The big story of 2012 was the incredible decline in available housing inventory for sale. This trend appears to be continuing and is adding a tremendous amount of pressure on the current market especially for those looking to buy. Ironically, the increase of real estate values will also revive many home owners from their zombie slumber in negative equity. Over 1.4 million borrowers came out of a negative equity position in 2012. This is a large number given the limited amount of inventory on the market. How many of these people will be looking to sell as their homes turn into positive territory? The quest for inventory might come from a very familiar place with regular people selling their homes for a variety of reasons including moving to another place, cashing in, marriage, divorce, new job, or any other factors that cause people to sell. In other words, a more normal housing market. Will these former negative equity borrowers push inventory levels up?
Perceptions are guided by recent events. History is easily forgotten and our hardwiring makes us prone to trend following. The housing boom that started in 2012 is still the story today. In 2012 I noticed on various forums that new housing related shows were on the uptick. The headlines were largely positive. It is hard to see how the pace of appreciation can continue without a similar underlying real growth in household wages or a continued flood of investor money. Yet in markets were investors dominate, local families are outbid by global money and big funds. What makes up a healthy housing market? Today we’ll examine seven charts and try to put this current housing market into a longer-term perspective.
The housing market is continuing the trend from 2012 with home sales picking up and inventory disappearing into the sunset. Today I wanted to dig deep into a high in demand area in Orange County, Irvine. What is useful about this market is that it has a little bit of everything including flippers, foreign money buyers, big money investors, and families looking to buy. What is incredible is how deep inventory has declined in this and many other similar markets. A big city like Irvine also gives us solid Census data to dig into to examine incomes and housing demographics. What is interesting is that the low inventory is adding a tremendous amount of pressure creating a sense that we are back to the early 2000s. Looking at sales figures shows another interesting side to the current housing market.
For vast areas of the United States home prices are close to inflation adjusted trend lines. With incredibly low interest rates courtesy of the Fed ballooning their balance sheet up to nearly $3 trillion, the government and the Fed are basically the main player in eating up mortgage backed securities. Over 95 percent of mortgage origination come from the government and are issued by the large too big to fail banks. This has now been the case since the housing bubble peaked and burst in 2007. When we look at prices nationwide you do see prices trending with longer-term inflation trend lines. However, with that said, we realize also that real estate is local and you can see this through manic like behavior in niche markets. One clear example I am seeing is with investors overbidding for investment properties. Another is with flipping in certain markets. By definition flipping is only profitable if you can sell in a timeframe where all expenses and lost time are made up by the profit you make on the sale. We’ll discuss some of this later in the article from an investor perspective but let us first look at home prices across the US.
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