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And where are they going to find such people who can now take fixed rate 30yr loans at interest rates that are rising by the month at prices that are on the verge of matching the last bubble's peak?
The majority of demand so far has been by investors for the low lying fruit. That has disappeared now as all the deals are gone and the overpriced inventory that is now available is of interest to no one. Sales volume is falling off a cliff.
So what happens now?
What happens now? We go back to magic loans and rabbit out of the hat financing of course. Eventually they're gonna run out of cash buyers and depending on what happens the hedges and investors may dump or simply stop/slow buying and look for greener pastures with the rest of their money. If they want these high bubble prices they are gonna have to keep the monthly payment affordable. Which means low interest rates. And considering most people buy based on monthly payment and if they keep the down payment low ( which is the hardest thing for a finance buyer to come up with and realtors whispering that prices are only gonna go up buy now and people panic buy the prices will go up. Look at 2013 back in the beginning of the year. Flashbacks of 04-06. And do you really think all the domestic cash buyers are all flush? Not a one leveraged to jump on the this train? And I would love to see the amount of cash buyers who as soon as they got the keys refi'ed their 100% equity to do a 80% cash out refi. Now the heavy lifting is back on the bank. If I was back into doing the housing game it's what I would do.
He'll look how the market just s**t the bed as soon as FHA loans went to lifetime PMI. After that refi and loan origination dropped like a lead balloon.
I agree it's not yet quite as bad, but where do you get the idea that Millennials have so much money???
Millennials are already the most debt burdened generation in the history of this country. Good paying jobs are scarce, they have dim prospects for any future wage growth, they have an enormous amount of student loan debt. They arguably have the LOWEST amount of discretionary potential of any generation in history?
How again are they going to buy up all this real estate when they already graduate from college with a non-dischargeable mortgage (student loan)?
Agreed.
Everything that I have read indicates that both home and car purchasing amongst "Millenials" has dropped like a rock ever since financial meltdown several years ago. And many in that generation have shown increasing disinterest in being tied down in additional debt for either a house or a car, at least for the forseable future.
Today's boom has been fueled 100% by investor speculation... so do you think speculative cycles last forever? Of course not, when attractiveness wanes in this asset class investors typically pull money out and invest it elsewhere. That may take a while but when that happens that particular asset class, in this case Real estate, crashes quite spectacularly.
The trigger to entice investors to cash in and lock in gains will probably be when homes appreciate sufficiently and interest rates rise so the yield/risk equation is better elsewhere.
Wrong, it is not speculation driving investment. It is the fact that rental property at this time is returning a decent return. Being a landlord is a pain, and not something investors prefer if passive investments fill their need, but the fact is that the only passive investments with a decent return today are equities, and if you desire any kind of diversification then you are forced into an active investment like real estate or some other type of income producing business.
Bubbles are created not by seasoned investors, but by the general population who generally comes in at the end of a cycle and drives prices to manic levels by using leverage they are in no position to cover their positions in the worst case scenario.
That is not the case here. The majority of investors coming into the market today are either paying cash or coming in with large down payments that give them positive cash flow and the strong money position to ride out fluctuation in the market. Believe me when I tell you it is the idiot masses that cause bubbles and seasoned investors see those signs and exit the market when such things happen as I did in 2006.
Your observations and conclusions are flawed on several counts.
In the first place, bubbles have little or nothing to do with average sale prices; they have everything to do with speculation and debt.
In the housing bubble which ended in 2008, banks were loaning to people based on little more that a heartbeat. The bubble was clearly unsustainable because the underwriting criteria of loans were based on lies and dependent on best case scenarios.
That is clearly not the case today. Loans are very difficult to get, and the quality of borrowers is substantially higher that it was previously.
Much of the demand for housing now is being pushed by financially strong investors who have few options to secure double digit returns on investment. Lack of any kind of reasonable returns in the bond markets has forced investors out of bonds and into real estate seeking returns and diversification.
Another flaw in your assessment is that it fails to take the true inflation rate into consideration. I am not talking about the fantasyland 2% rate the government keeps force feeding your psyche; I am talking about the real inflation rate which has seen steady increases in food, energy, rents, and taxes.
Finally, your statistics are flawed in that the "average cost" does not take into account changing demographics. Much of the higher priced properties for example in California have been purchased by foreign and corporate investors, while lower priced properties in states not particularly hard hit by the previous housing crash have become more attractive spots for relocation by people starting over or retiring.
Many of the houses being sold in the US now is different than the housing bubble in the 2000s. The houses are not in low-demand exurban area which was not following population trends, and largely speculative. The sales are largely in cities and urbanized suburbs with increasing populations. It is less speculation driven, but driven by actual demand and demographic trends. More downtown SF or DC, as supposed to the exurbs of Las Vegas. So it is not an apples to apples comparison. This is why prices of houses sold are higher as well...those purchasing, are doing so where it is worthwhile over renting.
Many of these urban areas never were hit by the bubble bursting, or were only lightly hit.
The reality is many of the exurban areas heavily hit are still suffering, as the population trends move into urban areas, and urbanized suburbs. The chart is a bit deceptive, because you have to have a granular understanding of where the sales are, and in which locations they are not happening at all. When all the home sales are in high priced areas, and not much is happening in middle class areas, it is going to bring up the price of the average sale.
............. And many in that generation have shown increasing disinterest in being tied down in additional debt for either a house or a car, ..........
Fine by me. They can pay me rent for the rest of their lives. I can raise the rent every year and when they are ready to retire, I'll own a paid-for house, and they will own a stack of rental receipts.
^^Pre-2008, rent-deflation was masked by 'irrational exuberance'; what's going to enable sustained rent-inflation going forward?
I guess if Blackrock/other investors go on another home-buying spree this spring/summer, then you may get your rent-inflation (think moral hazard). But make no mistake, your calculation for future rent-inflation is grossly dependent on USGovt/virtual taxpayer 'voucher checks' to support the 21st century rental market.
^^Pre-2008, rent-deflation was masked by 'irrational exuberance'; what's going to enable sustained rent-inflation going forward?
I guess if Blackrock/other investors go on another home-buying spree this spring/summer, then you may get your rent-inflation (think moral hazard). But make no mistake, your calculation for future rent-inflation is grossly dependent on USGovt/virtual taxpayer 'voucher checks' to support the 21st century rental market.
The housing market is much too big for Blackrock and other big time investors to cause rent inflation.
I didn't say they would ultimately succeed, but with other forces colluding** together, it appears to be working--& most people understand that today's economics is built on appearances.
Again, I'll ask a simple question: "Where is the tenant going to get the money to pay annual rent increases going forward!?" IMHO, if massive middle class section8 is not implemented, then real estate will materialize into a dangerous, TBTF/moral hazard bubble.
**Banks manipulating inventories; short-sale tax waivers; legalized squatting; ~4 years of extended UE benefits; food stamps, etc...
^^Pre-2008, rent-deflation was masked by 'irrational exuberance'; what's going to enable sustained rent-inflation going forward?
I guess if Blackrock/other investors go on another home-buying spree this spring/summer, then you may get your rent-inflation (think moral hazard). But make no mistake, your calculation for future rent-inflation is grossly dependent on USGovt/virtual taxpayer 'voucher checks' to support the 21st century rental market.
Rent inflation is driven by the same factors as normal inflation. The FED's policy is to have inflation, and that inflation will impact everything making rental property an ongoing reasonable investment as you are not only repaying your loans with dollars that are continually worth less, you are repaying those loans with someone else’s devalued dollars.
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. Eventually they're gonna run out of cash buyers and depending on what happens the hedges and investors may dump or simply stop/slow buying and look for greener pastures with the rest of their money. If they want these high bubble prices they are gonna have to keep the monthly payment affordable. Which means low interest rates. And considering most people buy based on monthly payment and if they keep the down payment low ( which is the hardest thing for a finance buyer to come up with and realtors whispering that prices are only gonna go up buy now and people panic buy the prices will go up. Look at 2013 back in the beginning of the year. Flashbacks of 04-06. And do you really think all the domestic cash buyers are all flush? Not a one leveraged to jump on the this train? And I would love to see the amount of cash buyers who as soon as they got the keys refi'ed their 100% equity to do a 80% cash out refi. Now the heavy lifting is back on the bank. If I was back into doing the housing game it's what I would do.
Banking on middle class Section8
