The US housing market is massive. You would expect this from a nation of 315,000,000+ people spanning over 50 states. So it is important to understand the various dynamics occurring over many states. In regards to single family home buyers, in most of the United States home prices are very reasonable. This is hard for some in the coastal regions to digest or even comprehend. When you look at certain markets in high priced areas, many people have a hard time penciling out the financial details. Yet with such a large number of investors purchasing with cash, a new market has been created. But if we are to take the US market and make a wide-eyed observation, we will find some good, bad, and ugly aspects of the current housing market. Whereas in 2008 through 2010, the market was dominated by the bad, ugly, and grotesque. What can we say about the current US housing market?
The spring season is now in full bloom and the real estate market continues to have a wickedly low amount of inventory for sale. According to the California Association of Realtors, annual home sales are now down about 6 percent while the median home price is up 24 percent. Inventory is still at or near a record low. What is interesting is that the number of real estate agents saying now is a good time to buy has decline while the number of agents saying now is a good time to sell, has spiked dramatically. While prices have soared in the last year sales have not. As we just mentioned, the annual sales rate for California actually fell year-over-year. Buying power brought on by low interest rates has caused two major shifts in the market; a big bounce in purchasing power in spite of stagnant income growth and a low interest rate environment causing big money to choose real estate as the investment vehicle of choice. Is this record low inventory simply a part of the new housing market?
One of the more challenging pieces of data to come by is financial characteristics of those who own their home. Most data aggregates renters and homeowners together and in California, where nearly half of families rent, this data does not give a good perspective as to what financial characteristics drive homeownership. The homeownership rate in the state continues to fall as outside money pushes out local families with stagnant incomes. Call it global gentrification. In the depths of Census data I was actually able to dig deep and find data on actual homeowners which is very telling and helpful in getting a glimpse behind current owners. It might also help to put things into perspective for those planning on buying in the current market. I was able to get data on a desirable location, Irvine where a large amount of investors, foreign money, and family purchases are taking place. What is the data behind homeownership in these markets?
It is astounding how people brush off an overall weak economy and suddenly justify all cash investors as somehow a normal part of the real estate market. Once again, we are in uncharted territory. The amount of all cash buyers is off the charts. Not only are these Wall Street investors but also foreign money flowing into targeted markets. It is one thing to push it off but it is another thing to actually look at historical data. It is amazing how quickly people drink from the fountain of cultural amnesia and suddenly forget the environment that led us into this mess. This is a fact however; never have we had so much of the real estate market dominated by all cash purchases. But what is a normal amount? Let us go ahead and look at historical data here to see what we can find.
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