The U.S. Housing Market Is Now Moving In A Good Direction and here’s why.
Investors have been out there buying for awhile and all cash buyers are now at record levels-35 %. Why are they buying? They can make money by renting these homes or fixing and flipping. The rental market is very strong and prices are rising in many areas. There is a shortage of apartments in many areas and also all those people that lost their home need somewhere to live.
Many investors are seeing returns on these investments of 8 to 10 percent plus real estate is a hedge against inflation.
In 28 out of 54 major markets, it’s now cheaper to pay a mortgage and other major costs than to rent the same house.
We could be facing a shortage in supply down the road. Right now we have a historic drop in new construction and a steep decline in prices, of about 30 % nationwide since 2006, and as much as 55% in the hardest-hit markets.
Affordability will gradually bring more Americans back to buying homes. And the return of the homeowner will start raising prices. Affordability is at record low levels. Housing affordability index is just 13 percent of gross income – its lowest level in 41 years. Homeowners now pay just 9.8% of their income in after-tax mortgage, tax, and insurance payments. That’s down from 17.2% at the bubble’s peak in 2007.
All the foreclosures are being pushed through the system now. We also have had the highest share of distressed sales in almost two years at 40 percent. In the short-term this will push prices down some but once that inventory is gone, we may have a demand that the supply can not handle and prices would rise.
A home can be purchased quickly. But how long do you think it takes to build homes? The builder/developer must first acquire the land, then entitle the property, lastly they must building it. This process could take years. Our supply of homes could be absorbed by then.
Prices of buildable land in some areas are on the rise as home builders and investors are out there buying.
Even Robert Shiller and Karl Case can’t agree. “The lack of new home building is a huge help that a lot of people are ignoring,” says Case.
In the 41 cities Metrostudy covers, a total of 78,000 houses are now either vacant and for sale, or under construction. That’s less than one-fourth of the 343,000 units in those two categories at the peak of the frenzy in mid-2006, and well below the level of a decade ago.
In the non distressed cities, the existing home inventory is lower, closer to seven months on average. So a modest increase in demand will translate into strong gains in both prices and new construction. That should happen quickly, because most of those markets – including Silicon Valley, Northern Virginia, and Texas – are now showing good job growth.
In 2 areas I follow every week I noticed something I had never seen before, every home that went into escrow in April in Beverly Hills 90210 and Brentwood 90049 was a home that did not reduce their asking price. Also, most of these homes were on the market under 14 days. This shows Sellers being more realistic but also BUYER CONFIDENCE TO BUY NOW.
The trend in Los Angeles, San Diego and San Francisco has been positive for sometime and that’s what is important- the overall trend in local areas.