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The Coming Real Estate Supply/Demand Inventory Reversal


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2013 Jun 22, 1:02am   27,729 views  63 comments

by smaulgld   ➕follow (4)   💰tip   ignore  

This was written last week. Looks like demand may drop soon with rising interest rates due to the threat of the Fed's tapering.

Or we may get a final rush to buy before rates go higher(and lots of inventory coming on line to sell before the drop in prices)

Take a look and provide comments

http://smaulgld.com/the-coming-supplydemand-real-estate-inventory-reversal/

#housing

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1   Tenpoundbass   2013 Jun 22, 8:28am  

smaulgld says

Looks like demand may drop soon with rising interest rates due to the threat of the Fed's tapering.

Interest rates will climb, and so will demand.
What will change is the motive of the buyers.

2   kmo722   2013 Jun 22, 1:50pm  

Yea. For a while because the average Joe is an easy sell. CaptainShuddup says

smaulgld says

Looks like demand may drop soon with rising interest rates due to the threat of the Fed's tapering.

Interest rates will climb, and so will demand.

What will change is the motive of the buyers.

3   elliemae   2013 Jun 23, 4:09am  

http://www.latimes.com/business/realestate/la-fi-secret-house-listings-20130623,0,4463414.story

"Southern California housing prices are rising sharply, and there's a shortage of houses available for sale.

So agents like Mathys are resorting to reconnaissance and back-channel networks to find homes that haven't yet hit the market. They're cold-calling homeowners with offers and targeting specific neighborhoods with direct mail. Some come bearing bizarre gifts in return for a listing. One agent offered a seller the use of his exotic car; one of his clients offered free dogs."

4   smaulgld   2013 Jun 23, 4:23am  

I expect for a short while there will be a rush to get homes before rates rise. This will probably be a mistake as prices will fall as rates rise

5   smaulgld   2013 Jun 23, 6:04am  

the window to sell at peak prices appears to be closing..

6   Bubbabeefcake   2013 Jun 23, 7:18am  

Ceffer says

Is it yam time? Is the bubble bursting? Is the music over? Are the sellers starting to run for the doors? Is the sky falling?

It's two steps backwards in order to take one step foreword. ...

7   smaulgld   2013 Jun 23, 7:37am  

the sky may not be falling but the storm clouds are there for all to see..

8   smaulgld   2013 Jun 23, 8:11am  

Prices in california are far higher vs income levels than say Texas where the price of a home is less and the unemployment rate is lower.

In 2000/2001 California had net migration to the state, now its losing people.

California is its own special set of disaster. The blog post just addressed the national situation with rising interest rates and increased inventory.

People are fleeing california and college graduates there like every where else are having a hard time finding jobs and have tons of student loan debt. How are they going to be able to afford houses, especially in California.

http://smaulgld.com/student-loans-and-unemployment-are-holding-back-the-economy-and-real-estate-market/

9   evilmonkeyboy   2013 Jun 23, 8:18am  

I'm in South San Jose/Campbell area and there is a TON of condos are the market this weekend. In my condo complex there is usually about 1 unit for sell each month... today there are 4 open houses. I went biking around the neighborhood only to see that the other complexes around me also have a ton of open houses as well.

10   smaulgld   2013 Jun 23, 8:49am  

Even if that is 100 pct true only rich people are moving to california and only poor people are leaving that doesnt bode well because there are not enough rich people to populate the largest state
And without poorer people who will do the work for the rich people
That argument may work for parts of sam francisco and palo alto but not the entire state

11   lostand confused   2013 Jun 23, 9:23am  

Hausmeister T says

Statistics for California show: the poor, the uneducated, the unemployed and
underemployed are leaving the state. The wealthy, the highly educated, as well
as Asian Business Millionaires are moving into California. Homes are purchased
with all cash at record levels. Money is no issue in California. At least not
for those that are staying or just arriving.

Can you provide a link to the statistics?

12   New Renter   2013 Jun 23, 11:20am  

Ceffer says

Is it yam time?

Its ALWAYS a good time for yams!

13   New Renter   2013 Jun 23, 11:24am  

lostand confused says

Hausmeister T says

Statistics for California show: the poor, the uneducated, the unemployed and

underemployed are leaving the state. The wealthy, the highly educated, as well

as Asian Business Millionaires are moving into California. Homes are purchased

with all cash at record levels. Money is no issue in California. At least not

for those that are staying or just arriving.

Can you provide a link to the statistics?

I'd like to see them too.

14   ZoabKhan   2013 Jun 23, 11:52am  

i don't know which price drop you guys are talking about in June. I was looking at this place:

2/2.5 1100sq ft.
1200 Arabica Ter, Santa Clara, CA. Right next to the railroad tracks and not far from the airport runway. Close to Santa Clara University

Offered at $475k, Pending for $540k. Thats the status as of this afternoon.

http://www.redfin.com/CA/San-Jose/1200-Arabica-Ter-95126/home/12179768?utm_source=myredfin&utm_content=address&utm_campaign=instant_listings_update&utm_medium=email

15   Rew   2013 Jun 24, 2:41am  

Ceffer says

Just perused Zillow last night in Santa Cruz and Pleasanton. Showed a sharp spike downward in sales prices in june, is that a trend? Is it yam time? Is the bubble bursting? Is the music over? Are the sellers starting to run for the doors? Is the sky falling?

Yes, the sellers motivations are always purely market timing, so they will all rush to list at the same time. Just like all buyers. They each sit, every evening, hoping to time the market just right and list/buy at the perfect moment.

16   exfatguy   2013 Jun 24, 3:22am  

I'm kinda convinced that fundamentals are dead. No matter how much they try to come in to play, there is always going to be some sort of outside force to come in and prevent it.

So prices SHOULD go down, but they never will. If you haven't bought by now, you really ARE priced out forever.

17   bmwman91   2013 Jun 24, 4:00am  

exfatguy says

I'm kinda convinced that fundamentals are dead. No matter how much they try to come in to play, there is always going to be some sort of outside force to come in and prevent it.

So prices SHOULD go down, but they never will. If you haven't bought by now, you really ARE priced out forever.

I wouldn't say that fundamentals are dead. In the LONG term, they run the show. Remember that markets can stay irrational longer than you can stay solvent. Right now in the SFBA it looks like anywhere from 10%-30% of RE purchases are being made by wealthy foreign absentees, mainly mainland Chinese. They got their money from the fundamentals: western consumer consumption. At this rate the SFBA will just turn into the next Vancouver. We are already half-way there: driving here is like running an obstacle course. If you see a champagne colored luxury SUV, put some distance between you and it lol.

Some friends of my wife that work in finance and regularly visit clients in Shanghai say that the elevators in office towers and RE company windows are filled with "Buy USA Real Estate" and "Buy CA Real Estate" flyers. CA RE is the latest novelty to the new Chinese aristocracy, and it is the worst thing that could possibly happen to CA as far as I am concerned, but it is what it is. It's bad when ANY group of mega-wealthy people start buying everything up, but the Chinese happen to be the main ones doing it in the nice parts of the SFBA at the moment. Wall Street is actually worse in terms of how many properties they are consuming, but they aren't really doing it in this area because prices are high enough to make decent rental returns difficult.

Anyway, things are nutty now, at least as much as the '00's bubble but for different reasons. Prices are rising at an unsustainable rate if we are ever going to get a return to historically-precedented inventory levels. So we will either see inventories jump and prices fall, or inventories grow very very slowly over a matter of years with prices doing anything from remaining flat to rising moderately as inflation pushes along. There is also the chance of a major market melt-down, but trying to predict those events is pretty tough. I don't think that people will be priced out forever, but people will need to get used to the idea of paying more of their disposable income into housing than they were previously used to. It's how the rest of the industrialized world works, and it looks like America can't be the wonderful anomaly forever. THE time to be in your prime in the USA was 1950-1990 when we had post-WWII infrastructure and the daily threat of total annihilation by the Reds to keep everyone motivated. Most of the rest of the world was leveled after WWII, but it isn't as fun now that everyone else is finally catching up.

18   smaulgld   2013 Jun 24, 4:17am  

donjumpsuit
"Here comes the fictitious appraisals and subprime loans!"
yes they will come as will ARMS when rates go higher-that will signal the blow off top/crackup boom before the crash

19   bmwman91   2013 Jun 24, 4:19am  

ARMs are already back. They have been for a while. You still need to put down at least 10% to get one, 20% if you are looking over $420k. A LOT of my wife's coworkers are using them. Honestly, I can't figure out why given that rates are rising right now, and the only answer they give is, "because I can get a 5/1 or 7/1 for SUCH a low rate right now! I'll just re-fi later before it resets." I don't get it, but whatever.

20   Tenpoundbass   2013 Jun 24, 4:36am  

Hausmeister T says

The wealthy, the highly educated, as well as Asian Business Millionaires are moving into California.

It will be interesting to watch them flip their own burgers, and scrub their own shorts.

21   bmwman91   2013 Jun 24, 4:55am  

CaptainShuddup says

Hausmeister T says

The wealthy, the highly educated, as well as Asian Business Millionaires are moving into California.

It will be interesting to watch them flip their own burgers, and scrub their own shorts.

Work is for poor people. They are buying RE here to launder their money out of Asia and into something that Beijing can't forcibly take from them or their kids. When they say that RE here is an "investment" they mean it more as a way to preserve some fraction of their wealth, not necessarily as a way to grow it. That is actually the one thing that, "makes this time different." When faced with the possibility of losing all of your money, or "just" half of it, the choice is clear. Now, if China is able to work-out a white collar criminal extradition treaty with the US (which they ARE working on), that would be a game-changer.

22   David Losh   2013 Jun 24, 11:13am  

I like your website, and the content, I think, it may just depend on the day.

Yes, I think there will be a reversal of demand.

As mortgage rates rise, things like that Affordability graph will turn negative, consumer confidence will fade.

Next there will be an article about Real Estate being a Buyer's Market.

It makes no difference to you, if you bought well, in the right Metropolitan area. Some market places never seem to change.

23   New Renter   2013 Jun 24, 11:33am  

APOCALYPSEFUCK is Shostakovich says

bmwman91 says

Now, if China is able to work-out a white collar criminal extradition treaty with the US (which they ARE working on),

Got a citation?

Do tell.

24   smaulgld   2013 Aug 23, 1:22am  

Is here now.....

25   Facebooksux   2013 Aug 23, 1:46am  

Ceffer says

Just perused Zillow last night in Santa Cruz and Pleasanton. Showed a sharp spike downward in sales prices in june, is that a trend? Is it yam time? Is the bubble bursting? Is the music over? Are the sellers starting to run for the doors? Is the sky falling?

I would say....yes.
http://www.zerohedge.com/news/2013-08-23/new-home-sales-crater-lowest-october-biggest-drop-may-2010-median-home-price-6-month

26   smaulgld   2013 Aug 23, 1:46am  

John Bailo says

smaulgld says

I expect for a short while there will be a rush to get homes before rates rise. This will probably be a mistake as prices will fall as rates rise

Rates will fall again.

Rates will fall once the fed realizes that they created a housing "recovery' that only "recovers with low rates and they stop the taper talk. If they insist on stopping QE, rates will soar and real estate and the stock market will "tank" because as Bernanke says "the economy is weak"

http://smaulgld.com/bernanke-warns-of-tanking-the-economy/

28   smaulgld   2013 Aug 23, 2:07am  

tatupu70 says

Facebooksux says

I would say....yes.
http://www.zerohedge.com/news/2013-08-23/new-home-sales-crater-lowest-october-biggest-drop-may-2010-median-home-price-6-month

You'd be wrong then. New home sales are a small % of the overall market. Here's the number you should be looking at:

http://finance.yahoo.com/news/existing-home-sales-rise-july-154831473.html

July New home sales are reflective of sales made by signing of contract to buy in JULY- after rates had rises significantly.

Exisiting homes were contracted for before July and before the rise in interest rates- this bubblet is over.

Interest rates like deficits matter!

Keep in mind this blog post predicted this back in mid June

29   B.A.C.A.H.   2013 Aug 23, 2:09am  

smaulgld says

People are fleeing california and college graduates there like every where else are having a hard time finding jobs and have tons of student loan debt. How are they going to be able to afford houses, especially in California.

Doesn't matter. That's what the H-1 program is for.

Princelings' kids (and kids of "princeling-equivalents-from other places in Asia, say like, Mumbai) with their newly minted PhDs from US schools, debt free and money from "back home" will fill the cubicles and fill the housing.

No matter how expensive and crowded the housing may seem to you in the Bay Area, it is dirt cheap, wide open prairie spaces, at Bargain Prices, in comparison to the crowded polluted cities they came from.

30   deepcgi   2013 Aug 23, 2:15am  

The same thing that makes prices rise also makes them fall...greed. Cognitive dissonance is driving the current rise. Fear drove the last two bubble bursts. It will again this time. Also the greatest bubble of all time, the bond bubble, could destroy credit as we know it.

31   smaulgld   2013 Aug 23, 4:07am  

The real estate market is 100% dependent on Fed QE-without it forget it

32   Buster   2013 Aug 23, 9:14am  

I am not sure how you can simply correlate housing demand or need based upon only price. In fact, housing demand and need should be based upon population.

Here is the SF Bay area population increases for the past 60 years;

1950 2,681,322 54.6%
1960 3,638,939 35.7%
1970 4,628,199 27.2%
1980 5,179,784 11.9%
1990 6,023,577 16.3%
2000 6,783,760 12.6%
2010 7,150,739 5.4%

Some are projecting that by 2040 that population in the Bay Area will grow from 7.1 million to 9.2 million — an additional 2.14 million people and a projected need of 660,000 new housing units. So we need to build an average of 22,000 units/year to accommodate the population increase.

So how many new units are we constructing/year? Are we keeping up or slipping behind to meet the demand? I am not sure. Anyone with stats? Thanks.

33   bufferoverflow   2013 Aug 23, 9:26am  

You guys stress me out.

I'm not sure what to do.

Buy now with prices just insanely high (san diego)? Or rent for the next few years, hoping to save up more?

Rates are so low, I can't help but to think when they rise 3-5%, prices will have no choice but to go down.

34   B.A.C.A.H.   2013 Aug 23, 10:13am  

bufferoverflow says

You guys stress me out.

I'm not sure what to do.

That's funny.

Bloggers stress you out and you don't know what to do?

How about what not to do?

Like, don't read blogs that stress you out.

35   jack007   2013 Aug 23, 10:36am  

You guys stress me the F* out.

"PRICES WILL GO TO INFINITY"

"NO THEY WONT, PRICES ARE CRASHING!!"

What the HECK!

36   bufferoverflow   2013 Aug 23, 11:28am  

Buster says

I am not sure how you can simply correlate housing demand or need based upon only price. In fact, housing demand and need should be based upon population.

Here is the SF Bay area population increases for the past 60 years;

1950 2,681,322 54.6%

1960 3,638,939 35.7%

1970 4,628,199 27.2%

1980 5,179,784 11.9%

1990 6,023,577 16.3%

2000 6,783,760 12.6%

2010 7,150,739 5.4%

Some are projecting that by 2040 that population in the Bay Area will grow from 7.1 million to 9.2 million — an additional 2.14 million people and a projected need of 660,000 new housing units. So we need to build an average of 22,000 units/year to accommodate the population increase.

So how many new units are we constructing/year? Are we keeping up or slipping behind to meet the demand? I am not sure. Anyone with stats? Thanks.

Isn't the bay area already high with respect to population density?

And it's going to *grow* by 30%?

That's impressive. Where were these numbers collected from?

37   lostand confused   2013 Aug 23, 11:30am  

APOCALYPSEFUCK is Shostakovich says

bmwman91 says



Now, if China is able to work-out a white collar criminal extradition treaty with the US (which they ARE working on),


Got a citation?

Yeah it is part of FATCA. The US wants all foreign financial and banking institutions to turn over the account details of US citizens living abroad-else they will be punished.

China has asked for data of assets and financial data of Chinese nationals in the uS in return. The US has so far refused-but if they agree-them Chinese will flee to Canada.

38   Buster   2013 Aug 24, 10:09am  

bufferoverflow says

And it's going to *grow* by 30%?

That's impressive. Where were these numbers collected from?

http://www.sfbg.com/2013/05/28/planning-displacement?page=0,0

39   David Losh   2013 Aug 24, 11:14am  

http://www.census.gov/construction/nrc/pdf/newresconst.pdf

http://www.nbcnews.com/business/new-home-sales-tumble-raising-recovery-worries-6C10984422

These are the stats putting the number of new construction at 900K units, and sales at 400K units.

There just isn't the demand for the housing units, and apartment construction is the highest since 1986.

Come on, get on board. Housing units are different than stocks, but are subject to intense speculation in assets.

40   David Losh   2013 Aug 24, 3:24pm  

egads101 says

Buying a house in 2006... you thought the price would go up, but it went down.

You did not pay the bank...

I see you sayin in 2010 that prices would go down more.

You were wrong again.

The house we bought in 2006 we made a $64K profit on by selling it.

What you mean is we refinanced our personal residence for $570K which we bought in 2003 for $300K.

Bank of America bought our $70K HELOC from Countrywide, but didn't have a clear title, they are still trying to sort that out.

We always have the option to walk away from any property, but we've decided to keep this mill stone, because it is now worth more than the total owed.

In 2010 no one saw the 1% mortgage rate drop in 2011. The Real Estate market should have been allowed to correct, but it didn't.

So pretty much you are wrong about everything, the way most Real Estate amateurs are.

I'll stick with my strategy, because so far I'm making more in my market place.

egads101 says

That is the housing word.

The word is prices will drop like a rock. I have a different point of view given how much has been invested in Real Estate. Prices will deflate, the same as wages are deflating now.

Bring data next time.

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