A weekend topic starting with The Atlantic. “Timing isn’t the only external factor determining whether homeownership ‘works’ for Americans. Paying off a mortgage is a form of ‘forced savings,’ in which people save by paying for shelter rather than consciously putting money aside. According to a report by an economist at the National Association of Realtors looking at the housing market from 2011 to 2021, however, price appreciation accounts for roughly 86 percent of the wealth associated with owning a home. That means almost all of the gains come not from paying down a mortgage (money that you literally put into the home) but from rising price tags outside of any individual homeowner’s control.”
“At the core of American housing policy is a secret hiding in plain sight: Homeownership works for some because it cannot work for all. If we want to make housing affordable for everyone, then it needs to be cheap and widely available. And if we want that housing to act as a wealth-building vehicle, home values have to increase significantly over time. How do we ensure that housing is both appreciating in value for homeowners but cheap enough for all would-be homeowners to buy in? We can’t.”
From Fortune. “Nationally, home prices rose for 124 consecutive months between February 2012 and June 2022. Now we’re in reverse. Cities like Austin and Phoenix have seen their respective inventory levels soar 160.7% and 176%. When it comes to inventory, the speed of change matters. A sudden inventory spike often marks a housing market that has moved into a full-blown correction. Of course, we now know that’s exactly what happened this summer in markets like Austin and Phoenix, where home values are already down 10.4% and 8.1% from their respective 2022 peaks.”
“‘When demand abruptly falls off a cliff, the absolute level of supply isn’t as relevant. This is where watching the rate of change on both supply and demand separately is critical,’ Rick Palacios Jr., director of research at John Burns Real Estate Consulting, tells Fortune.’Investors accounted for the highest percentage of buyers ever this cycle in many markets. The lion’s share of those buyers are now on the sidelines, with some needing to sell given overleveraged and really were just taking a flyer on home price appreciation continuing to rip higher. Those days are now over, and these sellers don’t exhibit same emotional/behavioral qualities associated with traditional owner-occupiers, which historically keeps home prices somewhat sticky on the downside. Builders also account for roughly twice their historical market share norm when it comes to for sale housing supply in the system (denominator there is resale supply plus new home supply under construction and finished inventory). Builders meet the market on price whereas traditional owners aren’t as quick to drop prices.’”
“‘It’s very likely we see supply rise come spring, which is typical. New home supply in particular should rise, as we know finished homes (completions) are now increasing and builders have a lot more unsold homes still under construction working through the system,’ Palacios tells Fortune. ‘This will be the first spring selling season since 2008 where mortgage rates are ~6%, so we’re expecting a bumpy ride in general for sellers, especially if the economy is officially in a recession.’”
From Money Wise. “It’s a story few could have foreseen: After home flipping reached record heights as 2022 kicked off, the bubble seems to have burst. ‘Anybody that’s flipping right now needs to be looking closely at pricing of property: Price it to sell. Today is not the time to get greedy,’ Noah Brocious, president of Capital Fund I, a hard-money lender that does business in Phoenix, Colorado and Texas, told Bloomberg in October.”
Summit Daily in Colorado. “After a multi-year run in the local real estate market that was unlike anything anyone had ever experienced, a slight sense of reality has returned to both prices and sales activity. ‘We want to reassure sellers that they did not miss the boat, even though the market certainly peaked out by May,’ says Ned Walley of Nelson Walley Real Estate. ‘We are sort of in a hangover phase, but this comes after the craziest market ever. Not that we shouldn’t have seen this downturn coming, especially with inflation and understanding the way that the Fed was going to manage it by hiking interest rates. And interest rates weren’t the primary cause of our market adjustment, it was the stock market.’”
“Sellers are also cautioned to pay much closer attention to disclosures about any pre-existing issues with a home, as there have been more cases of buyers’ remorse – and even legal action – from unresolved problems such as water leaks. ‘I’ve been in this business since 2005 and this was the first year I saw three different deals where buyers said things weren’t disclosed, and demanded some action or compensation from the seller,’ says Debbie Nelson. ‘I had to contact the Colorado Association of Realtors legal team for advice. They said their calls have increased significantly as buyers have complained that they paid too much or jumped into the market too quickly, and didn’t even have time to think about any potential problems.’”
From Magic Valley in Idaho. “The red-hot housing market couldn’t last forever. Recent reports show a rising inventory of homes and dipping prices. Interest rate hikes and other economic uncertainties aren’t helping, either. This follows a trend that saw Twin Falls housing prices increase nearly 30% between 2020 and 2021 in a frantic bidding war. Permit numbers for single-family dwellings in Twin Falls were stagnant in 2022, with just one permit being issued for each of October and November. The city is on track to have the lowest number of single-family dwelling permits issued since 2011, when 93 permits were pulled. In 2021, the number was 368.”
“And prices for existing homes in Twin Falls County have dropped since peaking in April, according to the Intermountain Multiple Listing Service. The median price for existing homes sold in the county in November was $300,000, according to the listing service, down 7% from the $322,500 in November 2021.”
Hawaii News Now. “When Connie Irwin received her real property tax assessments for her Haleiwa home last week, she was shocked. The retiree ― who lives on a fixed income ― said the property tax assessment for her home went from $2,585,000 last year to $3,337,000. Similar increases next year could force her to sell, she said. Irwin is one of thousands of Oahu residents who received their real property tax assessments from the city last week. Many said they are seeing 20 to 30% increases in their assessments. ‘You know, I was mad. I was angry that this is just an arbitrary number,’ said Irwin. ‘It went up almost $800,000 in one year. We’ll probably squeeze by this year … but if it goes up next year, and the next year, we’re out.’”
From The Street. “Higher prices and soaring inflation is leading to major regret among homebuyers. It’s also leading to property and home neglect for even long-term homeowners. According to the 2022 Hippo Housepower Report, which surveyed over 1,000 U.S. homeowners, 2022 was a ‘year of growing economic and financial instability that took a toll on homeowners and their well-being.’ ‘We don’t see any real relief in 2023,’ said Pacwest Funding CEO Joshua Massieh. ‘There might be scenarios where agents and lenders will slap lipstick on the current climate and say, ‘Hey, look, the seller is willing to pay for your closing costs, but that still won’t really make a dent anywhere in the markets.’”
The Oklahoman. “Realtors have more time on their hands lately for marketing, what with the major slowdown in home sales, and it looks like some of them have gotten rusty on how to use the word ‘Realtor.’ I’m seeing ‘realtor’ used a lot even by Realtors. It should be capitalized: Realtor. It’s a trademark for a member of the National Association of Realtors. The actual trademark is REALTOR®, with the symbol for registered trademark. It’s like ‘Rolaids,’ the antacid, which is a brand, and a proper noun, and should always be capitalized.”
“Also, ‘Realtor’ is not interchangeable with ‘real estate agent,’ which means someone licensed by a state to sell real estate for a living, but who may or may not be a member of the National Association of Realtors. Some journalists need a refresher, too. I saw ‘realtor’ — not capitalized — in an AP story the other day. This is not to pick nits. Misuse of a trademark in advertising and marketing can cost you. The National Association of Realtors has fought to protect its trademark for years, lest it go the way of ‘Kleenex’ for ’tissue’ and ‘Xerox” for ‘copy.’ They have a whole manual on it.”
“‘Realtor’ is a trademark, not a plain old word. I get that. So, no matter where it falls in a sentence, “Realtor” gets to be capitalized. It does not command so much obeisance as to get all capital letters, like this: ‘REALTOR,’ although they try to sneak that into print all the time, along with the perky little registered trademark symbol, ®.”
The Globe and Mail in Canada. “After 20 years in tech sales, Duncan has been laid off and is turning to consulting. He figures he can bill about $125,000 a year on average. His wife Lorna, who is self-employed, earns more than $100,000 a year. Duncan is age 53, Lorna is 43. They have two children, ages 9 and 13. Duncan hopes to retire from work completely in about three years, when he will be 56. Lorna wants to retire by 2030, when she will be 51. In the coming year, they plan to complete a $50,000 home renovation, which will be funded by their cash savings, the planner says. They also plan a large vacation each yearith a cost of $10,000.”
“In addition to their Toronto home, Duncan and Lorna own two rental properties worth a total of $1.25-million with about $795,000 of mortgages on them. The properties are cash flow negative, which means they are costing more than they are bringing in, notes Matthew Ardrey, a financial planner. This causes concerns because the mortgages renew in 2024 and 2026, at which time the expected interest rate will be much higher than the 2.66 per cent they are paying now.”
“In retirement they plan to spend $100,000 a year, plus an additional $6,500 wintering in the United States with Lorna’s family. Their current lifestyle spending is about $105,000 a year. They plan to give each of their two children $200,000 toward a down payment for a house in 2033 and 2037. ‘One of the ways we stress test a scenario is by using a computer program known as a Monte Carlo simulation,’ the planner says. This introduces randomness to a number of factors, including returns. Under the Monte Carlo simulation, Duncan and Lorna’s probability of success is only 37 per cent.”
“‘To heighten the chances of success, they could always spend less, save more, work longer or the one everyone wants to avoid, die early,’ Mr. Ardrey says. If they want to avoid these choices, a better option is to improve their investment strategy. This would include liquidating their rental properties in retirement in favour of other investments that produce more income, especially given the expected higher cost of borrowing, he says.”
Crikey in Australia. “House prices are going one way just as every other price in the economy is going the other. This means that if you inflation-adjust house prices, they look even cheaper. House prices are down only about 5-10% in cash terms, but when inflation-adjusted, they are down far more — back to 2017 levels. Inflation-adjusted house prices rose extremely sharply during the pandemic, pulling them out of the lull they fell into during the 2017-18 price correction. That sharp rise is being reversed again now, and if the forecasts of high inflation and falling high prices are correct, it has a way to go.”
“When we inflation-adjust house prices, what we’re really finding is the ratio of the price of housing to everything else in the economy. In recent years, housing has been getting more expensive than everything else. Relative prices are always changing. Chicken, clothing and TVs were once expensive. The number of chickens you had to forgo to get a house was once ludicrously low. You could buy a house for the price of 8000 chickens. Now it’s more than 60,000, as the next chart shows.”
“Same with shoes. A median house in a capital city once cost 900 pairs of women’s shoes. Now it’s 8000. A house once cost as much as four cars, whereas now it’s 20 cars, etc, etc. But the number of steaks you forgo when you buy a house hasn’t risen nearly so much, because beef has, like property, been soaring in price. In steak terms, housing is cheaper than it was in 2010 and has merely doubled since the 1970s. I’d hypothesise that mortgage holders are roasting a lot more chicken than beef these days, compared with the 1970s.”
“The big reason inflation causes house prices to fall is that the central bank reacts. First inflation rises, then the bank hikes interest rates, then house prices fall. It’s notable that if you timeshift the correlation even further, it disappears — beyond a year after a quarter of high inflation, there’s no correlation with falling house prices. This could suggest that Australian house prices will stop falling once inflation is back under control, stabilising and then growing again. After all, while chickens grow in battery cages and land is in fixed supply, the number of chickens you have to forgo to buy a house is unlikely to keep plummeting forever!”
From Stuff New Zealand. “Invercargill has been crowned New Zealand’s Shit Town of the Year for the first time after an online poll found it did ‘absolutely nothing notable’ in 2022. The Southland town was awarded the unprestigious award after tough competition from two-time champions Huntly, which won back-to-back titles in 2019 and 2020. Announcing the winner, the Shit Towns of New Zealand organisers pull no punches in their assessment of Invercargill, a town of about 57,000, and the cloudiest in the country.”
“‘Congratulations to Invercargill for being voted New Zealand’s Shit Town of the Year for 2022! ‘The arsehole of the world’ did absolutely nothing notable this year to earn the brown crown, which seems strangely appropriate. ‘This is Inbredcargill’s first Shit Town of the Year award following a double for Huntly (2019-20) and victories for Hāwera (2018) and Gore (2017),’ the organisers said.”
“Unsurprisingly, news of the award did not go down too well with Invercargill natives. Mayor Nobby Clark dismissed the poll and said those voting for Invercargill were ‘just trolls.’ He said the town had possibly the cheapest housing in any provincial city in the country. ‘So we’ve got the better quality of life that goes with that, so you’re not spending half your earnings paying off a mortgage.’”