There are no more low-priced homes

[james.hendrickson]

There are no more low-priced homes

* Home prices are higher at virtually every price point, but the gains are biggest at the low end where demand is highest.
* The median price of a home sold in July hit $258,300, the highest July price on record, according to the National Association of Realtors.
* "On the lower end, there is virtually no property at a very low price level anymore," said Lawrence Yun, chief economist of the Realtors group.

Diana Olick | @DianaOlick
Published 8 Hours Ago | Updated 7 Hours Ago
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Sales of both newly built and existing homes fell unexpectedly in July, and while it's just one month's data, it may be a signal that the housing market has hit an insurmountable hurdle. It is just plain too expensive. Home prices are higher at virtually every price point, but the gains are biggest at the low end where demand is highest.

The median price of a home sold in July hit $258,300, the highest July price on record, according to the National Association of Realtors. The Realtors divide sales figures into six different price "buckets" in their monthly report. Sales in the range of $100,000 or below were down 14 percent compared with a year ago, while sales of million-dollar and higher homes jumped nearly 20 percent.

More telling is that at the start of 2013, when home prices were just beginning to bounce off the bottom of the housing crash, the share of homes sold above $500,000 was just 9 percent of all sales. Today that share is more than 14 percent. The share of lowest-priced home sales today is less than half of what it was then as well.

"On the lower end, there is virtually no property at a very low price level anymore," said Lawrence Yun, chief economist for the National Association of Realtors. "The same property has been moved up to a different price bucket just because the prices have been rising strongly, over 40 percent price appreciation in the past five years. We are not getting the transactions on the lower end because there is virtually no inventory on the lower end."

In the wake of the housing crisis, investors bought thousands of low-priced, distressed homes, putting a price bottom on the market but also removing lower-priced inventory. The expectation at the time was that if prices jumped, the investors would sell. For the most part, they did not. In fact, investors continue to buy properties, even at peak prices today because both the rental market and the market to flip these homes are so lucrative.

"As long as affordable homes come on the market — either from builders building homes or investors selling rental properties — buyers are likely to buy," wrote Realtor.com's chief economist, Danielle Hale, after the sales release. "The biggest challenges continue to be on the more affordable end of the spectrum, where sales are slipping; meanwhile, we saw sales gains at higher price points, where inventory is more plentiful."

Homebuilders are continuing to increase production and selling homes they haven't even built at a historically fast pace. They are not, however, putting up low-priced homes, even though demand there is high. They argue they cannot make the margins work, given the high costs of land, labor, materials and regulation. The median price of a newly built home recently hit a record high.

Home price gains are now accelerating again, and overheating in several major markets where supply is lowest. Inventory nationally has been falling for nearly three years straight and was down 9 percent in July compared with a year ago. The Realtors' housing affordability index recently fell to the lowest level since 2008, even as mortgage rates hover near record lows.

"The fundamentals of housing demand remain strong, led by solid job gains, faster household formations, and low mortgage rates," wrote Benjamin Ayers, senior economist at Nationwide in reaction to Thursday's sales report. "These suggest that existing home sales should move higher as the year progresses, although actual sales will likely be held back by the lack of inventory."

Link: https://www.cnbc.com/2017/08/24/ther...ced-homes.html

[JoeP]

In my area, some demand is fueled artificially. What this means is that lenders are willing to approve high value loans, and borrowers seem to have no problem with huge debt. So a seller can ask for a higher price, saying, "That's what other homes went for, so it must be the market value." And at the same time, borrowers will say, "That must be what houses cost now, so I better get a big mortgage."

FWIW, in upstate NY, there are plenty of affordable homes. A lot like this: http://www.realtyusa.com/property/9-...erNY/R1066984/

[james.hendrickson]

That property looks quite affordable. Too bad the market here in Portland isn't a bit more reasonable. Around here I'm hearing that properties regularly sell for over asking price - in some cases tens of thousands of dollars over asking.

[msomnipotent]

We have been looking at homes for at least a year now. Everything is overpriced. We looked at a home 2 days ago that was $350,000. I wouldn't have paid more than $300,000, if that. The yard was .25 acre and the house was 2,100 sq ft (which is very small in this area). It didn't even have granite countertops or upgraded cabinetry. I wouldn't be surprised if it gets an offer by next week. When I looked up the tax history, this sold for $320,000 at the height of the housing bubble. I think that is part of the problem. People that bought during the bubble are now selling their homes and still expect to make a profit. Then there are people that don't do due diligence and buy an overpriced house just because they can get a mortgage for it, just like during the bubble.

[disneysteve]

The problem is people want to have it both ways. They want lower-priced homes but they want them filled with every modern amenity like granite countertops and ceramic tile and rainshower shower heads and stainless appliances and on and on and on.

If you want lower-priced housing, you need to accept that you will get something much more basic. There just isn't enough market for that and there isn't enough profit in it for the builders.

Our house is old and hasn't had all of those fancy upgrades. Someday when we sell it, it will be a very affordable home for someone but I suspect we will have a great deal of difficulty selling it specifically because it is lower priced and not fancy.

[JoeP]

Our house is old and hasn't had all of those fancy upgrades. Someday when we sell it, it will be a very affordable home for someone but I suspect we will have a great deal of difficulty selling it specifically because it is lower priced and not fancy.

Ours sounds similar to your. However, our plan is to refresh the kitchen, flooring, and bathrooms about 5 years before we plan to sell. The reasoning behind this is twofold. First, we will get to enjoy those niceties for a few years. Second, prospective buyers will be less apt to low-ball us due to something being antiquated and "needing" to be upgraded. It might even sell better.

You might want to consider a couple strategic uplifts to give it a better chance of selling.

[disneysteve]

You might want to consider a couple strategic uplifts to give it a better chance of selling.

I can't tell you how much I despise this idea, though you aren't the first person I've heard it from. The thought that we need to spend a small fortune to remodel our home, which we're perfectly happy with, just to sell it and maybe get a better price (which probably won't fully cover the cost of the renovations) is not at all appealing to me.

I'd rather sell it as is and be done with it. Let the new owners update it to their liking, not buy it based on our taste and budget. Seriously, we're not going to go high end with any work we have done. We're going to spend as little as we can get away with. Why would new owners want that?

[tripods68]

JoeP is right.

Before we sold our home last year (August), we upgraded the kitchen, put new flooring, and fresh paints. It took roughly about a month to complete the renovation. In the end, it paid off big time. We sold our home within a week. We got the asking price we were looking for and that's all it matters in the end. Getting the highest price in the hottest market.

If renovation is not something you like to do, hire a competent contractor that can do all the work (establish a budget first) needed in the house and get out of the way.

[JoeP]

I can't tell you how much I despise this idea, though you aren't the first person I've heard it from. The thought that we need to spend a small fortune to remodel our home, which we're perfectly happy with, just to sell it and maybe get a better price (which probably won't fully cover the cost of the renovations) is not at all appealing to me.

I'd rather sell it as is and be done with it. Let the new owners update it to their liking, not buy it based on our taste and budget. Seriously, we're not going to go high end with any work we have done. We're going to spend as little as we can get away with. Why would new owners want that?

I get that, and absolutely respect that opinion. We are actually your buyers, in the sense that we bought a house as-is, but have not yet updated it (much), as we favor other expenses such as college and bringing down debt. We're going to make those remodels to get it the way we like it, and the plan is to do this in the timeframe I mentioned. Who knows, we may like it so much that we stay longer!

[silvor]

The problem is people want to have it both ways. They want lower-priced homes but they want them filled with every modern amenity like granite countertops and ceramic tile and rainshower shower heads and stainless appliances and on and on and on.

BINGO.

I think the average home in 1950 was 850 sq ft. Now, 2100 is "too small". And families were larger back then also!

[disneysteve]

BINGO.

I think the average home in 1950 was 850 sq ft. Now, 2100 is "too small". And families were larger back then also!

Exactly. It is a vicious cycle. People demand bigger and bigger homes and then complain that houses aren't affordable. Well of course not. You're not going to get a 2,000 sq. ft. home for the cost of an 850 sq. ft. home.

[msomnipotent]

The point of the article (and my posts, at least) is that there is another housing bubble and homes are overpriced. I could easily afford the $350,000 house we looked at, so affordability isn't the issue for me. I'm not going to buy an overpriced house, and neither will a lot of people if they don't have to.

By the way, the average home in 1950 had one bathroom and 2 bedrooms with a purchase price of $8,500. With the data I looked at, the price per square foot in 1950 was about $86. The price per square foot at the homes in the area I am looking at comes to about $164. With that kind of increase, you can bet people are expecting better than 1950's style homes.

The problem I am encountering is that builders will jerry-rig 4 bedroom and 2/5 to 3 baths in a 2,100 sq ft house. That makes closets and cabinets oddly shaped (or left out altogether), and room sizes are too small to be of any real use. Doorways and hallways are too narrow to get even the smallest wheelchair through, and then they have 90 degree angles. There is a huge difference between space and useable space.

As it stands, I'm really tempted to just forget about looking until prices come down to reasonable levels. We had to move during the last housing bubble and I'm not looking forward to doing it again no matter how much I hate this place.

[disneysteve]

The point of the article (and my posts, at least) is that there is another housing bubble

And a lot of that is probably for the very same reasons as last time: easy credit. After the 2008 crash, lenders really tightened up their criteria. During the bubble, they were giving mortgages to anyone with a pulse. No income? No problem. Want to borrow 6 times your income? Sure, just sign here. Post-crash, they actually started requiring people to prove that they had the means to repay the loans. Imagine that. Now, we're starting to see it slide back to the pre-2008 conditions. Lenders are relaxing the rules again and extending more credit to people who can't really afford it, allowing them, once again, to get into houses that they can't afford. That pushes up prices.

Sadly, nobody seems to have learned a thing from 2008.

[msomnipotent]

I heard on CNBC a few months ago that lenders were starting to give out easy loans again, but I haven't seen it for myself. The amount of paperwork involved just to get pre-approved was staggering. It wasn't because of our credit scores, which are in the high 800's. Not only did we need to prove that we had enough money, but we needed to prove that we were not money launderers, too. Even to make an offer, we needed to sign several documents, plus write a large check instead of just the $100 we needed before. We were told the check needs to be at least 1% of the offer, but I don't know if that was a realtor thing or a law. Things are very different for us this time around, and we have been using the same mortgage broker for the last 4 homes. The same guy told us during the bubble that he could loan us up to 1 mil, even though we clearly could not afford it. Now he was worried if he could even get us a loan because we want to buy a house before we put ours on the market.

[bjl584]

There are still deals out there. You just need to stay off the MLS and look elsewhere. Wholesalers and private transactions are probably the best places to look.