| Making Sense of the Housing Market Amidst All the Noise
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11 Nov Making Sense of the Housing Market Amidst All the Noise

With the multitude of conflicting housing reports flooding the media daily, you almost have to be an NSA intelligence analyst or political strategist to decipher what’s really happening on the national housing scene…

      • Are housing prices still going up or just not going down?
      • Is sales volume increasing or just this quarter vs. last year?
      • Are foreclosures and short sales still a factor in the housing recovery?
      • Are investors fleeing the housing market or are they just buying elsewhere?
      • Is demand for housing still high or are rentals becoming the new norm?

    It’s enough to make your head spin.  But you also have to take into consideration the different self-interest groups that are releasing these housing reports and scrutinize what’s real versus what’s just news hype…

    Realtors need to move property.
    Banks (Freddie/Fannie) need to move an agenda.
    And real estate media (Zillow, Trulia,, Housingwire) need to move ad space.

    So what is the truth?

    Let’s look at the some of the major housing headlines this month and try and make sense of it all:

        • Share of first-time homebuyers at 3-decade low (National Association of Realtors)
        • Institutional investment in housing drops to 4-year low (RealtyTrac)
        • Mortgage applications down 2.6% (Mortgage Banker’s Association)
        • Mortgage rates at lowest levels since June 2013 (Freddie Mac)
        • 1-in-6 housing markets back to normal levels of new construction (National Association of Home Builders)
        • Zillow’s unique visitors up 41% year-to-date and its agent advertising revenue up 87% this quarter over the same period last year (Zillow)

      It’s definitely a mixed bag of nuts so let’s do some quick real estate math:

      Record numbers of potential homebuyers visiting Zillow
      Historically low mortgage rates
      Decreasing competition from institutional investors
      Increasing housing starts 
      Should = increased number of first-time homebuyers…….BUT THAT’S NOT THE CASE

      In my opinion, the TRUTH is harder to see in the real estate trends but more easily recognizable in the economic fundamentals needed for a housing recovery.

      Most economists agree that first-time homebuyers are the key to the housing recovery.  And in order for first-time homebuyers to purchase their first home, they need to save for a down payment.  But with wage growth relatively flat, increasing student debts, and rising rents, it’s getting harder and harder to save enough money.  Don’t have 20% down?  First-time buyers are forced to pay mortgage insurance premiums akin to a 2nd mortgage.  Couple these factors with banks’ tightening credit standards, home price increases, and a plummeting home affordability index (HOI), and the picture becomes more clear: we’re becoming a nation of renters.

      Granted, real estate is local and the higher priced markets with the lowest HOI (i.e. Southern California) see this happening at a far greater pace.  This doesn’t mean the dream of home ownership is dead – far from it.  But the line in the sand is evident: those with the economic means and credit worthiness to purchase real estate versus those without is becoming wider and deeper.

      I’m not here to judge whether this is ultimately a good thing or a bad thing for the nation’s economy or the creditworthiness of its citizens.  However, as investors, it is important that we recognize these trends and understand the many unique investment opportunities that this new reality presents.

      If you’d like to discuss how best to use this information in your investments, please feel free to contact us at 626.788.9700 or click here.