Tag Archives: real estate

Where Are the Young Home Buyers?

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*This is a cross post of something I wrote for the day job.

It’s no secret that there’s a dearth of younger home buyers these days, but why are young adults still slow to move from renting to buying even though the economy is finally growing? Shane Squires of MPF Research wrote about some of the challenges faced by millennials:

For starters, income levels for those between 25 and 34 are down. Median household income for that demographic has declined between roughly 5% and 15% in real terms from 2000 to 2012 for every education level of the head of household, according to the National Center for Education Statistics. And in 2013, the real median net worth of households under 35 years old was just $10,400. That was approximately 32% below the level estimated in 2001, according to the Federal Reserve Survey of Consumer Finances…

He then cites some data showing that the combination of an increasing population and anemic job growth coming out of the past two recessions led to a highly competitive job market that prompted many students to continue on to grad school. That demand allowed universities to jack up tuition which led to more debt:

That brings us to the most commonly cited economic constraint for Gen Y – student debt. Over the decade from 2002-2003 to 2012-2013, the number of full-time undergraduate students rose from 9.1 million to 11.6 million people, according to College Board. That increased demand enabled higher education institutions to raise tuition prices 51% past the rate of inflation in the past 10 years,…

Add to that the increase in health care costs, which he cites as being 31% greater than the reported rate of inflation, and the increase in cost of staples and you can see that young adults face some serious obstacles to home ownership. Even the accelerated job growth of 2014 is recognized with a caveat:

Given that job growth has accelerated notably in 2014, with a much higher share being created in higher-paying sectors, these trends in income and net worth are bound to start improving to some degree. Though, considering that the appreciation of median home prices has vastly outpaced wage growth over the past decade, many in the Millennial generation will likely continue to find it more difficult to qualify for a mortgage than Generation X did 10 years ago.

It would be easy to point to the Great Recession as the primary cause for the struggle young adults will have in moving from renting to buying, but some of the contributing factors are the result of societal shifts that began a generation ago. For instance, the decoupling of income from worker productivity:

The “decoupling” is the divergence between labor productivity and employment/wages that happened in the US in the 1980s and has become quite pronounced over the past thirty years. During the great postwar boom, productivity and wages grew in lockstep in the US. Of course, we don’t see any data from the 19th century and the first half of the 20th century so it’s not clear that labor and wages have always grown in lockstep. But something certainly changed in the 1980s and the result has not been good for median family income which has been stagnant in the US for almost thirty years now.

This is the kind of shift that does not happen overnight, and if that trend is to reverse it will not happen in a matter of years but in decades. What that means for rental housing providers in particular is that the falling rate of home ownership could be the new normal for a generation to come, which is good news for their businesses. On the other hand, if real median household income continues to decline then the demand for market rate units could stall and the demand for affordable housing units could skyrocket.

Obviously some policy changes could change this outlook. For instance if lending standards are relaxed again and if more affordable single family homes are constructed, then rental demand would obviously be impacted. Considering the lessons we learned when the housing bubble popped that first if is pretty big, and given the persistent problem of slow income growth any growth in home construction we do see probably won’t come close to what we saw in the late 90s through mid 00s.

Long story short – rental housing should continue to grow for the foreseeable future.

Digging Its Own Grave

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Some property in London is so valuable that it has become more economical to bury excavation equipment after it’s been used to dig new basements than to retrieve it:

The challenge of adding new subterranean floors to London houses has become a highly lucrative business. The heavy lifting – or, in this case, the heavy digging – is usually contracted out to basement-conversion specialists. These firms discovered that it was reasonably easy to get a small digger (occasionally two) into the rear garden of a house on an exclusive 19th-century square. Sometimes they simply knock a hole in the wall and drive the diggers straight through the house. In other cases, the windows are so large that a digger can squeeze through without dismantling the bricks and mortar.

The difficulty is in getting the digger out again. To construct a no-expense-spared new basement, the digger has to go so deep into the London earth that it is unable to drive out again. What could be done?

A new solution emerged: simply bury the digger in its own hole. Given the exceptional profits of London property development, why bother with the expense and hassle of retrieving a used digger – worth only £5,000 or £6,000 – from the back of a house that would soon be sold for several million? The time and money expended on rescuing a digger were better spent moving on to the next big deal.

The new method, now considered standard operating practice, is to cover the digger with “hardcore”, a mixture of sand and gravel. Then a layer of concrete is simply poured over the top. Digger? What digger? The digger has literally dug its own grave – just as the boring machines that excavated the Channel Tunnel were abandoned beneath the passage they had just created.

This sounds like a circa 2006 story which is kind of nerve wracking.

Congress Trying to Get More Efficient

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My fellow Americans I believe Congress might finally be endeavouring to become more efficient since they seem to be trying to kill two birds with merely one stone.

The reeling housing market has come to this: To shore it up, two Senators are preparing to introduce a bipartisan bill Thursday that would give residence visas to foreigners who spend at least $500,000 to buy houses in the U.S…

Foreigners have accounted for a growing share of home purchases in South Florida, Southern California, Arizona and other hard-hit markets. Chinese and Canadian buyers, among others, are taking advantage not only of big declines in U.S. home prices and reduced competition from Americans but also of favorable foreign exchange rates.

To fuel this demand, the proposed measure would offer visas to any foreigner making a cash investment of at least $500,000 on residential real-estate—a single-family house, condo or townhouse. Applicants can spend the entire amount on one house or spend as little as $250,000 on a residence and invest the rest in other residential real estate, which can be rented out…

International buyers accounted for around $82 billion in U.S. residential real-estate sales for the year ending in March, up from $66 billion during the previous year period, according to data from the National Association of Realtors. Foreign buyers accounted for at least 5.5% of all home sales in Miami and 4.3% of Phoenix home sales during the month of July, according to MDA DataQuick.

Housing crisis? Check. Immigration? Check. Gotta love efficiency.

Today in Real Estate

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We do live in strange times, especially when it comes to real estate.  Here are just a couple of fun stories for your entertainment:

In Texas an obscure law might have enabled a man to take possession of a $300,000 home for $16 and three years of his time:

In other news it looks like the robo-signing practices that mortgage companies promised to halt have continued:

"Robo-signing is not even close to over," says Curtis Hertel, the recorder of deeds in Ingham County, Mich., which includes Lansing. "It's still an epidemic."

In Essex County, Mass., the office that handles property deeds has received almost 1,300 documents since October with the signature of "Linda Green," but in 22 different handwriting styles and with many different titles.

Linda Green worked for a company called DocX that processed mortgage paperwork and was shut down in the spring of 2010. County officials say they believe Green hasn't worked in the industry since. Why her signature remains in use is not clear.

"My office is a crime scene," says John O'Brien, the registrar of deeds in Essex County, which is north of Boston and includes the city of Salem.

In Guilford County, N.C., the office that records deeds says it received 456 documents with suspect signatures from Oct. 1, 2010, through June 30. The documents, mortgage assignments and certificates of satisfaction, transfer loans from one bank to another or certify a loan has been paid off.

Suspect signatures on the paperwork include 290 signed by Bryan Bly and 155 by Crystal Moore. In the mortgage investigations last fall, both admitted signing their names to mortgage documents without having read them. Neither was charged with a crime.

 

This Might Not End Well

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The NY Appellate Division has found that MERS does NOT have the right to foreclose on a mortgage in default, nor can it assign that right.  From the story (found via VDM):

The ubiquitous Mortgage Electronic Registration Systems, nominal holder of millions of mortgages, does not have the right to foreclose on a mortgage in default or assign that right to anyone else if it does not hold the underlying promissory note, the Appellate Division, Second Department, ruled Friday. "This Court is mindful of the impact that this decision may have on the mortgage industry in New York, and perhaps the nation," Justice John M. Leventhal wrote for a unanimous panel in Bank of New York v. Silverberg, 17464/08. "Nonetheless, the law must not yield to expediency and the convenience of lending institutions. Proper procedures must be followed to ensure the reliability of the chain of ownership, to secure the dependable transfer of property, and to assure the enforcement of the rules that govern real property." The opinion noted that MERS is involved in about 60 percent of the mortgages originated in the United States.

This could, and maybe should, end very badly for the mortgage industry.

The HIDC

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Is home ownership the American dream or the American nightmare?  (No this isn't another post about my family's homeownership woes.  One can only write so much about buying and living in a lemon).  David Stockman writes about the "Housing Investment & Debt Complex" and posits that we should pull the plug on the government's program of homeowner subsidies. What he proposes, letting all those homeowners go belly up and making the financiers realize losses on all those loans, will never happen but it's fun to think about in a makes-you-sick-to-your-stomach kind of way:

Before Richard Nixon initiated the era of Republican “me-too” Big Government in the early 1970s — including his massive expansion of subsidized housing programs — there was about $475 billion of real estate mortgage debt outstanding, representing a little more than 47% of GDP.

Had sound risk management and financial rectitude, as it had come to be defined under the relatively relaxed standards of post-war America, remained in tact, mortgage debt today would be about $7 trillion at the pre-Nixon GDP ratio. In fact, at $14 trillion or 100% of GDP the current figure is double that, implying that American real estate owners have been induced to shoulder an incremental mortgage burden that amounts to nearly half the nation’s current economic output…

At the end of the day there are upward of 15-20 million American households that can't afford their current mortgages or will be strongly disinclined to service them once housing prices take their next — and unpreventable — leg down. But Pimco’s gold-coast socialism is exactly the wrong answer. Rather than having their mortgages modified or forgiven, these households should be foreclosed upon, and the sooner the better. In that event, there's absolutely no danger that impacted families will go without shelter. The supply of rental units is swelling by the day and rental rates will come down further as speculators buy up REO and recycle back to the rental market.

Stated differently, pulling the plug on HIDC will rescue millions of households from mortgage-payment slavery and put them into a buyer's market for rented-housing services — a social welfare gain under present circumstances. To be sure, they'll loose their credit and probably their credit cards in the process. But the days of living off the housing ATM and bank-issued plastic are over for the American people anyway. Creating an honest financial environment where households are required to rebuild their balance sheets and consume within their means isn't a disservice or injustice to anyone. 

Likewise, millions of additional families that can, in fact, service their mortgages or that own their homes debt-free will face a further shrinkage of their paper wealth. The $16.5 trillion of household real estate value reported by the Fed in its Flow of Funds for the first quarter of this year was already down about 30% from the 2006 peak, and could readily decline by another 20%. But would the implied $3 trillion loss of paper wealth be avoidable in any event? 

Found via Fec

23.3% of US Mortgages Underwater

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There is a stunning graph about foreclosures between 2005 and 2010 here.  One of the pieces of info contained therein is that 23.3% of ALL mortgages are underwater.  Not of sub-prime mortgages, or mortgages taken out during the boom, or mortgages in Florida, etc.  That's 23.3%, or nearly a quarter, of every single mortgage in the US of A is underwater.  The chart also shows that there will be over 1 million homes repossessed in the US in 2010.

Gulp

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Just when you thought it might be safe to go back in the (real estate) water:

These seriously delinquent loans are the 4.3 million loans MBA Chief Economist Jay Brinkmann referred to as the "shadow inventory" on the conference call this morning. Not all are really "shadow inventory" since some of these loans will be modified, some will be cured (probably very few), and some are probably already listed as short sales. But it does suggest a significant number of distressed sales coming…

Thirty four states and the District of Columbia have total delinquency rates over 10%. This is a widespread problem.

h/t to Ed Cone for the link.