Category Archives: Housing Market

Roughly Half Of Millennials Have No Money Saved For A Down Payment

Millennials are on the cusp of surpassing baby boomers as the largest generational demographic in the US, yet a startling plurality of them are woefully under prepared to assume the typical trappings of adulthood – like starting a family and buying a home.

And in a detailed report published this week, analysts at ApartmentList illustrated just how wide of a gulf lies between millennials and their economic and financial goals. Perhaps the most surprising finding: Nearly half of millennial renters have zero money saved for a down payment – which doesn’t bode well for the housing market, where home prices have surpassed their pre-crisis highs (though signs of weakness are starting to emerge). And just 11% say they have $10,000 saved.

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To wit, 72% of millennial renters cite “affordability” as the biggest factor barring them from home ownership. Student debt is another factor: While 23% of college graduates might be able to scrape together enough for a down payment, that figure falls to 12% for those who are currently paying off student loans.

But these aren’t the only factors holding millennials back from home ownership. A handful of macroeconomic trends are also to blame: Much of the generation came of age during or in the aftermath of the Great Recession, resulting in limited opportunities and stagnant wage growth in the crucial early stages of millennials’ careers. Construction of new single-family homes has lagged significantly in recent years, leading to a severe shortage of starter homes.

Roughly 9 in 10 millennial renters want to purchase a home; but just 4.4% plan to do so within the next year:

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The “burden of affordability” primarily manifests in millennials inability to scrape together enough money for a down payment:

https://www.zerohedge.com/sites/default/files/inline-images/2018.12.12millennials.JPG?itok=EDhkDd8u

And even if they can manage to save some money, the amount needed for a down payment is often larger than they think:

https://www.zerohedge.com/sites/default/files/inline-images/2018.12.12downpayment.JPG?itok=aHdCXuQp

And at the present average savings rate, most millennials will need more than two decades to save up enough for a down payment.

https://www.zerohedge.com/sites/default/files/inline-images/2018.12.12downpaymentthree.JPG?itok=33IzSzfP

Ironically, millennials with the highest incomes receive the most help from family for their down payments.

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And as we mentioned above, student-loan debt is one of the biggest obstacles absorbing all of the money that would otherwise be saved for a down payment.

https://www.zerohedge.com/sites/default/files/inline-images/2018.12.12student.JPG?itok=eEX1e_Se

The upshot of this is that, instead of accumulating wealth in a home – which has always been the primary source of value for American families – millennials will continue throwing it away on rent, which offers them no return and no security later in life.

Source: ZeroHedge

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“Residents Should Not Panic”: Thousands Of Las Vegas Homes Get ZERO Offers For November

New data published by the Greater Las Vegas Association of Realtors shows 10,000 single-family homes were on the market and by the end of November, 7,000 of those homes had zero offers, up 54% compared to 2017 and the highest number of homes in Las Vegas Valley to not get a bid in more than two years.

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Realtors are warning Las Vegas residents that they should not panic.

However, it is becoming increasingly clear that the real estate market is at a turning point, in one of the most overvalued markets in the country.

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“I mean that’s still crazy fast for markets across this country,” said Nevada Realtors newly elected president, Keith Lynam.

“Are we as fast as we were six months ago? No, but we couldn’t sustain that, it was not sustainable, it was never going to be sustainable. So we’re back to pretty much a normal market.”

Lynam has recognized the shift in the market and suggested a slowdown in the quarters ahead: He predicts homes will now average four to six months on the market into 2019. Before, Lynam said homes were on the market between 2.5 to 3 weeks.

While thousands of homes are going no bid in November, some homes are still selling, but not as often as they used to, a sign that the housing market is headed for trouble. Buyers acquired about 2,300 houses in November, down 12% from November 2017, the Greater Las Vegas Association of Realtors (GLVAR) reported.

The pullback in demand could be linked to fast-rising home prices, higher borrowing costs, and an affordability crisis.

Home prices were up “13.5% year-over-year in September, more than double the national rate,” according to the latest S&P CoreLogic Case-Shiller index. Nevada’s growth rate was the fastest among all other cities in the CoreLogic Case-Shiller index for the fourth straight month, a move that is not sustainable. 

In the last several months, sellers have responded with more price cuts. 

This is right in line to Bank of America’s forecast in September: Existing home sales have peaked, reflecting declining affordability, greater price reductions and deteriorating housing sentiment.

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This year’s housing market slowdown has hit the hottest markets like San Diego, San Francisco, Seattle, Denver, and New York City.

The slowdown is now spreading into less expensive markets—Tampa, Philadelphia, Phoenix, and Las Vegas. 

Las Vegas was “the poster child of the housing crash in 2008,” said Vivek Sah, director of the LIED Institute for Real Estate Studies at the University of Nevada, Las Vegas.

“There are some buyers who are not pulling the trigger because of that.”

The deceleration in less expensive housing markets like Las Vegas, suggests that the slowdown is now broad base and the entire US economy is headed for trouble in 2019.

Source: ZeroHedge

Home Builder Optimism Collapses

Upton Sinclair once noted: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

But at some point, as Mike Tyson opined “someone punches you in the face.”

And it appears from the latest NAHB Sentiment Index that home builders in America just got ‘punched in the face’.

For the second month in a row, home builder optimism crashed amid broad-based declines across sales, expectations and buyer traffic (down 4 to 56 and well below the 60 print expected) as hope begins to collapse back to the housing market’s reality…

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Additionally, as Bloomberg notes, a gauge of the NAHB six-month sales outlook dropped to the lowest since March 2016 while a measure of current sales for single-family homes decreased to a three-year low. That suggests demand will remain soft as there’s still a shortage of affordably-priced listings, in addition to property values that have been outpacing wage gains.

Three of four geographic regions showed a decline, led by the Northeast, where sentiment plunged by the most since June 2010.

“We are hearing from builders that consumer demand exists, but that customers are hesitating to make a purchase because of rising home costs,” NAHB Chairman Randy Noel, a custom-home builder from Louisiana, said in a statement.

“However, recent declines in mortgage interest rates should help move the market forward in early 2019.”

All eyes on Powell once again.

Source: ZeroHedge

“Canary In The Coal Mine”: House Flipping Returns Crash To Six-Year Low

Real-estate speculation has long been a characteristic of booming housing markets, and in this current cycle of artificially suppressed rates, investors have been furiously flipping homes which peaked in the first few months of 2018. The number of companies flipping houses also hit a decade high, as HGTV programming and house flipping seminars across the country suckered in the broad base of the American people. 

Now the house flipping industry has gone bust, and many investors are left holding the bag. Flipping dropped for the third consecutive quarter, due to mortgage rate increases, according to Attom Data Solutions. At the same time, the average return on investment crashed to a six-year low.

“A total of 45,901 single-family homes and condos were flipped in 3Q18, signaling a 12% drop from a year ago to a 3.5-year low from the first quarter of 2015. Houses flipped sold for an average of $63,000 more than what the home flipper purchased them for, down from the all-time high of $68,000 achieved in the first quarter and from $65,000 a year ago,” said Attom Data Solutions.

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The gross flipping profit in 3Q18 was about 42.6% ROI, the lowest level seen since the first quarter of 2012. Despite the recent market plateau, some flippers are finding it unprofitable in the current market environment.

With home price appreciation stalling, many flippers have started to notice margin compression and to make matters worse, President Trump’s tariffs have made the cost of materials just that more expensive.

The amount of flipped homes purchased with financing held steady at 38.8% in the third quarter, down from 39.2% a year ago and 40.7% the previous quarter.

“Home flipping acts as a canary in the coal mine for a cooling housing market because the high velocity of transactions provides home flippers with some of the best and most real-time data on how the market is trending,” Daren Blomquist, senior vice president at Attom, said in a press release.

We’ve now seen three consecutive quarters with year-over-year decreases in home flips. The last time that happened was in 2014 following the mortgage rate jump in the second half of 2013, but it’s still far from the 11 consecutive quarters with year-over-year decreases in home flips extending from 2Q 2006 through 4Q 2008 and leading up to the last housing crash,” he said.

Total houses flipped in the third quarter represented 5% of all single-family homes and condos sold in that quarter – the lowest reading in more than two years. The flipping rate declined from 5.1% a year ago and 5.2% from the previous quarter.

It also seems the popularity of “how to flip a house” in Google Search across the US peaked in 2017 and has since stalled.

https://www.zerohedge.com/sites/default/files/inline-images/google%20trends.png?itok=nGLqD1jo

Source: ZeroHedge

Australia Warned To Prepare For “Severe Housing Collapse” And “Banking Crisis”

Just weeks after ZeroHedge noted that Australia’s household debt to income ratio has ballooned to shocking levels over the past three decades as Sydney is ranked as one of the most overvalued cities in the world, Australia’s regulators have been warned to prepare “contingency plans for a severe collapse in the housing market” that could lead to a “crisis situation” in one or more financial institutions.

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Australia has transitioned from the lowest household debt-to-income ratio to the highest in the world, in just three decades.

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And now Australia’s News.com.au reports that The Organisation for Economic Co-operation and Development’s (OECD) latest in-depth assessment of Australia maintains that while the “current trajectory” of house price declines “would suggest a soft landing… some risk of a hard landing remains.”

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Wage stagnation and elevated home prices have turned into the perfect storm that will bring forward a housing crisis.

The Paris-based global forum recommends the Aussie Reserve Bank begin raising the cash rate from its record low as soon as possible to prevent “imbalances accumulating further”.

The RBA last cut the cash rate to 1.5 per cent in August 2016, following an earlier cut to 1.75 per cent in May. There has not been an official cash rate increase since November 2010.

Australia’s housing market is a source of vulnerabilities due to elevated prices and related household debt. A direct hit to the financial sector from a wave of mortgage defaults is unlikely,” the report says.

“However, if house prices collapse consumer spending could suffer, via negative impact on wealth, including from exposures to bank shares, which would encourage deleveraging. Together with reduced housing-related expenditures, this would put pressure on the whole economy.”

Additionally, News.com reports that while describing the housing market slowdown as “welcome” after a period where prices were overvalued by 5 to 15 per cent and noting current evidence pointed to a soft landing, the OECD said its research in the past “has found soft landings are rare”.

The OECD report recommends contingency plans in the form of “a loss-absorbing regime in the case of financial-institution insolvency”, including controversial “bail-in provisions”.

“… the possibility of financial-institution crisis should not be discounted entirely.”

Finally, the OECD notes, unlike in the US or EU, the law does not include provisions that would automatically convert some unsecured senior bonds and deposits from other banks into equity in the event of a crisis

 “The absence of explicit bail-in provisions could slow down the speed of resolution and risk encouraging financial institutions to gamble for resuscitation.”

Notably, OECD’s ominous warnings come after RBA deputy governor Guy Debelle raised alarms (after Q3 GDP dramatically undershot expectations at just 2.8%) by suggesting the next move in rates could be down, not up, and floated the possibility of controversial money printing policies known as quantitative easing in the event of a crisis.

As John Rubino recently noted, for the past few years, homeowners just about everywhere have been able to finesse life’s problems by thinking “at least my house is going up.”… But now that’s ending, and a reverse wealth effect is kicking in. Homeowners are seeing their home equity – aka their net worth – stop growing and in some cases drop by shocking amounts. In Australia it’s $1,000 a week, which is enough to darken the mood of pretty much anyone not in the 1%. A consumer with a dark mood is an unenthusiastic shopper because new debt accelerates the decline in net worth.

As home prices fall, so therefore does “discretionary” spending. Australians will continue to eat and to air condition their bedrooms, but they’ll cut way back on vacations, new cars, etc. And the debt-based part of the economy will suffer. This will cause stock prices to fall, knocking another leg out from under the average citizen’s net worth and making them even less likely to splurge. And so on.

Credit-bubble capitalism depends on mood, which makes it fragile. That fragility is about to be on full display pretty much everywhere.

Source: ZeroHedge

Revealing The Naked Truth Of China’s Real Estate Slowdown

Warren Buffett has famously told Berkshire Hathaway investors: “You only find out who is swimming naked when the tide goes out.”

Buffett’s market wisdom can be applied to the Chinese property market.

Now, the tide is going out and the boom days are over, the industry is rapidly slowing as credit growth is the slowest on record – pointing to a weakening in the economy in coming months.

As for “swimming naked when the tide goes out,” well, it seems like one real estate firm, in southwest China used topless models covered in body paint as a last-ditch effort to unload a new property development before the market implodes.

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Nanning Weirun Investment Company, a real estate developer in Nanning, capital of the southwestern Guangxi Zhuang, hired a bunch of models to advertise its condominiums by using their bare skin as a canvas, said Asia Times.

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Floor plans of the condos were painted on the back of each model, and their breasts were painted with logos and other advertising slogans.

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While it is unclear if the topless models helped to spur sales, Asia Times indicated that the stunt attracted many people to the showroom last Friday.

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Hundreds of Sina Weibo users, China’s Twitter, criticized the promotion and called it disgusting, as others thought it was an interesting method, in the attempt to generate sales in a slowing market.

An employee at Nanning Weirun told the website Btime.com that the bodypainting promotion was a one-off event to drive sales.

The strategy is one of the more unconventional approaches being taken by desperate developers to attract new buyers as GDP growth, and the housing market are expected to fall in the first half of 2019.

Was the marketing stunt worth it for the developer?

Probably not, as the city planning authority suspended the firm’s marketing permit on Monday.

Video: Revealing the naked truth of China’s real estate slowdown

Source: ZeroHedge