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Helping Pull The Prices Down

A report from the Houston Chronicle in Texas. “Even as mortgage rates climb in the coming years, they are likely to remain historically low. But that won’t matter to many homeowners who might be considering buying new digs. ‘If you already have a perfectly good home that’s on a 30-year, 3.2 percent mortgage, that makes it tough to move up,’ Lawrence Dean, regional director of Metrostudy, said Thursday during a market briefing to builders. ‘And move up is what we always, as an industry, want people to do.'”

“Dean cited rising rates as one of the reasons builders are reporting slightly slower sales and traffic to the consulting firm, which surveys builders and housing starts each quarter. Since around August, builders have reported some level of sales and traffic declines, along with increased cancellation rates, Dean said. Even so, he did not seem in a panic.”

“Dean said a 2,800-square-foot house in Sienna Plantation could be purchased in 2006 for around $240,000. A similar house today has been sold for $340,000. That’s a 42 percent increase, while the median household income in Fort Bend County increased by 22 percent during that period. ‘That dynamic can’t be understated in terms of looking at any kind of sales slowdown we may be experiencing,’ Dean said.”

The Crozet Gazette in Virginia. “For the second quarter in a row, the headline news in the Crozet real estate market is the pace of sales. Or more specifically, the lack of it. In the second quarter of 2018 Crozet (defined by properties in the Brownsville and Crozet school districts) sales dropped almost 27 percent year to year. The third quarter experienced a similar decline, dropping 28 percent from 105 sales in the 3rd quarter of 2017, to just 76 sales in the past quarter.”

“There is much discussion among real estate professionals and home owners/buyers alike regarding the sales slowdown in Crozet. Rising new construction prices certainly has something to do with it, being a function of rising land and material costs. This has helped fuel the rise in resale pricing, which has led in some neighborhoods to a relative glut in resale offerings.”

“So, is the market reversing from a ‘sellers’ market to a ‘buyers’ market? Data would suggest so.”

From Crain’s Chicago Business in Illinois. “Sales of newly built homes in the Chicago area were moderately ahead of last year’s total at the end of the third quarter, but some of the increase came because of builders’ price cuts, according to a new report.”

“At the end of September, sales of new homes were up three percent from the same period in 2017, according to the report from Tracy Cross & Associates, a Schaumburg consulting firm for the real estate industry. Builders sold 3,154 new homes in the first nine months of the year, Cross reports, compared to 3,062 in the first three quarters of 2017.”

“Cross tracks sales in developments that have 10 units or more, which means its data does not include houses built singly or in small numbers in infill locations in the city and suburbs. The median price of new homes that sold dropped below $350,000 in the second and third quarters of the year, for the first time since mid-2006.”

“‘That’s from builders trying to gain some momentum,’ said Erik Doersching, executive vice president at Tracy Cross. They were trying to ‘reverse a rather sluggish beginning to 2018, when year-over-year sales were down seven percent,’ the published report says.”

“Some price cuts don’t come in a dollar-figure reduction but in the addition of incentives, such as throwing in a higher level of finishes or a heated garage, at a price that did not formerly include them.”

“Also contributing to a lower median price, Doersching said, is that some formerly distressed developments in the southwest suburbs, where prices are generally lower than in other parts of the homebuilding region, have come back on the market under new owners. Sales there ‘are helping pull the prices down,’ he said, but price cuts are the primary culprit.”

From The Real Deal. “Realogy Holdings’ revenue was flat during the third quarter while transaction volume rose just 1 percent, which executives on Friday attributed to the national housing slowdown.”

“Shares of Realogy were down more than 10 percent just minutes after the market opened at 9:30 a.m., reflecting concerns about a sustained market downturn. Realogy’s shares are down around 40 percent year-over-year.”

“‘We are clearly in a volatile period for the housing market,’ CEO Ryan Schneider said during an earnings call with investors. Offering a preview of the rest of this year, he said Realogy’s companywide transaction volume was down 6 percent in October, although prices were up 5 percent.”

“‘We’re seeing mixed signals,’ Schneider conceded, but he stressed that the slowdown does not feel the same as it did a decade ago during the great recession. ‘We are heartened by the increase in inventory,’ he noted, the lack of which has been a key factor in fewer sales.”

“During the third quarter, Realogy said the West Coast saw the ‘greatest market deterioration,’ with sales volume down 2 percent (compared to a 13 percent jump during the first quarter.) The Northeast was down 1 percent, largely because of a slowdown in New York City, but the drop was still better than a 9 percent slide during the first quarter.”

“Despite softness in New York City, the sale of properties priced above $2.5 million actually rose 4 percent during the quarter. ‘The high-end is performing very differently than other parts of the market,’ said CFO Tony Hull.”

This Post Has 23 Comments
  1. ‘The median price of new homes that sold dropped below $350,000 in the second and third quarters of the year, for the first time since mid-2006’

    ‘That’s from builders trying to gain some momentum’

    No mention of the previous buyers that just got shoved underwater.

    1. Sales there ‘are helping pull the prices down,’ he said, but price cuts are the primary culprit.

      There that thing is again. Prices are going down because sellers are letting them.

  2. We’re seeing mixed signals,’ Schneider conceded, but he stressed that the slowdown does not feel the same as it did a decade ago during the great recession.

    I’d say nobody can compare the “feel” of a decade ago versus today better than this blog…sorry Schneider.

    1. ‘the slowdown does not feel the same’

      He’s right in several ways. We aren’t talking about a lack of credit. We aren’t talking about Modesto, Stockton or Bakersfield. It’s greed turned to pure fear, striking at the most expensive markets simultaneously.

      I was thinking about the 400 sales last month in San Francisco County. There are something like 30,000 apartments and condos on the way. And Thornberg says we haven’t overbuilt.

      1. He’s right in several ways. We aren’t talking about a lack of credit. We aren’t talking about Modesto, Stockton or Bakersfield.

        OK, my assumption was that things are moving faster than last time, and it’s still early…I was expecting those things to come later as the economy locks up from lack of cash when there’s no equity to pull out. I think people are living on that equity again.

        1. Definitely moving faster. Maybe people didn’t really forget 08-09, they just willfully ignored it.

          Still, I think there is a political component to the abrupt media u-turn. Mainstream reports went from “buy now or be priced out forever” to using words like “panic” and “bloodbath” virtually overnight.

          Not saying the “pure fear” isn’t perfectly reasonable – it is. But this time around rather than denying the fear, many media reports seem to be stoking it.

          1. I’ve been finding reports of price reductions for a long time. The Redfin reports made it impossible to ignore.

          2. It’s amazing what the media actually CAN ignore. For example, a front page headline in the WSJ yesterday read “Inflation Hits Home,” and the story claimed this was “after years of low inflation.” Everyone knows this is bunk, and that journalists ignored soaring costs of living for years. So why is there a front page headline about it now? Did it suddenly become impossible to ignore? Or is there an election in 5 days?

            Similarly, will these RE “bloodbath” columns suddenly turn into Yun-style sunshine and rainbows on Nov 7, depending on who wins?

  3. Do at least some millenials have entitlement issues?
    ===============
    “Butcher has a high-school diploma and a resume filled with low-wage jobs from Target and Walmart to a local grocery store. He’s being selective as he searches for new work because he doesn’t want to grind out unhappy hours for unsatisfying compensation.

    I’m very quick to get frustrated when people refuse to pay me what I’m worth,” he said. His choosiness could be a generational trait, he allows. His mother worked to support her three kids, whether she liked her job or not.”

    https://www.bloomberg.com/news/articles/2018-11-02/millennial-men-leave-perplexing-hole-in-a-hot-u-s-labor-market

      1. Yeah, Butcher is useless to them. They hope if they ignore him that he’ll just go away. And stop voting like a deplorable who doesn’t get it.

  4. It’s tempting to moralize, but there are several factors likely at play here:

    1) Structural change in labor market = fewer traditionally “male” jobs, but more jobs in retail, health, and education (e.g. pink collar jobs)
    2) Opioids, disability, and illness
    3) Taking care of aging parents, more males being caretakers of young children
    4) Video games
    5) Low wages make it feel like, “What’s the point to work a crummy job and then hand over your meager wage to a landlord (because rents have also skyrocketed, though not as much as home prices).

    1. Good list, OAM, but I would say we could go further.

      Our recent cultural emphasis to elevate women and girls into more opportunities and careers (especially historically male and STEM) has been with a coloring of ‘men are the problem’ – a message which young men have been absorbing, and is reinforced when they see programs or opportunities that are women preferred or only.

      6) College environments have become downright hostile and dangerous for young men, especially white males. No surprised fewer men are enrolling and getting degrees and women now outnumber men on campus 3 to 2 (and rising).

      7) More middle class and skilled job has eliminated training someone up through the ranks, applicants now often need 5+ years experience to start .

      #7 is in part reaction to the much higher turnover and lower average lengths of time a given employer in many sectors. This creates a chicken and egg problem.

      8) Young men, moreso than young women, have noticed that employer loyalty and job security doesn’t exist any more. So making the sacrifices of long hours and putting up with work they don’t like doesn’t have the payoff it used to.

      9) Back to #6. More young men are seeing more young women pursue careers, and consider the idea of being a stay-at-home husband/dad a possibility. Not that long ago, that was a big cultural no no.
      9a) A lot of those young men are in for a bumpy ride when biology and built-in-programming takes hold in their working wives who suddenly desperately want to not work and just be housewife/mom – this often coincides with first pregnancy. More women want this than are willing to publicly admit it – and that tends to make life miserable for their husbands.

      10) Social media, and popular culture. It seems, though I can’t be sure it is revisionist history, that a few generations back, the media portrayed the working man … the average working man … in a positive light. Today, we don’t and what’s worse is that we fawn over the exceptions, outliers, lottery winners (life, circumstance, genetics), and others and portray them as the idea men are supposed to be.

      Well, not every young man will have had a startup and sold out for millions before age 25, but we plaster the faces and stories all over of those unicorns who do, as if they are the new normal.

      I happen to have a job/career that to most teens looks like a “rockstar gig/dream job”. The truth is a lot less glamorous, and it has taken me 40 years to get where I am, and there was a lot of luck and in the right place/right time for me. One in a thousand of the kids who ask me how they can do it has a chance of achieving the public facing stuff I have, and I do my best to give a dose of reality. But the way things are for these kids, they often see a more normal working life as a failure to be avoided.

      1. Seems quite on point along with OAM 1-5. The job market now does not seem to reward its workers as it did when I first got in. There was definitely a emphasis on working hard and climbing to the top by putting in the time. I watch many friends filter through companies due to bumps in pay or better perks with only a few that have stuck to the former mentioned work ethic. I would love to be the stay at home dad but that won’t happen for me, ever. MGSpiffy are you in the entertainment industry? I always wanted to be a rockstar 🤘🏼😂

        1. BubblevilleCa,
          Yes I am. Let’s just say you would need more than 2 hands to count the number of million sellers I’ve worked on. I’ve dropped enough clues that some here have already figured it out.

          1. Excellent additional points MGSpiffy. I’ve been out of university for about 15 years and I think I lucked out in a lot of ways. I worked low-wage jobs during college but was able to get significant savings due to having a scholarship and living at home. So I actually came out of college with actual savings, a degree, and no debt. For me the key to wealth accumulation has always been to eliminate my biggest expense (housing) or drive it as close to zero as possible.

            It is hard to accumulate savings when you just feel like you are running in place when all your expenses are drained by your rent or your ginormous mortgage payment. I can see why many young men may look at alternatives (like video games and abundant media consumption) and just decide that it’s not worth it to plug away at a menial job that seems like it will lead nowhere. This seems like a rational choice.

            Last year I was a stay-at-home dad and worked 1 shift at the hospital. That was very rewarding, but tedious in a different way. The problem is that my wife’s job (teacher) isn’t particularly lucrative and she isn’t as stingy as I was. So now that our son is older, it’s back to the grind. But I actually am a leasing agent at a high-end apartment complex and have stopped working at the hospital for the time being. I may elaborate on why I did this temporarily, but it’s basically because the gig offered free housing. So I make less, but I end up saving more. I would rather be caring for people, but you don’t always get what you want!

          2. Very cool! I have been a musician my whole life and grown up around the family and friends in that lifestyle but never made a paying career in it other than working with some of the entertainment / music industry companies through technology. i like what I do but that was my “dream job”

          3. Not a musician, but I’ve worked with a few. I know things like the truth about cake. I’m one of the rare few in my line of work who gets fixed royalties.

          4. i like what I do but that was my “dream job”

            Interesting. I wanted to be a musician and was in the army band program for a while and got to tour high schools on recruiting gigs and get treated like a rock star (one of my former coworkers is still married to a girl we met on tour :-)). But interestingly enough it burned me out a little. I saw how the average “successful” musician still didn’t have much and decided I’d rather be in tech.

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