A Balancing Dose of Housing Market Pessimism

New articles over at DrHousingBubble.com are raining all over the sunny housing market reports about rising prices. First, the fact that more than 30% of all purchases over the past few years have been investors buying at deep discounts. Of course, the lack of adequate inventory in the past couple of years has contributed to competition among investors, and that has resulted in price increases. However, this really isn’t an indicator of the overall market.
Since 2006, there have been more than 7 million foreclosures, and current estimates indicate that there are still 9.1 million homeowners underwater, owing more on their mortgages than their homes are worth. Investors are pulling back from buying in almost every market. There’s a lot of anticipation that the government and the Federal Reserve will stimulate the housing market and bring it back from the slump. Many are hoping that this will bring a flood of Millennials leaving their parents’ basements and going into a home buying frenzy.
The stark reality however is that Millennials are barely able to afford rents and don’t have the money for a down payment nor an income to afford or qualify for a mortgage. The National Association of Realtors has always made their marketing centerpiece “it’s always a good time to buy a home.” Of course, that’s simply not true in the current market. Existing home sales are down more than 35% from 2006, and inventory is beginning to increase.
For the first time since 2011, housing inventory has reached a 6 month supply. Many analysts consider the 6 month supply number to be the balancing point between buyers and sellers. Unfortunately, today’s market can’t be considered normal using this data. Low inventory, low interest rates, and investor demand are the three factors that have been the primary forces behind home price improvements.
If you’re a Millennial who wants to own your own home, none of this is good news. If you’re a seller who wants to sell to a retail buyer and make costs with some equity, this isn’t good news either. If you’re an investor who wants to acquire rental property and look forward to some years of excellent cash flow and eventual price appreciation, none of this is bad news.