Is a Second, Stable Housing Boom on the Way?
I’m in the same boat as Stacy; I really don’t know whether the economy is heading up or down. From where I sit, trying to predict where we’ll be two months from now is like trying to field a badly-shanked punt in a swirling wind. The ball isn’t flying in an elegant arc; it’s wobbling all over the place and the wind may send it long or pull it up short and since you’re looking at it straight-on, you can’t get a sense of which one it’ll be. You’re almost better off not trying to catch it at all.
That doesn’t mean you shouldn’t try to stay informed (by visiting this site a couple of times a day, for instance). It just means that you have to work harder to put the disparate stories together into a coherent narrative. Let me give you an example.
I saw a few stories yesterday and today that seem to indicate that something interesting is afoot in the housing market.
1) Housing sales rose 11 percent last month, the third monthly increase in a row.
2) Housing prices rose for the first time since 2006.
3) About a quarter of the mortgage defaults are “strategic”, meaning that people chose to walk away from their mortgages to retain their financial position isntead of being forced into it.
4) The default rate for mortgages on high-end homes in places like California is starting to increase rather than decrease.
5) Toss in this feature on people who have been renting apartments who are buying homes because the mortgage is less expensive than their rent.
Okay, so….what? Here’s what I see, and do keep in mind that I’m not a big-brained financial genius, just a guy who likes collecting scraps of information from here and there and putting them together to see what interesting stories they might tell.
I see the beginning of a second housing boom that actually is building from a stable foundation. It won’t be nearly as big as the boom that led to the crash we’re in now, though, for two reasons: 1) the buyers are generally people who can afford the houses they’re buying, and 2) housing prices have fallen to a much more realistic level. That doesn’t mean that it won’t be very beneficial, though. The people who are getting in now aren’t the home-flippers or the dodgy credit-risks, but those who protected their financial situation and see getting into a home with a reasonable mortgage payment as a good long-term move. In other words, they’re not buying more house than they can afford and they’re not buying a house as an investment vehicle. They’re buying a house that suits their needs at a price that suits their financial situation. You can build a very stable housing market on the backs of those people and, right now, what our economy needs more than anything is stability.
Meanwhile, the market is still shedding itself of those people who went crazy with their purchases and bought the ridiculously overpriced houses. Those folks are cutting their losses and will eventually settle into more modest housing. The houses they left will either sell for bargain-basement prices or get torn down. One way or the other the market will rid itself of excess, unmoveable supply.
Believe it or not, I actually see a sizeable silver lining here. Granted, it’s not hung on much of a cloud, but it does seem to be there.
Other Posts of Interest:
- Our Economic Groundhog Day
- Twenty-Five Minutes of Truth on the Mortgage Mess
- Shooting Craps with the Economy
Category: The Economy and Your Money
I remember a day when even a small amount of good news was actually good news. What does it take today to call something good news? I believe the housing industry led us into this recession, and housing will lead us out. one step out of a recession is still out, even if its not 10 steps.
You may be right. I've forgotten where I saw it – I've been checking out economic/financial blogs in order to try to get a handle on what's going on – but there was a plus one and a minus one…the plus one was that the price of lumber was going up again. The minus one was that railroad car loads were still low and going lower each week.
I wouldn't get so excited. Every fall has a little bounce back. The marginal people had to sell quick and accepted lower prices, which drove prices way down. We're just entering a phase of basically stable prices. They are back up to the point where people are willing to sell now. And they are still selling a lot less quickly than last year. This isn't really so great. But recoveries take time. The numbers two months from now should look better as the summer construction work shows up on the books. But their won't be even a minor boom for a decade. Every third generation, we learn what our grandparents tried to tell us: markets don't always rise. We learned that lesson, and people will be a lot tighter with their money. They won't just buy a house on the assumption that the increase in value will cover them. And that takes a lot of people out of the market. Without the irresponsible buying, booms don't happen.
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I'd advise caution for the near term. Know your market.
I'm presently in the tri-cities of NE TN and while prices took a little dip last year things are firming up again. Some neighbors have had to move due to job changes and they've had to resort to some non-traditional approaches to selling but overall houses that are priced fairly will sell, and the ones that sit unsold are either overpriced or have not so hidden issues.
Conversely much of my family is in SW FL and things there are horrible with a parade of horrible marching in and no visible end in sight. Sure, you can buy a brand new luxury condo in Fort Myers for literally less than half (maybe even a third) of what it initially sold. Unfortunately that does little to compensate for the $1000 a month maintenance fees, which will only rise as the lower floor retail space continues to sit unused and fails to generate any of the much anticipated revenue and more residents fail to materialize. Pity the few buyers who are now trapped in those concrete mausoleums.
I'm afraid the real stress test will occur when interest rates start to rise. If the market does not tank when rates break the 6% barrier then all is well. If buyers vanish as real prices rise then things could get nasty in a hurry.