Tag Archives: housing

Housing blunder in the Western world | Cross River Real Estate

The horrible housing blunder
The West’s biggest economic policy mistake

Its obsession with home ownership undermines growth, fairness and public faith in capitalism

Jan 2020

Economies can suffer both sudden crashes and chronic diseases. Housing markets in the rich world have caused both types of problem. A trillion dollars of dud mortgages blew up the financial system in 2007-08. But just as pernicious is the creeping dysfunction that housing has created over decades: vibrant cities without space to grow; ageing homeowners sitting in half-empty homes who are keen to protect their view; and a generation of young people who cannot easily afford to rent or buy and think capitalism has let them down. As our special report this week explains, much of the blame lies with warped housing policies that date back to the second world war and which are intertwined with an infatuation with home ownership. They have caused one of the rich world’s most serious and longest-running economic failures. A fresh architecture is urgently needed.

At the root of that failure is a lack of building, especially near the thriving cities in which jobs are plentiful. From Sydney to Sydenham, fiddly regulations protect an elite of existing homeowners and prevent developers from building the skyscrapers and flats that the modern economy demands. The resulting high rents and house prices make it hard for workers to move to where the most productive jobs are, and have slowed growth. Overall housing costs in America absorb 11% of gdp, up from 8% in the 1970s. If just three big cities—New York, San Francisco and San Jose—relaxed planning rules, America’s gdp could be 4% higher. That is an enormous prize.

As well as being merely inefficient, housing markets are deeply unfair. Over a period of decades, falling interest rates have compounded inadequate supply and led to a surge in prices. In America the frenzy is concentrated in thriving cities; in other rich countries average national prices have soared, especially in English-speaking countries where punting on property is a national sport. The financial crisis did not kill off the trend. In Britain inflation-adjusted house prices are roughly equal to their pre-crisis peak, while real wages are no higher. In Australia, despite recent falls, prices remain 20% higher than in 2008. In Canada they are up by half.

The soaring cost of housing has created gaping inequalities and inflamed both generational and geographical divides. In 1990 a generation of baby-boomers, with a median age of 35, owned a third of America’s real estate by value. In 2019 a similarly sized cohort of millennials, aged 31, owned just 4%. Young people’s view that housing is out of reach—unless you have rich parents—helps explain their drift towards “millennial socialism”. And homeowners of all ages who are trapped in declining places resent the windfall housing gains enjoyed in and around successful cities. In Britain areas with stagnant housing markets were more likely to vote for Brexit in 2016, even after accounting for differences in income and demography.

You might think fear and envy about housing is part of the human condition. In fact, the property pathology has its roots in a shift in public policy in the 1950s towards promoting home ownership. Since then governments have used subsidies, tax breaks and sales of public housing to encourage owner-occupation over renting. Politicians on the right have seen home ownership as a way to win votes by encouraging responsible citizenship. Those on the left see housing as a conduit for redistribution and for nudging poorer households to build wealth, and the construction of houses is important, and the construction and design of houses is important, and using resources as FifthandHazel are great for the interior decoration of these homes.

These arguments are overstated. It is hard to show whether property ownership makes better citizens. If you ignore leverage, it is usually better to own shares than to own homes. And the cult of owner-occupation has huge costs. Those who own homes often become nimbys who resist development in an effort to protect their investments. Data-crunching by The Economist suggests that the number of new houses constructed per person in the rich world has fallen by half since the 1960s. Because supply is constrained and the system is skewed towards ownership, most people feel they risk being left behind if they rent. As a result politicians focus on subsidising marginal buyers, as Britain has done in recent years. That channels cash to the middle classes and further boosts prices. And it fuels the build-up of mortgage debt that makes crises more likely.

It does not have to be this way. Not everywhere is afflicted with every part of the housing curse. Tokyo has no property shortage; between 2013 and 2017 it put up 728,000 dwellings—more than England did—without destroying quality of life. The number of rough sleepers has dropped by 80% in the past 20 years. Switzerland gives local governments fiscal incentives to allow housing development—one reason why there is almost twice as much home-building per person as in America. New Zealand recoups some of homeowners’ windfall gains through land and property taxes based on valuations that are frequently updated.

Most important, in a few places the rate of home ownership is low and no one bats an eyelid. It is just 50% in Germany, which has a rental sector that encourages long-term tenancies and provides clear and enforceable rights for renters. With ample supply and few tax breaks or subsidies for owner-occupiers, home ownership is far less alluring and the political clout of nimbys is muted. Despite strong recent growth in some cities, Germany’s real house prices are, on average, no higher than they were in 1980.

A home run

Is it possible to escape the home-ownership fetish? Few governments today can ignore the anger over housing shortages and intergenerational unfairness. Some have responded with bad ideas like rent controls or even more mortgage subsidies. Yet there has been some progress. America has capped its tax break for mortgage-interest payments. Britain has banned murky upfront fees from rental contracts and curbed risky mortgage lending. A fledgling yimby—“yes in my backyard”—movement has sprung up in many successful cities to promote construction. Those, like this newspaper, who want popular support for free markets to endure should hope that such movements succeed. Far from shoring up capitalism, housing policies have made the system unsafe, inefficient and unfair. Time to tear down this rotten edifice and build a new housing market that works.

read more…

https://www.economist.com/leaders/2020/01/16/the-wests-biggest-economic-policy-mistake?cid1=cust/ednew/n/bl/n/2020/01/16n/owned/n/n/nwl/n/n/na/381012/n

Lower rates will fuel housing in 2020 | South Salem Real Estate

Housing could fuel economic growth for the first part of 2020, a new economic outlook from Fannie Mae shows.

Fannie Mae upgraded its economic outlook to a gross domestic product growth of 1.9% in 2020, according to its latest commentary from the Economic and Strategic Research Group. This is due to expected easing trade tensions, stimulative fiscal policies and continued consumer spending

This year, the third quarter added to GDP growth for the first time in more than 1.5 years, Fannie Mae’s data shows. And this growth is expected to continue into the second quarter of 2020.

Fannie Mae explained housing should also continue to function as a positive contributor to growth in the near term, as indicated by both new and existing single-family home sales advancing in the third quarter, as well as pending home sales, permits, and starts. However, persistent supply and affordability constraints continue to hold back household formation, inhibiting housing market activity.

“As we forecasted, housing supported the larger economy in the third quarter, and we expect it to continue to play a productive role through the first half of 2020,” said Doug Duncan, Fannie Mae senior vice president and chief economist. “Positive contributions from single-family housing construction, home improvements, and brokers fees pushed residential fixed investment growth to a robust 5.1% annualized pace this past quarter, and we forecast continued but moderating strength as construction activity and home sales growth continue at a slower pace.”

“With mortgage rates normalizing, we expect a decline in refinance activity in 2020, with the refinance share of originations dropping from a projected 37% in 2019 to 31%,” Duncan said. “Of course, the housing market as a whole remains constrained by the persistent supply and affordability issues, which is particularly unfortunate given the current strength of consumer demand for reasonably priced homes.”

Housing is contributing to growth, but consumer spending is expected to remain the primary driver of economic growth for the forecast horizon, and business fixed investment will benefit as additional corporate expenditures work to meet consumer demand.

“Even as global uncertainties mount, we continue to expect the domestic economy to produce solid, if not spectacular, growth,” Duncan said. “A stronger-than-expected third quarter contributed to the downward revision to our fourth-quarter forecast, as some of the previously expected weakness in trade and inventories appears likely to have been pushed back into this quarter. Still, consumer spending is likely to continue driving the expansion forward, and with the passage of the budget act and a reprieve in trade tensions we’ve revised upward our forecast for full-year 2020 growth.”

But risks still remain on the horizon. For example, trade talks between the U.S. and China continue to pose negative risks to economic growth. And because of this uncertainty, Fannie Mae predicts we could see one last rate cut from the Federal Reserve in early 2029 before pausing for the rest of the year.

“We also continue to expect the Fed to cut interest rates only one more time in the foreseeable future, in early 2020, as a hedge against the sizeable downside risks and to counteract muted inflation,” Duncan said.

read more…

Fannie Mae: Housing to help fuel economic growth in 2020

Housing’s contribution to GDP rises | Chappaqua Real Estate

After declines for six consecutive quarters, the home building component of gross domestic product (GDP) increased during the third quarter of 2019. This gain was due to the housing rebound that has taken hold since the spring, with the pace of single-family permits rising since April and the rate of single-family starts increasing since May.

The overall housing share of GDP increased to 14.6% during the third quarter, as GDP growth slowed to a 1.9% rate. The home building and remodeling component – residential fixed investment – increased modestly to 3.11% of total GDP and added 0.18 basis points to the headline GDP growth rate.

Housing-related activities contribute to GDP in two basic ways.

The first is through residential fixed investment (RFI). RFI is effectively the measure of the home building, multifamily development, and remodeling contributions to GDP. It includes construction of new single-family and multifamily structures, residential remodeling, production of manufactured homes and brokers’ fees.

For the third quarter of 2019, RFI was 3.1% of the economy, reaching a $594 billion seasonally adjusted annual pace (measured in inflation adjusted 2012 dollars).

The second impact of housing on GDP is the measure of housing services, which includes gross rents (including utilities) paid by renters, and owners’ imputed rent (an estimate of how much it would cost to rent owner-occupied units) and utility payments. The inclusion of owners’ imputed rent is necessary from a national income accounting approach, because without this measure, increases in homeownership would result in declines for GDP.

For the third quarter, housing services was 11.5% of the economy or $2.18 trillion on seasonally adjusted annual basis.

Life after Indian Point | Chappaqua Real Estate

Taken together, housing’s share of GDP was 14.6% for the quarter.

Historically, RFI has averaged roughly 5% of GDP while housing services have averaged between 12% and 13%, for a combined 17% to 18% of GDP. These shares tend to vary over the business cycle.

read more…

http://eyeonhousing.org/2019/10/housing-share-of-gdp-rises-in-3q19/

December usually slowest month for housing market | North Salem Realtor

  • December is usually the slowest month for the housing market, but this season is not so normal. Some unique dynamics may make this December one of the better times to both buy and sell a home.
  • First and foremost, mortgage rates are turning what was a red-hot market into a lukewarm market, and that is motivating buyers more than usual.
  • Rates are now about a full percentage point higher than they were a year ago, hovering now just below 5 percent. They are expected to move higher in 2019, however.
H/O: Winter Housing market Chicago suburb  1
A real estate agent shows a home in a Chicago suburb.
Photo: Larry Collins

December is usually the slowest month for the housing market, but this season is not so normal. Some unique dynamics may make this December one of the better times to both buy and sell a home.

First and foremost, mortgage rates are turning what was a red-hot market into a lukewarm market, and that is motivating buyers more than usual. That’s because home prices ran up so far so fast during the recent historic housing shortage, that higher rates are having an outsized impact.

Real estate agent Lynn Fairfield of Re/Max Suburban held an open house Sunday in suburban Chicago, and rates were front and center in the living room conversations.

“I see more people buying right now because they’re afraid rates will be higher in 2019,” said Fairfield.

The average rate on the 30-year fixed spiked this past fall, after flatlining over the summer. Rates are now about a full percentage point higher than they were a year ago, hovering now just below 5 percent. They are expected to move higher in 2019, however.

Combine that with strong home price appreciation over the past two years, and some buyers, especially first-timers, have now hit an affordability wall. That is why sales of both new and existing homes have been weaker for several months, but that also presents an opportunity for buyers. Prices are finally starting to ease — or, at least, the gains are shrinking.

Prices are usually lower in the winter months, in fact 18 percent lower in the Chicago area on average than at the peak of the market in June, according to Re/Max. So add higher rates to that, and sellers will have to be more flexible this year. The sky is no longer the limit. Not even close.

“The housing market always lets up a little in the fall, when kids are back in school and the home shopping season wraps up for the holidays,” said Aaron Terrazas, senior economist at Zillow. “But this fall and winter are shaping up to be more favorable for those buyers who have struggled to get into the housing market for several years amid red-hot competition.”

Zillow is seeing a sharp increase in the share of properties with price cuts, even in overheated markets like Seattle, Las Vegas and Boston.

H/O: Winter Housing market Chicago suburb 
Real estate agent Lynn Fairfield, with RE/MAX Suburban, shows a home in a Chicago suburb.
Photo: Larry Collins

Of course the number of new listings are the lowest in December, as a new home is not traditionally a holiday gift, and anyone with children doesn’t want to move during the school year.

“Though the holiday season is not going to give you plenty of options to choose from, there are reasons why you should NOT put your home search on hold for the holidays,” said Danielle Hale, chief economist at Realtor.com. “Chief among them, December is the best time of year if you want to avoid competitions.”

Views per property are 21 percent lower in December than they are during the rest of the year, according to Realtor.com.

While supply and competition may both be at their low point, motivation is at its high point, for both buyers and sellers.

“That buyer has to move. Either they have a lease expiring Jan. 1, or they have saved enough money for their down payment, so they are motivated to buy,” said Fairfield. “A lot of people are more motivated price-wise from the selling standpoint too, because they too want to get to their next location.”

read more…

https://www.cnbc.com/2018/12/03/december-usually-slow-for-home-sales-but-that-might-change-this-year.html

“Housing sector a disaster” | Mt Kisco Real Estate

The U.S. housing sector is falling apart, and the Federal Reserve is all but ignoring the damage as it prepares for what many expect to be three rate hikes in 2019, CNBC’s Jim Cramer warned Friday.

“The housing sector’s a disaster,” Cramer said on “Closing Bell.” “We’re building about half the houses we did when the country had half the people, and we still can’t sell them. KB Home does a huge amount of housing in California. They can’t sell them. ”

U.S. homebuilding fell more drastically than expected in September, according to the Commerce Department. Housing starts dropped 5.3 percent after rising slightly in August. Existing home sales also dropped the most in over two years as rising material costs crimped supply and rising mortgage rates deterred prospective buyers.

The Fed’s interest rate hikes have contributed to the surge in mortgage rates, which in October jumped above 5 percent. The central bank has said it plans to hike rates in December of this year — a move Cramer supports — and three more times in 2019.

“I favor a rate hike, and then I’d like to wait. In what world is that irrational?” Cramer said Friday. “Affordability’s gotten out of control. [The Fed members] know that. We have affordability data. But they don’t want to focus on the things they should.”

That lack of rigor is leading the Fed to make decisions that are “not safe” and “irresponsible” when it comes to the U.S. economy, the “Mad Money” host said, echoing his earlier point that the Fed needs to do more homework.

“We shouldn’t look upon them as if they have great information. They had such bad information in 2007,” Cramer said. “They have this judgment that the economy’s great. It’s an irresponsible, non-empirical judgment. It’s anecdotal. It has not a lot of homework. And I favor rigor. I think rigor is what matters, sophistication and rigor. And they’re unsophisticated, and they’re non-rigorous, and I would rip up their homework and tell them to go home.”

read more…

https://www.cnbc.com/2018/11/16/cramer-housing-sector-is-a-disaster-fed-is-ignoring-the-data.html