Sure feels like I'm still in a sellers market. Just saw a house, looked pretty good...6 days on market, and it's sold.
I've written about it in the past...the freaky, scary, world economy ending housing bubble, but let's take another simple, logical view at the housing prices because I just don't understand what's going on. With all this press about housing prices going up, yet the bubble bursting, what's a prospective house buyer or seller to think! Definitely not "buy now!" Right?
Let me give you the dumb perspective. Here are the facts, at least relative to my location...
- Median housing prices are generally going up.
- Average days on market is increasing.
- Interest rates are going up.
- More "non-traditional" loans are being taken out.
There's something there that just doesn't make sense...
If interest rates are going up, then less people can afford loans, means less people buying. Thus more homes available, thus increase in the average days on the market..
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Also, folks with non-traditional loans are feeling or going to feel the pinch in a few years. Thus more homes available, thus increase in the average days on the market.
More non-traditional loans are taken out because people can't really afford what they want to buy.
So far everything makes sense...to me at least.
Now it gets fuzzy...what explains the increase in median housing prices then? My guess is, as Alan Greenspan would say, "irrational exuhberance." What do I mean by this? Sellers still think they can get premium dollar for their homes, and buyers are still buying! Buyers are taking out non-traditional loans. If you're telling me that housing prices will continue to rise, you've got to be kidding me!
Here's a
link to CNNMoney.com that lists the Honolulu, HI as one of the best places to live in 2005. In it, you'll see "Median household income (per year)" = $50,974. You'll also notice "Median home price" = $280,771. Their data must have been from around 2003. That's the only time median household prices were around $280k based on data from the
Honolulu Board of REALTORS.
Well in 2005,
that sites reports median home prices of $590k! Now if we take dumb math, and consider, if the median household income in 2003 = $51k (I'll throw in an extra $26) and median household prices in 2003 = $280k, then in 2005 the median house hold income should have increased to $107k. Uhhh, I don't think so. So, how are people affording these homes?
Credit and more credit. That's the only explanation. Folks, we are just setting ourselves up for a major economic slap to the forehead. The sky is falling, the sky if falling! But then who listens to chickens? Am I just being dumb? Or maybe the housing bubble paranoia is the real bubble. Please tell me...I want to buy a house already...I hope I don't lose a few readers because of the advertisment in this post...I love irony.
3 comments:
Irrational exuberance explains how we got here, but "price stickiness" is my best guess as to why we are still here. If you look at the median price numbers in the "bubble" areas, existing homes sales are falling, but prices are stable, while new home sales are up, but prices are lower.
The reasons seem obvious. Homeowners don't want to come down, so they haven't (they are not yet forced to). Homebuilders have already begun building entire communities, and need to unload. They don't have the luxury of homeowners to simply live in the place until the market changes. So, they provide incentives, drop prices, and sell more homes. This also prevents homeowners from selling, however, because it provides more attractive options to the few looking to buy.
My estimate is that the prices won't be coming down BIG until probably 2008/2009. I know it's so tough to hang in there, but I think it's just how it's going to be. If you want to see the details, click on my post Unconventional Strategies in this Housing Market.
Thanks so much for this very smart observation! I am wondering the same thing. My household income is 70K with one child and I did not buy when prices were still in the 200rds.I am an inactive realtor meaning I got the license but did not give up my "day job". I have access to the MLS and see a lot of price reductions but... prices are up from last year same time with the reduction. I am at the point that it seems to make no sense to buy ( live in Miami)as rents have not (yet) gone up much. I do think rents will go up based on lack of rents. I really don't get it either, and am getting worried prices may not go down much ( again, real prices not the inflated asking prices that are being reduced to levels still higher than the selling price last year).
It is very scary and it does worry me.
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