Is housing industry selling shelter or investments? – Orange County Register


The real estate transaction industry seems really antsy about the possibility that home prices might fall — and ignores the “affordability” created by such declines.

Many trackers who saw little chance home prices would dip in 2022 now drop odd hints that they might have been wrong.

Poor forecasting is an occupational hazard for so-called “experts” in any crowd. What’s worrisome is what these gurus are preaching.

Market analysts seem to see no benefit from falling prices, even if it’s one way to create more financially attainable options for house hunters. (Would drivers care if cheaper gasoline hurt the energy industry’s profits?)

So, why are many housing researchers reluctant to say “wait for prices to fall”? Or, you know, there’s a housing “sale” coming?

I fear it’s because prices have become so insane for so long that the hope of a big payoff on a housing “investment” has become the major ownership lure — rather than the comfort such “shelter” brings.

The shot at appreciation drives too many individuals home seekers — not to mention investors who make up 30% or so of all home purchases.

In essence, forecasting no price gains means there’s little else to sell.

Not semantics

I don’t mean to pick on Lawrence Yun, but the chief economist for the National Association of Realtors does influence the industry’s mindset.

He oddly stated earlier this month on LinkedIn that “money invested in the stock market a year ago has quickly dissipated. Money invested in housing may have easily doubled in the past year (e.g., $30,000 down payment on a $300,000 home that rose by 15% to $345,000 would yield a $45,000 gain).”

Then he added: “But future home price gains will not be as strong. There is a possibility of tipping negative if mortgage rates shoot up to 7%.”

What does the stock market’s retreat after a lengthy upswing have to do with buying a house?

Yun previously insisted home prices wouldn’t fall in 2022. He also saw the year’s home sales pace running flat with 2021. Instead, it’s now down 8% through May. And he misread mortgage rates, forecasting a slight rise to 3.7% from 3%. We’re at 5.5% now.

OK, he’s got a cloudy crystal ball. That happens.

And, yes, the Standard and Poor’s 500 Index, the stock market’s key barometer, declined 21% in 2022’s first half. It was the worst start to a year on Wall Street since 1970.

But talk about “dissipated” hyperbole. At best, horrible word choice.

The Collins online dictionary says “when something dissipates or when you dissipate it, it becomes less or becomes less strong until it disappears or goes away ” or “When someone dissipates money, time, or effort, they waste it in a foolish way.”

This isn’t semantics. Reasonable stock investors know it’s a long-term game. Even after the rough start to 2022, the S&P 500 has grown at an 8% average yearly pace since June 1970. Home prices, by the math from, rose just 5% annually.

Costly investment?

So what about Yun’s homes-vs.-stocks analysis? It features a hypothetical buyer who put $30,000 down a year ago on that $300,000 home that appreciated by 15% in a year — generating a $45,000 “gain.”

Imagine what that home costs to buy, own and sell.

To unload that home and reap that “profit,” let me estimate transaction costs (commissions, fees, etc.) of 6% — that’s roughly $21,000 spent just to unload the investment.

Let’s also assume a 3% rate mortgage from June 2021 — remember those days? — another $8,000 cost. Paying one point for that loan, another $2,700. And let’s generously assume 1% property taxes, another $2,700. Of course, we haven’t mentioned home insurance costs or maybe, association fees.



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