Lower mortgage rates could reignite home prices, especially in the lower half
I receive several emails a week about real estate investing. I always recommend investors concentrate on working class rentals (the lower half of the market). With dropping mortgage rates, rising construction costs, supply restriction, and current Fed policy, I see demand far outstripping supply for years as home builders have essentially neglected the lower half of the market. Rising rents have kept cap rates in check and replacement costs far outstrip market value. Based on the new IRC changes, higher-end homes (those at the upper half of the market) will continue to struggle.
The alt-financial media like to point to the dropping new and existing home sales as signs of a market top, but I say this is mostly a symptom of a centrally managed market. Government policy and buyer subsidies have permanently repriced housing upward.
I came across this article a few minutes ago and wanted to pass it along to you. This CNBC article is titled, Home prices could be on the verge of heating up again. Notice that the article specifically mentions the starter home segment.
“The spike in mortgage interest rates last fall chilled buyer activity and led to a slowdown in home sales and price growth,” said Frank Nothaft, chief economist for CoreLogic. “Fixed-rate mortgage rates have dropped 0.6 percentage points since November 2018 and today are lower than they were a year ago. With interest rates at this level, we expect a solid homebuying season this spring.”
The average rate on the 30-year fixed mortgage rose above 5 percent at the start of November but then began sliding. It now sits around 4.5 percent, right around where it was a year ago, when price gains were in the 6 percent range annually.
So that could mean the end of the current price chill, as more buyers this spring compete for a still-slim supply of listings for sale. Inventories have started to rise nationwide, but mostly on the higher end of the market, which is not where the bulk of current demand is. The supply of entry-level homes for sale is still very, very low, as builders continue to focus on more expensive homes, given today’s high costs for land and labor.
Is the The alt-financial media accepting permanent repricing?
“[T]he wealth effect” has enriched the already rich at the expense of the young who didn’t get the opportunity to buy the assets the Fed has pushed to the moon at pre-bubble prices. That privilege was largely reserved for those who bought a decade or two ago, before the Fed made boosting asset prices the implicit goal of all its policies.
The Fed’s “Wealth Effect” Has Enriched the Haves at the Expense of the Young – Charles Hugh Smith (March 5th)
Mr. Smith is proclaiming that unless we bought our homes 10-20 years ago we are shut out. I bought six more rental homes near where I live between 2011-2016 when prices were in the toilet. I still own them. Guess what? If I had more cash, I would buy another immediately.
I recall all the Cassandra warnings during the first few years of this decade in the alt-financial media, pleading their audience to stay away from foreclosures, because of the clouds on title. It was one warning after another. The compromised alt-media, which financially disenfranchises their followers, worked like a charm. Why bother getting up from our computers when it’s hopeless?
Now, the same writers are blaming the Fed for all these potential buyers being shut out. I say these people need to look in the mirror. These gloom-and-doomers are to blame. Fear begets the clicks, but makes the people poorer.
Funny, I still find some value in a number of areas. The rent increases over the past decade have really placed a floor underneath rental values. I recall individuals like Mr. Smith telling readers to stay away early this decade, because of the clouds-on-title disinformation campaign in the alt-media. If you are interested in his writings you can wade through his ads and you can buy his books.
If this CNBC article is to be taken seriously, we are going to have plenty more alt-financial writers crying the blues and getting the clicks. These writers are always blaming others for their inaction.