U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Urban Planning
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 05-06-2014, 07:10 AM
 
86 posts, read 94,771 times
Reputation: 35

Advertisements

Interesting presentation was made yesterday at an investors' conference in NYC by Jeff Gundlach (CEO of a large investment firm). Here's some highlights as they were reported.

---------------
Gundlach says that the housing market has been supported by a huge amount of all cash transactions.” According to Jeff, this is NOT indicative of the organic growth in the real estate market. He notes that sales are slowing and states that ‘new home sales are remarkably weak’

Gundlach asks if homes are really that affordable why did a small rise in rates kill the housing market?
As rates continue to rise Gundlach believes that home sales (and home builders) are looking very weak. Additionally, Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) are big wild cards. Gundlach says if you wind down Fannie and Freddie…then mortgage rates will go up, and with homes not affordable now, the picture will not be too pretty. Gundlach says there are ‘no first time buyers’ as household formation is down.

The young generation has difficulty finding jobs and they cannot be expected to support the housing market, argues Gundlach. “The kids aren’t alright,” says Gundlach and besides lack of job, student loans, are preventing a whole generation from purchasing homes. The story of pent up demand is false and “We’re back to 1995″ in terms of housing. Gundlach says that renting is”massively more appealing” than owning homes, and this is true nationwide.

Gundlach says ‘We will never see a year of 1.5 million housing starts”, or anything close to what we say before the financial crisis. “This is a generational preference”, Gundlach believes in terms of young people preferring to rent over owning homes. Gundlach believes that there will be no rebound in housing and that we will go to new lows.
-----------------

The developments he talks about, I think are quite evident to anyone who stops to think about the situation in the RE market. Another aspect of it is, of course, aging baby-boomers (ie sellers) that outnumber GenX and Millenials (the would be buyers) even before you begin to think about all the issues the younger generations are having (ie student debt, poor jobs prospects etc). So it is pretty obvious that there will be be more potential sellers than potential buyers in the market in the next 20 years. It also appears that the younger generation has preferences that are different from those of the babyboomers. In general, these new generaions would have fewer kids and later in life and want to "continue having fun" as they transition into adulthood.

So.... here's one million dollar question. Do you think this would this cause some sort of bifurcation in the RE markets, whereby some neighborhoods become less appealing due to their design/location/other factors, begin to stagnate, decline and eventually even get demolished, while others become increasingly more appealing, supporting development and prices? Or would that pain be evenly spread?

What characteristics do you think ensure neighborhood "survaval" in the next 20 years considering this unfavorable backdrop? I.e. proximity to highways, large homes, certain amenities, low taxes, etc ??

I want to figure out what makes a desirable neighborhood of the future. My personal theory is that it is either (1) a city or (2) a revitalized pre-war train town near a major city. Everything else in between goes to sh$#er. But I may be wrong and biased by my own preferences. Would like to hear other people's takes.
Reply With Quote Quick reply to this message

 
Old 05-06-2014, 07:58 AM
 
2,388 posts, read 2,955,202 times
Reputation: 1953
I see two big problems:

1.There's gonna be a huge boomer sell-off in 20 years. Mostly of houses for which there isn't much demand. That's really gonna screw the market up and that's the point where we probably see a more obvious shift in suburban poverty.

2.Everyone thought that robots were gonna put us all out of jobs but it's actually the internet/smartphones/apps that are gutting the workforce. All of these radical improvements in productivity are going straight to the top (wages have actually been declining for the last 7 years) and none of it is being redistributed. I don't know who is gonna have money to pay rent in 20 years.

The only thing that's going to save the system is sustained immigration. It's really an insane pyramid scheme but population growth is flattening out almost everywhere except sub-saharan africa. The next 50 years is going to be a crazy time.
Reply With Quote Quick reply to this message
 
Old 05-06-2014, 09:42 AM
 
86 posts, read 94,771 times
Reputation: 35
Quote:
Originally Posted by drive carephilly View Post
I see two big problems:

1.There's gonna be a huge boomer sell-off in 20 years. Mostly of houses for which there isn't much demand. That's really gonna screw the market up and that's the point where we probably see a more obvious shift in suburban poverty.

2.Everyone thought that robots were gonna put us all out of jobs but it's actually the internet/smartphones/apps that are gutting the workforce. All of these radical improvements in productivity are going straight to the top (wages have actually been declining for the last 7 years) and none of it is being redistributed. I don't know who is gonna have money to pay rent in 20 years.

The only thing that's going to save the system is sustained immigration. It's really an insane pyramid scheme but population growth is flattening out almost everywhere except sub-saharan africa. The next 50 years is going to be a crazy time.
I dont see how immigration in general is particularly useful in the scenario where technology destroys blue collar and white collar jobs alike (which is what's happening). I mean what would these immigrants do to afford this housing market? The only type of immigration that could be helpful is chinese urban residents cashing out of their ridiculously priced apartments in Hong Kong and Shanghai and snapping up "bargains" in CA and NY:

Middle-class flight: Yearning to breathe free | The Economist

The Chinese take Manhattan: replace Russians as top apartment buyers | Reuters

As well as other already wealthy, or highly educated, or both, immigrants from developing world (brazlians, russians, you name it). Your typical "huddled masses" would only saddle the system with more costs.

I agree with your point #2 about all value accruing to the top - not even 1%, top 0.5% probably. So absurdly wealthy neighborhoods (think Park Avenue in NYC) are probably "safe" and will remain even more unattainable going forward.

What about the rest ? The people who have both the ability and the desire to own real estate (a shrinking group going forward) will shape the future of neighborhoods. What are the characteristics they desire?
Reply With Quote Quick reply to this message
 
Old 05-06-2014, 10:27 AM
 
Location: Oakland, CA
27,169 posts, read 29,669,595 times
Reputation: 26656
I think there are lots of fundamental issues in the market.

1. We don't have enough housing where people want it. In easy commuting distance of job centers. People are putting a premium (if they can) on being close to work, and having multiple modes to get to work. This makes exburban areas unattractive, and this is where we have built a ton of housing
2. More and more types of people are interested in a different housing format than we have been building. People want a little more density, so they can have more stuff nearby. Stores, transit, entertainment, offices etc.
3. Many of our immigrants have multi-generational households. They need more space, designed to maximize privacy for the different generations. We don't have much housing that matches this, or use regulations to limit zoning so it isn't possible. Of course this isn't a new trend. For example, my mom's family (in the rural south) is multigenerational on the same lot. But there is no regulation that limits this from happening. So on 2 lots there are 5 households of various generations, and it has been that way for decades. But since so much of our housing iz limited by zoning or HOAs, property owners can't set up that sort of flexible use.
4. We build housing mostly with the assumption that most household are the parents, 2 kids and a dog model, but the number of households like this are shrinking. There are plenty of dual income households that want 2 bedrooms, 2 baths and an office in a condo. And way more singles looking for studios and one bedrooms. And couples who don't need much space.

We need to rethink zoning and capital in order to make these housing changes.
Reply With Quote Quick reply to this message
 
Old 05-06-2014, 11:58 AM
 
Location: Thunder Bay, ON
2,610 posts, read 3,761,847 times
Reputation: 1616
I do agree that the majority of American (and Canadians too) don't have as much wealth as they used to, and I don't think that will get better. I'm not very optimistic about the world economy and energy prices, and with the developing world's incomes growing faster than America's, the US will be left with a smaller slice of the resource pie. So I don't think we'll ever have as many housing starts as in 2004/2005, probably not even close. I wouldn't be surprised if housing starts will turn out to have already recovered as much as they're going to recover. And it wouldn't surprise me if property values were to fall again, leading to a decrease in housing starts.

However, while I don't think we can afford to build as much housing as we used to, I don't think we can afford to abandon housing either. If you look at a place like Detroit, housing got abandoned because people could afford to leave, whether to the suburbs or the sunbelt. You don't see that kind of stuff in less developed countries, because people can't afford to squander resources like that. In developing countries, there'll always be poor people willing to put up with living in an undesirable location to save on housing costs.

The only scenarios under which I could see abandonment happening is:

1) Significant population decline. However, the US is still a pretty resource rich country by world standards, and I think it will be able to attract immigrants to counter the low-ish birth rates and avoid population loss for the time being.

2) Cost of housing, including maintenance, taxes, transportation and heating/air conditioning and rent/mortgage becomes unaffordable. However, mortgage can potentially drop to almost nothing before this happens, with rent being just high enough to cover the other costs. I'm not saying this is impossible, but property values have a long way to drop before this happens, and I think communities will likely become reconfigured before this happens.

For instance, regarding transportation costs, you might have some suburb which today can't support bus service. However, part of that is that even if you put in bus service, maybe only 5% of the population will use it. If that goes up to 50% you might actually be able to run relatively frequent buses without them running half empty. If transportation costs go up a lot, suburban municipalities will realize that they have to adapt or die, and become more mixed use, which could just mean allowing ground floors or garages to be converted to non-residential uses.

I do think central cities in most cases will be more desirable and suburbs less so, but I think the circumstances would have to be pretty extreme for abandonment to happen. Plus it would take a while, you'd probably need decades of deferred maintenance before the housing truly becomes uninhabitable.

As for changes in housing types related to demographic changes, I agree that this is a trend. You'll probably see more "unconventional" living arrangements, with multiple generations of adults from a same generation living together, whether that's boomerang kids or grandparents, and also room-mate situations. I think single family homes could be retrofitted to allow this though, for the most part.
Reply With Quote Quick reply to this message
 
Old 05-06-2014, 05:34 PM
 
2,388 posts, read 2,955,202 times
Reputation: 1953
Quote:
Originally Posted by memph View Post
However, while I don't think we can afford to build as much housing as we used to, I don't think we can afford to abandon housing either. If you look at a place like Detroit, housing got abandoned because people could afford to leave, whether to the suburbs or the sunbelt.
It's not so much that people could 'afford' to leave . . . it's that housing values fell so low and property taxes rose so high that it didn't make any sense to stay in a house that was worth less than a used car and pay $500/month to the city just for the privilege of living there - in a city with high crime and few amenities.
Reply With Quote Quick reply to this message
 
Old 05-06-2014, 07:06 PM
 
12,299 posts, read 15,196,725 times
Reputation: 8108
At least in the near future, less interest in owning, more in renting. Even those who want single family housing will look for rentals, and find more available. The end of people buying much more housing than necessary to maximize appreciation. Of course location will be the biggest driver of housing values, as it always is. But a home across the road from an open field, where there is no predicting what will eventually go there, would be a drag on the market. Future determinants of a desirable neighborhood: senior center, hospital, fire station nearby.
Reply With Quote Quick reply to this message
 
Old 05-06-2014, 08:11 PM
 
Location: Thunder Bay, ON
2,610 posts, read 3,761,847 times
Reputation: 1616
Quote:
Originally Posted by drive carephilly View Post
It's not so much that people could 'afford' to leave . . . it's that housing values fell so low and property taxes rose so high that it didn't make any sense to stay in a house that was worth less than a used car and pay $500/month to the city just for the privilege of living there - in a city with high crime and few amenities.
Maybe that wasn't the best way of putting it. But ultimately, why did housing values fall so low and property taxes rise so high? Wasn't it largely because people were leaving? It doesn't/didn't cost a whole lot to live in the Detroit suburbs (housing+transportation costs), so a lot of people were able to make the move. If the cost of living in the Detroit suburbs had been higher, fewer people would be able to afford the move, including people that earn more than the typical current Detroit resident, leading to higher rents/prices in Detroit proper.
Reply With Quote Quick reply to this message
 
Old 05-07-2014, 09:55 AM
Status: "Summer!" (set 19 days ago)
 
Location: Foot of the Rockies
87,003 posts, read 102,592,596 times
Reputation: 33059
Quote:
Originally Posted by pvande55;34690617[B
]At least in the near future, less interest in owning, more in renting. Even those who want single family housing will look for rentals, and find more available. [/b]The end of people buying much more housing than necessary to maximize appreciation. Of course location will be the biggest driver of housing values, as it always is. But a home across the road from an open field, where there is no predicting what will eventually go there, would be a drag on the market. Future determinants of a desirable neighborhood: senior center, hospital, fire station nearby.
What is your basis for saying this?
Reply With Quote Quick reply to this message
 
Old 05-07-2014, 12:41 PM
 
3,946 posts, read 4,041,942 times
Reputation: 4413
Quote:
But ultimately, why did housing values fall so low and property taxes rise so high? Wasn't it largely because people were leaving?
I have seen a few theories/charts that say that people left Detroit because they built giant highways that allowed commuting out to suburbs, and as a result the infrastucture costs drove the high taxes, but the newly built suburbs didn't have those high infrastructure costs so they could afford to have lower taxes - and the people just made the best individual economic decisions. Companies soon followed their employee and dominoes fell.

In other major cities at the same time, these giant highways to the suburbs were fought more, so the effects were less. Detroit's metro population isn't much lower now if you compare it to Detroit's heyday, but Detroit the city's population is much lower.

Modern cities with the same backwards transportation costs measured as 'lane miles per capita' and the resulting high infrastructure bugets are Kansas City, Dallas, Houston, still Detroit, St Louis, and to a lesser extent Phoenix. So all of these using the same theory will be 'future Detroits' if they don't make serious changes.

I'm not sure I fully believe it, but then again, it seems plausible. You can follow the math if you like if you search "Strong Towns".
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Urban Planning
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2019, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top