Today we’ll try and unravel the twisted logic of Realty Times’ Blanche Evans and Lawrence Yun of the National Association of Realtors. According to Evans:
This latest report should put the notion to bed that the housing boom was largely driven by speculators. The National Association of Realtors annual Investment and Vacation Home Buyers Survey finds that investors and second home buyers snapped up one third of the homes sold in 2007.
While the volume of sales is down along with home sales in general, the market share of investors and second-home or vacation home buyers is 33 percent, close to the historic norms at the height of the housing boom.
Investors bought 21 percent of homes in 2007, down only one percent from 2006. And vacation home buyers dropped from 14 percent in 2006 to 12 percent in 2007.
Wait a minute. I thought there was a credit crunch. That vacation homes were piling up like college student laundry. That investors got out of housing and moved into gold, corn and oil.
So what’s happening? Primary residence sales declined 10.0 percent to 4.34 million in 2007 from 4.82 million in 2006, but vacation sales (-30.6 percent) and investment homes (-18.1 percent) fell much more, possibly due to tighter credit and economic uncertainty.
You were right Blanche about two things- there is a credit crunch and the vacation homes are piling up. That theory about the boom being driven by speculators has not been put to bed- it’s walking around and wide awake, however.
First of all, according to the 2006 report, market share for second homes is down from it’s peak of 40% in 2005. Yun is reporting current market share as 33% in 2007. It’s unclear to me how one has a "historic norm" at the height of a boom, but Evans is in error – market share has clearly dropped. Yun indicates in the report Evans references that there has been a serious decline in investment purchases:
Lawrence Yun, NAR chief economist, said the findings suggest different cycles for each of the sectors over the past two years. “Investment-home sales declined sharply in 2006 as speculators disappeared, leaving the market to serious buyers, with the pattern continuing in 2007,” he said.
Actually market share has probably dropped significantly more than the percentages indicate- clearly sales numbers for vacation and investment homes have dropped. Because mortgage rates and loan terms are more advantageous for owner-occupiers, many speculators lied to obtain more favorable financing. Also remember that these numbers are resale only, and do not include new home sales. Financing available through homebuilders made purchasing new homes for investment purposes attractive in the boom years, and many of those new homes are now back on the market as resales.
Evans continues:
Twenty-eight percent of vacation-home buyers paid cash for their property, as did 35 percent of investment buyers.
Plus, investors and second home buyers aren’t interested in short-term gains and plan to hold on to their properties from four to ten years (median) respectively.
Investment homes are $150,000, unchanged from 2006, while the price of vacation homes have dropped $5000 to $195,000.
Eight out of ten second home buyers believe it’s a good time to buy real estate, and a majority plan to buy another property in the next two years.
So what does that tell you? People with more money are spending it on real estate.
Looking at the numbers, it’s clear that a lot fewer "people with more money" are spending it on real estate. That said, agents I know are telling me they do have a significant percentage of buyers that are speculators. Inqueries I receive certainly indicate that there is a lot of interest in buying investment property, particularly short sales and foreclosures. To a large extent, I believe that is because "wannabe" flippers are thinking that now is the "bottom", and they are going to make a killing snapping up bargains. Many of those who might ordinarily be shopping for a primary residence however, are unnerved by current market conditions and are sitting tight or are choosing to rent. Owner-occupiers are more risk averse than investors- It does not necessarily follow that the "smart money" is on real estate.
Investors continue to make up a large percentage of the real estate market. Some of them are "smart money"- but a lot of them are fools. Anyone buying in today’s market should be doing so because solid homework shows a particular investment makes sense- not because they followed the example of the eight out of ten people don’t know what they are talking about.
UK House Bubble
Bubble Meter
Ohio Fraudclosure
Mish's Global Economic Analysis
Northern Virginia Housing Bubble Fallout
Breaking News Relevant Articles© Copyright 2012 Housing Doom | Copyright© 2011, AuthentiCraft, Inc.
This tells me that the sentiment is still too upbeat for us to be at the bottom.
We’re at the bottom when all these people get burned and no more foolish money is left to throw in.
We’re at the bottom when “nobody wants to buy real estate cuz all it does is lose money.”
We’re at the bottom when nobody calls it a bottom anymore because people are too disgusted and bored to look at real estate.
“Eight out of ten second home buyers believe it’s a good time to buy real estate, and a majority plan to buy another property in the next two years.
So what does that tell you?”
It tells me that those who are still investing…er, I mean, throwing money away… in real estate don’t understand what a bubble is.
Seriously, what kind of argument is that? It’s like saying gas prices won’t rise anymore because some people bought Hummers and are planning on doing so again. The rest of us just laugh whenever they go to fill up their tank.
I´ve always thought it odd that flippers were called investors….even stranger that the NAR would consider them as such.
However, for real investors (ones that are purchasing properties for a rental income stream)prices in certain areas have come down enough so that the math is starting to work again. I´m currently looking at properties in Chicago that are now offered at 50% of their former list price at the height of the insanity. I´m glad I waited.
In 1993, we bought a little condo in Chicago suburbs because the math really worked like a no brainer. Looking back, 1993 was a bottom. Recently I moved out of Chicago to the SF bay area, so i just have to keep waiting.
We’re at the bottom when a model home on the golf course that originally sold for $822,500 is now bank-owned and listed for $321K.
We are not at the bottom yet, but investors use formulas that can differ from the ones used by most other buyers. An investor will look at the long term, and be focused on whether or not all the numbers make sense. If he sees that a rental income from a reduced price property will cover his expenses, he could just wait it out until market conditions improve and once again favor the seller. In our current situation, it could be quite a long wait.
With all of the vacants and would-be rentals in Arizona, I think that even long-term investors would be hard-pressed to justify purchasing here in 2008.
I was cleaning out some old papers this weekend and came across the first few Phoenix housing bubble articles that I printed out in mid-2005. Here’s a sweet RL Brown item from one of them:
“He said the 6,531 permits for new houses issued in June, as well as increases in prices sparked by strong demand, are clear signs ‘that the mythical bubble about to burst that some babble about is not yet on the horizon.’”
http://www.bizjournals.com/phoenix/stories/2005/07/18/daily55.html
Here’s my feedback on buyers: I have 5 deals in escrow and all 5 bought for a primary residence. I strongly cautioned them about market values before signing contracts. Most were not concerned because the deals we got were excellent REO’s and can withstand 2+ more years of the same depreciation were saw in 2007. Plus, all of them intend to stay in their new homes for 5+ years (not withstanding a job transfer). One of them liked a house so much that they paid a little more for it than they should have. This was after seeing 50+ properties (and some smoking deals). BUT, I had them sign a disclosure stating they had “seen the comps and realized they could be upside-down in 2009 or 2010 because of the depreciating market. There isn’t much more I can do, because they can always find another Realtor — or work with the listing agent.
I do have several investors sitting on the sidelines arranging their financing and are about to jump into the market again.
If anyone is interested, here is some news about some revised FHA guidelines concerning “flipping” of homes:
http://www.foreclosureexpert.info/2008/03/fha-rules-on-fo.html
Someone please help me understand this. I am willing to live far from Phoenix now just for a little relief from the stucco parking lot the phoenix area has become with no elbow room.
Prices were falling pretty fast last year. I wasn’t about to pay more for a TRAILER on the side of the 60 than for a house with a pool within walking distance of the beach in Kailua, Hawai’i where I keep considering moving back to if these prices dont get near reality
Now the prices are going back up! What in the world is going on? Tonopah, Whitman, Morristown, nevermind Wickenburg! I can easily get a nice house In Hawai’i for less than a doublewide in these areas….should I keep waiting it out? Im confused
OK, Housing Doomers may find this amusing (BOLO for a chubby blonde baby – if this came out on 4/1, I’d be suspicious, but it is a 3/31 MLS notice):
SECURITY ALERT
Agents are alerted to be on the lookout for a couple with a baby that robbed an open house yesterday. The couple was described as medium build, clean cut, pleasant, well dressed, female in her late 20′s, male in his middle 30′s with a gap in his teeth, child chubby with curly blondish hair. They robbed an open house on the northwest side of Phoenix Sunday when the “mother” and toddler distracted the REALTOR while the “father” rifled the owners desk taking a laptop computer and other personal items. If you encounter such a couple with child, please notify the Phoenix Police Department. And as always, we encourage you to always be alert when showing property or holding an open house. Your personal safety is of the utmost importance.
So much writing about a realtor trying to distort the truth. Like that wasn’t to be expected. Are you really surprised?
If you can hook her up to the RE agent lie detector then we can see if she is deliberately lying or just utterly foolish:
http://www.youtube.com/watch?v=42V9yQjKitQ&feature=PlayList&p=717776DAE8BAF634&index=24
-
zeroagents.com.au tested to see what would happen if we managed to get a real estate agent on a polygraph machine (lie detector) with predictable results