Housing Risk #4. The Construction Void Available for-sale housing inventory
I think it’s going to continue for a bit,” he said, noting that the last housing bubble was inflated by a lot of “stupid” people — including himself in that category — who relied on high-risk loans. Still, Richter sees some evidence of high-risk lending creeping back into the market, along with affordability constraints pushing more buyers further from the Seattle core with its high-paying jobs — another hallmark of the last housing bubble. builders faced in 2016 and expect to face in 2017 is the Cost/Availability of Labor, a significant issue for 78 percent of builders in 2016 and one that has significantly grown in importance since 2011.” Second, new homes are expensive. The medium sale price for a new home in June was $310,800 versus $263,800 for existing homes, meaning that for many potential buyers new homes are simply beyond reach. Housing Risk #5. Too Much Money Speaking in New York, Achim Steiner, Administrator of the United Nations Development Programme, explained in July that “by some estimates, the official sector and asset managers currently hold as much as $8.5 trillion in sovereign bonds earning negative interest rates, and $40 trillion earning very low returns -- given the recent efforts by many central banks to have zero, or even negative, interest rates.” If you’re a borrower this sounds pretty good. The world is flooded with cash, money moves easily across borders, and low rates are likely to be with us for a long time. Alternatively, if you’re a major investor do you really want to drop a few
“Everyone is taking more and more risk,” he said, providing as examples the emergence of “peer-to-peer lending” and foreign money flowing into the market. “The core has done extremely well, but it’s the core.… People are starting to move out.” That migration of homebuyers away from the Seattle core is evident in the ATTOM Q2 2017 Pre-Mover Index, which shows likely third quarter homebuyers billion dollars into long-term financing at a time when rates are so low? So far this massive storehouse of cash earning little or negative interest has not exerted enough pressure on real estate lending to loosen lending standards. But the pressure to open the credit box is increasing. “Only the best borrowers are getting loans today,” said Laurie Goodman with the Urban Institute, who estimates that some 5.2 million people who traditionally would have gotten a real estate loan cannot qualify for financing today., “and these loans are so thoroughly scrubbed and cleaned before they’re made that hardly any of them end up going into default. A near-zero-default environment is clear evidence that we need to open up the credit box and lend to borrowers with less-than-perfect credit.” The Bubble Danger: The potential hazard is that underwriting standards will loosen excessively. This might happen in time if people forget that the mortgage meltdown was created in part through the widespread marketing of “affordability” loan products such as option ARMs, financing with little or nothing down, interest-only financing, and no-doc loan applications.
is so low in part because of the aforementioned lengthening
“Stuff here they’ll pay $500,000 for one little lot,” said Richter. “It baffles me when I drive around.” A Soft Landing? Richter doesn’t necessarily anticipate the current Seattle housing boom will end in a bursting bubble akin to what occurred about 10 years ago thanks to a strong foundation of good jobs along with the absence of overly risky lending. homeownership tenure, in part because of institutional investors who acquired hundreds of thousands of single family homes as rentals near the bottom of the market and are continuing to hold onto those homes, and in part because there isn’t much new supply in the pipeline. If anything, we’re falling behind. HUD and the Census Bureau estimate that we’re likely to market 610,000 new single-family homes this year based on June sale figures. That’s about the same production rate we saw in February 1964, but back then we had about 192 million people versus a population of 320 million people today. The Bubble Danger: With a supply shortage, home prices can quickly rise thus reducing the pool of qualified borrowers and cutting sales. Even if new home demand soared it’s likely that much additional production is now impossible for two reasons: First, the building industry has a huge labor shortage. As the National Association of Home Builders points out, “topping the list of problems
“I don’t think it’s going to turn real hard.
JULY 2017 | ATTOM DATA SOLUTIONS
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