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When You Get Way Overpriced You Will See A Natural Tug Back

A report from Bank Rate. “Homebuyers sitting on the sidelines waiting for housing prices to backslide might be waiting longer than expected, according to experts. Although the high price of housing in many parts of the country seems to signal a possible bubble, the usual signs — like oversupply, an uptick in investors and loose credit standards — are not there.”

“The strong demand for housing coupled with a supply shortage is spurring home-price growth rather than speculative buying. A speculative buyer purchases a home with the intention of selling for profit, which played a role in the housing crisis, says Michael Neal, a senior research associate at the Urban Institute.”

“‘On an annual basis, we’re about 300,000 to 330,000 units short, says Joel Kan, with the Mortgage Bankers Association . ‘If you think about the early 2000s and through the crisis, we had price appreciation that outpaced income growth. And we had overbuilding in many markets. When there was a price correction, there was still inventory and demand lessened; that’s the perfect storm,’ Kan says.”

“Although cooling home prices and waning bidding wars are a welcome reprieve from last year’s housing frenzy, entry-level buyers still face a market with limited options. That means home prices aren’t likely to stop growing anytime soon. Couple this with a tighter credit market and stricter borrowing guidelines, and the looming threat of a housing bubble is unlikely.”

“‘We could loosen lending standards and still be within very reasonable 2001 to 2003 levels,’ Neal says.”

The Herald Tribune in Florida. “Foreclosure starts totaled 67 in Manatee County last month, a spike of 139% over the year. The 76 starts in Sarasota County was a 36% increase. But one real estate lender says Florida’s foreclosure run-up is no big deal, at least not yet.”

“‘To put the numbers in perspective, I would use a full year, perhaps 2006 as a ‘normal’ benchmark number. That would be the last year before the real estate world crashed,’ said Bruce Norris, president of hard money lender The Norris Group. ‘The total foreclosure starts for Florida in 2006 was 102,875. In 2018, there were 33,031 foreclosure starts. Even at a 25% increase over 2018, 2019 will still be less than 50% of 2006. An increase of some 8,000 foreclosure starts is not a game changer at this point.'”

The Wall Street Journal. “More than 13% of borrowers who used the FHA mortgage in the first three months of this year got government help with the down payment, up from 8.6% five years earlier, according to FHA data published this month.”

“Those who use down-payment assistance start out with little or no skin in the game. As a result, some economists and analysts worry that buyers have less incentive to keep making payments if times get tough. In recent years, those who used government down-payment assistance for FHA loans were delinquent at a higher rate than those who didn’t, government data show.”

“Sam Mickelson and Tegan Lingbeck, both bartenders, bought a house outside Minneapolis for roughly $250,000 in June and moved in with their four children. They put $1,500 toward the principal, and the Minnesota Housing Finance Agency provided the down payment on their FHA loan.”

“‘It was super easy,’ Mr. Mickelson said. ‘It just worked out like a dream.'”

The Houston Chronicle in Texas. “Prices in Houston are significantly above their long-term fundamental value and eventually will start to flatten or turn down slightly, said Ken H. Johnson, a real estate economist and business professor at Florida Atlantic University. ‘Housing is a financial asset,’ Johnson said. ‘When you get way overpriced you will see a natural tug back.'”

“Buyers in the market for single-family homes had more to choose from last month as listings spiked 11 percent over a year earlier and housing inventory grew to its highest level since August 2017. Sales volume has fallen in all but one month since January and inventory is rising. In May, the number of sales fell 2.6 percent from last year, while the median price dipped to $169,000.”

From WTOP on Washington DC. “The District is still a tight market for buyers, with few options and buyer competition. By category in the District, the median sales price for a detached home was $818,500, down from $867,500 last May.”

From Lehigh Valley Live in Pennsylvania. “We found several homes across Northampton and Lehigh counties that dropped in price this past week. The reason behind the plummeting sale isn’t always a negative thing — it could be the seller overpriced at the initial listing or buyers getting into financial binds and needing to sell faster than originally thought.”

The Real Deal on New York. “Nearly 20 limited liability companies for individual multifamily buildings that are linked to a federal fraud complaint are now bankrupt. The filings late last month in a U.S. bankruptcy court in White Plains also relate to over a dozen foreclosure cases initiated by an affiliate of Maverick Real Estate Partners, which in court filings is seeking information on the identity of the owner behind the low-rise, residential properties, all of which are scattered throughout Brooklyn.”

“In April 2017, Israeli investors Jacob and Binyomin Schonberg, Binyomin Halpern and Raphael Barouch Elkaim alleged in a complaint filed in federal court in Brooklyn that Yechezkel Strulovich and Yechiel Oberlander defrauded them out of more than $20 million in a scheme carried out ‘in the style of Bernie Madoff.'”

“In the fraud case against Strulovich and Oberlander, the defendants said that the money they received from the plaintiffs would be invested in Brooklyn properties that they would buy, develop and rent out, with returns on those investments coming in six to seven months. The plaintiffs also would receive 45 percent of the profits from the multifamily purchases.”

“But plaintiffs claimed that Strulovich, Oberlander and other defendants inflated the value of that real estate and used their money to acquire and develop properties for their own personal benefit, pay off personal debts and support their ‘lavish lifestyles,’ according to the civil complaint filed two years ago. The Brooklyn sites purchased with their funds were ‘left to languish, undeveloped and dilapidated,’ alleged the plaintiffs.”

The Victorville Daily Press in California. “The downturn in the housing market nearly a decade ago resulted in SunCal Companies stalling a massive planned housing development that included the promise of thousands of homes in one High Desert region.”

“After years of being placed on hold, dreams of resurrecting the SunCal home development project south of Barstow have died, with Coldwell Banker Commercial now selling the property and two other parcels. The combined properties consist of approximately 6,435 acres of undeveloped land in San Bernardino County, with the largest contiguous group of parcels consisting of 6,027 acres from the failed housing project.”

“The master-planned housing community by SunCal was funded between 2006 and 2009 by Lehman Brothers, which went bankrupt and caused SunCal to cease planning and development activity on the Barstow project during that time, Coldwell Banker said. With a need for more housing in California and the High Desert, real estate experts believe the Barstow property is ripe for a new housing project that could see future residents working in Barstow, the Victor Valley, Southern California Logistics Airport and the industrial area of northern Apple Valley.”

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This Post Has 58 Comments

  1. ‘The District is still a tight market for buyers, with few options and buyer competition. By category in the District, the median sales price for a detached home was $818,500, down from $867,500 last May’

    See what I mean?

  2. ‘The strong demand for housing coupled with a supply shortage is spurring home-price growth rather than speculative buying. A speculative buyer purchases a home with the intention of selling for profit’

    So where are all these shacks for sale coming from Mike? I don’t see what Bankrate gets out of these puff pieces. I do know Holden Lewis bailed a while back.

  3. “Homebuyers sitting on the sidelines waiting for housing prices to backslide might be waiting longer than expected, according to experts.

    Who signs the paychecks for these “experts”?

    Thought so.

  4. “The strong demand for housing coupled with a supply shortage is spurring home-price growth rather than speculative buying.

    Former Iraqi Information Minister Baghdad Bob would blush with mortification if asked to put across such whoppers.

  5. “Foreclosure starts totaled 67 in Manatee County last month, a spike of 139% over the year.

    Gosh, to non-REIC shills this looks just like a leading indicator for a full-on housing bubble bust.

  6. “Although the high price of housing in many parts of the country seems to signal a possible bubble, the usual signs — like oversupply, an uptick in investors and loose credit standards — are not there.”

    Eat yer Crows NEAL!!!

    “Sam Mickelson and Tegan Lingbeck, both bartenders, bought a house outside Minneapolis for roughly $250,000 in June and moved in with their four children. They put $1,500 toward the principal, and the Minnesota Housing Finance Agency provided the down payment on their FHA loan.”

    “‘It was super easy,’ Mr. Mickelson said. ‘It just worked out like a dream.’”

    Ding !!!!!

    “Buyers in the market for single-family homes had more to choose from last month as listings spiked 11 percent over a year earlier and housing inventory grew to its highest level since August 2017. Sales volume has fallen in all but one month since January and inventory is rising. In May, the number of sales fell 2.6 percent from last year, while the median price dipped to $169,000.”

    Dong !!!!!

  7. I would use a full year, perhaps 2006 as a ‘normal’ benchmark number.

    That’s funny. Instead of trying to find a zero crossing on the mania/depression square wave we’ve had for the last few decades you might need to go a little farther back in search of “normal”.

    1. That one guy says 2001 to 2003 were A-OK. 2003 is when subprime exploded.

      A lowering of standards directly results in defaults. So what they are dancing around here is, what’s an acceptable number of defaults? These bartenders and their 4 children may or may not have life happen to them. But if they do, or prices fall they are prime candidates for walking away. (250k probably bought a dump in Minneapolis, BTW).

      So the REIC waves off foreclosures. Notice no mention of “the” hurricane this time. Let’s compare to an arbitrary year and drop the 50% increase in passing. But remember, foreclosures started up in Florida in 2017. So these numbers are on top of that.

      But I’m glad Mr Norris is still alive and kicking.

      1. I like the term “when life happens”

        One thing that is a little different now than anytime in the pass, is since 2009, between 96% to 99% of new mortgages YOY have been financed by the GSEs. So the owners of these MBS are guaranteed a return even if people start walking away. Prior to 2009 the average amount of loans bought/backed by the GSEs was around 50% to 60%. Thus the banks had a lot of skin in the game…not anymore. The MBS may be one of the best investments these days.

        So I am guessing, if Sam and Tigan default, the GSEs will send them every lifeline they can think of to keep them in the home. The GSEs are not a for profit entity so they really don’t care about taking any loses as they will get help from the FED. Here is what I could see happening:
        – Forgiveness of late payments and penalties
        – Balance forgiveness
        – Refinance
        – free money for community work

  8. I have a question for the board because I really cannot guess the number. Right now we are building about one half of the housing units we did at the peak of the last housing bubble, at the peak it was About 2.5 million a year. So how many should we be building? Obviously we built to many high end in the bubble cities but for the country as a whole what is the right number for a country which due to immigration and anchor babies is still growing around three million a year. I cannot come up with a number since it really seems to depend on how much inventory we have. But I am interested in other people’s opinions

    1. This is a good question. I think it depends on where the building is occurring, what type, and how large. Hallmarks of a bubble are building too big, in the wrong place, and of the wrong type. It seems like the building numbers in some places might not be that bad, but what is being built just isn’t affordable.

      1. The housing unit build rate exceeded the population growth rate (% YoY) starting in late 2015. Since then, about 1M units beyond those required to maintain houses per capita have been built.

        But this leaves out many factors, such as the millions of units held empty / unrented off the market.

    2. I can’t venture a guess at a number, but in my view the more significant problem is what they are building, and who they are building for.

      What a coincidence — “regulations” and “high construction costs” are supposedly getting in the way of building more affordable homes for the larger segment of the market, those folks who would actually live in them, but hey, we can just keep the boom times going with luxury properties for speculators, investors and college students taking on a lifetime of school debt…

      https://www.cnbc.com/2019/06/17/homebuilder-sentiment-inches-lower-despite-demand-.html

      1. I think that supports my first point
        , it has to be we created a surplus of housing previously since it is hard to see a building surplus now except in high end. Now it would be nice if you could provide a link to that 25 million surplus number

        1. ‘it is hard to see a building surplus now except in high end’

          We just had a 40 year high in multi-family construction.

    4. From what I have soaked up about the current building numbers, its not as important that they are building less units than last round, its more of what the current units they are building cost. Lets say B1 they built 2.5m units/yr costing average 250k, now we have a much higher median cost as they are catering to the “high end” but the build numbers are lower. mabye the two even out? Just a thought…

    5. It seems to me that around 3 people per unit is around right. Thus it was clear to see an excess when we were building 2.5 million units per year. That is enough to house 7.5 million people. Now, I do not know how many units are lost each year due to fire or are bulldozed. But it probably is not more than 1 percent of the total housing stock. So even if we lost one million units that way it still was enough to house 4.5 million which still is too much. However the current number does not seem excessive. I really would like to know what I am missing.

      1. ‘the current number does not seem excessive. I really would like to know what I am missing’

        We only see the word oversupply a couple dozen times a week. Why don’t you pay more attention? Oh, right, you saw nothing amiss with entire empty cities.

    6. The inventory home builders are carrying is at all time highs. Just pick a few publicly traded home builders that were around in 2007.

      Compare their inventory now and then. And of course be sure to to look at a 10k or other legal bound financial documents that have to report legit numbers – don’t read a press release or non gaap financial number.

  9. “Englewood Police spokesman Sgt. Chad Read said 100 or so people had been scattered in small camps before they were asked to move along. He said Tuesday the last of those campers had just vacated the area. He could not say where most of them had gone. He’d heard his officers discuss the presence of some transient people throughout the city.

    South Suburban Parks and Recreation rangers noticed an up-tick in people living in homelessness elsewhere along the Platte after the camps were cleared, said Becky Grubb, the communications manager for the special local government district. South Suburban manages parks and recreation services, including riverside trails, south of Denver in Douglas, Jefferson and Arapahoe counties.

    Englewood officials had announced May 20 that the camps along a six-block stretch of South Platte River Road ending at Dartmouth would be cleared June 4. Concerns had been raised about keeping order in the area and maintaining cleanliness in the river and on its banks. Police cited a fight earlier in May between two men experiencing homelessness that ended in a stabbing at one of the dozens of small camps. Police officers also have reported finding trip wires, hypodermic needles and human waste and expressed concern camp dwellers could be in danger if the river flooded.”

    https://denverite.com/2019/06/12/what-it-was-like-during-the-homeless-sweep-in-englewood-every-day-youre-stressed-and-upset-every-day/

    1. “I picked up every scrap of paper,” Collins said.

      “Camping is not ugly,” he said. “People are not ugly.”

      I can’t say about Camping Collins but if you want to take a ride with me down to the DMV I can prove you wrong about the people.

  10. Published today:

    “Sentiment among U.S. homebuilders unexpectedly posted the first decline this year, suggesting lower mortgage rates are failing to give the housing market a sustained boost amid property prices that remain out of reach for many buyers.

    The National Association of Home Builders/Wells Fargo Housing Market Index fell two points to 64 in June, according to a report Monday that was below all estimates in a Bloomberg survey predicting a gain. All three components declined, with sales expectations hitting a four-month low.”

    https://www.bloomberg.com/news/articles/2019-06-17/u-s-homebuilder-sentiment-unexpectedly-posts-first-drop-in-2019

    “unexpectedly”

    “remain out of reach”

    “below all estimates”

    See also: “This sucker could go down” — George W. Bush, 2008

    1. In response to the part in Ben’s article about Barstow:

      Where are the jobs that would support housing building in Barstow, or even south of Barstow?

      This reminds of the 2005 bubble where they were building tracts out in the middle of nowhere with no jobs to support these tracts.

      Many of those tracts ended up becoming ghost towns with high foreclosure rates.

      1. They didn’t even have markets or amendies to service those tracts causing the need to drive a hour just to get groceries.

        With the exception of maybe a minor demand to build retirement housing where the people aren’t dependant on industry it doesn’t make sense.

  12. Recent (within the last two weeks) price cuts in the 80210. These are all 2 bed 1 bath used houses now asking from $425K to $449K:

    https://www.zillow.com/homes/for_sale/Denver-CO-80210/house,condo,apartment_duplex,mobile,townhouse_type/13377316_zpid/93287_rid/pricea_sort/39.71194,-104.906388,39.641256,-105.023633_rect/12_zm/

    https://www.zillow.com/homes/for_sale/Denver-CO-80210/house,condo,apartment_duplex,mobile,townhouse_type/13376845_zpid/93287_rid/pricea_sort/39.71194,-104.906388,39.641256,-105.023633_rect/12_zm/

    https://www.zillow.com/homes/for_sale/Denver-CO-80210/house,condo,apartment_duplex,mobile,townhouse_type/13387244_zpid/93287_rid/pricea_sort/39.71194,-104.906388,39.641256,-105.023633_rect/12_zm/

    https://www.zillow.com/homes/for_sale/Denver-CO-80210/house,condo,apartment_duplex,mobile,townhouse_type/13370095_zpid/93287_rid/pricea_sort/39.71194,-104.906388,39.641256,-105.023633_rect/12_zm/

  13. 5 signs that home prices could be rolling over again

    https://www.marketwatch.com/story/5-signs-that-home-prices-could-be-rolling-over-again-2019-06-17

    Five other key measures suggest that housing markets could be topping:

    • Home sales have been declining in many major metros

    • Listings of homes for sale have soared in the hottest markets

    • Reductions in asking prices have been increasing

    • Bidding wars prevalent in hot metros a year ago have all but disappeared

    • Standards for underwriting mortgages have plunged in the past year

    1. “You gotta roll with it” — Caitlyn Vestal, millennial used house buyer, Portland, OR

    1. violent 2006-2010

      It can get far more violent than that. That time the cops showed up just as things were going down. One of these days the cops won’t show up in time.

  17. Just my 2 cents…but I think the housing is very regional. Where I live in the Midwest, housing prices have appreciated 25% in just the past 3 years which seems crazy. But prices they were flat the prior 5 years. This means my house has a 2.8% YOY appreciation over the past 20 years which is less than inflation.

    I bought the typical 4 bd, 2400 sqft house in 1999 that was almost new. It is in a nice area as the subdivision has a grade school that you walk to.

    If it were not for an rapid appreciation over the past 3 years from $240k to $300k, my YOY appreciation would have only been 1.8% per year.

    In my area I think prices have plateaued at the current interest rates. I think at worst I may see a 5% depreciation if interest rates rise. Housing stock is still historically very low still. I see many more apartments being built than houses. There may be an eventual glut in apartments but the housing stock is still 30% below average and I think that will put a floor under pricing.

    1. “With 25 million excess, empty and defaulted houses and another 35 million houses to be vacated as boomers die off, what do you think is going to happen to housing prices?”

      I have pretty good idea.

  19. Domino’s and Nuro to offer autonomous pizza deliveries in Houston this year
    Phil Dzikiy
    Electrek
    June 17, 2019

    “Domino’s Pizza will use robotics company Nuro’s autonomous R2 delivery vehicle to deliver pizzas in Houston starting this year as part of a pilot program.”

    “Nuro’s delivery operations have already been taking place in the Houston area since this March, but the pilot program with Domino’s will launch later this year.”

    “The announcement gives a few more details on exactly how the deliveries will work:”

    “Select customers who order online from one of Domino’s participating stores will have the opportunity to use Nuro’s autonomous delivery. Once they have opted in, customers can track the vehicle via the Domino’s app and will be provided with a unique PIN code to unlock the compartment to get their pizza.”

    “It’s unclear how many unmanned R2 vehicles will be made available in the program. Nuro launched a grocery delivery service with its older R1 autonomous vehicle in Scottsdale, Arizona last year, as the company announced a partnership with Kroger in 2018. Nuro posted a video then of its first customers receiving their deliveries.”

  20. An Electric Hummer? GM Ponders a Clean Revival of a Gas Guzzler
    David Welch
    17 June 2019
    Bloomberg

    “A zero-emission Hummer sounds as paradoxical as non-alcoholic whiskey, but General Motors Co. is mulling over the idea of building an electric vehicle that would bring the defunct gas-guzzling brand back to life.”

    “For now, it’s just an idea GM is considering as it plans which vehicles will be included in a fleet of electrified SUVs and trucks, say people familiar with the matter. The Hummer name has surfaced as way to tap growing demand for rugged SUVs with off-road capabilities, while avoiding the gasoline-burning image that made the brand something of a pariah a decade ago, said the people, who asked not to be named because the conversations are private.”

    “GM is currently working on two major battery-electric vehicle programs. The first is its BEV3 project, which will develop passenger cars, crossover SUVs and a variety of other small and mid-sized models. That’s part of the automaker’s pledge to put 20 EVs on the road globally by 2023. The second program would make electric pickups and other full-size vehicles, some of which can go off-road.”

    https://www.bloomberg.com/news/articles/2019-06-17/gm-is-thinking-about-building-an-electric-hummer

      1. As long as that sufur dioxide is poisoning lakes, streams, critters and landscapes far away from Teslaboy, all is well and his car is GREEN!

        1. Coal use continues to decline. It’s on the way out because it isn’t economically viable. Rick Perry tried to subsidize it and save it but it’s not economical. DJT isn’t willing to save “beautiful clean coal.”

      1. I’m guessing that Walgreens isn’t quite as excited about getting these machines in their stores.

    1. “While the home flipping rate is increasing, gross profits and ROI are starting to weaken,” Teta said in the report. “If investors are seeing profit margins drop, they may be acting now and selling before price increases drop even more.”

      The executives at these RE Syndicates better push for those salary increases this year before the K12 kids return to school.

  24. No one seems to consider the availability of the electricity if the economy switches to all electric residences and cars. Some has to produce the electricity for the world to replace the other energy sources.
    Ask your city council that and see what responses you will receive,

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