This Week's Dire Prediction of the Real-Estate Crash
USAToday put the cooling of the real-estate boom on its front page at midweek. The telltales, according to McPaper, were the increasing number of homes on the market and the decline in existing homes that sold last month. Also: "Builders are seeing more orders canceled. "Meanwhile, the number of homeowners who are late paying their mortgages has been creeping up."
The story introduces the sad-sack seller Fran Floyd, who pulled her Houston townhome off the market even though she's willing to lose $3,400 on a sale. Developers are making things harder for the Fran Floyds by offering free granite upgrades in their kitchens and built-in swimming pools out back. Those goodies kick the value out of a house in the same area with Corian countertops and a mosquito-breeding aboveground. You don't even have to read between the lines to see that homeowners who aren't in a rush to sell can still expect to build equity at a comfortable pace. The average price for an American home is hanging tough at $211,000, unchanged from December and up 11 percent from a year ago. Economists, says the story, expect existing home prices to continue up some 5 percent, despite the slowdown. Conservative
stock market investors are usually happy with that kind of return on their money.
All throughout the boom, the bouyancy of real-estate prices has been put to the irrepressibly agreeable mortgage rates; because foreign lenders continue to rush into the American debt market, the Feds attempts to drive the prime rate (and therefore the cost of borrowing) up have gone for naught. As long as money was cheap, and mortgage payments low, homebuyers could afford to bid up the price of their dream house. There are longer-term trends at work, however, chiefly the difficulty in finding new land on which to build. As Jon Gertner pointed out in his profile of luxury developer Toll Brothers in The New York Times Magazine last summer, many states and localities are looking to slow development, if not choke it off entirely. That pressure, combined with natural population growth are liable to push housing prices, currently about three times a family's yearly income, closer to European proportions. In England and "Old Europe," a family pays as much as seven times their income for a home.
At some point, American home prices must link up with the reality of diminishing space for new houses. That point may have already come. Some observers will tell you that that ceiling has always pertained. As the realty agents have said for decades to explain the relationship of supply to demand when it comes to real estate, "They ain't making any more of the planet."
The story introduces the sad-sack seller Fran Floyd, who pulled her Houston townhome off the market even though she's willing to lose $3,400 on a sale. Developers are making things harder for the Fran Floyds by offering free granite upgrades in their kitchens and built-in swimming pools out back. Those goodies kick the value out of a house in the same area with Corian countertops and a mosquito-breeding aboveground. You don't even have to read between the lines to see that homeowners who aren't in a rush to sell can still expect to build equity at a comfortable pace. The average price for an American home is hanging tough at $211,000, unchanged from December and up 11 percent from a year ago. Economists, says the story, expect existing home prices to continue up some 5 percent, despite the slowdown. Conservative
stock market investors are usually happy with that kind of return on their money.
All throughout the boom, the bouyancy of real-estate prices has been put to the irrepressibly agreeable mortgage rates; because foreign lenders continue to rush into the American debt market, the Feds attempts to drive the prime rate (and therefore the cost of borrowing) up have gone for naught. As long as money was cheap, and mortgage payments low, homebuyers could afford to bid up the price of their dream house. There are longer-term trends at work, however, chiefly the difficulty in finding new land on which to build. As Jon Gertner pointed out in his profile of luxury developer Toll Brothers in The New York Times Magazine last summer, many states and localities are looking to slow development, if not choke it off entirely. That pressure, combined with natural population growth are liable to push housing prices, currently about three times a family's yearly income, closer to European proportions. In England and "Old Europe," a family pays as much as seven times their income for a home.
At some point, American home prices must link up with the reality of diminishing space for new houses. That point may have already come. Some observers will tell you that that ceiling has always pertained. As the realty agents have said for decades to explain the relationship of supply to demand when it comes to real estate, "They ain't making any more of the planet."
posted by burb at 9:05 PM
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