US Real Estate: The Housing Market is Shrinking - CNBC
The granular, organic, whatever you want to call it…non-distressed market is withering away. Sellers are afraid to put their homes on the market for fear of losing too much equity, which means there are fewer potential move-up buyers. First time buyers are choosing to rent in droves, as unemployment and the wider economy recover far more slowly than expected.
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One third of home sales in the second quarter of this year were foreclosures and short sales. But the bigger problem, says real estate writer Diana Olick, is that the number of non-distressed sales fell.
People keep talking about "when the housing market comes back," but it seems more likely that we have entered a new era in housing in this country. The old days are not coming back at all. The home ownership rate may go down permanently with young people renting instead of aspiring to ownership. The days of your home being your main investment may be over. Housing prices may never climb dependably again. And if gasoline costs ten bucks a gallon (which I think we will see within 5 to 10 years) suburban and exurban housing as we know it won't work for most people. We have far too many houses and condo units already. There are millions of foreclosures yet to be done. And the entire institution of common interest housing rests on the over-estimated abilities of the average middle-class homeowner to fund and operate a homeowner or condominium association in perpetuity.
6 comments:
"The old days are not coming back at all. The home ownership rate may go down permanently with young people renting instead of aspiring to ownership."
That is the old days if you are talking about a generation ago. Young people did in fact rent before they bought a home.
"And if gasoline costs ten bucks a gallon (which I think we will see within 5 to 10 years) suburban and exurban housing as we know it won't work for most people."
It can work provided we utilize information technology and its ability to allow people to work anywhere instead of engaging in an outdated 1950s daily commute to the office.
"And the entire institution of common interest housing rests on the over-estimated abilities of the average middle-class homeowner to fund and operate a homeowner or condominium association in perpetuity."
People do have the ability to govern and manage. The issue is they have never truly accepted the idea of doing so in a private local government context or recognized the authority of HOAs.
Re condos, the model's main weakness is it is based on homebuyers with short investment timeframes -- first time and last time buyers -- who aren't in the condo HOA for the long term. Those short term investment horizons lead to mismanagement and undercapitalization, in turn making condos too risky an investment for the very types of homebuyers who are attracted to them.
Nice points Fred,
However, don't forget the CAI's cutting of its own throat through its members (HOA attorneys and management companies) attempts to divert revenue to themselves as follows:
The management companies and attorneys have pushed boards into adopting "resolutions" or other mechanisms that purport to allow a private corporation to "fine" for violations thereof. The management companies and HOA attorneys use this to drum up more even fees for themselves without the consent or approval of the homeowners.
One typical prohibition, for example, is a restriction against "operating a business" from the home. Of course the absurdity of this is that the developer/declarant operates a business on the Property often for decades - only the homeowners would be prevented from having a business. Numerous lawsuits are filed by HOA attorneys allegedly on behalf of the HOA corporation to prevent homeowners from having a home office - under the pretext that the homeowner was somehow "harming property values" - as if. These prohibitions do NOT increase the value of the property at all. As Fred points out indirectly, this really raises the cost of ownership of the property.
Another prohibition common among CAIers was to try to prohibit leasing/renting the owner's property. The property is already difficult to sell. CAI's members profit from greater financial hardship - their primary business is DEBT CREATION AND COLLECTION. So when you can't sell and you can't rent and often can't remain in the home for business or other reasons, financial hardship is certain. Inevitably the home is foreclosed upon. The CAIers are just hoping that you had a lot of equity in it at the time they use the HOA to foreclose on you. This activity is just one reason that informed buyers avoid HOAs if any alternative is available.
At any rate, I am thankful that we are moving towards the end of the HOA-burdened housing. They truly are blights. No one "agrees" to surrender their constitutional rights. Last time I looked the rights allegedly surrendered were inalienable specifically to prevent the abuses that are ubiquitous with involuntary membership organizations.
I know young people always rented before they bought. What I said was that many young people have given up on the aspiration of home ownership. I think a lot of them have no intention of saving and planning to become home owners. Ever. Like most New York City residents, they envision being renters for life. They may change their minds later--who knows? But my generation always intended to own eventually.
And the prospects for tele-commuting are greatly overstated. Most organizations don't function properly without face to fact social interaction.
Evan:
Thanks for clarifying your observation. I wouldn't say young people will no longer aspire to homeownership, particularly if the mortgage interest income tax deduction remains in place. I am also cautious about making long term predictions about the housing market based on the recent downturn. What could have a more fundamental impact is the economy. If it continues to limp along slightly above stall speed for an extended period of time, young peoples' career aspirations will be adversely affected. That in turn will impair their ability to buy a home.
Re telework, I agree face to face interaction is important for teams of information workers. But it doesn't have to be a five day a week affair. Plus as the telecommunications infrastructure becomes capable of handling full motion, two way video conferencing, virtual face to face contact will be increasingly available.
To add to my previous comment: I would submit that a contributing factor to poor buy-in to private HOA governance from working age people is a lack of time. There are simply many other obligations in their lives. Add in a long commute, and volunteering for an HOA or most any other community activity becomes a non-starter.
"I would submit that a contributing factor to poor buy-in to private HOA governance from working age people is a lack of time."
Corrupt H.O.A.s that rig elections is another factor.
Why would any sane person give legitimacy to their H.O.A. by "getting involved" in a manner prescribed by the sociopaths and bullies that currently run H.O.A.s?
As Shu Bartholomew has repeatedly pointed out, H.O.A.s are marketed to homeowners as "care free living."
The C.A.I. has put a lot of effort into demoralizing and marginalizing homeowners, and then blaming homeowner apathy for all of the problems caused by the existence of H.O.A.s.
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