A weekend topic starting with Tulsa World in Oklahoma. “In August 2019, the median sale price of Tulsa homes was $165,000. That number has jumped nearly 34% to a median sale price of $221,000 in 2021, according to realtor.com. ‘The buyer demand came out because interest rates were fantastic,’ said Paul Wheeler, who has been a realtor in Tulsa for over 28 years. ‘My first house had an 11.5% interest rate. Now? (The interest rates) got down around two and three percent. We call it free money.’”
“Despite the housing market frenzy highs, Wheeler said he thinks the market peaked around July 1. He also does not anticipate ‘the bubble to burst’ or the market to crash. ‘Now, all that being said, it’s calming down,’ Wheeler said. ‘I think the values have risen to a point where the buyers are going ‘OK, I don’t know that I’m willing to pay that much above traditional market rates.’”
From ABC News. “The news of higher house prices will please millions of Australians who own their own home or investment property. Bill Shorten, who made housing affordability a centrepiece of Labor’s 2019 federal election strategy, noted: ‘This nation can’t keep giving away money to property investors to make losses on property.’”
“Under Mr Shorten’s plan, negative gearing would have been restricted to new homes, and the capital gains tax discount — which allows investors to flip properties at a profit without hefty tax bills and costs the federal budget just shy of $10 billion annually — would have been reduced from 50 per cent to 25 per cent.”
“But last week, as Labor leader Anthony Albanese reportedly sold his Marrickville investment home for $2.35 million, he announced the party would dump both policies ahead of the next federal election, at the same time as abandoning Labor’s opposition to the federal government’s stage 3 tax cuts. ‘We took those policies to the last two elections. They didn’t find favour with the electorate,’ Labor’s financial services spokesman Stephen Jones said. ‘We need to ensure that the policies we take to the next election are going to be able to assist first home buyers to get into the market.’”
From Stuff New Zealand. “For a market to function properly, market participants must be rational and they must have perfect knowledge. New Zealanders don’t seem rational in regards to housing. We are obsessed with owning a house at any cost, and irrationally believe house prices will never fall. There are two financial concepts many New Zealanders get wrong.”
“The first is price verses value. In finance, price and value are two different things, and yet we tend to use these terms interchangeably. Price is simply what you pay for an asset, like the price of a house; value is what the asset is actually worth financially. We can value a house by its rental income. A healthy rental return should be about 8 per cent. But in New Zealand, most landlords are getting very little, or even negative, rental returns, and are relying on capital gains to make money. This tells us house prices are much higher than they should be.”
“When you are getting a good yearly rental return, you are investing; when you are relying on capital gains to make money from your house, you are speculating. And, in finance, speculating is just a nice way of saying gambling. This is where lack of knowledge distorts the market. Mistaking price for value, we are gambling on housing when we think we are investing. We pay more for houses than we should because we don’t understand the risk we are taking, erroneously believing that no matter how much we pay for a house, some other mug is going to come along in the future and pay us more for it.”
“There must come a time when it simply won’t be physically possible for most New Zealanders to buy a house. That no matter how hard we scrimp and save and sacrifice, we can’t afford a house. And if speculators don’t have any buyers for their houses, they can’t make any money and panic sell, so the housing market collapses.”
“Building more houses and releasing more land for residential purposes won’t fix the problem. In the same way that you can’t outrun a bad diet, you can’t outbuild an asset bubble, and New Zealanders are on a very bad diet of cheap money and delusional thinking. The solution, if there is a solution, lies with the people who caused the housing bubble in the first place, us.”
From News Letter. “House prices in Northern Ireland plunged 50% from their 2007 peak to their lowest point in 2013. Since then they have slowly risen by 50%. That takes them back to where they were, right? Well not quite, as anyone who was keen on maths at school might remember. The key thing to know is that Ireland — both sides of the border — had one of the biggest house price collapses in recorded economic history.”
“The boom of 2006 and 2007 was a disaster, yet most of society colluded in it. Young people who borrowed ruinous amounts of money to get on the housing ladder were told by the elders and betters: ‘You can’t go wrong with property.’ Many of those people are still in negative equity, 14 years later.”
“In many respects those young buyers were given bad advice for good reasons — older folk wanted to reassure the younger generation that owning your home is a good and safe thing to do, which it had been for generations of people. But there is also a lot of stupidity and greed when it comes to housing booms. Soaring prices become like a pyramid scheme in which the people at the top get the gains, and the people at the bottom are left with a huge bill when it all collapses — as it inevitably will.”
“The point is this: not only can you ‘go wrong’ with property, if you buy at the height of a housing boom you might have to wait decades to get your full money back, if indeed you ever do.”
From PBS News Hour. “Judy Woodruff talks to Mary Daly, president of the Federal Reserve Bank of San Francisco, about what she is seeing. ‘Well, lower interest rates, as you have said, allow people to purchase homes, importantly, also allow people to refinance homes, if — even if they’re staying in the one they own, have more money to spend and help themselves through the pandemic, buy cars.’”