Feb172014

Is the public growing weary of rising home prices?

People change their views on rising house prices. Rather than cheering an endless increase, they worry about another decline.

Economists and politicians almost universally accept that everyone wants to see rising house prices. Having written for seven years to an audience of prospective homebuyers, I can attest that some people don’t want to see perpetually rising home prices — at least now while they’re shopping for a home.

The severity of the last housing bust destroyed the central myth concerning rising house prices: real estate prices do not only go up. Once people realized housing was not the safe investment they thought it was, their enthusiasm for owning declined precipitously — as it should. The obvious suddenly hit everyone in the pocketbook: a high house price can become a low resale price costing the owner hundreds of thousands of dollars.

Let’s be completely realistic: the only reason people like rising home prices is because they want to gain the value of the increase for wealth or for future spending money. Nobody wants to pay a huge mortgage; nobody wants to pay insanely high prices, but people are willing to do so if they believe they will make a fortune on a can’t-miss investment. A severe housing bust changes everything, and unless realtors can give everyone collective amnesia, people will not soon forget the pain of the housing bust.

Rising house prices used to be considered good news. Not any more

The media talks about homeowners ‘enjoying’ price rises, but a poll suggests people have had enough

Patrick Collinson, theguardian.com, Wednesday 12 February 2014 08.22 EST

It’s time to change the language of house prices. For decades, media reports have casually talked of householders “enjoying” price rises, of “hotspots” where the market is “performing strongly”. On the rare occasions prices fall, they are “depressed” or “subdued”. But a new poll confirms it’s not just a generation of priced-out Londoners who are rebelling: anger about an overheated market has spread across the country. No, the poll is saying, we don’t “enjoy” ludicrous rises in house prices. Enough is enough.

I recently wrote about the surprisingly foolish housing market manipulations in Great Britain. They have endured country-wide booms and busts on four occasions since the early 1970s. They’ve seen the ups and the downs, and they recognize the pain these fluctuations inflict on ordinary citizens. It’s taken them forty years, but they’ve finally burned every generation of working-class Brits, and they’ve had enough. Will Californians figure this out soon too?

This is an extraordinary turnaround, and a puzzle for economists steeped in conventional theories. In every other period of economic recovery, rising consumer confidence and rising house prices have gone hand in hand, creating a feelgood factor crucial for politicians seeking re-election.

Economists and politicians will be the last to get the memo.

This time around, rising house prices are producing the opposite: a feel-bad factor among young adults permanently excluded from buying and furious about rapacious rents, combined with a growing sense of despair among the middle-aged no longer able to move up the fabled property ladder because each rung is financially just too far away from the one before.

Aren’t we seeing much of the same here?  I recently reported on the long-term weakness in housing caused by a generation of missing homebuyers; San Francisco experiences protests due to high rents and outrageous cost of living; and since rising prices isn’t providing move-up equity to underwater borrowers, the property ladder won’t function as it has in the past for another decade.

Add to that the many households with jumbo-sized mortgages who fear a return to “normal” interest rates,

Unfortunately, the fear of what will happen when interest rates go up is suppressed here in the United States by an endless barrage of bullshit from realtors, economists and the mainstream media assuring borrowers rising interest rates won’t hurt home prices. The British populace isn’t falling for the nonsense we are.

and you have a potent extra ingredient to the “cost of living crisis”.

The poll suggests Ed Miliband’s pledge to halt the sale of new homes to foreign speculators is tapping into deepening concern over the crisis in Britain’s property market. It’s not just the empty rows of billionaires’ mansions in Hampstead, the sad queues of buyers for £400,000 flats near “murder mile” in Hackney or even the housing benefit claimants evicted from their homes by buy-to-let supremos such as the Wilsons. More worrying for George Osborne is a sense that the property market, pumped up by two government policies, Help to Buy and Funding for Lending, is working for the few rather than the many.

The British also recognize, and their mainstream media openly comments on the fact, the housing recovery is a bank-promoted pump-and-dump scheme.[dfads params=’groups=165&limit=1′]

Margaret Thatcher rode the wave of rising home ownership; David Cameron is presiding over its collapse.

House building is up, but remains one-third below the levels of 2006, which was even then regarded as too low to cope with demand swollen by Britain’s fast-growing population. More people are questioning who the new-build is for when the majority of new homes built in London are bought by foreign investors. Speculators see UK property as a safe haven for their money in an unstable global economy. It’s not there to meet the basic needs of residents.

Maybe the public’s exhaustion with house price rises will translate into a flattening property market. Already the billions in easy money fed to the banks through Funding for Lending, which arguably has had a bigger impact on prices than Help to Buy, is fading away. Interest rates on five-year mortgages, increasingly used by buyers to protect themselves against future rate rises, are on the increase. Few people are predicting an early end to the property boom. But when it comes, maybe for the first time we will see a newspaper headline that reads: “Good news: house prices falling.

Wouldn’t that be an astonishing headline? “Good news: house prices falling.” When I wrote headlines like that back in 2008, it wasn’t considered welcome news by the fools who believed house prices could never go down. I wrote many posts over the last several years on the advantages of lower house prices and smaller debt service burdens, but few listened. Lower house prices are better, but since people want to make an easy fortune without saving or sacrificing the lure of rapidly rising house prices enriching everyone will be the dream of another generation — unless the wise up and realize lower house prices are better for everyone in the long run.

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[idx-listing mlsnumber=”OC14030487″]

380 West SUMMERFIELD Cir Anaheim, CA 92802

$300,000 …….. Asking Price
$430,000 ………. Purchase Price
7/7/2004 ………. Purchase Date

($130,000) ………. Gross Gain (Loss)
($24,000) ………… Commissions and Costs at 8%
============================================
($154,000) ………. Net Gain (Loss)
============================================
-30.2% ………. Gross Percent Change
-35.8% ………. Net Percent Change
-3.7% ………… Annual Appreciation

Cost of Home Ownership
——————————————————————————
$300,000 …….. Asking Price
$10,500 ………… 3.5% Down FHA Financing
4.27% …………. Mortgage Interest Rate
30 ……………… Number of Years
$289,500 …….. Mortgage
$91,190 ………. Income Requirement

$1,428 ………… Monthly Mortgage Payment
$260 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$63 ………… Homeowners Insurance at 0.25%
$326 ………… Private Mortgage Insurance
$280 ………… Homeowners Association Fees
============================================
$2,356 ………. Monthly Cash Outlays

($228) ………. Tax Savings
($397) ………. Principal Amortization
$16 ………….. Opportunity Cost of Down Payment
$58 ………….. Maintenance and Replacement Reserves
============================================
$1,804 ………. Monthly Cost of Ownership

Cash Acquisition Demands
——————————————————————————
$4,500 ………… Furnishing and Move-In Costs at 1% + $1,500
$4,500 ………… Closing Costs at 1% + $1,500
$2,895 ………… Interest Points at 1%
$10,500 ………… Down Payment
============================================
$22,395 ………. Total Cash Costs
$27,600 ………. Emergency Cash Reserves
============================================
$49,995 ………. Total Savings Needed
[raw_html_snippet id=”property”]