A weekend topic starting with Newsweek. “The rising cost of buying a house in America has been further emphasized by an unearthed advert from the 1950s showing the comparatively low prices of property in that period. Captioned: ‘They really had it easy back then,’ the newspaper advert featured in the tweet centers around a development at Westwood Lake, Southwest Miami, Florida, where, according to the copy, ‘more than 600 homes’ were ‘built and sold’ in the space of seven months.”
“The advert, created by real estate and land investment firm The Mackle Company, goes on to list two-bedroom properties at $7,450 or for monthly payments of $47.92. Three-bedroom properties, meanwhile, are priced at $7,900 or $49.74.Using the online US Inflation Calculator tool, it’s estimated that, when adjusted for inflation, the $7,900 three-bedroom property in Miami would have cost $85,841.58 in today’s money.”
“Elsewhere _nineteen91 wrote: ‘The average salary in Miami in 1955 was $3,400 and NEW homes could be bought for under 8k. Now the average salary is around 65K and USED homes like this cost over 500k which need extensive repairs. If you can’t see what’s wrong with this picture then you are part of the problem.”
The Aspen Times in Colorado. “Housing construction in 1892 was evident in every neighborhood. A Times reporter walked the streets and inventoried newly built or under construction homes. Converting figures to today’s dollars shows that the cost was in no way comparable. As an example, in 1894-95 a common price was $1,000 to $1,100 ( $28,500 to $32,300 today’s dollars). For that price you could buy a four-room house with electric lights. For a little more you could get a house with plastering, high ceilings and maybe a cellar. One at that price advertised ‘a white coat finish as white as the day it was built.’ Lower priced houses had fewer rooms and amenities and sold for as low as $5,700 in today’s dollars.”
“J.C. Connor was a major agent and he told a reporter of what appeared to be a major high-price sale, one for $3,000 ($81,000 in today’s dollars). What was also different then was that those agents also made or arranged the loans. It also appears that the usual down payment required was 50%. Denver had a similar population boom during those years, but as one Aspen real estate agent-mining stock seller commented, ‘Buying lots in Denver is not a good investment as there are streets that extend miles with lots for sale.’”
The Colorado Sun. “As average 30-year fixed mortgage rates continue to hover around 6%, there’s an expectation that prices of homes for sale will fall. It’s only been 10 days since the Fed increased interest rates so it’s too soon to see the impact. Or is it? On Monday, the average list price for a house for sale in Denver was $742,773. Three days later it dropped 2.9% to $721,517, according to multiple listing data provided by Open Door. Meanwhile, during the same three days, the median closing price fell $26,000, or 4%, to $619,000.”
“Things are moving so quickly, said Nicole Bachaud, a senior economist at housing site Zillow. ‘We had this huge acceleration, this huge boost in spring of 2020 that continued into 2021 that was the strongest year for housing that we’ve really ever seen,’ Bachaud said. ‘Now we’re coming to this period where things are going to cool down really fast as well. And that’s going to look like whiplash for a lot of buyers and sellers in the market.’”
“Zillow data for the Colorado Springs, Denver and Fort Collins markets do show that there’s been a sharp increase in the number of houses that cut the list price within the past month. The chart below shows that in early June, 9.17% of the homes for sale in Denver dropped their price in the past month, while 9.1% did in Colorado Springs and 3.37% did in Fort Collins.”
“Those price discounts in Denver rose to a median of $19,000 in early June, nearly double the amount in January. Colorado Springs price cuts weren’t as sharp and had dropped to $11,050 in early June, while Fort Collins hit $19,201.”
The San Diego Jewish World in California. “The San Diego real estate scene has yet again taken residents by surprise. In January 2020, the median sale price was $600,000. A year later in January 2021, that rose to $650,000. In January 2022, the price rose yet again to just under $800,000 and leveled out just under $900,000 in April 2022. Going into Summer 2022, prices have started to plateau and even drop. Whereas rapid fire home sales would involve bidding wars tens of thousands of dollars over asking with prospective buyers more than happy to waive contingencies such as appraisals / inspections, it appears those days are over. More and more homes are sitting longer on the market with price cuts. A recent search on Redfin shows there are 350+ homes in the San Diego area that have been on the market more than 2 weeks with price cuts in the past month.”
“Another factor in the housing market madness that deserves attention is the impact of investors. While there have always been investors—individual and corporate—who purchased homes to either rent or flip, that number soared in Fall 2021. Specifically, real estate investors bought nearly 20% of all United States homes during that time. Due to historically low mortgage rates driving up buyer demand (remember, buyers were able to afford more expensive homes due to the lower mortgage rates), home prices began to soar. Investors took note of this trend and entered the market. Many greedily raked in profits as they bought, held, and sold homes like stocks.”
“In late 2021 and early 2022, it was not uncommon to look at Redfin property history to see homes purchased and shortly resold for upwards of $100,000. However, as interest rates—and therefore mortgage rates—increase, home buyer demand is slowing. At the same time, bond values are starting to pick up. In fact, I-bonds hits a historic high of 9.62% [5]. Investors who expected to ride the wave of rising real estate and easy profits are starting to feel the burn of property costs in a slowing market. Many investors are exiting the market, cutting their losses.”
“A few recent examples from San Diego highlight this. 4300 Netwon Ave #34 was sold in March 2022 for $641,000 and quickly relisted in April 2022 for $740,000. With no offers in a slowing market, the price has dropped to $688,000 in June 2022. Similarly, 4511 G St was sold in May 2022 for $725,000 and went back on the market in June 2022 for $635,888. 9804 Caminito Bolsa sold in March 2021 for $400,000 and was relisted in May 2022 for $580,000. Come June 2022, the price had dropped to $520,000. Many more homes are advertising price cuts, a trend that is expected to continue as the year progresses. The panicking investors looking to sell the properties will only increase the housing supply which, coupled with decreasing demand, will exacerbate the issue.”
“It should be noted that federal interest rates are not the same as mortgage rates. Yet why do they correlate? Any mortgage company that lends money to homeowners to purchase homes typically borrows money elsewhere to outright purchase the home. Or, as the saying goes, they are robbing Peter to pay Paul. In order to recoup their losses and make out ahead, there needs to be an upcharge. This is so mortgage lenders make profit and do not simply break even. Simply put, this tends to be a 3%-4% ‘cushion’ on top of the federal interest rate.”
“So what is a San Diegan to do? Is now a good time to buy or sell? ‘You must not follow the crowd in doing wrong’ (Exodus 23:2).”
The Globe and Mail. “Home renovations can be unpredictable and anxiety-laden at the best of times. But soaring costs, rising interest rates, cooling home prices and uncertainty about Canada’s economic outlook are increasing the financial risks associated with a major property uplift, some real estate experts warn. Homeowners with large mortgage balances should ‘be careful with renovations right now,’ said Nasma Ali, broker and founder of One Group Toronto Real Estate.”
“Another squeeze on some home renovators’ budgets is coming from rising borrowing costs. Home equity lines of credit (HELOCs). In Toronto’s east end, Hillary Strack-Cheng and her husband embarked on a sweeping home makeover September. They wanted to add two bedrooms and a bathroom to their small two-storey home to make room for their growing family. The couple had decided to renovate after calculating that a home extension would cost them less than selling the house and buying a bigger property in what was then a red-hot market.”
“But some nine months later, the project, which was temporarily derailed by a dispute with a contractor, is continuing. Delays and unexpected costs forced the couple to refinance their mortgage, which has a variable rate, and max out their HELOC. While the family expects to move back home in August, Ms. Strack-Cheng said rising interest rates are adding a layer of stress to an already stressful construction process.”
“‘The variable interest rate is tick-tick-tick climbing up a tiny bit, and that makes a difference when you’re maxed out,’ she said.”
“Recent homebuyers and real estate investors with significant mortgage debt are typically among the homeowners who are most exposed to the financial dangers of an ambitious renovation in a cooling housing market, Ms. Ali warned. With home prices in several markets stagnating or declining, one risk is that a home remodel won’t increase a property’s value by as much as the project cost. ‘I’m seeing these flips flopping everywhere right now,’ Ms. Ali said, speaking about real estate investors hoping to flip homes at a gain after renovating the properties.”
“Those planning on borrowing to finance a renovation should also keep in mind that HELOCs are callable, which means their terms can change, said Toronto mortgage broker David Larock. Lenders have the power to trim back the unused portion of a HELOC, leaving a homeowner unable to borrow additional amounts, Mr. Larock said. Or they could demand that the outstanding balance on the line of credit be folded into the mortgage, among other potential changes, he added.”
“While such instances are rare, lenders are more likely to trim back credit extended through HELOCs during periods of economic turmoil, he said. ‘When property values start decreasing, lenders want to lower their level of risk.’”
“In Vancouver, residential designer Jamie Banfield hasn’t seen client demand slow down yet, but he expects that to happen soon. ‘People are maxed out,’ he said, adding that many who bought larger homes during the pandemic have stretched their finances and now have limited resources left for renovations.”
“There’s also an element of fatigue, Mr. Banfield said. While interior designers are used to hearing from clients who say they have fallen in love with particular designs, looks or layouts, the dominant emotion right now seems to have become ‘just get it done,’ he said. That’s the stage Angela Dawn is at. The Toronto librarian said she’s currently storing a brand-new toilet in her living room and a bathtub on her front porch, after the contractor she’d hired for a bathroom overhaul unceremoniously bowed out of the job, citing ‘labour shortages.’”
“Ms. Dawn, who lives in a two-floor semi-detached home with her husband and two kids, added that she had been waiting for the contractor, who came highly recommended, to take on the project for nearly two years. Now, she said, she’s back to square one. ‘I have no concept of how much more it’s going to cost us, or how we’re going to handle that or how we’re going to find a contractor,’ she said.”
From CBC News. “It is inevitable that if incomes fail to keep pace with a 6.8 per cent inflation rate, more Canadian wage earners will be forced to scrimp. But there are increasing signs it is not just those without savings who are looking for ways to spend less. Research on something called ‘the wealth effect’ has shown that the many Canadians who have savings invested in real estate, stocks or cryptocurrency are not exempt from the urge to economize.”
“Those who have studied the wealth effect, including Bank of Canada governor Tiff Macklem in 1994 when he was but a humble researcher for the central bank, have concluded the phenomenon is real. Nonetheless, there is still debate, and even contradictory studies, over exactly how it works. Certainly the classic anecdotal example for the wealth effect is housing and car sales, where, as the price of relatively modest houses begins to rise in a neighbourhood, new and sometimes expensive cars begin to appear in driveways.”
“The anecdote has research to back it up from the Reserve Bank of Australia (RBA), the Down Under equivalent of the Bank of Canada. In 2015, when Aussie house prices were rising at about 10 per cent a year, the RBA study showed that, ‘there is a robust cross-sectional relationship between changes in housing wealth and new vehicle registrations.’”
“The reason why the housing example is especially interesting is because for the most part, those homeowners who bought the cars were not planning to sell their houses to realize the increase in value. That indicates a psychological effect. ‘I mean, really, are you wealthier if you are a 50-year-old and your house has doubled in value?’ Mark Kamstra, an economist who studies behavioural finance at York University’s Schulich School of Business in Toronto, asked rhetorically. ‘What are you going to do? You still have kids in high .school. You’re not going to move from the neighbourhood. You can’t downsize. How is that wealth in any sense?’”