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It’s Kind Of Like Their Piggy Bank

A report from Bloomberg. “This is how housing markets turn. Slowly. Six years of home-price gains outpacing wage growth; bidding wars replaced by sales at the asking price; days or weeks on the market turning into months; rising mortgage rates. First-time shoppers start to get priced out, making it harder for move-up buyers to sell, and the slowdown ripples gradually up the real estate food chain.”

“Liz Hogan, a realtor at Compass, has a client looking at a house in Pinecrest, Florida listed at $899,000. The seller has been out of town, delaying the deal, and the client is getting antsy, she said. ‘His thing to me every day is, ‘I’ll be patient, but not that patient because my mortgage broker told me the rates are going up and if they go up any more I’m not going to be able to afford this house,’ Hogan said. ‘He’s petrified he’s going to get priced out.'”

“Shares of Seattle-based Amazon.com returned more than 900 percent from the first quarter of 2012 until September 4, 2018, and housing prices in the city have almost doubled, according to Case-Shiller. The company’s shares have dropped about 20 percent since the beginning of September and that’s already being reflected in the housing market.”

“‘There’s been a lot of money in Seattle going into housing but over the last couple month the Amazon stock price has gone down, so if that continues, that would have a negative impact on the Seattle housing market,’ said Daryl Fairweather, chief economist at Redfin. ‘This could be a temporary dip or it could be longer term. It’s kind of like their piggy bank.'”

“Seattle properties are staying on the market longer, and selling for the asking price, even as inventory remains low, said Sol Villarreal, an agent with Windermere Real Estate Co., who largely works with first-time home buyers in the city.”

“‘Just knowing that the list price is what you can actually buy the house for, that’s a big shift,’ said Villarreal. ‘List prices are still very much in sellers’ favor and still going up at a meaningful rate. It’s just removing that uncertainty of the multiple offer market’ for buyers.”

“Seattle, Denver and Baltimore are seeing price growth slow by the quarter, said Skylar Olsen, director of economic research and outreach for Zillow Group Inc. ‘In many ways, we’re so used to things moving so fast that we forget that housing markets are supposed to be stable,’ Olsen said. ‘These are long-term financial decisions. They should move more slowly.'”

From KSL on Utah. “Home prices in many counties along the Wasatch Front jumped double digits in the third quarter of 2018 when compared to the same time last year, according to the Salt Lake Board of Realtors. The shortage of housing units means intense competition for entry-level homes. Just ask the Di Fini family who spent the past three years looking for a home.”

“‘We chose Utah because we have family here,’ Katrina Di Fini said, ‘but we knew living here in Utah meant that we’d have to struggle financially.'”

“The family changed realtors several times and ended up working with Amy Wilson this year. ‘It really has caused a frenzy for a lot of people,’ Wilson said, of the current housing market. ‘You’re looking at $350,000 to $400,000.’ Wilson said about entry-level home prices. ‘You’re looking at a $2,300 mortgage payment. That’s a lot for a small family. Especially with young kids.'”

“‘In 2004, the median sales price for a single-family home was $160,000 in the Salt Lake metro area, according to the University of Utah’s Kem C. Gardner Policy Institute. Fast forward to September of 2018, and the median sales price has more than doubled to $347,000.

“‘Our incomes aren’t keeping up,’ said research analyst Dejan Eskic, who works at the policy institute.”

“Eskic helped author a May 2018 report titled ‘What Rapidly Rising Prices Mean for Housing Affordability.’ The analysis predicts that if trends from the last few decades hold, the median home price along the Wasatch Front would be $1.3 million by the year 2044.”

“‘Everything that goes into building a house is getting more expensive,’ said Eric Allen, regional director for Metrostudy, which tracks Utah’s homebuilding industry. ‘We’re building like crazy; we can’t keep up with demand right now.’ Allen’s newest numbers show nearly 70 percent of homes being built right now are priced above $300,000.”

“‘There were some tough moments,’ Di Fini said of her family’s housing search. ‘One of the things we decided to change was looking out farther and looking for a smaller home,’ Di Fini said.”

“The Di Fini’s quest for a home took them up and over Point of the Mountain and into Eagle Mountain, even though it meant an hour commute each way to work in downtown Salt Lake City. Instead of a house, they purchased a three-bedroom condo.”

“They made the right decision, according to their realtor. ‘In this market, you just have to be a realist,’ Wilson said.”

“She urges families to not get into trouble and allocate too much of their income to a mortgage payment. ‘If you need to get into a condo, if you need to get into a townhome, there’s nothing wrong with that,’ Wilson said. ‘Get into it for a couple of years and then rent it out.'”

“Since ownership was the ultimate goal, the Di Finis are happy to finally be building equity. ‘It felt so nice to sign, and just close and know that we were finally buying something that was like an investment for us,’ Di Fini said.”

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This Post Has 31 Comments

  1. ‘This could be a temporary dip or it could be longer term. It’s kind of like their piggy bank’

    I don’t know if Daryl is talking about shacks or Amazon stock, but either way they’re fooked. BTW Bloomberg, you ain’t foolin’ anyone. Seattle is crater-town and has been for months.

    Pinecrest has at least 2 years of inventory and has for years.

  2. ‘If you need to get into a condo, if you need to get into a townhome, there’s nothing wrong with that,’ Wilson said. ‘Get into it for a couple of years and then rent it out.’

    Ah, yes cuz that airbox can only go up and with that sweet equity they’ll get in TWO, not three, not four, TWO years they can buy an actual piece of real estate with a shack on it.

    1. I have to chime in here because this is my neck of the woods and I know the area well. Herriman and Eagle Mountain are still relatively affordable and I do think they made a much less damaging financial decision to buy a condo rather than rent. I looked on Zillow and there are 3 bedroom 2 bath new condos in Herriman starting at $203k from a good builder. That is not a terrible price relative to what everything else is going for around here.

      Condo is the new starter home here. But I still say it would have made more sense to rent. She could have rented from where I work and been in a luxury apartment at $1350 including utilities, cable, and internet and gain 2 hours off the commute. Ah, the allure of the suburbs…

      1. Eagle Mountain is waaaayyyyyy out there and the type of place you move to if you want live on an acre, in the country, not a condo.

        Wait until condos places much closer to civilization under price this poor family. Construction is everywhere in Utah and the glut of new builds is growing.

        1. I don’t disagree. But the fact that NIMBYism killed density over in Herriman (brother lives there) and that proposition 5 might not pass down in Utah county means that the squeeze is being put on new building upwards. Restricting supply at the low end is what is happening. Renting is definitely a better option right now in Utah County and Salt Lake County. Thank goodness I’m in Washington County.

    2. we were finally buying something that was like an investment

      Being buried in debt for 20 or 30 years in a crappy little shoebox is not “like an investment”.

  4. Oh my… finally we’re seeing more MSM willingness to speak about incomes not keeping pace (not by a long shot)

    And this link appeared on Drudge this morning:

    https://www.usatoday.com/story/money/2018/10/30/jobs-62-percent-fall-short-middle-class-standard-us/1809629002/

    Actually, I do think the growing income gap/inequality is causing problems much bigger and longer-term than just for Real Estate. Perhaps we should have a thread just about that and predictions for its impact on the future?

    1. It’s housing. A couple of good studies came out earlier this year by prominent economists that pin inequality almost entirely on housing. Washington Post has a good article today with the title “Owning your own home doesn’t make you rich. Owning someone else’s does.” We are in a rentier economy where extracting value from someone else’s labor is more financially beneficial that creating new goods or services.

      Here’s a good one from The Economist about California’s poverty:

      https://www.economist.com/united-states/2018/10/27/why-one-of-americas-richest-states-is-also-its-poorest

      “The big problem in California, though, is not the stagnation of low incomes per se. It is stagnation relative to costs—in particular the cost of housing. Almost everyone at the Interfaith Food Centre tells the same sorry tale: after paying the rent, they have nothing left. Whereas the poor would once spend their last dime on food for the children, now they spend it on housing—and depend on charities for food.”

      1. Thanks for the links. Good WPost article.

        I’ll agree housing the biggest cost, but it’s clearly not the only one. The price of nearly everything has outstripped wages for the lower ~75%. Education and Medical are among the worst offenders. Many households would be seriously setback by just $5-10K of unplanned medical, for example, which is trivially easy to rack up today.

        Some things are more subtle how they play out. The price of basic necessities goes up, and families that would normally set aside something monthly for their kids in a college savings fund, don’t save at all. 10 years later that kid takes out crippling loans.

        But back to your point – the trend to a rentier economy has been accelerating and I put a lot of blame of the flood of money printed and low rates since the ’08 crash. People and institutions at the very top have had access to all that cheap money sloshing about, and have been using it (and capitalizing on those who lost big) to acquire harder assets such as equities and real estate, further concentrating wealth and ownership in the elites. Many lower down the ladder upon seeing this have panicked and leveraged themselves to get into the same game.

        1. MGSpiffy,

          I agree that other costs have skyrocketed. But it’s still housing as root cause. Barry Ritholz of Bloomberg said, “We have inflation in the things we need, but deflation in the things we want.” That strikes me as true. Entertainment, consumer electronics, and clothing is cheap. Housing, education, transportation, and medical is expensive.

          I would argue though that housing is still the primary driver. Higher housing results in higher prices for everything. Case in point: my father owns an investment property in Renton, WA. He listed it for sale a few months ago. It needed a new paint job and other work. The quote he got was $9k for the painting. It was absurd. He has a full-time maintenance guy for property here (Salt Lake City), and it was far cheaper for my father to pay for this guy to go up to WA and do the job himself. The high cost for these type of blue collar services is baked into the high cost of housing in the greater Seattle area. Same goes for medical services and education. Your housing price goes up, you suddenly have to pay your workers more. White collar workers tend to make it, but blue collar and the poor are ground into the floor, which explains CA poverty.

          1. it’s still housing as root cause

            These unfortunate house poor people. In aggregate, houses are so expensive that they “have to” borrow 10x gross earnings to buy a 3,000 square footer. When houses were not so expensive, a 1,000 ft2’er was more than adequate. For a whole family. In my lifetime. An irony.

      2. good timing to study Thomas Sowell on “The Myths of Economic Inequality https://www.youtube.com/watch?v=mS5WYp5xmvI

        Poverty in the US at least is often relative where many of those that can’t pay their bills have 2 TV’s, 2 Cars, and 2 Cell Phones and Comcast Cable per household where me, being almost in the 1% has always driven a used car in excess of 12 Yrs – I drive them almost until they die and take good care of them – have 1 phone between me and my wife – a tracfone at that – and are allowed 1 streaming channel at 8 bucks a month that we rarely use as we are out living life or studying up on the economy. The more we help…the more poverty increases in most situations. For example, I was watching a documentary today where the Native Americans are the number one group the government gives the most billions to in the US and continues to be the most poor. Conversely, there is 1 tribe that is not recognized by the US Gov as Indian (Yet anyhow) and they have always thrived here in the U.S. with many owning highly profitable business that are not subsidized by the feds.

    2. the future?

      What the future might look like for legions of folks who willingly entered a life of relentless debt servitude to have overpriced and unnecessary things they couldn’t afford isn’t hard to predict.

  5. “‘Everything that goes into building a house is getting more expensive,’ said Eric Allen, regional director for Metrostudy, which tracks Utah’s homebuilding industry.

    Nothing could be further from the truth Eric. But don’t let that fact get in the way of your employers motive. And by the way Eric, I see you failed to disclose who funds Metrostudy.

    Thanks for the humor though.

  6. Boots on the ground:

    I went out for my run yesterday and the vacation rental construction is still in full swing. St. George, because of it’s proximity to national parks and outdoor recreation, is someone of a destination city. Even so, the amount of vacation home building is amazing to me: this area continues to build vacation, nightly-zoned luxury units. We’ve had tons of new hotels come up and everyone seems to be doing the Airbnb to make ends meed. How much vacation housing do we need? Apparently more, if the builders are to be believed. I think we’re in for a harsh correction. Take a look at 3 developments I ran by yesterday:

    http://www.ocotillospringsresort.com/
    https://arcadiavacationresort.com/
    http://www.myparadisevillage.com/

    1. Real estate is what people do for work in places like St. George (which is on the boarder of Arizona and Nevada. When real estate falls off a cliff, so will St. George.

      1. Happened big time in 2007-2008. Rural poverty is insidious and very different from urban poverty. I didn’t live here then, but saw it in the faces of the laborers when I came by to visit. The wife of my good friend has a father who was a brickmason. He exited the business after 30 years when the Great Recession hit. In about 2012 he said, “People are working now, but they aren’t making any money.” I think people are now making money, but I don’t know how long it will last. Bubble indeed.

    2. Nice post and interesting links.

      So the builders are dependent on finding enough buyers who are building up their Airbnb empire and aren’t already tapped out, and those buyers are dependent on having an ever increasing number of tourists who will eschew traditional hotels.

      When the economy turns sour, the supply of both will shrivel up seemingly overnight.

      Wait… do I hear a shriveling sound?

  8. Re the Utah family…

    ‘You’re looking at a $2,300 mortgage payment. That’s a lot for a small family. Especially with young kids.’”

    And it’s even harder if your church takes 10% right off the top.

    1. I’m not LDS, but from those I’ve known, tithing is not mandatory and the wards are surprisingly good about helping out young families that are struggling.

      What’s more likely to torpedo a young family with kids is low wages and things like health insurance & medical costs. If one kid falls out of a tree and takes an ambulance trip to the ER which is out of network and balance bills … that family is fooked.

      1. Tithing is mandatory to be considered a legitimate participating member. And it is supposed to be paid before any other bills, even food.

        1. I’m LDS. Tithing is voluntary, but is considered a commandment. To be in good standing, one should pay. There is no guidance though as to what constitutes a “full tithe” and there is considerable debate on gross vs. net etc.

          Having said that, being LDS is increasingly hard in Utah. LDS families are the largest in the United States by demographics but have shrunk considerably in the past decade. This mirrors the rise in housing prices. There is a huge cultural shift and tension between traditional stay-at-home moms vs working moms. It plays out messily in congregations (just ask my wife, who is a working mother!).

          1. being LDS is increasingly hard in Utah

            When society is changing quickly and the old guard not only prefers to keep things the same but even tend to see their opinions as commandments that everyone should follow, it gets complicated. Being out at the tip of the spear in branches in Shanghai and Penang was a lot more fun than attending back here in the USA.

  9. From CNBC:

    Southern California suffers its worst housing slump in over a decade

    – The number of new and existing houses and condominiums sold during the month plummeted nearly 18 percent compared with September 2017, according to CoreLogic.
    – That was the slowest September pace since 2007, when the national housing and mortgage crisis was hitting.
    – The median price of Southern California homes sold in September, $505,000, was still 3.6 percent higher than it was a year ago. That was the lowest annual gain for any month in more than three years.

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