Economist: Housing shortage coming in 2011

[WhipperSnapper]

That situation creates a net effect of 0 in the housing demand/supply equasion, unless you think that all of these people will become homeless.

Ho-ho-homeless! Actually, I think a lot of people will in fact become homeless. If you don't have family that will take you in (and who have the room and who can afford to take you in) that's what could happen to you. There have been news reports about people living in their cars.

 

[WhipperSnapper]

I'll agree with soccerballtux for a change when he says that banks are holding inventory off the market- that's what they did during the S&L crisis, and obviously what they're doing today.

Even here in Denver, where the real estate bubble never really got off the ground and the effects of the current recession are muted, the number of empty homes in some of the suburban developments is quite large... Entire subdivisions in some of the most bubblicious markets are basically empty... Nice, big new houses that nobody can afford to buy...

I wonder, what are the banks going to do with all of these empty homes? Don't houses begin to degrade if no one is living in them and caring for them? Will they suck it up at some point and put them on the market for whatever the market will bare, or will they hold onto these properties forever, hoping that someone will pay them what they think they are worth?

 

[WhipperSnapper]

If you live in poverty or in a city like Rome where a two bedroom apartment costs $800k it's not surprising young people hang around for a while longer sleeping on the couch. Thankfully we don't have to put up with it.

Yet...

I suspect that we'll see more and more adult children living with their parents in homes their parents were able to purchase (since their parents lived during better economic times) and also more extended families living together. It's just one more characteristic of third world nationhood that the U.S. will soon be adopting.

 

[Trianon]

Interesting analysis about possibility of recovery in real estate market:
http://www.zerohedge.com/article/hard-truth-about-residential-real-estate

There are 140 million personal residences in the US. Today, there are 26 million homes either directly or indirectly for sale. According to a survey by Zillow.com, a real estate appraisal website, 20 million homeowners plan to sell on any improvement in prices. Add to that 4 million existing homes now on the market, 1 million new homes flogged by companies like Lennar (LEN) and Pulte Homes (PHM), and 1 million bank owned properties. Another 8 million mortgage owners are late on their payments and are on the verge of foreclosure, bringing the total overhang to 34 million homes.

Now, let’s look at the buy side. There are 35 million who are underwater on their mortgages and aren’t buying homes anytime soon, nor are the 35 million unemployed and underemployed. That knocks out 50% of the potential buyers.

Here is where it gets really interesting. There are 80 million baby boomers retiring at the rate of 10,000 a day. Assuming that they downsize over time from an average 2,500 sq ft. home to a 1,000 sq. ft. condo, and eventually to a 100 sq. ft. assisted living facility, the total shrinkage in demand is 4.3 billion sq.ft. per year, or 1.7 million average sized homes. That amounts to a shrinkage of aggregate demand for a city the size of San Francisco, every year. You can argue that the following Gen-Xer’s are going to take up the slack, but there are only 65 million of them with a much lower standard of living than their parents.
Throw in the disappearance of state and federal first time buyer tax credit. You can count on a jump in long term capital gains taxes and state and local property taxes, further diminishing property’s appeal. If you are looking for a final stick to break the camel’s back, how about eliminating, or substantially reducing the home mortgage interest deduction?

Add it all up, and there is a massive structural imbalance in residential real estate that will take at least a decade or more to unwind. We could be looking at a replay of the same 26 year period from 1929 to 1955 when prices remained flat, and we are only 3 years into it!

 

[JS80]

I f'n hate California. People are buying up million dollar plus houses like they're going out of style. The avg. household income around here is about 100K, where the F do people get enough money to drop on a million $ house?

Inherited money and chump HENRY's like us who will eventually put a huge down payment to buy a house.

 

[Hacp]

Yet...

I suspect that we'll see more and more adult children living with their parents in homes their parents were able to purchase (since their parents lived during better economic times) and also more extended families living together. It's just one more characteristic of third world nationhood that the U.S. will soon be adopting.

Wait, whats wrong with being frugal?

 

[LegendKiller]

Interesting analysis about possibility of recovery in real estate market:
http://www.zerohedge.com/article/hard-truth-about-residential-real-estate

I've been saying something like this for the better part of 6 years.

I actually think prices in the retirement states will fare better during that period while northern states are screwed.

The one big thing they don't account for, though, is improving standards of immigrants and the large populations coming from them.

Also, account for the fact that while the standard of living for gen-x'ers may be lower, a large portion of the wealth accumulated by the boomers will likely go into x'er+ generations, either through taxation, goods/services, or gifting/inheritance.

However, I am not a housing bull, I think prices will remain flat or go up around the rate of inflation for a very long time.

 

[evident]

btw I read today that housing values nationally is set to drop (some link on cnn) by 6% in the next two years and 30% still in miami, I think.

this is why im still so scared to buy a house. couldn't imagine buying a house then boom 10% of it's value gets shaved off. housing markets in nicer philly suburbs have weathered the storm pretty well. haven't dropped much more than 5-10%

 

[rudder]

Good time to invest in some smaller homes and town houses to rent out.

 

[rudder]

this is why im still so scared to buy a house. couldn't imagine buying a house then boom 10% of it's value gets shaved off. housing markets in nicer philly suburbs have weathered the storm pretty well. haven't dropped much more than 5-10%

How much extra is your mortgage to cost when you get a 6.5% interest rate versus 4.75%?

And it does depend on location. Here where I live house barely appreciated more than 5%/year. Due to increase in materials and such... houses haven't lost a whole lot of value. People trying to get out of expensive mortgages have hurt the market a little.. but my house was bought 2 years ago and if I sold it now, I likely would not lose money unless I was in a real bind to dump it quick.

 

[dullard]

How much extra is your mortgage to cost when you get a 6.5% interest rate versus 4.75%?

Bingo.

A nice house in the Philly area is roughly a $250k mortgage (depends on the down payment and other factors of course). Lets just take a $300k house with a $50k downpayment as an example, leaving a $250k mortgage. At 4.75% interest rates that we have now, that mortgage will cost Evident $1304/month + insurance + taxes.

What happens if that house drops 10% in price in the next year so that Evident can get a $220k mortgage ($300*.9 - $50k downpayment)? Well, if the interest rates rise, like they probably will, Evident is probably worse off. If interest rates rise to your 6.5% example, he'd have to pay $1391/month + insurance + taxes for the cheaper house!

Today's known fantastic interest rate is often a better deal than a POSSIBLE 10% price drop in the future.

Of course, we shouldn't look solely at the monthly payment, as the length of time he stays in the house will also impact the decision. But, monthly payments are a very important factor.

 

[soccerballtux]

I've been saying something like this for the better part of 6 years.

I actually think prices in the retirement states will fare better during that period while northern states are screwed.

The one big thing they don't account for, though, is improving standards of immigrants and the large populations coming from them.

Also, account for the fact that while the standard of living for gen-x'ers may be lower, a large portion of the wealth accumulated by the boomers will likely go into x'er+ generations, either through taxation, goods/services, or gifting/inheritance.

However, I am not a housing bull, I think prices will remain flat or go up around the rate of inflation for a very long time.

Government is king at misallocation of Goods/services. It's not going to make it into the right hands, it's going to make it into the "chosen" hands for the same reason we haven't seen any new businesses in the UK for the last 40 or so years.

The taxation will largely be ineffective since the money goes to funding the bloated government.

 

[soccerballtux]

Bingo.

A nice house in the Philly area is roughly a $250k mortgage (depends on the down payment and other factors of course). Lets just take a $300k house with a $50k downpayment as an example, leaving a $250k mortgage. At 4.75% interest rates that we have now, that mortgage will cost Evident $1304/month + insurance + taxes.

What happens if that house drops 10% in price in the next year so that Evident can get a $220k mortgage ($300*.9 - $50k downpayment)? Well, if the interest rates rise, like they probably will, Evident is probably worse off. If interest rates rise to your 6.5% example, he'd have to pay $1391/month + insurance + taxes for the cheaper house!

Today's known fantastic interest rate is often a better deal than a POSSIBLE 10% price drop in the future.

Of course, we shouldn't look solely at the monthly payment, as the length of time he stays in the house will also impact the decision. But, monthly payments are a very important factor.

Good points. But you have to either have huge capital, or a house currently selling, to be able to take advantage of these rates. This is why we needed to let the banks fail, so that the banks would be forced to liquidate the houses at rock-bottom prices, so that our [my] graduation generation could take advantage of the prices to offset all the student debt we've got. Instead, I'm probably just going to be renting my whole life. All the houses kept off the market or out of the market's price range, thanks to suspension of mark-to-market accounting requirements.

This is how wealth redistribution is supposed to take place. The financially unstable elite fail and the fiscally conservative, wise savers win. Instead, we're doing the exact opposite, removing the incentive to save and removing the dis-incentive to be fiscally responsible as a financial corporation.

 

[ProfJohn]

I don't think the mortgage deduction is going any where.

What they will most likely do is lower the cap it in order to get more money from the 'rich.'

Right now the cap is $1,000,000 which is extremely high. I could see them lowering it to say $500,000.

BTW the amount above is the amount of the loan and not the amount you can actually deduct. A $1,000,000 loan at 6% would allow you to deduct about $60,000 from your income for tax purposes.

 

[Budarow]

This article is pretty bunk.

This is one area where demand will always be filled. Apartments will be built, and many will live in them and if they want a house they just hire someone to build it.

This is such a crappy article.

If I'm not mistaken, builders have been constructing multifamily units (condos, apartments, etc.) a lot more over the last few years. At the height of the building boom, they seemed to be building only large expensive homes.

 

[Budarow]

By the way...today, I helped my older sister move from a 1 bedroom/1 bath, 750 sq. ft apartment into a 3 bedroom/2 bath 1,150 sq. ft condo with a full basement (9' ceiling) and a 1 car garage. The condo was built in 1997 and last sold for $169,000 in 2003. It was foreclosed on and my sister got it for $65k (including $6,500 from the home buyers credit).

She had the carpet replaced and painted the whole place before she moved in.

It looks brand new and her payment is about the same as the apartment. The condo looks really good on the outside (full brick) and inside and is in a quit neighborhood with a really large undeveloped field and woods out back. No clubhouse though.

She did it right with a 5.5% fixed, 30-year mort.

Hell of a deal IMO!!

 

[piasabird]

We could also start downsizing some of these houses. It is stupid to say we need to stop using fossil fuels if we keep demanding and getting larger and larger houses. You just cant fix stupid.

Al Gore just purchased a 9 million $$$ Mansion. How is that better for the environment?

 

[shortylickens]

I dunno about the rest of the country but in Northern Virginia we could free up many nice houses by booting the illegals. They get decent sized places and stuff them with about 30 people, when they would be comfortable for an American family of 6.

 

[Patranus]

We could also start downsizing some of these houses.

This isn't communist Germany.
Not everyone wants to live in a 300SQFT box.

 

[WhipperSnapper]

Hard to Believe, huh??
Linky
The focus of the U.S. real-estate market lately has been the number of foreclosures and people trying to purchase cheap housing. But Brian Wesbury, chief economist at First Trust Advisors, says that if Americans don’t start focusing on building new houses, the market will have a much bigger problem on its hands.

“We need one and a half million houses per year just to keep up with population growth,” Wesbury said in an interview with Steve Forbes. “And then if you throw in, you know, fires and tear-downs and just worn-out properties, we need 1.6 million or more per year. Right now, we’re down to about six and a half, seven months’ inventory whether you look at new homes or existing homes.”

I believe it. The population is continuing to grow. Unfortunately tens of millions of people have a large shortage of income from which the construction of new housing can be financed. The housing shortage problem is not hard to solve. The problem is funding.

<Edit> I just now realized that this is an old thread that has been bumped.

 

[WhipperSnapper]

Add it all up, and there is a massive structural imbalance in residential real estate that will take at least a decade or more to unwind. We could be looking at a replay of the same 26 year period from 1929 to 1955 when prices remained flat, and we are only 3 years into it!

Is it possible that prices could continue to decrease? What the are the banks going to do with the inventory of foreclosed homes that is continuing to pile up? At some point they'll have to realize that the economy and the seller's market is not going to improve. I wonder what would happen if they were forced to sell all foreclosed houses within 6 months, perhaps to the highest bidder?

 

[her209]

<Edit> I just now realized that this is an old thread that has been bumped.

An even older thread (circa 2005):

Housing slump to cost 800,000 jobs.

:awe:

 

[blackangst1]

Seriously, if you look at other countries, the "kids" move out at 30. Its called being frugal.

Well, sort of. Its mostly due to dedication to family. We talk about it, most other countries actually live it.

But, the OP is out of his mind (the analyst that is).

 

[bobsmith1492]

Well, sort of. Its mostly due to dedication to family. We talk about it, most other countries actually live it.

But, the OP is out of his mind (the analyst that is).

According to the people I've talked with in Spain and Italy, the kids just party all night and hang out all day and don't get around to any meaningful work or finishing school until around 30.

 

[blackangst1]

According to the people I've talked with in Spain and Italy, the kids just party all night and hang out all day and don't get around to any meaningful work or finishing school until around 30.

I can only speak for the 13 countries Ive been to in Central/S America and Asia. Havent been to Europe, yet.

edit: I guess I should clarify...only 5 or 6 countries Im intimately familiar with and spend a good amount of time in.