides. Without a strong sense of future economic security, they feel much like a federation starship with half of its shields non-operative going through Klingon territory – one torpedo hit on the unprotected side and it’s game over.

      Considering those influences – and as a generation they have much more and easier access to “unofficial information” (This blog would qualify as such) to make them aware of the risks and issues – I think any study would come to the conclusion they, the Millennials, are being rational actors about housing.

    2. Boomer houses are in Rust Belt cities and are falling apart. The cool kids want newer housing stock in a “vibrant” area.

    1. Fat finger a.k.a Also called after the Chinese bought bitcoin in China, they sold it in Australia. The capital flight is strong.

    1. Punitive tariffs, farm crisis, stocks achieving what appears to be a permanently high plateau…it’s starting to seem more and more like a replay of the 1930s!

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