One of the major story lines over the last year is how well the residential real estate market performed, with home prices are skyrocketing this year.
According to data gathered by money.co.uk (no relation to money.com, but we should probably be friends or something), the country with the highest property price increase from 2010 to 2020 was Israel, where there was a staggering 346% rise in costs per square meter.
Switzerland and Germany come next, with increases of 166% and 162%, followed by the United States at 153%. Hungary, Slovakia, France, Portugal, Japan and the United Kingdom round out the rest of the top 10, all with average home price increases of at least 75%.
Today’s market problems – a shortage of affordable housing, historically tight inventory of homes for sale and rising prices – weren’t caused by the latest pandemic-caused economic slowdown. It goes back to the Great Recession.
Experts say the U.S. housing market was already being roiled by forces fueling the current housing-price explosion even before the pandemic.
Matthew Murphy at New York University’s Furman Center for Real Estate & Urban Policy said supply shortages were evident heading into the pandemic, adding that “the context here to this current housing moment is that we were still recovering from the 2008-2009 foreclosure crisis.”
Meanwhile, the National Association of Realtors® has been pointing to an “underbuilding gap” of between 5.5 and 6.8 million housing units since 2001. (more…)
Manhattan real estate prices reached an all-time high in the second quarter, as buyers returned to the city and boosted demand for the largest, most expensive apartments, according to new reports.
The median resale price for Manhattan apartments hit $999,000 in the second quarter — the highest on record, according to a report from Douglas Elliman and Miller Samuel. Average sale prices rose 12% in the quarter, topping $1.9 million.
The price jumps and shrinking inventory suggest the Manhattan real estate rebound continues to gain momentum, as more families look to trade up to larger apartments and buyers look to take advantage of lower prices and low mortgage rates.
“It’s a sign of the frenzy and intensity of the market,” said Jonathan Miller, CEO of real estate appraisal firm Miller Samuel. “It’s rebounding much faster than most participants expected.” (more…)
Housing inventory for the 34 cities and towns of Essex County in pictures:
Single Family Homes
Condos
Mortgage rates
After moving up for several weeks the 30-year Fixed rate Mortgage dropped blow 3% again. Note how cheap 15-year mortgages are for those who can afford the extra payment.
Comment (more…)
The soaring housing market is prompting more “bubble” fears in some corners, but economists say the housing market isn’t getting overinflated: it’s just too much demand and too little supply.
“We have strong conviction that we are not experiencing a bubble in U.S. housing,” Vishwanath Tirupattur, a Morgan Stanley strategist, wrote in a note to clients this week.
Lawrence Yun, chief economist of the National Association of Realtors®, agrees. He told Axios last month: “This is not a bubble. It is simply lack of supply.”
Morgan Stanley points out that this isn’t 2006. (more…)
The coronavirus pandemic raised the temperature considerably on the nation’s housing market. The past year has been marked by soaring prices, logic-defying offers over asking price, and steep competition as sellers have been hesitant to put their homes up for sale.
But the heart-pumping, bank account–depleting housing market frenzy could die down—at least a little—in the coming months as more sellers list their properties and inventory slowly increases. About 10% of current homeowners plan to put their homes on the market this year—and more than half are more affordably priced, according to an exclusive survey conducted by realtor.com®. An additional 16% expect to list their properties within the next two to three years.
Typically, only about 8% of homeowners put their homes up for sale a year. This is about a 25% anticipated increase, which translates into about 1.5 million more homes. The increase may be due to folks holding off on selling their homes during the worst of the coronavirus pandemic.
“There is a brighter light at the end of the tunnel for many weary buyers,” says Realtor.com Senior Economist George Ratiu.“In a market that right now only has close to half a million listings, a big boost in inventory can mean more choices for buyers and potentially a slowdown in price growth,” says Ratiu. He was quick to add that prices won’t drop, but the double-digit growth may taper off. “It’s signaling a return to normal for the economy and the housing market.”
Read the full article: Housing Market frenzy could cool for this reason (more…)
The U.S. housing market needs nearly 4 million single-family homes to meet the nation’s demand, according to a new analysis from Freddie Mac. The 3.8 million shortfall marks a 52% increase in the housing shortage since 2018.
“This is what you get when you underbuild for 10 years,” says Sam Khater, Freddie Mac’s chief economist. “We should have almost four million more housing units if we had kept up with demand the last few years.”
Lawrence Yun, chief economist of the National Association of REALTORS®, has been among real estate economists leading the calls over the last few years for greater inventory and more homebuilding to meet demand. “We need to build more homes,” Yun told NPR, adding that since the housing crisis more than a decade ago, homebuilders have been building too few homes.
The housing shortage mixed with strong buyer demand since the pandemic is prompting home prices to rise rapidly. The median existing-home price for all housing types in February was $313,000, up 15.8% compared to a year earlier, according to the National Association of REALTORS®.
The housing market has been white hot for the past year, thanks to the stay at home and work from anywhere culture of the coronavirus pandemic.
But there is increasing concern among consumers that housing is experiencing a price bubble – and that the bubble may be ready to burst.
Google reported last week that the search question “When is the housing market going to crash?” had spiked 2,450% in the past month. “Why is the market so hot?” searches had doubled in just a week. (more…)
As prices continue to soar, Housing Wire asks the question: Are there signs of a bubble?
“The national average of home prices rose 14.4% year-over-year to $336,200 in February – the largest increase since July 2013, according to the latest report from Redfin. As proof of the impact of the country’s low inventory and high cost of building materials, new listings fell 16% – the second-largest decline on record since Redfin’s data began in 2012, only passed by the drop in April 2020.
Mortgage rates have also jumped to north of 3%; at its current pace, the Mortgage Bankers Association is forecasting rates will reach nearly 3.5% by the end of 2021. New home applications are down as well, as builders are still struggling with smaller-than-normal crews and expensive materials that are hard to procure. And even with March well underway, mortgage applications are still in decline.”
Redfin’s chief economist makes the profound comment that : “It seems like the only move-up buyers who are confident enough to list their homes are those who are relocating to a more affordable area where they’ll have an edge on the local competition.”
I can confirm that as I was talking just yesterday to an agent whose client with a $2 million house won’t list it because “she cannot find anything to buy.”
But to come back to the question in this article: are we in a bubble? (more…)
As I read this New York Times article: Where have all the houses gone? my mind went to Yogi Berra’s line of “it’s deja vu all over again” as I checked my files and discovered that this will be my 5th article with this title – and the first was written in 2013.
Let’s look at the what and the why.
First, the what. This chart shows that inventory has plummeted across the country:
If $240 million for a London megamansion ( What can you buy for $240 million in London?) ” is not your thing (and, frankly, it’s a bit ostentatious for my taste), then maybe a private island escape is more your style.
In Private Islands less than $400,000 Realotr.com has identified 9 islands that fit the bill.
As always in real estate, it comes down to personal preferences. These are my top 3 – what about you?
Andrew Oliver
Market Analyst | Team Harborside | teamharborside.com
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
“If you’re interested in Marblehead, you have to visit the blog of Mr. Andrew Oliver, author and curator of OliverReports.com. He’s assembled the most comprehensive analysis of Essex County we know of with market data and trends going back decades. It’s a great starting point for those looking in the towns of Marblehead, Salem, Beverly, Lynn and Swampscott.”
This spectacular Speedster is set to be auctioned in a special one-week, online-only auction to benefit United Way Worldwide’s COVID-19 Community Response and Recovery Fund. The auction’s consigner is none other than Porsche Cars North America, supported by RM Sotheby’s
Built in a run of 1,948 to reflect the year that the first Porsche 356 “No. 1” roadster was registered in Carinthia, Austria, this 2019 Porsche 911 Speedster “Heritage Design” is the last 991-series 911 chassis ever built, and it represents seven decades of continuous refinement and dedication on the part of Porsche’s engineers.
Not simply an auction for a unique Speedster, Porsche has included several one-of-a-kind accessories to increase interest in the sale. The winning bidder will also be invited behind-the-scenes at the Porsche AG development facilities in Weissach, and have an opportunity to spend time lapping the test track outside the Development Center
Read the full details by clicking Auction
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Regular readers of this column are aware of the link between the 10-year Treasury (10T) and the 30-year Fixed rate Mortgage(FRM). Over the last several years the spread – the difference between FRM and the yield on 10T has averaged around 1.75% (see table below). So with the 10T yielding 1.15% the FRM should be say 2.9%. Right?
Wrong. Today’s Freddie Mac weekly survey, taken on Monday-Wednesday this week, showed an average rate of 3.65%, up from 3.36% last week and the all-time low of 3.29% recorded two weeks ago.
Why is that? The simple answer is Supply and Demand, a basic economic equation I have been applying to the housing market in recent years. While simple, this is a fundamental of understanding markets – whether for housing, mortgage rates – or toilet paper.
In recent years there have been more buyers – Demand – than sellers – Supply- in the housing market, and this has led to bidding wars and rising prices. In my Recession and Recovery piece I wrote that the imbalance between Sellers and Buyers was quite likely to change in the coming weeks, as some buyers hold off and more sellers come forward.
My hope is that this will lead to a more balanced market when conditions stabilise.
Coming back to mortgage rates, in my Mortgage rates Stabilise post last Saturday I wrote: “Lenders are overwhelmed by refinancing requests and are keeping rates up to slow demand.”
In other words, Demand is exceeding Supply and prices are rising.
I under-estimated the degree to which the quoted mortgage rate would rise in the short-term. This was Freddie Mac’s comment today: “Mortgage rates rose again this week as lenders increased prices to help manage skyrocketing refinance demand. This is expected to be a short-term phenomenon as lenders work through their backlog.”
And here is a very short video from Bankrate explaining what has been going on this week: Why aren’t mortgage rates lower?”.
The table below shows the spread over the last 15 years. Noe that in a previous time of stress – 2008/09 (although for a very different reason) the spread widened before reverting to the mean when conditions stabilised.
I expect the same phenomenon to occur again in due course.
I’ll end with the same Wall Street Journal quote I used to end one of my earlier posts:
“For all the foreboding about the novel coronavirus—foreboding that is justified—it is heartening to see the American people responding in ways reminiscent of the frontier spirit. Most people are doing what they have to do to survive a clear and immediate threat to their lives and communities.”
And I ended: “And that spirit will also determine that the recovery will come.”
As it shall.
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
Below is an article from Keeping Current Matters, highlighting the substantial differences between 2008 and today.
And here is a link to my recent post: Recession and Recovery
With all of the volatility in the stock market and uncertainty about the Coronavirus (COVID-19), some are concerned we may be headed for another housing crash like the one we experienced from 2006-2008. The feeling is understandable. Ali Wolf, Director of Economic Research at the real estate consulting firm Meyers Research, addressed this point in a recent interview:
“With people having PTSD from the last time, they’re still afraid of buying at the wrong time.”
There are many reasons, however, indicating this real estate market is nothing like 2008. Here are five visuals to show the dramatic differences.
During the housing bubble, it was difficult NOT to get a mortgage. Today, it is tough to qualify. The Mortgage Bankers’ Association releases a Mortgage Credit Availability Index which is “a summary measure which indicates the availability of mortgage credit at a point in time.” The higher the index, the easier it is to get a mortgage. As shown below, during the housing bubble, the index skyrocketed. Currently, the index shows how getting a mortgage is even more difficult than it was before the bubble.
Below is a graph showing annual house appreciation over the past six years, compared to the six years leading up to the height of the housing bubble. Though price appreciation has been quite strong recently, it is nowhere near the rise in prices that preceded the crash.
There’s a stark difference between these two periods of time. Normal appreciation is 3.6%, so while current appreciation is higher than the historic norm, it’s certainly not accelerating beyond control as it did in the early 2000s.
The months’ supply of inventory needed to sustain a normal real estate market is approximately six months. Anything more than that is an overabundance and will causes prices to depreciate. Anything less than that is a shortage and will lead to continued appreciation. As the next graph shows, there were too many homes for sale in 2007, and that caused prices to tumble. Today, there’s a shortage of inventory which is causing an acceleration in home values.
The affordability formula has three components: the price of the home, the wages earned by the purchaser, and the mortgage rate available at the time. Fourteen years ago, prices were high, wages were low, and mortgage rates were over 6%. Today, prices are still high. Wages, however, have increased and the mortgage rate is about 3.5%. That means the average family pays less of their monthly income toward their mortgage payment than they did back then. Here’s a graph showing that difference:
In the run-up to the housing bubble, homeowners were using their homes as a personal ATM machine. Many immediately withdrew their equity once it built up, and they learned their lesson in the process. Prices have risen nicely over the last few years, leading to over fifty percent of homes in the country having greater than 50% equity. But owners have not been tapping into it like the last time. Here is a table comparing the equity withdrawal over the last three years compared to 2005, 2006, and 2007. Homeowners have cashed out over $500 billion dollars less than before:
During the crash, home values began to fall, and sellers found themselves in a negative equity situation (where the amount of the mortgage they owned was greater than the value of their home). Some decided to walk away from their homes, and that led to a rash of distressed property listings (foreclosures and short sales), which sold at huge discounts, thus lowering the value of other homes in the area. That can’t happen today.
If you’re concerned we’re making the same mistakes that led to the housing crash, take a look at the charts and graphs above to help alleviate your fears.
Mortgage rates after the collapse of bond yields
Andrew Oliver
REALTOR®
Sagan Harborside Sotheby’s International Realty
One Essex Street | Marblehead, MA 01945
m 617.834.8205
www.OliverReports.com
Andrew.Oliver@SothebysRealty.com
Sotheby’s International Realty® is a registered trademark licensed to Sotheby’s International Realty Affiliates LLC. Each Office Is Independently Owned and Operated
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