40 replies to this topic

[Steve Heard]

U.S. home prices jumped 10.9 percent in March compared with a year ago, the most since April 2006. A growing number of buyers are bidding on a tight supply of homes, driving prices higher and helping the housing market recover.

 

The Standard & Poor's/Case-Shiller home price index released Tuesday also showed that all 20 cities measured by the report posted year-over-year gains for the third straight month.

And prices rose in 15 cities in March from February. That's up from only 11 in the previous month. The monthly figures aren't seasonally adjusted and may reflect the beginning of the spring buying season.

 

Prices rose in Phoenix by 22.5 percent over the past 12 months, the biggest gain among cities. It was followed by San Francisco (22.2 percent) and Las Vegas (20.6 percent).

New York City had the smallest year-over-year increase at 2.6 percent, followed by Cleveland at 4.8 percent.

 

"Rising home prices may begin to alleviate a lack of housing inventory ... by encouraging more homeowners to put their properties on the market," said Maninder Sibia, an economist with Economic Advisory Service, in a note to clients. "The housing market is clearly improving."

The index covers roughly half of U.S. homes. It measures prices compared with those in January 2000 and creates a three-month moving average. The March figures are the latest available.

 

The U.S. housing market is steadily recovering, buoyed by solid job gains and near-record low mortgage rates. Sales of new homes rose in April to nearly a five-year high. And sales of previously occupied homes ticked up in April to the highest level in three and a half years.

Despite the gains, a limited number of homeowners are putting their houses on the market. That's helped lift home prices. And it's made builders more willing to ramp up construction. Applications for building permits rose in April to the highest level in nearly five years.

 

Read more:
 

http://www.sfgate.co...006-4553023.php

 

I'll run Folsom stats for comparison. 

[Steve Heard]

Forgot to post the chart. What do you think? Recovery? Bubble? Insanity?  

 

[FolsomEJ]

What's the replacement cost per square foot for Folsom?

[Steve Heard]

That can vary wildly. I think an insurance company might have a better feel for it. A builder would be best, but when you ask them, the answer is almost always....'depends'.

[tsukiji]

This is a great trend but insufficient for me to sell my house and move away from CA. I wonder if this trend will continue once BummerCare is active next year. It sounds like it will have dire implications to the economy and we'll have another recessive shock as people get laid off / get hours cut, etc.....

 

But I hope the trend continues so that I can escape this insane state. The nice climate is no longer enough for me to stay.

[Steve Heard]

This is a great trend but insufficient for me to sell my house and move away from CA. I wonder if this trend will continue once BummerCare is active next year. It sounds like it will have dire implications to the economy and we'll have another recessive shock as people get laid off / get hours cut, etc.....

 

But I hope the trend continues so that I can escape this insane state. The nice climate is no longer enough for me to stay.

 

This political stuff should be moved to the politics section, but I will say that the Affordable Healthcare Act affects all states. 

[rip]

Thanks for posting this Steve.  I've got two theories.  One, is the market over shot on the low end is in the process of correcting and the wild appreciation will slow to a more normal (by historic standards) rate.  Two, this is a bubble, driven by artificially low interest rates and a lack of inventory caused primarily by large purchases of property by institutional investors.  Right now I'm leaning toward option two.   

[Steve Heard]

Thanks for posting this Steve.  I've got two theories.  One, is the market over shot on the low end is in the process of correcting and the wild appreciation will slow to a more normal (by historic standards) rate.  Two, this is a bubble, driven by artificially low interest rates and a lack of inventory caused primarily by large purchases of property by institutional investors.  Right now I'm leaning toward option two.   

Hey Rip, welcome to the forum!

 

You make some important points. I think we were artificially low, and investors, institutional as well as small-time, saw the tremendous opportunity to snap up assets at bargain prices.

 

In addition to being attracted by low rates, owner-occupant buyers are buying because that's how Americans have looked at wealth-building for decades, and owning a home is seen by most as a good thing. It's just time.

 

Remember, the market peaked in 05, and many of today's buyers were in their late teens or early twenties at the time. They weren't in the housing market, or even interested at that time, so they don't have the same fears that people who went through it do.  Sometimes I think that's a good thing. Others, not so much. 

 

I think we'll see some leveling off as equity rises and owners take advantage of the climate. 

[rip]

Yeah Steve, the optimist in me wants to believe this is just a correction and things will calm down in the next year or so.  That said, with the bidding wars, unsustainable appreciation, and general buying frenzy it sure feels like a bubble.  I don't think we'll go back to the bad old days of the last few years as the easy access to unlimited credit that fueled that bubble is no longer available.  I do wonder, however, what will happen to prices and the market in general when interest rates start to climb.

 

I would also submit, many of the young buyers you alluded to, are being forced to the sidelines as the low and mid range of the market has been nearly completely consumed by investors.  It is almost impossible for a first time buyer with an FHA loan (as an example) to compete with groups like Blackstone offering sellers cash and quick closings.

 

Thanks for the great discussion and I look forward to more  Folsom real estate data.

[Steve Heard]

I would also submit, many of the young buyers you alluded to, are being forced to the sidelines as the low and mid range of the market has been nearly completely consumed by investors.  It is almost impossible for a first time buyer with an FHA loan (as an example) to compete with groups like Blackstone offering sellers cash and quick closings.

 

Thanks for the great discussion and I look forward to more  Folsom real estate data.

 

You are correct that a lot of the young buyers are going after lower-priced homes, and groups like Blackstone can out-bid them with cash. One of my daughters' friends came to me complaining that agents weren't returning her calls and that she had fired her agent after putting in several offers, believing the agent wasn't doing a good job. 

 

It turns out that her and her boyfriend were looking for a home priced under $150K, and her boyfriend was using VA financing with zero down.

 

I had to tell her the sad truth that many if not most homes in that price range aren't in the best of condition and therefore wouldn't past VA inspection requirements, that some sellers are expecting buyers to waive appraisal contingencies and make up differences with cash, and that cash buyers don't require inspections or appraisals, so it will be a tough road for her. 

   

Another interesting phenomena is sellers doing like Fannie Mae and Freddie Mac do on the homes they're selling; giving preferential treatment to owner-occupant buyers. 

 

Also, with rates where they are, a couple making $60,000 per year can afford a home of $350K or more, and many of them are starting to go after those higher priced homes, while investors want the cheaper ones.

 

I love talking about this stuff and trying to figure it out. 

[caligirlz]

Also, with rates where they are, a couple making $60,000 per year can afford a home of $350K or more, and many of them are starting to go after those higher priced homes, while investors want the cheaper ones.

I'm not sure what you mean by "afford". By that reasoning, I could "afford" a $350-450k house. However, I would not want to pay more than my current mortgage. I bought slightly above 3x my income. I don't like the feeling of living on the edge of my paycheck. I much prefer a cushion, and the ability buy whatever I want with a little planning.....still slowly working on furnishing the "new" place & finishing the landscaping.

[rip]

Just out of curiosity Steve, do you have a chart showing average selling price per square foot (in Folsom) over the last 10 years or so?  I'd be interested to see where we are relative to the bubble years.

[rip]

. 

 

Also, with rates where they are, a couple making $60,000 per year can afford a home of $350K or more, and many of them are starting to go after those higher priced homes, while investors want the cheaper ones.

 

I think this illustrates my point about interest rates.  Could that same couple afford that $350k home in the likely event interest rates rise even a modest amount...say  to 4.5 or 5%?  By my math that would add around $300 per month which isn't exactly chump change if you are making $60k per year. 

 

It really comes down to affordability.  For a given level of income/debt a household can only afford to spend a certain amount per month on a mortgage.  In my opinion that was one of the things that drove the crazy interest only/reverse amortization loans in the last bubble.  Prices had risen too high for the average buyer to afford the payment on a conventional loan, so people sought out loans that offered a monthly payment they could make.   The big question again is, are we in for another drop in prices when interest rates rise and the average buyer can no longer afford the monthly payment on that hypothetical $350k mortgage?

[Steve Heard]

I'm not sure what you mean by "afford". By that reasoning, I could "afford" a $350-450k house. However, I would not want to pay more than my current mortgage. I bought slightly above 3x my income. I don't like the feeling of living on the edge of my paycheck. I much prefer a cushion, and the ability buy whatever I want with a little planning.....still slowly working on furnishing the "new" place & finishing the landscaping.
 

 

Before I go on, I must make the disclaimer that I am no longer involved on the lending side of the business and only know enough to be dangerous, based on my years doing both loans and real estate. I now focus on the real estate side, realizing 5 years ago that both were becoming so complicated, I could only provide good service on one, and I like working with people more than I like working with numbers. Anyone interested really should talk to a lender. Having said that... 

 

By 'afford' I mean meeting the debt-to-income ratio (DTI) required by lenders. In the case of a couple making $60,000 per year, or $14.42 per hour each, they'd have a monthly income of $5000. Depending on the lender, borrower credit and the loan program, the DTI requirement can be as low as 33% or as high as 55%.

 

These number are carefully researched, and it has been proven that people with high debt to income ratios are far more likely to default on loans than those with lower ones, and it makes perfect sense that that would be the case.

 

A purchase of a $350,000 home with a 20% down payment at 3.8% interest would yield a PITI (principal, interest, tax and insurance) payment of about $1720. Rent on a property like that would be quite similar. 

 

Taking an FHA loan out on the same property with only 3.5% down would result in a PITI of about $1950, or 39% DTI.

 

So, that's what I mean by affordable. Some borrowers would say that $1700 is not 'affordable' to them, but that's a preference, not based on lender guidelines and historic figures.  

 

Just out of curiosity Steve, do you have a chart showing average selling price per square foot (in Folsom) over the last 10 years or so?  I'd be interested to see where we are relative to the bubble years.

 

I'll check on that.  

 

 

 

I think this illustrates my point about interest rates.  Could that same couple afford that $350k home in the likely event interest rates rise even a modest amount...say  to 4.5 or 5%?  By my math that would add around $300 per month which isn't exactly chump change if you are make $60k per year. 

 

It really comes down to affordability.  For a given level of income/debt a household can only afford to spend a certain amount per month on a mortgage.  In my opinion that was one of the things that drove the crazy interest only/reverse amortization loans in the last bubble.  Prices had risen too high for the average buyer to afford the payment on a conventional loan, so people sought out loans that offered a monthly payment they could make.   The big question again is, are we in for another drop in prices when interest rates rise and the average buyer can no longer afford the monthly payment on that hypothetical $350k mortgage?

 

I'll do some math on that as well.

 

I may not get back to y'all today. I'm volunteering at the Big Wake Weekend, pouring beer. 

 

Maybe I'll see y'all out there. 

 

Steve

[rip]

Obviously no hurry Steve, it is more out of curiosity than anything.  Enjoy your weekend and be sure to pour yourself a beer as well.