Insights from Mark Hanson

Mark offers a professional service researching the real estate industry. His posts are insightful and thorough.

https://www.mhanson.com/3-24-hanson-bubble-2-0-houses-never-expensive-end-user/

BOTTOM LINE:  Here and now, houses have never cost more to the end-user, mortgage-needing, shelter-buyer due to historical prices and the rate surge.  Based on decades of data in this note, a reversion to the mean is inevitable, soon.
With…
  • strained, end-users competing with record speculation for fewer houses in the same, lower-price-bands while there’s an abundance of higher-price band houses and rentals (“mismatched markets” & “distribution crisis”);
  • investors and speculators making up a massive ~40% of all purchases last year driving US housing, while bonds and bond-like investments are in less favor this year;
  • tidal-wave of en-vogue, apartments and condos in core regions rushing to market over the next two years;
  • immigrant/immigration uncertainty;
  • AND, increased cost of debt service, sky-high auto and revolving debt, out-of-control healthcare expense, retail spend deceleration, and variety of other headwinds blowing stiff this spring and summer;
…I struggle to come up with a credible forecast on where incremental demand and purchasing/pricing power will come from this year.

Basically the jist is that it has never cost this much to buy a home for shelter. Ever.

Notice the income line and how flat it is compared to the escalating resale price?

resale-price-vs-income-mar-2017

Once upon a time and in many parts of the country people bought homes to live in. There weren’t dreams of buying an appreciating asset that one could profit or retire off of. People used to buy homes because the rent vs buy scenarios clearly skews to buying if you can pony up down payment and have decent credit. (maybe not so much in SoCal)

This will end badly.

 

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