Wednesday, March 13, 2013

How's about that RE market.

Doubt anyone follows this anymore but in case you haven't noticed RE in our local market is at a very strange place. Extremely low inventory, lots of buyers but constrained by mortgage income guidelines so it is hard to call it a "bubble". Just a frenzy for homes during this spring selling season by all evidence I've looked at.

Basically, the cream of buyers (with a few lucky stragglers) rising to the top with everyone else desperately picking over the remains.

Econ 101 nicely explains the issue:

We only have Q1 of available houses due to a large number of reasons (put off household formation due to the recession and now improving economy,  banks unwilling/unable to foreclose, large number of underwater homeowners unwilling to sell at a loss, new home weren't built during the bust and it takes a long time to get projects going again, etc , etc etc) so prices are rising (p1). We also have ultra low interest rates and increasing housing consumer confidence so one could say that the demand curve has shifted to the right as well.

It is hard to see where a "enough" new supply comes from anytime soon. On the flip side it is pretty easy to see where new demand will come from (pent up demand + normal demand + improving economy). It'll be tough to be a buyer for awhile.

Personally, I'm glad to be done with it but I have to admit my interest has been piqued at the clear signs of frenzy.


Anonymous said...

Welcome back! I thought you had died. I miss your cool graphs especially for the SFV market. What are your thoughts going forward for the housing market?

Effective Demand said...

I think the tail winds are in for housing. Improving economy + low interest rates (set to SLOWLY rise over the next few years) + little new housing stock + pent up household formation + income growth + foreclosure tsunami turned into foreclosure trickle (relative to litigation and government policy, don't expect this to change) + rising prices. Locally, it's gonna suck to be a buyer.. at the same time I'd rather buy sooner rather then later.

The private mortgage insurers are talking about loosening guidelines again so private capital will start moving into under served markets.

If you haven't seen this was where I got the high level statistics for the SFV:

I miss having MLS access because I could run really could reports. But for the regular SFV monthly stats that I ran it all came from the PDF's posted above and a bit of excel.

SFV is en feugo, 1.8 months of inventory. I see houses on my way to work with new signs in their yard, most of them don't last a week.

Effective Demand said...

Forgot to add in rising rents as a housing positive.

On the negative side of the ledger. Lots of underwater homeowners (but that also restricts supply) and I don't see prices able to move THAT much because buyers incomes are being verified so it won't get too crazy (that is a positive! but a negative as far as putting a cap on how high prices can go)

Richie said...

Supply may be constrained, but I still don't understand where the buyers are coming from. I've been looking to upgrade my job situation for 2 years now. There are very few jobs available that would get me a pay bump. In fact, I am still finding lots of locally advertised jobs looking for college graduates with ~5 years experience, but only willing to pay $15-$18/hour. How are these people going to be able to afford $450k+ houses? How are these people going to be able to pay rent in a $1500/month apartment and save for a down payment?

Effective Demand said...


In CA, watch the front end ratio, people are extremely willing to stretch and the mortgage market will let them. Check out a mortgage calculator and run some scenarios, even a couple making $18/hr each can afford a lot in todays low interest environs.