A report from NBC News. “‘As we move through the year, we will see slower sales activity,’ said Lawrence Yun, chief economist at the National Association of Realtors. ‘Intense multiple-offer days are over… people can take their time. I think for the home sellers, they need to realize the days of double-digit price appreciation are over.’ If people are mulling a sale, he added, ‘They should do it based upon normal factors rather than trying to speculate on big price gains.’”
“‘I’m encouraged that we’re going to see many more new homes built in this year,’ said Robert Frick, corporate economist for Navy Federal Credit Union. ‘Some of the supply constraints are easing as far as materials go. The other thing which is important is that builders are buying a lot of land.’”
From DS News. “‘The early spring is poised to be the hottest housing market on record; we may start to see most homes going under contract within two weeks, but these conditions are likely to be short-lived,’ said Redfin Chief Economist Daryl Fairweather. ‘Now that the stock market is down about 10% from the start of the year and mortgage rates are up nearly half a point, the housing market could lose its luster soon. If that happens, I expect the inventory shortage to finally reach its nadir because overpriced homes will start to pile up on the market.’”
From Yahoo Finance. “Zelman & Associates Co-Founder and CEO Ivy Zelman joins Yahoo Finance Live to discuss the housing market. ‘The second homebuyer has also been a big part of this market in the last two years. And one would argue maybe the second homebuyer is a little stickier because they might be truly looking for a vacation home long-term. But do they start to get nervous if home prices are hitting a wall, they’ve made a ton of money, and they decide that they want to sell now and take their chips off the table because RESI is slowing? So I don’t know if that really answers your question, but I think it has been a disproportionate part of what has resulted in the surging home prices we’re seeing.’”
“‘There’s a massive backlog of both single family for sale, single family for rent, what we call bill for rent. And there’s a massive pipeline of multifamily that if that– all that product gets completed over the next year and a half, two years, we’re going to have oversupply causing pressure on home prices.’”
“‘I can tell you that if you need more space and your current situation, you’re paying in rent what would arguably be more than what your monthly payment would be if you were to buy today, then I think you have to make a transition. But if you’re not sort of in a have to move mode, then I wouldn’t because when you look at first-time buyers today, there’s going to be a ton of product available coming. And they call it the winter’s coming.’”
A press release. “More than one-third (34.1%) of U.S. single-family homes for sale in December were new construction, up from 25.4% a year earlier and the highest share on record, according to a new report from Redfin.”
The Atlantic. “Houses have been selling at higher prices, more quickly—and buyers haven’t been able to find much relief by broadening their search to other areas, because this is happening in much of the country. ‘This is one of the more universal periods of zaniness that we’ve seen,’ Issi Romem, the founder of the economic consultancy MetroSight, told me.”
“Some buyers have been willing to waive the contingencies on their offer, such as finalizing their purchase after a home inspection. Jenny Schuetz, a senior fellow at the Brookings Institution, advised against doing this, because it’s risky. ‘If everybody else is buying in a frenzy, that doesn’t mean you should buy in a frenzy too,’ she said. ‘Some of the people who win those bidding wars may not have made good decisions.’”
The Idaho Business Review. “Idaho Business Review chatted with Quinn Stufflebeam about what First American Title Company and TFC are looking like today and what the future holds for the residential real estate market. ‘People look at what they can afford for their monthly payment, which goes toward interest payments and principal, as well as the purchase price. But if the interest component starts to go up, that means something has to go down. And that’s usually the purchase price. So, we’ll see a slowdown in the market, I think. To what extent I don’t know. Hopefully, it doesn’t look like 2008, when the brakes came on and property value started to decline.’”
From 48 Hills in California. “More than 40,000 housing units—ten percent of the current housing stock—are currently vacant in San Francisco, a new report shows. The data in the report, by the Board of Supervisors Budget and Legislative Analyst, strongly suggests that a significant percentage of new market-rate housing that’s been built in the city in the past ten years is still empty, and thus doing nothing to alleviate the housing crisis. Some of the vacant units—7,241—are empty because they’re currently on the rental market. Another 2,400 are rented but the renter hasn’t moved in yet.”
“But 8,039 units have been sold to new owners who have not occupied the property, and 8,565 units have owners who use them for short-term seasonal or recreational purposes—that is, they come to the city every once in a while, and the rest of the time the place is empty. So that’s more than 16,000 units that aren’t available for full-time residents. One of the more dramatic elements of the report: In 2010, only 794 units were sold but unoccupied. In 2015, that number was 1547.”
The Globe and Mail. “The Bank of Canada’s maiden voyage into quantitative easing is coming to an end. Now we’re about to find out what the return trip – quantitative tightening – looks like. The implication is that one of the boldest policy actions the Bank of Canada has ever taken could soon go into reverse – possibly at about the same time as interest rates start to climb out of their deepest valley on record.”
“The Bank of Canada had never done a quantitative easing, or QE, program before, and it has never tried to exit one before. So, it’s hard to say just how big a deal that will be. We’re about to find out – if not in March, certainly in the following few months. It has decades of experience with how rate hikes work their way through the economy and the financial system, but no experience with unwinding a QE program.”
From ABC News. “They say talk is cheap, although for the past few years, it hasn’t been quite as cheap as cash. For months now, the world’s money mandarins have been sounding the alarm that the great global experiment on free money is drawing to a close. And in recent weeks, their cries have become more shrill. Interest rates will be rising sooner, faster and to higher levels than previously expected. The turnaround started just on a year ago. It was just that central banks wouldn’t believe it and did their best to ignore it, loudly proclaiming that interest rates would not be lifted for years.”
“Unfortunately, the interest rate horse already has bolted and the official rate rises that are about to begin merely are playing catch-up. It’s an easy mistake to make; to believe central banks are all-powerful and dictate the direction and size of interest rate movements. And for most of the past half-century, they did. But they lost control a year ago, and while they remain a powerful force in the marketplace, they are far from omnipotent.”
“It’s been the same story across the globe. In Germany, until last week, government bond rates for years have been below zero. That’s just ludicrous, conflicting with 5,000 years of human history and any sense of logic. It’s also dangerous. Ultra-low, zero and negative interest rates have distorted global finance, pushed investors into ridiculously risky investments and artificially inflated stock prices and real estate. They’ve also punished savers, anyone who wanted to park money with minimal risk.”
“Much of it is to do with China. The Middle Kingdom’s rise to power came about from its industrialisation. It rapidly shifted from a rural-based economy to an export-based factory powerhouse. Whole industries pulled stumps and shifted to China. Essentially, its biggest global export was lower prices. That had another effect. As workers across the developed world lost their jobs, unemployment rose, union power was crushed and wages stagnated. Add in the rise of the internet and the digital economy, and even skilled workers could be sourced offshore and online, further depressing developed world wages.”
“That allowed central banks, which took over running the global economy in the 1980s, to continue cutting rates, especially during a crisis. There was the Asian financial crisis of 1997, the Dotcom bust of 2001 and the global financial crisis of 2008. Until finally, they ran out of ammunition with interest rates at zero. Those trends largely have run their course.”
“If ultra-cheap cash created all these asset bubbles — soaring house prices and stock markets at nosebleed levels — then, surely, logic would dictate that higher cost cash will burst them and we’ll all be ruined. That’s a distinct possibility. But it’s more remote than many would have you believe. Unwinding the distortions created by free money won’t be easy, nor will it be quick. And it won’t come without pain or casualties. But it is entirely necessary.”