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Overpriced housing is KILLING the economy. Americans are leveraged to the hilt for over-priced housing or are paying HUGE rents and have no money left over to support the consumer economy. Keeping housing costs inflated means the depression cannot end, and more American companies will go bankrupt because of it. And more Americans will continue to go bankrupt also.
Housing gained from 150-300% from 2004-2006. The average annual gain of American housing is 1-2% a year. We need to dry out that 2004-2006 abberration so we can afford to live and support our economy again.
Time to wake up. Fake housing inflation ruins the economy.
Do you understand or know WHY the housing went through such drastic increase in value?
In 2004-2008 different markets rose at different rates; likewise, during 2007-2009 different housing markets declined at different rates. Overall, it seems like prices again started rising in different markets at different times between 2010 and 2011/12.
The bottom line is that the state of the 'overall housing market' has as little relevance to ALL housing markets, as the state of the 'overall stock market' has on individual stocks.
In 2004-2008 different markets rose at different rates; likewise, during 2007-2009 different housing markets declined at different rates. Overall, it seems like prices again started rising in different markets at different times between 2010 and 2011/12.
The bottom line is that the state of the 'overall housing market' has as little relevance to ALL housing markets, as the state of the 'overall stock market' has on individual stocks.
Yep.
"The housing market" is nearly a meaningless phrase, unless you narrow it down to about a 3 mile radius. Or less.
OTOH, "The money market" is MUCH more encompassing. The guy buying the $400,000 house in Chapel Hill with a loan is working in the same money market as the guy buying a $250,000 with a loan in Wilson.
And they are not at all in the same housing market.
Yep.
"The housing market" is nearly a meaningless phrase, unless you narrow it down to about a 3 mile radius. Or less.
OTOH, "The money market" is MUCH more encompassing. The guy buying the $400,000 house in Chapel Hill with a loan is working in the same money market as the guy buying a $250,000 with a loan in Wilson.
And they are not at all in the same housing market.
Mike, I think I understand what you mean by this post but I've not heard to it referred to as a "money market". Perhaps that term and its usage is something local to your area.
In my business area, it's referred as market and submarket. For example and using your locations, Raleigh would be your market area with Cary and Wilson likely being submarkets. I'm assuming Cary would contain higher priced homes and more upscale amenities within it's local submarket area and Wilson would be more rural and have amenities that are less upscale (or be totally lacking amenities).
In my area, I have specific neighborhoods that are their own market area and measure perhaps a two square miles and other, more rural areas, where the market would include an entire Texas county.
It really all depends on the property(ies) being considered and the availability of similar properties within a given area. The more unique the property, the larger the market area (in most instances).
Supply and demand are vastly misunderstood. The low rates have triggered more demand, but most Americans can not qualify for a loan. Because they can not get the loan, they effectively are removed from the demand side of the equation. Supply is based on the number of existing homes and the cost to construct new ones.
Currently, people that can qualify for loans can buy much better houses than before, and their monthly payment -- the personal finance side of the equation -- is lower than it would have been before. Further, because of lower interest rates, they are making substantially more headway on paying off the loan in the early years. When loan interest rates are high, and the payments are at a set rate, most of the principal is paid off at the end. The lower the rate is, the more evenly the principal is paid off.
We bought a house for 4 times annual income. In most markets, that is crazy, but we knew we had a great deal on insurance and local property taxes are very very low (.6%). We did the math on expected future interest rates and reasonable levels of appreciation (we estimated 2% long term), and found the enjoyment of having a nice house was easily worth the cost over the long haul. If I quit working on my Master's and my professional certifications, we would have more income right now, but it would hurt us in the long haul. Yet we can meet all our bills with about 17% of our income left over.
So realistically, "housing" is actually very affordable right now if you compare monthly payment to income. If you compare purchase price to income, housing is not affordable. The factor that is making housing affordable is the very low rates which are both a function of the federal reserve and of the mortgage lending requirements. The fed buying loans has decreased the rates, and the mortgage lending requirements has reduced the number of people that can qualify for mortgages, which again reduces the rates. My mortgage is at 3.375% and locked for 30 years. I read the market, and I knew when it was time.
Note: Because "housing" is a very broad term, I am comparing the median and averages of major metro markets to the values of those some markets in previous years. Phx compares to Phx 2010, 2009, 2008, etc. It does not compare to Boston.
Because rates have already bottomed out, and mortgage requirements can hardly get any stricter, it is unlikely to see any further price decline without a complete and utter economic collapse. Nothing else could get demand lower, and supply will not grow when housing prices are less than the cost to build.
I see prices as higher than 2007 but nowhere near 2005 in most places in the Boston area despite what you may read and hear.
Prices in 2005 were lower than in 2007 were they not? Maybe it had to do with location but in the California and Arizona areas prices hit the top in 2007. We had contracted to have a home built in Arizona at the end of 2007 and by the time it was finished in 2008 prices had started declining. Even back in 2007 people were in a frenzy to purchase homes. By mid 2008 it was slowing down. Near the end of the year it had slowed way down. By 2010 when we bought it was at or near a standstill. I don't see prices in our area anywhere near the 2005 or 2007 levels. I see them around late 2003 and early 2004 levels currently.
My price point is based on what the market in my area has done for the past 40 or so years. Other areas will have a differant set of market conditions to deal with. For the Boston area I have no knowledge and you would have a better idea of how the market reacted in your area. My comparison is based only on what I saw in California and Arizona during the time frame.
Location: East of Seattle since 1992, 615' Elevation, Zone 8b - originally from SF Bay Area
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Our home prices and rent are climbing back to what they were in 2005-06 now because of the high demand and low supply, which is the normal way a market economy works. A lot of people want to move here, and big companies like Amazon are hiring thousands of people in tech jobs that pay well. That's not artificial inflation, and it will only slow/stop if many more homes become available due to massive layoffs or a lot of new construction.
It's amazing that your own example doesn't shock you and demonstrate what some others are trying to explain... Over 10% appreciation in value per year - 40% in 4 years... wow
Apply that over the life of a 30 year mortgage and let me know if you think that's sustainable or is looking exactly like the ramp up leading to the last bubble.
Homes should not appreciate at that rate.
In my market if we had a normal inflation rate and had not participated in the bubble years homes in my neighborhood would have safely risen to the $400,000 range by now. We are talking historical inflation from the 1960's when these homes were built untill now 50 years later. In 2003 the homes here were selling right around where they are selling for now. That was prior to the 20% increases that peope would see for 2004, 2005, 2006 and 2007.
Prices jumped way up from 2003 untill 2007. Back then we were priced out of the market. Think about it, we have a family on my street that paid twice what we paid for our home. He moved on our street in late 2007 at the top of the market. Now they had sold another home so they could move to our street. Equity from another home brought them to our neighborhood. For them they don't consider a loss because it would have wiped out the gains the former home had. For them it is a wash.
What I am saying is that with a normal set of conditions my area would have been in the $400,000 range anyway. Right where we are now. The area can support people that purchase homes at the current price point.
If things were to move back to the $700,000 range that may be a differant story.
Some parts of the country experienced massive housing price crashes, while many other parts never did, and most us of already know that, and have for several years running; many of us knew that the housing crash was inevitable before it took place, nor are we surprised that ObamaCare is coming apart at the seams, and that the worst is yet to come, which will enable some folks to become really wealthy at the expense of the poor and the middle class.
Mike, I think I understand what you mean by this post but I've not heard to it referred to as a "money market". Perhaps that term and its usage is something local to your area.
In my business area, it's referred as market and submarket. For example and using your locations, Raleigh would be your market area with Cary and Wilson likely being submarkets. I'm assuming Cary would contain higher priced homes and more upscale amenities within it's local submarket area and Wilson would be more rural and have amenities that are less upscale (or be totally lacking amenities).
In my area, I have specific neighborhoods that are their own market area and measure perhaps a two square miles and other, more rural areas, where the market would include an entire Texas county.
It really all depends on the property(ies) being considered and the availability of similar properties within a given area. The more unique the property, the larger the market area (in most instances).
When a buyer borrows money guaranteed by GSE's in Cary, Los Angeles, Fargo, or Mobile, they are working in the same "Money Market."
And the Fed "prints" and pumps money around to make the market work.
Real estate and improvements to it convey very much in local and hyperlocal markets, segmented by price and location. But the real estate market in Cary is not at all dependent on the real estate market dynamics in Kalamazoo.
We have multiple sub-markets in Cary, of course. As does Wilson.
Both are dependent on the "Money market" to provide affordability and liquidity.
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