Click for interactive graphic

Source: Economist

Category: Digital Media, Real Estate

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10 Responses to “US Housing Realty Check”

  1. ByteMe says:

    It’s not a bubble, but it’s definitely a “fake” upturn, driven entirely by big investors taking a lot of inventory off the market and not the average homeowner. Average homeowner is either still stuck with upside-down mortgage or insufficient credit to get a loan.

    These big investors are buying up the properties to use for long-term rentals. They’re going to be really surprised when the next recession hits and their renters stop paying the rent and trash the place on the way out the door.

  2. This is a pretty cool infographic. I like how it relates prices to rents and illustrates how real estate is still reasonable favorable on this metric (this is what investors are watching).

    Last week, I went through a bunch of similar data and looked at this in a slightly different way. I related the median mortgage payment (assuming you can get one) to median rents over time. It’s still favorable, but if interest rates normalize towards 5-6%, prices could get ugly over the short run.

    Check out the chart half way down:

    No question, inventory is a very important thing to watch, but I’m actually more concerned about interest rates may affect the relative valuations here. I’ve been bullish on real estate for a few years now, but today I find myself in the socially uncomfortable and unpopular position of having to get bearish because that’s what the data are saying.

  3. MayorQuimby says:

    10 city below 200 (but above 150) is where it belongs….and ultimately where it will go imo.

  4. Livermore Shimervore says:

    Housing prices are up? No kidding. Must be why folks here in Monmouth County, NJ got 20-25% property tax hikes after their first post-bubble assesment.

    Private equity money flooding once depressed markets is indeed cause for concern. These types of investors will be tempted to flip/dump the properties so that they can claim excellent performance relative to the S&P, and isn’t booking a profit as quickly as possible their mantra?
    I’m very skeptical of these PE shops who claim their invested into these hard-hit zip codes for the long-term rent income. If inventory is indeed misleading (banks holding back foreclosures to the chagrin of the courts) then we have the makings for mayhem in zip codes where 1) wages are not rising and unemployment is above the national rate — the only sustainable driver of home prices 2) a quick exit of private equity carpet bagger money, while 3) interest rates on mortgages have started to tick up sharply. Bottom line, houses in middle-income zip codes are still grossly over-priced and the costs to own are not falling, nor are any other costs of living.

  5. stonedwino says:

    ByteMe nailed it to a tee. I concur…

  6. key-bit says:

    In Indianapolis, they have realtors going door to door in neighborhoods to buy houses for investors. They offer slightly below market value for a 100K home and can rent it for $1,100 – $1,200. My homeowners association is trying to amend the bylaws to limit amount of rental homes in our neighborhood.

  7. Anonymous Jones says:

    I definitely think this chart is very instructive. It was unquestionably a harbinger of bad things to come in 2005.

    At the same time, looking at it in isolation eliminates a lot of useful context.

    1. How does the US housing stock compare to 30 years ago? Has it been improved? Worsened? Not really an apples to apples comparison, I’d bet. What is replacement cost vis-a-vis 30 years ago? I’d guess a lot higher (on an adjusted basis) now.
    2. Clearly some high value urban areas are creating a divergence between the 10 and 20-city index. What is the change in per capita income in these cities relative to other areas of the US? If certain areas are more economically successful than they were 30 years ago on a relative basis, wouldn’t we expect higher adjusted prices in those areas?
    3. How does this chart compare to other countries who begin the process of reaching capacity on both urban infill and exurb sprawl? Wouldn’t we expect the numbers to go up as the US filled up its attractive housing areas?
    4. How are price-to-rent and price-to-income ratios doing?

    Again, I’m almost totally agnostic on where housing prices are headed and when. My gut tells me that at some point inventory will go back to more “normal” levels, interest rates will go to more “normal” levels, and that overall housing is probably fully “priced in” but when or how the prices will fluctuate is clearly beyond my predictive abilities.

  8. Pantmaker says:

    I live in Scottsdale and owned a home building company for 12 years. Prices here in the Valley seem reasonable now but there are truck loads of investors buying up houses by the hundreds and turning them into rentals. Networks of corporate buyers and realtors snapping up homes faster than young couples can buy them through traditional channels. There are 4 homes now sitting empty with for rent signs within 2 blocks of my personal house now. There are some smoking deals on sites like VRBO for “vacation rentals” here that are sitting vacant.

  9. S Brennan says:

    The question that I have is:

    Will interest rates remain low, or will the Fed intervene and raise interest rates now that the “little people” are starting to recover enough ground to sell?

    Put another way, is our economic system COMPLETELY CAPTIVE to the top10%…my gut says the Fed will step in and crush the “little people” as they try to sell their house so they can move about the country in search of opportunity. The country could reshuffle itself into a much more logical economic arrangement if the Fed held off for a year…but having read Machiavelli’s advice to the Prince…I think not.

  10. The Price/Income ratio norm suggests US Existing Homes are 4% ($6k) overpriced but still 19% below the 2006 annual record. New Homes are 12% ($28k) above trend and 4% above the 2007 record.

    Realty Bubble Monitor: