A weekend topic starting with the Globe and Mail. “With money so cheap and home appreciation so high, home ownership has taken on a whole new meaning. A key feature is that it’s altered our relationship to mortgage debt. The days of the mortgage burning party are long over, replaced with an acceptance of long-term borrowing, often well into retirement, and even for life. No longer anxious to pay them off, many homeowners refinance mortgages and reset the clock.”
“‘People view it as a piggy bank, because the cost of homes is so high,’ says Victoria mortgage broker Matthew Olberg. ‘They think, ‘we can pay three-per-cent interest on this $1.5-million house, and if we refinance, pull our money out and re-invest in something else, we can make more. A lot of people are going that way, it seems.’”
“Duncan Maclennan, economist at the University of Glasgow, has studied housing markets in Canada, the U.K. and Australia. He says governments have an ‘outmoded’ perception of how home ownership actually operates. ‘Home ownership, when originally introduced as a policy, was about encouraging people to save by mortgages. Home ownership is now a speculation system, and getting into it creates wealth at substantial rates,’ Prof. Maclennan says.”
“He points to a tax structure that incentivizes home investment, and an older demographic that is leveraging their equity. ‘The biggest speculators in Canadian housing markets are actually the Canadians age 50 and upward in terms of holding that extra house. The excess demand for housing as a space is being leveraged up by excess demand for housing as an investment, reflected by investors displacing first-time home buyers and others, but also in terms of groups such as my age group holding onto much bigger houses than they actually require.’”
“About two-thirds of Canadians are homeowners and of those, three out of five have mortgages, says policy research consultant Steve Pomeroy, who’s studied housing for almost four decades. Mr. Pomeroy says that the leveraging of one home for another has its impacts on the overall housing system, including those who can’t get onto the property ladder, which then puts pressure on those who rent.”
“‘Three quarters of buyers are existing homeowners trading up or trading down,’ he says. ‘This divergence between home prices and income, and the capacity to pay, well, that doesn’t really matter, because three-quarters of folks that are buying are bringing a whole bag full of equity that appreciated from them sleeping in bed at night, in their existing house. What is driving up prices is the low cost of finance and the low cost of mortgages – and also the fact that people have accumulated such a large level of appreciation.’”
From News 10 San Diego in California. “Eileen Gomez was living with her mom and sister in a mobile home when she made herself a promise. ‘I didn’t want to stay there and be stuck, so I said I’m going to find a way to own a home,’ she said. Gomez, who works in retail in Mission Valley, found out about a program that will loan qualifying first-time buyers up to 22 percent of a home’s purchase price as a down payment. To be eligible, she had to come up with 3 percent on her own, which involved sacrifice. Gomez came up with the cash and applied to the commission. In December 2020, she bought a two-bedroom, two-bathroom condo in the College Area for $350,000.”
“The program is open to households making 80 percent of Area Median Income or less. For instance, a three-person household earning up to $87,300 a year would be eligible to borrow up to $150,000 for a down payment. That would increase their purchasing power from $470,000 to $680,000. The down-payment loan, a second mortgage at 3 percent simple interest, is not paid back monthly. Instead, it is due in full in 30 years, upon sale, or if the homeowner no longer occupies the home as a primary residence. There is also up to $10,000 in closing cost grant funding available.”
“For Gomez, Zillow estimates her condo has already grown in value by $109,000. She hopes that equity helps her trade up to a larger home to raise her three children. ‘Now that everybody’s complaining about the prices going up, it’s like, wow, it’s a relief,’ she said. ‘I have something of my own now.’”
From Yahoo News. “Buyers are pulling out all of the stops to make their offers more attractive. Lizzie Ryan of HomeLight explains that her team has seen buyers using unbelievable tactics to win a home. ‘Some of these stories include buyers offering a lifetime supply of candy, a puppy, expensive dinners, and wine,’ she says. ‘More than one realtor has seen buyers pay competing bidders to walk away.’”
“It depends on your financial situation and your ability to predict the home’s future market value, according to real estate broker Egypt Sherrod. ‘Some buyers are rationalizing whether the future appreciation of the property will equate or exceed what they pay for the property today,’ Sherrod explains. Even if you pay $30,000 over market value, she says you may break even in three years with the current rate of appreciation. ‘If they plan to live in the home for five to 10 years, then the overpayment now seems like a sound gamble,’ Sherrod adds. But if you aren’t ‘cash heavy,’ she notes, this may be more than you can pay out of pocket.”
From Bloomberg. “With inflation red-hot, the Fed will be forced to act aggressively, according to Melissa Cohn, a banker at William Raveis Mortgage. ‘You’re dealing with two runaway trains: Real estate prices are going crazy and rates are going crazy at the same time. It does not portend well for the first-time homebuyer,’ Cohn said. ‘If you buy, then you’re probably going to have to compromise, either by buying a smaller house or by stepping out of the market and waiting for things to calm down.’”
From Tech Crunch. “Utah-based proptech Homie has laid off one-third of its staff, according to reports.Hunter Richardson, former director of talent advisory and acquisition at Homie, posted on LinkedIn that he was among the one-third affected but declined to comment on his being let go. The company said: ‘Today, we made the difficult decision to reduce the size of our company based on the impacts of the changing real estate market.’”
“The company is another example of how hard the real estate tech startup community has been hit by the recent changes in the industry landscape. When interest rates were at historic lows, business was booming and there was hiring left and right. But now that interest rates are higher and refinancings have slowed down and inventory shortages abound, companies in the space are clearly taking a hit.”
From NBC Dallas. “Foreclosure rates are creeping back up to the highest levels since March 2020, according to ATTOM. The upswing in people having issues making mortgage payments is clear, whatever those reasons may be. ‘For whatever reason, they’ve stopped making their payments. So it’s typically a loss of a job. Or in America, I think the highest percentage of bankruptcy is caused by medical bills,’ said Mark Johnson, CEO of JPAR Brokerage of Texas.”
From Bloomberg. “Director Giorgio Angelini shines a light on how the U.S. housing market has been manipulated. ‘At architecture school at Rice University I was just consumed by all these conversations about the housing bubble and design, and about the commodification of square footage. In my last year of grad school, I applied for a grant to photograph this abandoned McMansion development in the Inland Empire [in Southern California]. The Inland Empire — I don’t mean this pejoratively — is just miles and miles of central sprawl. Sitting alongside these half-built McMansions, there were these burned down orange groves, and so you saw this kind of commodity shift frozen in time. You could see one commodity, oranges, kind of being transformed into another one, which was air conditioned square footage.’”
“What are the biggest misconceptions that Americans have about the housing economy? ‘I think sometimes we convince ourselves that the housing economy is some sort of divinely ordained system that was bestowed upon us by some more intelligent creator, but it really is just a series of bad decisions that are constantly being patched up and made even worse. The system we have today really was born out of a desperate need for affordable housing coming out of World War II. And basically every decision made after WWII has just been an escalation of poorly, poorly imagined solutions back in the ‘40s and ‘50s.’”