Friday, June 6, 2014

Why the Housing Market Recovery Is Over


The Basic Problem: Death of the Trade-Up Market

During the roughly 50 years of rising home prices, the first-time buyer was the foundation of the housing market boom. This younger buyer would purchase a home which was smaller and less expensive than most houses. That would enable the seller to "trade up" to a larger, nicer home. These trade-up sellers would then buy and enable another trade-up buyer to do the same. 
And so the trade-up game came to a screeching halt. It has never returned. You need to understand that it will not be coming back. Do I mean never? Not quite. My answer -- not for a long, long time. 
Finally, inventory of homes for sale is rising rapidly. As I have predicted in several articles, homeowners who had waited have decided it is time to put their home on the market. This is also happening in other states covered by raveis.com. If you want to do some research yourself, just go to the raveis.com homepage and link to "Local Housing Data." 
To get a more comprehensive picture of the number of underwater homes, you need to add in the millions of homeowners with HELOCs taken out between 2005 and 2007. These HELOCs will be resetting into fully amortizing loans over the next 3 ½ years. Monthly payments on resetting HELOCs could double or triple. This reset will come as a real shock to these homeowners. 
If you are not sure whether your clients should sell their investment homes, my advice is to list them now before markets weaken further. 
Finally, as I have made clear in previous writings, this is the time to sell mortgage REITs, not to buy them.

Half of Americans can’t afford their house

Over half of Americans (52%) have had to make at least one major sacrifice in order to cover their rent or mortgage over the last three years, according to the “How Housing Matters Survey,” which was commissioned by the nonprofit John D. and Catherine T. MacArthur Foundation and carried out by Hart Research Associates. These sacrifices include getting a second job, deferring saving for retirement, cutting back on health care, running up credit card debt, or even moving to a less safe neighborhood or one with worse schools.

The Q Ratio and Market Valuation: Monthly Update




DYI Comment:  Above is a 15 year inflation corrected moving average showing an over blown, over priced stock market.

DYI

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