Tag Archives: Renter Nation

A Few Questions on Housing Inventory

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My friend Mike Simonsen of Altos Research recently put up an excellent post explaining why he thinks the housing inventory levels remain so low. Read the whole thing, since Mike is one of the sharpest guys in the industry, and he uses data that the other analysts often do not.

In summary, Mike thinks that lack of new construction, the “reverse shadow inventory dynamic”, and government policy are keeping homes off the market.

I think his explanation makes sense, but still, I end up with questions.

I figured I’d share them with you all and we can speculate further together. Of course, I hope Mike will swing by and share his thoughts as well.

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Seven Predictions for 2013: The AKUS Experience

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The Greatest Band in American Music

Once again, it is time for the world famous (in my own mind at least) annual tradition of making predictions for the coming year that are Guaranteed to be Wrong, or Your Money Back! This year, I thought I would pay tribute to the greatest musical act still working today: Alison Krauss and Union Station. If you haven’t experienced AKUS, please click on the embedded videos; you will become a fan. If you are not a fan, you should be. “But I hate country music” is no excuse when it comes to the awesomeness that is the Hall of Fame lineup of Alison Krauss, Jerry Douglas, Dan Tyminski, Ron Block, and Dan Bales.

My 2012 Predictions turned out to be mostly wrong, which is great news, since many of them were dire indeed. Here’s to hoping that my 2013 predictions will perform about the same.

Let’s get into it.

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Concerning QE3, A Few Thoughts…

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I am not an economist, and I don’t play one on TV, and I didn’t stay at a Holiday Inn Express last night… but I kinda look like one. Plus, Seth Price of Placester isn’t an economist either as far as I know, although he’s a good friend who is not only brilliant but good looking to boot. So I figure, I’m gonna have some fun with a blogpost one of his guys (Colin Ryan, who also doesn’t appear to be an economist) recently wrote on the Placester blog (BTW, Placester is our web designer for HearItDirect). Think of it as sending them linklove with some fun economic/politics debates.

Colin thinks that QE3 — the plan by the Federal Reserve to buy $40B worth of mortgage bonds every month for the foreseeable future — is a wonderful thing for the housing market. He writes:

[I]f we’ve learned anything from all the measures the Fed and the government have taken to mitigate this recession, it’s that recovery will come not immediately, but gradually. As far as that goes, the Fed’s plans come with promises to extend near-zero interest rates well into 2015 and continue buying bonds aggressively until recovery is “well established.”

These promises say two important things to consumers. First, the kinds of assets that caused the housing collapse in the first place, long labeled toxic, are safe again. Indeed, by buying mortgage-backed securities the Fed—an authority when it comes to risk—is suggesting that they’re not only safe, but valuable.

Second, by committing to the long haul, the Fed is providing a safety net that will encourage optimism, coaxing consumers out of hiding. “Go ahead,” the Fed is saying, “buy/sell/build that home. We’ll be here to support you.”

So, in the short-term, this buying-up-of-bonds won’t necessarily have an effect on housing, but in the long run, Colin believes that the Fed will stimulate the housing market.

Where to begin… Well, let’s begin at the beginning.

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Rethinking the REThink Future Program, Part 2: The Ostrich Scenario

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Image may be copyright: Georgia Tech and/or Angela Valenti

In part 1, I began to tackle the REThink Future program that is currently underway. I have posted Nicole-Anne Boyer’s gracious response to that post here. And now, we dive into the Scenarios themselves… because… well, because it’s fun for me.

Let me reiterate my agreement with the idea that if the purpose of these scenarios is simply to stimulate thought, then no critique of them is valid. It wouldn’t matter if the scenario began with “A dimensional portal opens up in the sky through which the Norse god Loki leads a horde of alien invaders into Manhattan – what is the effect on the midtown condo market?”

Nonetheless, I think there are solid ways to improve the REThink Future program by thinking about the Scenarios once again. So we will delve into each one in turn to examine how such a thing might be done to make each scenario more plausible, more impactful, and ultimately, more useful to the attendees and to NAR.

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On That Strong Buyer Demand Thing…

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First, watch the video above. It’s my doppelganger Lawrence Yun, Chief Economist at NAR, explaining the 1.4% drop in June pending home sales. This comes on the heels of bad news about June released several days ago:

June Existing Home Sales down 5.4%

June New Home Sales down 8.4%

And predictably, the media and various pundits are all over these three bad news bears.

I’m more interested, however, in one small fact that Lawrence brings out in the video above:

Lawrence Yun, NAR chief economist, said inventory shortages are a factor. “Buyer interest remains strong but fewer home listings mean fewer contract signing opportunities,” Yun said. “We’ve been seeing a steady decline in the level of housing inventory, which is most pronounced in the lower price ranges popular with first-time buyers and investors.” (Emphasis mine.)

He later says, “Buyer interest remains exceptionally strong,” and says there’s pent-up demand with all the renters out there today. He blames low inventory levels due to banks holding back REO’s from the market.

Can we delve a bit into this “strong buyer interest” piece?

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Real Estate Hope and Change for the Hope and Change Generation

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My friend Eric Stegemann, a Millennial himself, tweeted out the following article from BusinessWeek talking about the “Lost Generation” of Homeowners:

For some analysts, the scariest outcome of the collapsed home-price bubble is that it could turn an entire generation of would-be homeowners into perma-renters. Yale economist Robert Shiller floated the idea of a “lost generation” of homeowners in interviews with Reuters and Yahoo Finance. He thinks there is a chance that home prices in the suburbs may never rebound in our lifetimes.

I’ve been writing, talking, and thinking about Millennials/Gen-Y for quite some time now. It’s kind of a pet hobby. And for the Hope ‘N’ Change generation that went out for Obama in a big way in 2008 (2 out of 3 voted for the young cool hipster over that old and crusty McCain fella), they sure are facing a whole lot of Change even if that Hope thing is a bit thin on the ground.

Let’s chart some of these.

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NPR Notices Millennials Aren’t Buying Houses

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(c) Neal Coleman, from the NPR article

[Continuing my experiment on short posts... 600 words or less, guaranteed.]

I’ve been sounding the alarm on the Millennials for… oh… over two years now, I guess, starting with this post in March of 2010. I noticed that even the mainstream media (like the LA Times) is starting to catch on to the fact that Millennials (or Gen-Y) are kinda screwed. I suggested then that the future of housing is Renter Nation.

Well, it seems that NPR has come around to noticing the phenomenon:

The Taylors aren’t alone. The economic hammer has fallen especially hard on 20somethings — part of the so-called Millennial Generation or Gen Y born roughly between 1975 and 1995. Plagued by high unemployment, many have had to delay careers, marriage and having children. And the idea of owning a home is more often being put off or written off entirely.

In a nation where homeownership is part of the American dream, a generation of renters could alter communities where they live and redefine the idea of middle-class success.

Ya think?

But, but… Rob, the American Dream is still very much alive! Survey after survey shows that the desire to own a home one day is still strong as ever. Which is why it’s so important for REALTORS(R) to focus on how to market to Gen-Y, and how to get with the technology program, and focus like a laser beam on having the latest iPad apps, the latest gadgets, and learning about the latest social networking trends. Pinterest is a valuable tool for REALTORS(r)!

Yeah, maybe. But then you have this wee little issue to confront:

The vast majority of Americans who currently rent say they hope to buy a place of their own someday, according to a recent survey released by the Woodrow Wilson International Center. But Newman fears that for many young adults, at least, perception and reality have yet to come face-to-face.

“The capacity to own a home will be powerfully affected by the slowdown in [their] earnings,” she says, “especially for entry-level workers and the crushing consequences of student loan debt.”

Speaking of student loan debt… have you even seen this chart?

Holy *%&#@$!!!

NPR, of course, thinks the issue is about local governments. Fewer homeowners means less property tax receipts (see, e.g., Detroit):

“A question for local government leaders,” he [Rolf Pendall of Urban Institute] says, “is that if you have a generation that is less committed to taking a risk and buying property in that area, either because there are not jobs or because the overall national situation looks rocky, then as a local official, you absolutely have a problem for your long-term commitments, your long-term budget, your long-term obligations to such things as pension funds.”

The solution is obvious to Mr. Pendall:

But Pendall believes local governments will simply adjust to make rental properties “a larger share of the tax pie.”

Two things to think about from a real estate perspective.

1. If your marketing to Gen-Y does not include serving them as renters, does the rest of it matter all that much?

2. If local governments will look harder at rental properties for tax receipts, what might that mean for investors, the only people driving growth in the housing market?

And a followup third question to think about:

3. When NAR calls for a Rally to Protect the American Dream, and only 2.7% of its members show up at all, what member education topics should the Association focus on?

Yep, Instagram for REALTORS(R) is what I was thinking too.

-rsh

Some Data I Just Don’t Understand…

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Maybe they're checking Redfin's mobile app...

I think this might be a bleg (that would be a blog/beg) for help in making sense of some recent buyer data. Some of this just makes so little sense to me that I’m asking the Notorious community for assistance.

The buyer data comes from Redfin. I’m focusing on it because I know Redfin’s corporate culture is data-driven, and because the folks there are really good at data. They constantly survey their customers, they take pride in their NPS-derived customer satisfaction surveys, and pretty much have been data junkies from day one.

Given that we’re only looking at buyer survey data from one brokerage, and a fairly unique one at that, it isn’t clear how much weight we could/should put on the data. But it’s something. If you’re aware of any other brokerages (NAR’s survey is a bit too broad/diffuse, and I’d like to look at broker-level surveys) who have this kind of buyer data, I’d be interested in knowing about them.

So let’s get into it.

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Calling the Housing Market Bottom? Not So Fast…

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Courtesy of NAR Research — one of the more valuable things on Facebook — comes this CNBC article on how investors are flooding the residential real estate market:

The number of homes sold to investors more than doubled last year, as rising rents and low-priced distressed properties fueled demand. Investors, half of them using no mortgage, bought 1.23 million homes in 2011, a 65 percent jump from 2010, according to the National Association of Realtors. Half of the homes purchased were distressed properties, that is, foreclosures or short sales (when the bank allows the home to be sold for less than the value of the mortgage). [Emphasis added]

The video above references this explosion in investor interest as well, but goes well beyond that.

This new information from NAR, which the CNBC story references, answers a couple of questions for me on the hot housing market of the past couple of months. As a result, I’m not ready to call the bottom on housing, nor do I think that Renter Nation will pass us by.

Quite a few of my friends in real estate have already called the bottom, and are embarking on a round of marketing to consumers that this is a once-in-a-lifetime opportunity to buy real estate. I would urge them to tap the brakes just a little bit, since credibility is the coin of the trustworthiness realm.

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Three Questions on the NAR/Bipartisan Policy Center Paper

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The Bipartisan Policy Center — a think tank based in Washington DC once described as the place “where moderate Republicans go to embrace their inner liberal” — has released a new study in conjunction with NAR, the Urban Institute, and USC that is worth reading in full if you’re interested in topics like future of housing. Entitled “Demographic Challenges and Opportunities for U.S. Housing Markets“, it is a thoughtful academic treatment of the impact of demographics over the next couple of decades.

The key takeaways:

  • There will be a lot more old people in the next 20 years.
  • Old people sell houses
  • Young people buy houses, but current crop of young people (Millenials and younger) are suffering
  • Black and Hispanics hardest hit

Most of the paper, actually, is restatements of the obvious, such as “Over the next two decades, the U.S. housing market will depend on Echo Boomers”. You don’t say! Since Gen-Xers like me are in our 40s, 20 years from now, we’ll be in our 60s and looking forward to retirement (if such a thing exists by then). Who knew that the largest cohort since the Baby Boomer would be important to housing?

Nonetheless, the study concludes, “Notwithstanding predictions of a coming “rentership society,” however, none of the scenarios indicates a reduction in the overall U.S. homeownership rate below 60 percent before 2030.” (p. 18) The authors project that somewhere between 21 million and 25.5 million new households would form between 2010 and 2020:

The range of estimates in these scenarios can be attributed to different rates of household formation for Echo Boomers. Under the low scenario, people between 15 and 34 years old in 2010 (a span that includes Echo Boomers plus five years of the Baby Bust generation) would form 15.6 million new households between 2010 and 2020. Other cohorts would account for the formation of an additional 5.4 million households over the same time period (Figure 1). The medium scenario would result in 17.1 million new Echo Boomer households and 6.1 million other households. The high scenario, finally, yields 18.8 million new Echo Boomer households and 6.7 million new households from other generations. (p. 15)

And homeownership rates among these new households, the authors figure, would range from a low of 40% to a high of 67%, adding anywhere from a low of 3.8 million new homeowners to a high of 10 million from 2010 to 2020. (p. 16)

Although the authors do not make any recommendations for policymakers, it does seem to me from the overall narrative — the elderly will need lots of help, the young are being crushed financially, and black and Hispanics were hardest hit — that the paper is intended to spur government action to subsidize housing. Which, as a fan of the industry and all, I’m happy to consider, of course.

But there are three trends and factors that are simply not discussed in the paper, all of which have been much in the news of late. That glaring oversight makes me wonder if these projections are not wildly optimistic. Since I’ve been dabbling in the whole demographics angle — especially of Millennials — I figured, I should point those out and see what people thought.

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