Dispatches from District 48
Don't have an opinion on what this means, but it is interesting. Via Zero Hedge
It means that lumping "new home sales" together into a single block is erroneous, because it obscures the fact that luxury homes and commodity homes are made to serve different markets. The luxury home buyer isn't going to say "well, that $200K commodity home is a much better deal than the $1-million home I'm looking at", and luxury home builders are aware of this. The luxury home buyer is also far less likely to decide to rent instead of buying.
So what's happening here is that you've got the same number of luxury buyers as you always did, but the bottom has fallen out of the commodity market, and so "median home sale price" will obviously go up because all those commodity sales (which drag down the average) aren't happening anymore.
These are data points we routinely track - and we've got the data broken down by home price. What you're seeing is the result of a distortion in the sales mix of new homes, which is one of the characteristics of an inflating housing bubble. It's the result of new home builders chasing after the higher profit margins for larger, more expensive and less affordable homes to the degree where they abandon producing smaller, less expensive, but more affordable new homes.
Also, It’s harder than it used to be for potential first time home buyers to qualify for a mortgage and scrape together the necessary down payment – so they rent instead.
Meanwhile US RRE, especially in prime markets (where there also isn’t much space for new
construction), is a desirable (hard) asset class for people with the means. Institutional pools of capital have been buying up individual homes and renting them out. Also, foreigners looking to invest/hide capital in a secure, offshore vehicle are all over this market. If they were to open up a JP Morgan account (now with negative interest!) they could expect a microscope up the wazoo. If they were to instead use that money to buy an apartment in NYC – cash on the barrelhead, no questions asked.
Say you are a baby boomer selling the old family place; are you going to sell to the young couple who has a bunch of terms, conditions and bank requirements or are you going to accept the all-cash offer (or premium offer) from the PE firm or European? In a normal market that young couple would now turn around and buy a cheaper, fixer-upper -maybe a foreclosed property- but that market is all F-d up still from the crash and there is not much stock available.
I think the scale of the axes is somewhat arbitrary and might make this graph more interesting that it should be. You could take any two series that were going up and create a graph where the data lay on top of each other.
Is there an index that aggregates and tracks sales prices of individual properties over time?
This is a bit of a nitpick but I wish they'd picked colors that don't look effectively identical to my partially color-blind eyes. I have no idea whether it's sales or prices that have massively dipped.
"Institutional pools of capital have been buying up individual homes and renting them out"
An interesting observation that seems to accurate - at least in larger metro markets. We're doing some work on that right now, and finding that a number of builders/developers are actually looking to sell to various investment groups (rather than to individual buyers).
A nation of renters now?
The facts are pretty clear. The entry level home buyer is saddled with debt. Mostly college. More young adults are moving back home after college than ever before. When they finally move out, it is to become a renter. (or if they are still "struggling" they find another relative to live with/off of.) The people that are building new homes are the ones in the upper end of the market. They have more than recovered the losses they "took" in 2008 when the stock market collapsed. Hence they build new homes and the first time home buyers just rent. The median price is driven by the portion of the market that is now the majority of the market.
This is a very interesting chart, it really is something to think about!