Category Archives: Housing Market

This $1.1 Million Silicon Valley Shack Is A Steal, But There’s A Bizarre Catch

The owner of one tiny, unassuming cottage in Mountain View, California just sold his house for well below the asking price of $1.6 million – but asked the new buyers to agree to one highly unusual condition: They must allow him to continue living there, rent free, for seven years, NBC News reported.

The Silicon Valley property went for $1.1 million after being on the market for only a few weeks, which is surprising, considering the house – little more than a shotgun shack – hardly has room for multiple tenants.

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The property’s realtor said the home’s elderly former owner will continue living in the home for seven more years ‘rent back at no charge.’

Realtor Joban Brown said that while the price is not unusual for the hot spot location, the former owner’s request to continue living at the property is ‘not a typical situation.’

Erika Enos, another realtor, said she’d never heard of this type of a deal during her multi-decade career as a realtor:

‘In almost 40 years as a realtor, I have never seen terms of sale that included seven years free rent back, not even seven months free rent back,’ Enos said.

‘What if the property does not close or the seller is unhappy with the results or work men don’t get paid and put a lien the property?’

‘The asking price reflects market value, which is essentially lot value, for this area … I empathize with the seller, but the terms and conditions for this sale I feel are unrealistic and may have negative legal ramifications.’

The listing for the 976 square-foot cottage also included a requirement for the buyer to pay for the expensive repairs needed.

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However, Mountain View’s status as a well-heeled tech hub – Google’s headquarters is located in the town, and companies including Microsoft and Samsung have offices there – has caused real-estate prices to explode over the past two decades, reflecting similar gains throughout the tech-focused Bay Area.

The realtor in charge of selling the location described it as having “all the conveniences of urban living” but in a secluded setting.

‘This is a location that’s hard to beat, tucked away in a quiet corner at the end of a small street,’ listing agent Daniel Berman said.

‘You’ve got all the conveniences of urban living, nestled in a secluded country-like enclave.’

We wonder: With Silicon Valley home prices soaring well beyond the means of most middle-class families, will we start to see more deals like this one? Already, a startup called Loftium has hit upon a similar concept. The commpany will front you the entire down payment if you just agree to rent out one of the rooms in your new house over Airbnb for a specified period of time.  But there’s a catch … for now Loftium is only available in Seattle.

Source: ZeroHedge

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National Rents Stall For 4th Month In A Row As Multi-Family Supply Glut Takes Its Toll

After a steady march higher in the wake of the ‘great recession’ nearly a decade ago, a note today from Rent Cafe reveals that average rents in the United States have now stalled for 4 months in row with September’s national average coming in at $1,354 per month, which is virtually flat from the $1,350 average reached in the summer.

National rents have barely moved through the entire peak rental season and into September, marking the longest period of stagnation in recent history — 4 consecutive months. Coming in at $1,354 for the month of September, the average rent is only 2.2 percent higher than this time last year. This is the slowest annual growth rate we’ve seen in more than six years — having reached a high point of 5.5%-5.6% peak growth around two years ago — a pretty good indicator that the rental market has entered calmer waters.

Still, that doesn’t mean rents have flat-lined everywhere. Though nationally and in the most expensive cities for renters prices have finally come to a full stop, there are still some holdouts—and it seems renters in smaller and mid-sized cities are not yet getting a break, on the contrary.

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As we pointed out over the summer, just like almost any bubble, stagnating rents are undoubtedly the symptom of a massive, multi-year supply bubble in multi-family housing units sparked by, among other things, cheap borrowing costs for commercial builders.  Per the chart below from Goldman Sachs, multi-family units under construction is now at record highs and have eclipsed the previous bubble peak by nearly 40%.

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But, while rents are certainly slowing – and construction is indeed playing its part – the impact isn’t spread evenly across all markets as Rent Cafe notes that the construction boom in Texas has earned the state 6 out of 10 of the worst performing rental markets in the country. 

The anticipated rent drops from Hurricane Harvey have not been realized in the city of Houston, but are seen in other Texas communities, with the biggest changes being outside of Harvey’s reach, as a result of the major apartment construction taking place throughout the state. Lubbock, located on the west side of the state, came in at No. 1 for biggest year-over-year rent decreases in the nation, with rents dropping 3.4 percent since 2016.

Rents for apartments in Round Rock, a suburb outside Austin—another city barely touched by Harvey, dipped to $1,092—3.4 percent below last year’s numbers. Round Rock took the No. 2 spot for biggest rent decreases of the year.

Texas claimed the third spot, too, with McAllen’s 2.6 percent drop in rents since last year, and three other Texas towns—College Station, Waco and Plano—also made the top 10, with decreases of 2.4 percent, 2 percent, and 1.1 percent, respectively. The rest of the list was spread throughout the nation, with California’s Simi Valley taking No. 4 (down 2.6 percent), New Orleans at No. 5 (down 2.4 percent), Manhattan, NYC at No. 8 (down 1.9 percent), and Tulsa, Oklahoma at No. 9 (down 1.5 percent.)

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Meanwhile, areas with stronger job markets and/or better overall affordability are still seeing demand growth which, combined with a lack of capital investment, is driving rents considerably higher.

Though smaller and mid-sized towns used to be a haven for renters looking to avoid the sky-high prices of large urban areas, it seems those days are in the past. September’s list of fastest-growing rents is dominated by small and medium-sized towns—many boasting double-digit growth since this time last year.

The Lone Star State’s Odessa and Midland—both hubs of oil and gas activity—came in at the top two spots, with jumps of 24.7 percent and 20.7 percent, respectively. Odessa rents now clock in at $1,060 per month, while Midland’s reach even higher, coming in at $1,225.

The rest of the nation’s fastest-growing rents can be found largely on the West Coast, with California, Washington, Nevada and Colorado taking up the remaining bulk of the list. The only Northeastern cities to see big year-over-year rent growth were Buffalo, New York, with an 11.2 percent jump over 2016, and Elizabeth, New Jersey, which saw rents climb 8.5 percent to $1,187.

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Finally, here are the top 10 most and least expensive rental markets in the U.S. at the end of September 2017. To our complete lack of surprise, New York and California continue to dominate the expensive list while Southern and Midwestern markets continue to provide the best value…perhaps this is why all those domestic migration studies show a mass exodus from the cities on the left to the cities on the right? Just a hunch…

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user230519/imageroot/2017/10/10/2017.10.10%20-%20Rent%204.JPG

Source: ZeroHedge

Which American Cities Will File Bankruptcy Next?

We harp on the massive, unsustainable, yet largely unnoticed, debt burdens of American cities, counties and states fairly regularly because, well, it’s a frightening issue if you spend just a little time to understand the math and ultimate consequences.  Here is some of our recent posts on the topic:

Luckily, for those looking to escape the trauma of being taxed into oblivion by their failing cities/counties/states, JP Morgan has provided a comprehensive guide on which municipalities haven’t the slightest hope of surviving their multi-decade debt binge and lavish public pension awards

If you live in any of the ‘red’ cities below, it just might be time to start looking for another home…

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To add a little context to the map above, JP Morgan ranked every major city in the United States based on what percentage of their annual budgets are required just to fund interest payments on debt, pension contributions and other post retirement benefits.

The results are staggering.  To our great ‘shock’, Chicago residents win the award of “most screwed” with over 60% of their tax dollars going to fund debt and pension payments.  Meanwhile, there are a dozen municipalities where over 50% of their annual budgets are used just to fund the maintenance cost of past expenditures.

As managers of $70 billion in US municipal bonds across our asset management business (Q2 2017), we’re very focused on credit risk of US municipalities.

The chart below shows our “IPOD” ratio for US states, cities and counties.  This measure represents the percentage of a municipality’s revenues that would be needed to pay interest on direct debt, and fully amortize unfunded pension and retiree healthcare obligations over 30 years, assuming a conservative return of 6% on plan assets.  While there’s no hard and fast rule, municipalities with IPOD ratios over 30% may eventually face very difficult choices regarding taxation, non-pension spending, infrastructure investment, contributions to unfunded plans and bond repayment.

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So, what will it take to fix the mess in these various municipal budgets?  How about massive tax hikes of ~30% or a slight 76,121% increase in worker pension contributions in Honolulu…

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Anyone else feel like the winters in South Dakota are suddenly looking much more manageable?

Source: ZeroHedge

Pending Home Sales Plunge; NAR Admits “The Housing Market Has Essentially Stalled”

After dismal drops in existing and new home sales, this morning’s pending home sales data for August was a disaster, tumbling 2.6% MoM (3.1% YoY) to its lowest SAAR since January 2016.

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This is the second YoY decline in sales in a row, with SAAR tumbling to its lowest since Jan 2016…

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Lawrence Yun, NAR chief economist, says this summer’s terribly low supply levels have officially drained all of the housing market’s momentum over the past year.

“August was another month of declining contract activity because of the one-two punch of limited listings and home prices rising far above incomes,” he said.

“Demand continues to overwhelm supply in most of the country, and as a result, many would-be buyers from earlier in the year are still in the market for a home, while others have perhaps decided to temporarily postpone their search.”

With little relief expected from the housing shortages that continue to plague several areas, Yun believes the housing market has essentially stalled.

Further complicating any sales improvement in the months ahead is the fact that Hurricane Harvey’s damage to the Houston region contributed to the South’s decline in contract signings in August, and will likely continue to do so in the months ahead. Furthermore, the temporary pause in activity in Florida this month in the wake of Hurricane Irma will slow overall sales even more in the South.

Yun now forecasts existing-home sales to close out the year at around 5.44 million, which comes in slightly below (0.2 percent) the pace set in 2016 (5.45 million). The national median existing-home price this year is expected to increase around 6 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent.

“The supply and affordability headwinds would have likely held sales growth just a tad above last year, but coupled with the temporary effects from Hurricanes Harvey and Irma, sales in 2017 now appear will fall slightly below last year,” said Yun.

“The good news is that nearly all of the missed closings for the remainder of the year will likely show up in 2018, with existing sales forecast to rise 6.9 percent.”

Of course, none of those fun-durr-mentals matter…

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Source: ZeroHedge

New Home Sales Unexpectedly Dive Again

Don’t Blame Hurricanes

The Census Bureau reports New home sales are down again, with median prices weakening sharply.

Net sales revisions for June and July were negative. In addition, year-over-year sales are negative.

Sales were down in the South, the West, and Northeast, so don’t blame the hurricanes.

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Economists Surprised Again

Economists were surprised by another month of weak new home sales.

The Econoday consensus estimate was 583,000 at a seasonally adjusted annualized rate (SAAR) but sales came in at 560,000 SAAR.

Weakness in the South pulled down new home sales in August as it did in last week’s existing home sales report. New home sales fell sharply in the month to a 560,000 annualized rate vs an upward revised rate of 580,000 in July and a downward revised 614,000 in June (revisions total a net minus 7,000).

Sales in the South, which is by far the largest region for housing, fell 4.7 percent in the month to a 307,000 rate for a year-on-year decline of 9.2 percent. But importantly, sales in the West and Northeast were also lower, down 2.6 and 2.7 percent respectively, with sales in the Midwest unchanged.

September, in fact, was a weak month for housing demand, evident in this report’s median price which fell a very sharp 6.2 percent to $300,200. Year-on-year, the median is up only 0.4 percent which, in another negative, is still ahead of sales where the yearly rate is minus 1.2 percent.

Builders, despite late month disruptions in the South, moved houses into the market, up 12,000 to 284,000 for a striking 17.8 percent yearly gain that hints at a glut. But supply had been so thin that the balance is now at a traditional level, at 6.1 months vs 5.7 and 5.3 months in the prior two months and 5.1 months a year ago.

Hurricane effects are likely in the next report for September with the South to continue to suffer. But today’s data do mark a shift, one of softening sales nationally, which is a short-term weakness, and a re-balancing in supply which is a long-term strength. Yet for the 2017 economy, the housing sector looks to be ending the year in weakness, some of it hurricane-related.

Expect downward revisions in GDP estimates for the third and fourth quarters.

By Mike “Mish” Shedlock | MishTalk.com

U.S. Cities With The Biggest Housing Bubbles

This is how monetary policies have crushed the value of labor.

For the good folks who hope fervently that the Fed doesn’t have reasons to raise rates or unwind QE because there isn’t enough inflation, here is an update on one aspect of inflation – asset price inflation, and particularly house price inflation – where the value of your hard-earned dollars has collapsed over a given number of years to where it takes a whole lot more dollars to pay for the same house.

So here are some visuals of amazing house price bubbles, city by city. Bubbles really aren’t hard to recognize, if you want to recognize them. What’s hard to predict accurately is when they will burst. Normally the Fed doesn’t want to acknowledge them. But now it has its eyes focused on them.

The S&P CoreLogic Case-Shiller National Home Price Index for June was released today. It jumped 5.8% year-over-year, not seasonally adjusted, once again outpacing growth in household incomes, as it has done for years. At 192.6, the index has surpassed by 5% the peak in May 2006 of crazy Housing Bubble 1, which everyone called “housing bubble” after it imploded (data via FRED, St. Louis Fed):

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The Case-Shiller Index is based on a rolling-three month average; today’s release was for April, May, and June data. Instead of median prices, it uses “home price sales pairs,” for example, a house sold in 2011 and then again in 2017. Algorithms adjust this price movement and add other factors. The index was set at 100 for January 2000. An index value of 200 means prices have doubled in the past 17 years, which is what most of the metros in this series have accomplished, or are close to accomplishing.

Real estate is local. Therefore real estate bubbles are local. If enough local bubbles balloon at the same time, it becomes a national housing bubble. As the above chart shows, the US national Housing Bubble 2 now exceeds the crazy levels of Housing Bubble 1, and in all ten major metro areas, home prices are setting new records.

In the Boston metro, the home price index is now 11% above the peak of Housing Bubble 1 (Nov 2005):

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Home prices in the Seattle metro have spiked over the past year, pushing the index 20% above the peak of Housing Bubble 1 (Jul 2007):

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Then there’s Denver’s very special house price bubble. The index has soared a stunning 43% above the peak of Housing Bubble 1 (Aug 2006):

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People in the Dallas-Fort Worth metro felt left out during Housing Bubble 1, when prices rose only 13% in five years, while folks in other parts of the country were getting rich just sitting there. They also skipped much of the house price crash. But they know how to party when time comes. The index has now surged by 42% from the peak in June 2007:

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The Atlanta metro, where home prices had plunged 36% after Housing Bubble 1, has now finally squeaked past the prior peak by 2%, with a near-perfect V-shaped bubble recovery:

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Portland’s home prices have kicked butt since 2012, with the index soaring 71% in five years – not that homes were cheap in Portland in 2012. Portland’s house price bubble is now 20% above the peak of Housing Bubble 1:

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The San Francisco Case-Shiller Index, which covers the five-county Bay Area and not just San Francisco, is now 10% above the insane peak of Housing Bubble 1. During the last housing crash, the index plunged 43%. Eight years of global monetary craziness has sent liquidity from around the world sloshing knee-deep through the streets, which has performed miracles:

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Los Angeles home prices performed similar feat, doubling from 2002 to July 2006, before giving up two-thirds of those gains, then soaring once again. The index is now 3% above the peak of totally insane Housing Bubble 1:

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New York City condo bubble never saw the crash in its full bloom. Prices are now 19% above the peak of the prior bubble (Feb. 2006). Over the past 15 years, the index has soared 112%:

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While the monetary policies of the past eight years have had no impact on wage inflation in the US, and only moderate impact on consumer price inflation, they’ve been a rip-roaring success in creating asset price inflation.

Asset price inflation means that the dollar loses its value when it comes to buying assets. Wage earners, when they’re trying to buy assets today – not just homes but any type of asset, including buying into retirement plans – are finding out that their labor is buying only a fraction of the assets that their labor could buy eight years ago. This is how these monetary policies have crushed the value of labor.

By Wolf Richter | Wolf Street

 

Breaking: HUD To Raise Premiums, Tighten Limits On Reverse Mortgages

The Department of Housing and Urban Development on Tuesday will formally announce plans to increase premiums and tighten lending limits on reverse mortgages, citing concerns about the strength of the program and taxpayer losses.

Mortgage insurance premiums on Home Equity Conversion Mortgages will rise to 2% of the home value at the time of origination, then 0.5% annually during the life of the loan, The Wall Street Journal reported Tuesday morning. In addition, the average amount of cash that seniors can access will drop from about 64% of the home’s value to 58% based on current rates, the WSJ said.

“Given the losses we’re seeing in the program, we have a responsibility to make changes that balance our mission with our responsibility to protect taxpayers,” HUD secretary Ben Carson told the WSJ via a spokesperson.

The HECM program’s value within the Mutual Mortgage Insurance Fund was pegged at negative $7.72 billion in fiscal 2016, and the WSJ noted that the HECM program has generated in $12 billion in payouts from the fund since 2009. The value of the HECM program fluctuates over time, however: In 2015, the reverse mortgage portion of the fund generated an estimated $6.78 billion in value; in 2014, the deficit was negative $1.17 billion.

Unnamed HUD officials told the WSJ that without this change, the Federal Housing Administration would need an appropriation from Congress in the next few years to sustain the HECM fund. The officials also said that the drag created by reverse mortgages has prevented them from lowering insurance premiums on forward mortgages for homeowners.

“You have this cross-subsidy from younger, less affluent people who are trying to achieve homeownership,” HUD senior advisor Adolfo Marzol told the WSJ.

The move took the industry by surprise, with the WSJ reporting that leaders were not briefed on the changes beforehand. 

By Alex Spanko | Reverse Mortgage Daily