A report from Wharton. “For most Americans, their home is their most valuable asset, so it makes sense to borrow against the equity to obtain cash. In lean times, that money can be spent on consumption, which keeps the economy humming along. But if housing values and personal incomes don’t rise, borrowers might find themselves struggling to repay the debt.”
“That’s what happened a decade ago when the housing market collapsed. New research from Wharton finance professor Nikolai Roussanov shows that the pattern wasn’t particular to the Great Recession. Looking back 30 years, Roussanov and his co-authors found a cyclical pattern of refinancing before each recessionary period. Roussanov: ‘The idea from the economic standpoint is that if we think that people’s incomes are temporarily depressed, it’s not crazy for them to use cash that they have locked into their home as a temporary kind of buffer spending.’”
“‘It’s not something that people could have foreseen. It’s easy to say after the fact, ‘How could we not have seen it?’ But again, if you go back to 2005, 2006, the economy is humming along. The housing market is on fire. And a lot of people are saying, ‘We know house prices don’t go down. They only go up.’ As economists, we could say this is irrational, but the expectation was that house prices are going up and the incomes will catch up. It wasn’t that house prices got too high relative to incomes and they’re going to collapse, and that’s how the two will meet. That was clearly not the expectation that people had, even though that’s maybe part of what happened in the end.’”
“Roussanov: ‘The big unanswered question is, why did house prices rise as much as they did before they came crashing down? That’s something that our research does not answer…This idea of using your house as an ATM and valuing the house not just as a place to live but also this potential source of rainy day cash could contribute to the demand for homes, particularly in the areas that are seen as attractive. Maybe that’s something that makes people more willing to pay for a house of a certain size right now, even though it may be more expensive than what they think they can afford or what they even need. That’s not an easy question to answer and something that we are working on. But we’ll see when we get there with that.’”
From The M Report. “Redfin Chief Economist Daryl Fairweather appeared on CNBC’s The Exchange and noted fewer risky mortgages by Fannie Mae and Freddie Mac could keep first-time buyers out of the market. ‘During the downturn, Fannie and Freddie wanted to sustain the housing market, keep it strong, and make sure there is enough demand out there,’ Fairweather said. ‘They don’t really need to do that anymore because there are more buyers than there are sellers right now. If anything, we may enter a scenario where home prices accelerate too quickly. So pumping the brakes a bit may be what the housing market needs.’”
“CNBC reported that 60% of homebuyers put less than 6% down when buying a home. Genworth said 88% of purchase loans in 2018 with a 3-5% down payment went to first-time buyers—higher than the 53% who put 5-10% down and the 27% who more than 20% down. The use of conventional mortgages with low down payments, used by private mortgage insurance, have grown from 346,000 to 684,000 first-time buyers from 2014-2018.”
From Arlington Now in Virginia. “Question: I have read articles about the 22202 zip code suggesting everything from extreme appreciation to homes now selling for pre-Amazon prices. Can you shed some light on what’s actually happening in that market?”
“Answer: After months of articles about extreme appreciation in 22202, the Amazon HQ2 zip code making up neighborhoods like Crystal City, Pentagon City, Aurora Highlands/Hills and Arlington Ridge, there was an article published last week by the Washington Business Journal claiming that prices are now below pre-Amazon HQ2 announcement levels. The supporting data was that median sold price in November 2019 was 12% lower than November 2018 prices.”
“First of all, if you use the average sold price instead of median, there was a 2.3% increase in prices from November ’18 to November ’19, not a 12% decrease. Second, with a drop in total sales from 30 in 2018 to just 12 in 2019, with prices ranging from $255,000 to $1,145,000, there’s just not enough data to draw any sort of reliable conclusion on market performance by comparing the two months.”
From Newsday on New York. “The number of closed sales fell by 9.3% in Nassau County and 7.3% in Suffolk County last month, compared with the previous November, the Multiple Listing Service of Long Island reported. ‘It’s still a strong sellers’ market under that $600,000 price range,’ said Angela Prince, owner of Prince & Associates Realty Group in Bay Shore. However, Prince said, ‘In the over-$850,000, $900,000 market, we’re starting to shift into a buyers’ market, believe it or not.’”
The Miami Herald in Florida. “Will 2020 bring a buyer’s market to Miami residential real estate? Here’s what the experts have to say. Mike Pappas, CEO, Keyes Company: ‘I think it will be a stronger year for luxury condo and single-family home sales than this year. We’ve seen a strong pick-up in the northeast buyer in the third and fourth quarters. The state and local tax deductions, SALT, will play a in favor to Florida. [And] sellers are making adjustments in prices. You’re seeing price breaks and that bodes well for buyers.’”
“Rose Sklar, team leader of The Sklar Team, affiliated with Coldwell Banker Residential Real Estate: ‘What’s doing better in Broward is the $1 million- to $2 million market. The prices are coming down for any single-family homes in Broward that are over 20 years old. There’s an oversupply of big houses.’”
From Socket Site in California. “With roughly 29 percent of the homes currently listed for sale in San Francisco have been reduced at least once, which is three percentage points higher than at the same time last year, we turn our attention to the various verbiage and positioning now in play. There’s the straightforward ‘Price Reduced,’ along with escalating variants of the same, including exclamation points (‘Price Reduced!’), qualifiers (‘Major price reduction!’), multipliers (‘Another Price Reduction’) and big numbers (‘$500,000 PRICE REDUCTION’).”
From Realtor.com on California. “The home belonging to the late, great San Diego Padres star Tony Gwynn has finally sold for $1,429,500. About four years after the Hall of Famer’s death in 2014 from cancer, his Poway, CA, mansion went into foreclosure. His widow owed approximately $2.5 million on the property, which was valued at about $2 million at the time, according to the San Diego Union Tribune. The property went up for auction in 2018, but failed to find a buyer, so the lender took ownership of the home.”
“With the home vacant, neighbors had complained that a squatter was reportedly inhabiting the space. The bank took control and placed the home on the market for $2.12 million in May. The price dropped steadily over the summer months, with no interest. In September, the bank cut the price to $1.581 million, the price reduction needed to coax a buyer to step up to the plate.”