A weekend topic starting with the Enterprise Record in California. “Building housing ‘is not affordable,’ said Kate Leyden of Chico Builders’ Association. In order to make housing ‘affordable’ for the county, (costing only one-third of the average monthly income) or about $500 a month, the same unit would have to cost $75,000 to build. ‘We have reached the point where the cost to build is more than our economy can support,’ she said. Part of this is due to COVID-19’s economic impact. Butte County’s main employment is in the service and hospitality sectors, the study adds. ‘We don’t have big high paying manufacturing or high tech jobs,’ Leyden said. ‘We are tourism and restaurants, and we are small.’”
“Land in Chico is ‘extremely expensive for two reasons,’ Leyden said (a 1/4 acre to 1/3 acre basic lot could be around $100,000, she said). There isn’t much of it, and there is even less land that is ‘ready to go’ with infrastructure like reasonable access to utilities and roads. ‘There comes a point when people in your town can’t afford it anymore. If we lived in any area with an average household income of $100,000 … then we could manage more cost in houses.’”
“Newly built, market-rate apartments will continue to be priced high because the costs are high to build them. ‘The developers as a marketing tool call them luxury because they have to charge so much for them,’ Leyden said. ‘The report shows the cost to build an apartment is $190,000 a unit at total cost with materials, labor and all additional stuff … it’s almost $191,000 a unit.’”
“The cost of adding infrastructure like roads and sewer to land, as is needed in Paradise, drives up the price of each home on that parcel by between $17,000-$20,000.”
The Park Record in Utah. “The real estate surge comes against the backdrop of an uncertain economy. Unemployment in the Park City area — which the Board of Realtors defines as Summit and Wasatch counties — is down from a spring peak but remains elevated. And there are warning signs that the upcoming winter could be challenging for businesses that rely on ski tourism as the coronavirus pandemic worsens.”
“While William Winstead, president of the Park City Board of Realtors, could not have anticipated the extent of the real estate boom, he’s not shocked that the market has proven resilient during an economic slump. He said the same was true during the Great Recession, though the market did not escape that crisis unscathed. ‘We haven’t had a lot of downturn in our market,’ he said. ‘Even 2008, 2009, 2010, I don’t think we fell below 25%, 30%, where other states were going down to 50%, 60% and 70% below what the real estate market value was.’”
The Motley Fool. “You might have heard of a zombie house: a property that’s been abandoned and is decaying right before your eyes — certainly frightening for the neighbors. But there’s also the vampire foreclosure, which sucks the blood from the local real estate market. There were a couple of reasons banks allowed vampire foreclosures to happen to the extent they did. One was a deliberate measure to help boost home prices in the short-term. (If you recall your real estate history, home prices took a huge hit in the aftermath of the foreclosure crisis.) So banks were biding their time before getting serious about selling off their REO stock.”
“When a vampire occupies a home, that home is not on the market. By all rights, since the former owner lost the home to foreclosure, the home should go back on the market. But because it’s sitting in limbo, an artificially low housing supply is being created. As mentioned, banks can regulate the fair market value of homes to some extent by the timing of when they hold and release their properties.”
The Honolulu Civil Beat in Hawaii. “In 1979, my husband David, his sister, his mother and I pooled our monies hui-style to build a three-story walk-up in McCully. Dave and I own two units on the second floor, his mother and sister each own a unit on the third floor. The whole thing cost $250,000 to build, and our mortgage was very reasonable. David and I paid $750 a month for our two-bedroom and rented out the one-bedroom for $450. His mother paid $750 for her two-bedroom and his sister rented out her one-bedroom for $450.”
“Now every so often we receive a postcard from a realtor looking to buy our apartment building. These postcards typically list other small apartment buildings in the vicinity that are for sale for a million or two. As our median home and condominium prices continue to creep upwards, even during this pandemic, I can’t help but wonder how many families will be able to afford the sky-high mortgages on any of these high-priced properties?”
“There is a luxury high-rise in town that was built 40 years ago. It was beautiful, with spacious apartments. I was shocked to look at a unit there . The spacious living room had been divided into two rooms, the master bedroom similarly sliced; with one other bedroom, there were now FIVE rooms of unrelated folks, each paying $700.”
“Aren’t we complicit when we sell at these exorbitant prices? We must see how we each contribute to the housing crisis and the ever-growing number of people on the streets.”
The East Anglian Daily Times in the UK. “Southwold has long been a popular seaside resort, attracting visitors from not just East Anglia, but places further afield such as London and the Midlands. With a population of around 1,000, nearly 60% of the town’s 1,400 residential units are occupied as second homes or used as holiday lets. But with a shortage of available housing, combined with some of the highest house prices in the country, where does this leave the town’s longstanding residents?”
“Southwold town and district councillor David Beavan fears that the rising number of second homes, coupled with already expensive house prices, will results in the town becoming a seasonal holiday resort, rather than somewhere people can live long-term. ‘Our community is dying because of the number of houses here that are used as holiday homes or second homes. It’s at 60% now, which is the highest in the country. We’ve lost our police and fire stations, pubs are closing, and without a community here, why would people want to come here? If it’s just a holiday park, it loses its attraction. I want the community to thrive as a community.’”
“But why has a town like Southwold got such a small permanent population, and a high percentage of second homeowners? ‘A lot of the second homes are there because so many people have sold up. An elderly resident passes away, their family inherits a place in Southwold, they see they can get £500,000 for it, they put it up on the market and sell it as a second home because no local person can afford to buy it.’”
“At the time of writing, a one bedroom flat in Southwold costs anywhere between £399,000 and £495,000. ‘You just can’t get a mortgage – someone from here would have to be earning five times the average wage to be able to afford a house here.’”
From Arlington Now in Virginia. “This year is going to be an anomaly. We have over 200 percent more inventory going into the colder months than we did last year, though it’s pretty much all hold-over condo inventory. I’m still waiting for that part of our market to hiccup and be absorbed. I won’t hold my breath….”
From Westword in Colorado. “According to the Denver Metro Association of Realtors, the average closing price for a detached home in the Denver area is now $625,100, a sky-high record — and the $393,733 average closing price for attached units such as condos is the highest ever in that category, too. But Jim Smith of Golden Real Estate feels this last figure is a bit misleading. He points out that new listings for condos are popping up at an unprecedented pace, but such spaces aren’t selling nearly as quickly as single-family homes — and he believes the reason has everything to do with COVID-19.”
“Smith notes. ‘They don’t want to be mixing in elevators and lobbies with people who might have COVID-19 — and the fact that COVID-19 is accelerating now is probably going to increase the number of condo dwellers who are putting their places on the market.’ He notes, condos ‘aren’t selling like houses. They’re sitting on the market’ because buyers with the means to make purchases in large complexes, particularly in the luxury category, have the same concerns.”
“This disparity might suggest that many people currently living in luxury condos are ditching them to buy detached homes and thereby driving up prices in that category. But the truth is not that simple, Smith suggests. ‘If they have a lot of their money in a million-dollar condo, they don’t have that much equity,’ he argues. ‘The equity’s in the condo, and they can’t sell it. So they’re not necessarily fueling this market.’”
An opinion piece by Aaron Brown at Bloomberg. “Rapidly rising housing prices in the U.S. has led to talk of another housing bubble like the one that helped trigger the financial crisis a little more than a decade ago. Consider that the Case-Shiller National Home Price index has gained in excess of 6% per year on average since January 2012, while net rental income has barely kept up with inflation, increasing just less than 2% per year. The result is that home prices seem as overvalued as they were in the spring of 2005, nine months before the peak.”
“Sure, real estate prices always drift up or down, and differ by location and type of home. A bubble in housing requires widespread overvaluation over years, which is what we have witnessed. The bad news is all previous history came at higher mortgage rates. The average 30-year fixed mortgage rate fell below 3% for the first time in August 2020, and rates are close to the lowest possible levels given the credit risk and costs of writing mortgages. It’s one thing to be a peak valuation, it’s another to be at peak valuation with no discernable upside.”
“It’s implausible that housing prices can go up from here without large increases in rents, which require increases in demand for housing. That’s an unlikely outcome in a recession. If the recession continues, where will new demand come from? If it ends, interest rates go up, pushing housing prices down.”