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There are two massive demographic trends that can't be stopped.
One: Is the fact that the average age in which a person buys their big move up house is age 43/44. This age peaked in 2005 and is continuing to drop. Legal immigration adjusted births declined by 22% between 1961 and 1975, so we are in the early stages of a large decline of people hitting the age for move up housing.
Two: People turn into net sellers of housing in their 60's. The leading edge of the baby boomers are now in their mid sixties. People become net sellers due to the need to downsize, due to death and to raise money for retirement.
Another problem is among boomers with retirement assets of $100,000 or more, 28% had said in a study a few years back, that they will need to use home equity to supplement their retirement.
As housing prices drop and more people in the age of needing to sell, every apparent recovery will bring in new inventory of people who need to sell. Drops will cause others to "get what little I can before it is all gone". Everyone has their minimum number of how much equity they want out of their house and the closer it gets to that number, the more likely it is they will try and sell fast.
I like those "a dime a dozen" deals .. Actually, I've been considering a future purchase myself .. and I wouldn't flip it either .. just a little something I could use to generate some added income along the way ..
There are two massive demographic trends that can't be stopped.
One: Is the fact that the average age in which a person buys their big move up house is age 43/44. This age peaked in 2005 and is continuing to drop. Legal immigration adjusted births declined by 22% between 1961 and 1975, so we are in the early stages of a large decline of people hitting the age for move up housing.
Two: People turn into net sellers of housing in their 60's. The leading edge of the baby boomers are now in their mid sixties. People become net sellers due to the need to downsize, due to death and to raise money for retirement.
Another problem is among boomers with retirement assets of $100,000 or more, 28% had said in a study a few years back, that they will need to use home equity to supplement their retirement.
As housing prices drop and more people in the age of needing to sell, every apparent recovery will bring in new inventory of people who need to sell. Drops will cause others to "get what little I can before it is all gone". Everyone has their minimum number of how much equity they want out of their house and the closer it gets to that number, the more likely it is they will try and sell fast.
This drop has a long way to go.
That is very interesting information and analysis. Thanks.
I bought a house in 2006 at peak levels. Stupidly, I paid 20% down (what was I thinking?). When the house lost half of its value I short sold it because it made no sense to keep throwing money into something that would never see a return on that money.
If you are right and that every semi-recovery will be followed by selloffs of people who just want to get out without a loss then we may be entering a long period where houses won't accumulate and real (post-inflation) equity. That will be a shock to people who have been used to seeing house prices go up. For me, I'll just be happy if they lose value slower than used cars.
The primary financial mistake was to see housing as a productive investment instead of a cost. Housing does not manufacture anything but only costs the owner operating expenses. Using housing as a speculative investment created the problem because the only way for owners to profit was to sell the house to another speculator. The result was too many houses being built and enormous increase in price without any real increase in value.
Now that the market has started to correct prices to reflect the real situation a lot of people that thought they were investing are realizing they were gambling and the casino is calling in their loans. Too bad, because that is the way speculation works. The homeowners lose money and the mortgage lenders get ever wealthier. We need to allow the prices to drop to whatever value the market will cover. However we should not allow the financial system to evict homeowners when the value of the house is less than the amount of the loan. Instead the owners should continue to make payments on the loan and stay in the house. If they sell the house they pay the entire amount to the bank to cancel the loan and lose their investment. That way both the lender and the owners share the loss.
A friend of mine thought she was making a good investment in an apartment building. It is a money generator so long as the tenants stay employed and paying rent but it has dropped in value below the mortgage. The bank is not calling in the mortgage but she is still losing money on the deal. It is tough times on Pine Street.
My wife and I bought our condo 25 years ago. We have seen it rise in value by a factor of three but even then it was not worth enough to let us buy a standalone house because they increased in value by 4 times. The result is we will probably be in this place until we die. Fortunately we like where we live and we never considered the condo an investment. My other investments on the other hand have done very well over the same time period.
I have always thought that if one wants to invest there is the Stock Market and if one wants to gamble there is the casino. Houses belong in neither.
No, what they should do is keep the market falsely inflated to the bubble it was before. Then we can all pretend and play make believe that homes should be that expensive.
It's funny, I don't normally see you posting things supportive of Obama's policies. It's nice to see you've started to.
Of course you realize that the $8K buyers credit instituted by the Obama administration in 2009 created a second artificial housing bubble, right? And you supported his policies in regard to the housing market? Really?
That is very interesting information and analysis. Thanks.
I bought a house in 2006 at peak levels. Stupidly, I paid 20% down (what was I thinking?). When the house lost half of its value I short sold it because it made no sense to keep throwing money into something that would never see a return on that money.
If you are right and that every semi-recovery will be followed by selloffs of people who just want to get out without a loss then we may be entering a long period where houses won't accumulate and real (post-inflation) equity. That will be a shock to people who have been used to seeing house prices go up. For me, I'll just be happy if they lose value slower than used cars.
I feel your pain bought in 03 even though I saw this coming, my early study made it look as if we had until 08/09 before the drop. I wish I had seen how corrupt the mortgage market was.
I see a capitulation that would bottom prices faster but a big jump up in prices is just not in the cards. We are also going to have all of the people who have been buying “deals” over the past few years thinking they are going to get rich, unload into the dropping market.
It is going to be interesting; the turnaround is all up to the millennial generation (Born 1982-200?) Gen-X is tapped out and the downturn has hit them in their peak family spending age, I don’t see the smaller indebted Gen-X helping to turn things around fast. The Mills are larger and younger, the question is whether they are scared off of housing or they will buy at similar percentages to other cohorts.
There will be hot spots; the key will be identifying them. I moved from California because the trend for CA is very negative and to Utah because it is a much younger demographic and the community I am in is exactly like they described in the article. I telecommute so living in a walkable new community is a perfect fit. I am still in no hurry to buy, this community is new so all homes bought from 05 on are under water, I am just waiting it out for a steal.
Location: Georgia, on the Florida line, right above Tallahassee
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Quote:
Originally Posted by lifelongMOgal
Of course you realize that the $8K buyers credit instituted by the Obama administration in 2009 created a second artificial housing bubble, right? And you supported his policies in regard to the housing market? Really?
?
I see you know me too well. Been researching my old posts, eh? The one from February 2009? The one where I said offering 15K for a housing credit was stupid (and assumed people were stupid?) Guess not. Heh.
This is bad for a couple of reasons.
My kids will have to pay it back....through their taxes. So will I, I really don't want to pay for someoe else's home purchase. Or pay China to finance it. Do you support China? Do you like taking their money to buy a home? Where do you think the money we borrow comes from?
It is a "gift" that assumes people are inherently stupid.
Let's say I sell lollipops. In 1970 I sold them for $.50 cents apiece. in 2000, I sold them for $2.00. In between 2000 and 2006, Mr. Buddy down the street dies and his fat kid, Johnny inherited 8 bazillion dollars....and he loved lollipops. I saw a way to make some cash here....eh?
In 2006, I was selling my lolliops for $5.00. Kids were balking at the price but I had multitudes of people saying "It's the right time to buy a lollipop!" "Get them before they are gone!" "BUY! BUY!BUY!" It wsa awesome...some of these people had never sold a lollipop in their life. I gave them an 8 hour course and they put a "Licensed to sell lollipops" shingle on their door. Everyone involved in the process was making money, hand over fist.
Then, tragedy. Johnny ran out of cash (and it was suggested he go on a diet). The other kids did, too. Now, they can't afford my $5.00 lollipops. I drop the price 20 percent, but that just made it $4.00 a pop. Interest was nil. Only the kids that absolutely needed a lollipop bought one at that price.
SO, I got wise. I printed up some "15 cents off" coupons and put them where everyone could see them. "OMG!!!WOWZERS!!! Lollipops are 15 cents off now!!!", the kids cried.
What do you think the kids will do? Do you think they see that the lollipop might be worth a little more than $2.00.... or do you think they will think $4.00 is a great deal...if you have 15 cents off?
What do you think?
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