U.S. Housing Prices Continue To Blast Off Into Outer Space

The news today is that housing prices continue to increase rapidly in the United States.  Supply is tight and the public seems to think that the prices will continue to fly into the sky with apparently limitless potential. The optimism, as one report notes, is very similar to what people were feeling in 2005 right before the housing market crashed back down to earth:

The level of optimism is edging closer to the 70% of adults in 2005 who said prices would continue rising. That, of course, was less than one year before the peak of the housing market bubble in early 2006, which was largely fueled by a wave of subprime lending. (Roughly one-quarter of respondents in both 2005 and 2018 said they believed house prices would remain the same.)

Fears of a 2008 housing crash though are tempered with data that screams, “But it’s different this time!”  For example, during the housing crises ten years ago, in Tampa Bay, Florida, 43% of homes were “seriously underwater,” with owners owing at least 25% more than the home’s value on their mortgage.  Today, 9.4% of homes with mortgages fall into the “seriously underwater” category.

On the other hand, in an interview with the Tampa Bay Times, Daren Blomquist, senior vice president of ATTOM Data Solutions, said that “evidence anecdotally is the return of subprime mortgages, which they are now calling ‘non-prime’ mortgages, and I think more companies are doing them.”  Blomquist also said that “On the grapevine, we’re hearing a little more about people interested in mortgage-backed securities. That’s one of the hallmarks that helped inflate the housing bubble last time around.”

Meanwhile, the Dallas, Texas, housing market, that has been burning hotter than the flames of hell in recent years, seems to be “leveling off.” According to Melissa Hailey, President of the Collin County Realtor’s Association, “We’re definitely still seeing buyers and sellers with lots of new listings on the market and lots of homes going under contract, but the prices are definitely holding more steady then they have been.”

Meanwhile in Laguna Beach, California, long-time locals seem to be growing disgruntled at how local housing prices have sky-rocketed into outer space.  Advertisers, who forget that some long-term residents bought before all the homes in the area became multi-million dollar cribs, send out ads that some residents are finding annoying.

One ad summed up the housing situation in Laguna Beach to a “T”.

“Original Greenwich Village artist loft for sale: 20-foot ceilings, north facing windows with a large entertainment area. $5,295,000.” Just like the situation in Laguna; there aren’t a lot of artist’s left, only expensive artistic housing selling at inflated prices based on a branding concept that no longer has any basis in reality.

The market on the lower end (“entry level”) continues to suffer from supply shortages and too many potential buyers.  On the luxury end of the market, things are very different.  In fact, New York’s most expensive listing (an $85 million penthouse) has been sitting on the market for five years.  The motivated seller has tried to sweeten the deal with three luxury cars and a yacht, but no dice.  Now the seller is throwing something else in: a free trip to outer space

“Someone not from New York can [move here and] have a New Yorker’s lifestyle and point of view,” Neiditch told the Post. “In a way, I’m offering my lifestyle.”

But local real estate professionals aren’t buying it, “People only pile up giveaways when they won’t reduce the price. It has never made a lot of sense to me,” an unnamed Manhattan broker said.  The Real Estate price boom appears to be the free trip to outer space people in all economic classes can experience.  Enjoy the ride.

 

 

 

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High End Real Estate Market Goes Soft

The usual real estate market forecasters have been saying for at least a year now that the U.S. real estate market is due for a major correction. Their position seems to largely be based on the “fundamental” fact that average income is not keeping pace with the extremely fast-growing and high-flying prices of homes. In focusing on these “basics” these forecasters ignore all the big words and complicated theories that tell most economists that the real estate market is strong.

But it seems like things are starting to break up, after many months of warning the  forecasters clearly are seeing something going wrong in the high end real estate market.  The big players are still trying to play it cool, for example the Fiscal Times reports that the luxury real estate market is “cooling off.”

Coast to coast though, we seem to have a problem.  For example, we see “Billionaires Row” in New York, New York, headed for its first foreclosure.  We also see what the Wall Street Journal calls a “fraying” of the luxury housing market in Greenwich, Connecticut.

Meanwhile, on the West Coast, some are saying that San Francisco’s high-end real estate market has finally “peaked” after years of growth that is divorced from all economic realities…which created a market where a small “starter home” goes for $730,000.

  Folks on the lower end who do not live in the red-hot markets (SF, LA, Portland, Seattle, NY, etc.) never really saw much of a recovery after the 2007 crash.  Thus, if we see another real estate “correction” it stands to reason that people in fly-over Trump country will be hardest hit when their homes suffer another blow after never fully recovering from the last one.  A double whammy, ten years in the making.  Why should you care about the high-end luxury United States real estate market?  How would a crash in New York impact me in Omaha?  It’s simple: shit flows down hill.