February 18, 2008

Will Boomers Tank the Real Estate Market?

A new study by two USC researchers, Dowell Myers, a professor of urban planning and demography in USC's School of Policy, Planning and Development, and Sungho Ryu, a doctoral candidate at the school and an associate planner with the Southern California Assn. of Governments has interesting implications for the future housing market.

Their thesis essentially is that as the nation ages the owners of property sell to use their equity. Historically, there is evidence that seniors sell between 55 and 75. The first boomers will be reaching this apex at or around 2011. Correctly, the thinking is that this added supply for a decade or more will seriously increase market supply and most especially in the retirement states such as Florida and Arizona. This should happen just as many economists are predicting the markets will have recovered.

According to the researchers, via the LA Times article: ".. the rates of buying and selling remain closely related because those who sell one house typically buy another. When people enter their late 50s and early 60s, as the leading wave of baby boomers has now done, buying and selling are in balance. When they reach their mid-60s, though, sellers start to outnumber buyers. And when they hit their 70s, sellers dominate."

Who Wins:

Very interesting stuff and certainly logical. If this plays out as they expect then I would think that the winners would be

1. The American Dream: People now out priced by homes

a. Young people

b. People starting over

c. The newly arrived with less asset

2. Builders and retirement communities in less expensive parts of the world such as Panama might see rising equity

3. Property Managers in America

Thanks for Reading

Howard Bell


February 10, 2008

How to Save the world: Buy Foreclosed Property for Affordable Housing

I came across an article in the San Diego Union Tribune that was very thought provoking. The article discussed some novel ways which cities were brainstorming the problem of foreclosed homes and the blight they create when they sit on the market. How will cities deal with rows and rows of foreclosed homes lowering the value of homes near them and inviting squatters or worse.

One solution being explored by the San Diego City-County Reinvestment Task Force is to create a regional bank. A new agency would be created that would buy up these homes before they became city blight or a speculators dream and instead create affordable housing. The proposal was much more far reaching, but what intrigues me is the use of these homes to solve other growing problems. Heres what they said:

"Form a regional land bank to buy foreclosed properties to create affordable buying opportunities while guarding against neighborhood blight. Purchased homes could be rented at affordable rates and later sold at affordable prices."

Wow! The idea of creating a bank using Government seed capital and private investment capital to buy foreclosed homes and fix them up for lower income people who have been priced out of the home markets in recent years and then sell these homes when the markets return is a total win for everyone. Variations of this such as rent to own for those who would like to get into the market at a later date when homes have reached price equilibrium is another great possibility.

Who Wins

1. The city that maintains vibrant neighborhoods rather that shuttered homes that are a blight, an invitation to crime and a potential health hazard

2. Real estate agents that see less property on the market

3. Rows of foreclosed homes can only lower the value of neighboring homes

4. Affordable housing is a community benefit

5. According to Task force member Robert F. Adelizzi, a retired banker and chair of the subcommittee that rafted the recommendations, this can be both profitable and socially beneficial.

Thanks for Reading
Howard Bell

February 6, 2008

Buyer Hesitation

Demand Versus Buyer Hesitation
Lawrence Yun, NAR Chief Economist

The stats quoted in this article point to a rippling effect that weak housing is having on the job market. He notes:

1. Residential construction and related contractor jobs fell by 28,500 during the month and are now lower by 291,000 from their peak employment level nearly two years ago. The commercial real estate market appears to be topping out as 16,800 jobs were cut in December.

2. Existing-home sales have been right at or near 5 million for the past three months and are down 20% from a year ago and down 30% from the peak year of 2005. The current level of activity is far below that of even the pre-boom year of 2001.

The most interesting point to this article is not the downtrend we are too well aware of but his absolute enthusiasm about 2008 as a turn around year. He goes on to say "Though pent-up demand clearly exists, it is still tricky to anticipate when a meaningful recovery will take place. Will it be spring or summer or fall when we will see a notable pick-up in home sales? Difficult to say, but it will happen in 2008."

Some of this is paraphrased to isolate the point, still I wish it were true....My. Yun is certainly privy to more data than I, but I have noticed they were fairly optimistic all the way down.

How does he account for $450 billion in ARM's coming due in the next three years. These are supposed to increase monthly costs to homeowners by 30-50%, just as their equity is vaporizing. I think we will see a lot more supply and lower prices before that pent up demand actually gets off its dime and buys.

Thanks for Reading

Howard Bell