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Recession plus boomer downsizing will bring plunging home prices

Harry Dent, a newsletter publisher who uses demographic trends to forecast market movements, believes that even before Covid-19 blindsided the global economy, the US housing market was toast. From one of his recent interviews:

Baby Boomers are now dying at unprecedented rates and will continue to do so into 2040. That takes the net demand for real estate negative, so homes are never going to appreciate even in the next boom. A lot of boomers are realizing they didn’t save for retirement because they’re living in good times and didn’t think they needed to, and now they’re saying wait a minute, I don’t need my McMansion now that my kids are gone. I can sell that and instantly fund my retirement plan and then rent my retirement home.

For the first time in all of modern history the next generation has fewer peak buyers for everything than the baby boomers, and in many countries it’s significantly less. Real estate will never be the same.

Millennials don’t buy as many houses or as large houses. They’ll be sharing McMansions they’ll be so cheap. Split them into duplexes because they’ll be selling for only a little more than an average home.

I don’t think real estate will ever again get to these prices.

In Japan real estate crashed by 60% and has never bounced back because their population is older than most others and there are more baby boomers dying than millennials entering the housing market.

[The US] population is barely going to grow in coming decades. When I subtract the peak buyers age 42 from the dying age 78, net demand for real estate goes down for the next two or three decades. So there’s no way real estate’s going to go up as it has in the past. It’ll be lucky to go up at the inflation rate after this crash.

Dent’s thesis makes intuitive sense: If you’re 70 years old (as the oldest Boomers are), having more house than you need is a burden rather than a status symbol. And if your savings are inadequate (as is true for most Boomers) converting an expensive possession like a house with its taxes and upkeep into spendable cash makes financial sense.

Now add a pandemic-driven recession – possibly a deep one – and what might have otherwise been a leisurely process (“Let’s look into selling and maybe start the clean-up with a target of listing in 2021”) becomes varying shades of urgent, depending on what’s happening with a given retiree’s stock portfolio.

So the supply of homes for sale might spike rather than drift higher, sending prices lower, and possibly a lot lower.


[From an article by John Rubino, written for DOLLAR COLLAPSE.com]




As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis






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Suddenly-motivated sellers push US housing bubble into Stage Two

Housing bubbles proceed in fairly predictable stages. Stage One is long and usually slow, at least initially, fueled by excess central bank money creation or foreign demand or some other source of liquidity that encourages large numbers of people to buy houses. At first, sellers remember the peak prices from the previous bubble and aren’t willing to sell at anything less than that (in finance-speak, they’re “anchored” at the highest price they could have gotten last time around). So demand initially outstrips supply, causing home prices to rise, slowly at first and then explosively as increasingly-desperate buyers become willing to pay any price while mortgage lenders, seduced by fat fees and confident that they can securitize and offload any kind of dicey mortgage, lower their standards to include pretty much the whole of society.

Stage One usually ends with price spikes in the hottest markets so extreme that they generate headlines. Like these:

San Diego home prices spike

Home Prices Spike Near Murrieta, SoCal Median Hits Record Level

Orlando Home Prices Spike 10 Percent Annually in April

Another month, another record for Denver home prices

Phase Two of the US housing bubble begins when sellers read these headlines and note that prices are now above what they could have gotten in the last bubble. With the memory of how badly, during the subsequent bust, they’d wished they’d sold at the peak still reasonably fresh, they realize that they’ve been given a second chance to cash out, move to a cheaper, less-frenetic place, and coast on their real estate riches. So they call a realtor and list their house. As do a bunch of their neighbors. Supply, out of the blue, jumps.

That may be what’s happening now:

The housing shortage may be turning, warning of a price bubble

The most competitive, tightest housing market in decades may finally be loosening its grip, and that could put pressure on overheated home prices. The supply of homes for sale in the second quarter of 2018, the all-important spring market, rose at three times the rate of the same period in 2017, according to Trulia, a real estate listing and research company.

The inventory jump was the largest quarterly improvement in three years and could be signaling a slight thaw in today’s housing market. But it is just a start.

“This seasonal inventory jump wasn’t enough to offset the historical year-over-year downward trend that has continued over 14 consecutive quarters,” according to Alexandra Lee, a housing data analyst for Trulia’s economics research team.

The supply of homes for sale is still down 5.3 percent compared with a year ago. Still, all real estate is local, and some markets are seeing greater relief. Thirty of the nation’s 100 largest cities, including New York City, Miami and Los Angeles, now have more supply than a year ago.

Of course, the increase is a double-edged sword. Supplies are increasing because sales are slowing, and sales are slowing because prices are so high. In New York City, the median household must spend 65 percent of its income to buy a home, according to Trulia. In Los Angeles, it takes 59 percent.

“Among these unaffordable metros, San Diego posted the largest inventory growth—22 percent year-over-year,” wrote Lee. “Compare that with the same quarter last year, when that Southern California metro registered a 28 percent inventory decrease.”

Mortgage applications to purchase a newly built home plummeted nearly 9 percent in June compared with June 2017, according to the Mortgage Bankers Association. This suggests lower new home sales going forward.

Stage Two’s deluge of supply sets the table for US housing bubble Stage Three by soaking up the remaining demand and changing the tenor of the market. Deals get done at the asking price instead of way above, then at a little below, then a lot below. Instead of being snapped up the day they’re listed, houses begin to languish on the market for weeks, then months. Would-be sellers, who have already mentally cashed their monster peak-bubble proceeds checks, start to panic. They cut their asking prices preemptively, trying to get ahead of the decline, which causes “comps” to plunge, forcing subsequent sellers to cut even further.

Sales volumes contract, and mortgage bankers and realtors get laid off. Then the last year’s (in retrospect) really crappy mortgages start defaulting, the mortgage-backed bonds that contain their paper plunge in price, and voila, we’re back in 2008.

How far away is the climax of Stage Three? It’s too soon to tell, with just one quarter of trend-reversal data on-hand. But if you’re thinking of selling (or if you own a lot of bank stocks or are thinking of shorting such stocks), now might be a good time to start paying close attention to your local housing market.


[From an article published by DOLLAR COLLAPSE.com]




As always, posted for your edification and enlightenment by

NORM ‘n’ AL, Minneapolis







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