Home prices in 20 major U.S. metro areas rose 0.8% in June from the month prior on a non-seasonally-adjusted basis, according to the S&P/Case-Shiller home price index. From the same period a year prior, prices saw a 5.1% increase, below the expectations for a 5.2% rise
Here’s the other side of central-bank engineered asset price inflation, or “healing the housing market,” as it’s called in a more politically correct manner:
San Francisco Unified school district, which employs about 3,300 teachers, has been hobbled by a teacher shortage. Despite intense efforts this year – including a signing bonus – to bring in 619 new teachers to fill the gaps left behind by those who’d retired or resigned, the district is short 38 teachers as of Monday, when the school year started. Others school districts in the Bay Area have similar problems.
For teachers, the math doesn’t work out. Average teacher pay for the 2014-15 school year was $65,000. And less after taxes. But the median annual rent was $42,000 for something close to a one-bedroom apartment. After taxes and utilities, there’s hardly any money left for anything else.
A teacher who has lived in the same rent-controlled apartment for umpteen years may still be OK. But teachers who need to find a place, such as new teachers or those who’ve been subject of a no-fault eviction, are having trouble finding anything they can afford in the city. So they pack up and leave in the middle of the school year, leaving classes without teachers. It has gotten so bad that the Board of Supervisors decided in April to ban no-fault evictions of teachers during the school year.
Yet renting, as expensive as it is in San Francisco, is the cheaper option. Teachers trying to buy a home in San Francisco are in even more trouble at current prices. And it’s not just teachers!
This aspect of Ben Bernanke’s and now Janet Yellen’s asset price inflation – and consumer price inflation for those who have to pay for housing – is what everyone here calls “The Housing Crisis.”
As if to drive home the point, so to speak, the California Association of Realtors just released itsHousing Affordability Index (HAI) for the second quarter. It is based on the median house price (only houses, not condos), prevailing mortgage interest rate, household income, and a 20% down payment.
In San Francisco, the median house price – half sell for more, half sell for less – is $1.37 million. According to Paragon Real Estate, if condos were included, the median price would drop to $1.2 million.
The median household income in San Francisco is $84,160, including households with more than one earner. So a household of two teachers with $130,000 in household income is doing pretty well, comparatively speaking.
The monthly mortgage payment for the median house in San Francisco, after a 20% down payment and at the prevailing rock-bottom mortgage rates, is $6,740 per month, or $80,900 per year!
So what kind of minimum qualifying household income would be required for the mortgage of a median house, plus taxes and insurance? For the US on average, $47,200 per year. In San Francisco, $269,600 per year. It would require a household of four teacher salaries!
Only the top-earning 13% of households in San Francisco can afford to buy that median house!
Other Bay Area counties have similar out-of-whack affordability rates: In San Mateo County (part of Silicon Valley), only 14% can buy that median home; in Marin County (north of the Golden Gate) 18%; Santa Clara Country (where San Jose is) 19%; Alameda County (where Oakland is) 20%. And so on.
And this despite the historically low mortgage rates. If prevailing mortgage rates rose to 6%, practically no one could afford to buy.
Then there’s the issue of down payment that the CAR so elegantly glosses over: the 20% down payment of for that median house in San Francisco is $275,000!
Justin Sullivan/Getty Images
How are people going to save $275,000 after taxes while living and renting in a city that is as pocket-cleaning expensive as San Francisco? Saving $275,000 on a median household income of $84,160 while paying $42,000 a year in rent, plus taxes, utilities, food, transportation, clothes, parking tickets…..
Saving anything is going to be tough. But even if that household, using herculean discipline, can save 5% of its income a year (so $4,200 a year), it would take 65 years to save that down payment. Oh well. There goes the dream.
These are a scary numbers for the housing market! If only 13% can buy that median home – when in a healthier housing market, over 50% should be able to buy a median home – who the heck is going to buy the rest of the homes?
This puts a stranglehold on demand. To sustain these crazy home prices, San Francisco needs to bring in an endless flow of highly paid people, including absentee foreign investors, to replace the teachers and other middle-class households, the artists and shop keepers and office workers, and to push out city employees, nurses, and the like. That’s how the process has worked.
But that endless influx of highly paid people and investors is grinding to a halt. Some companies are still hiring, but others are laying off, and highly paid workers are just switching jobs rather than pouring into the city in large numbers. That’s a sea change for this housing market.
It comes at a time when a historic building boom is throwing thousands of high-end condos and apartments on the market every year, for years to come.
New Housing Units Started
(Seasonally adj. at Annual Rate, in % Y/Y)
On May 2016 Total housing units starts were at seasonally adjusted annual rate of 1,164,000 units, an decrease of 8,000 units or -0.68 % from 1,172,000 units April 2016 and an increase of 12.36 % from 1,036,000 units May 2015.
|New Housing Units Started
(Seasonally adj. at Annual Rate, in % Y/Y)
|Total||12.36 %||0.6 %||18.68 %||35.23 %||4.35 %|
|In structures Single-family units||12.35 %||8.21 %||21.84 %||42.5 %||11.19 %|
|In structures with 2 – 4 units||95.71 %||16.67 %||-57.14 %||71.43 %||260 %|
|In structures with 5 units or more||-2.09 %||-12.85 %||17.42 %||19.87 %||-11.61 %|
|Northeast||-41.01 %||-29.1 %||43.56 %||70.21 %||37.04 %|
|Midwest||33.56 %||12.65 %||21.43 %||117.53 %||0.65 %|
|South||23.84 %||18.23 %||8.43 %||19.07 %||9.87 %|
|West||6.72 %||-18.69 %||29.85 %||29.71 %||-15.75 %|
A three-bedroom, two-bathroom single-family house designed by Marcel Breuer was quietly listed by ReeceNichols in June, according to real estate firm’s website. The asking price for the Snower Residence at 6701 Belinder Ave. in Mission Hill’s, Kan., is $925,000.
Completed in 1954, the polygonal residence features an open floor plan atop a cantilever base, a now-ubiquitous structural design element that Breuer first championed in furniture design and later in architecture. The Bauhaus alum also designed the home’s interior, much of which remained intact when the residence was purchased by Rob Barnes and Karen Bisset in 2013, according to the Kansas City Star. Furnishings include a Herman Miller rocking chair designed by Charles and Ray Eames and Ludwig Mies van der Rohe’s Barcelona Sofa for Knoll Furniture (below). The couple installed a new roof, refinished the cedar-plank ceilings, and repainted the exterior to its original blue and orange hues.
According to ReeceNichols’ website, Robert Snower asked Breuer to design a house that would stand alone among the sea of his Ranch-style neighbors. “Of course I am asking the impossible,” wrote Snower, who first saw Breuer’s residential work in the 1952 edition of House and Home Magazine. “[My wife and I] hope for a house which we will consider exceedingly handsome, yet which will not too seriously offend what in our opinion are duller eyes than our own. Most of the newer houses around here fit the description of what I believe are called ‘Sunset Ranch Homes,’ ” a variation of the Colonial Ranch style that was popular at the time. “This we do not want.” Snower owned the home until his death in 2013.
Existing home sales, as reported by the National Association of Realtors (NAR), decreased 3.2% in July and were down 1.6% from the same month a year ago, the first year-over-year decline since November 2015. Total existing home sales in July decreased to a seasonally adjusted rate of 5.39 million units combined for single-family homes, townhomes, condominiums and co-ops, down from 5.57 million units in June.
July existing sales increased in the West by 2.5%, reflecting the June increase in the Pending Home Sales Index for that region. July existing sales fell from the previous month by 1.8% in the South, 5.2% in the Midwest and 13.2% in the Northeast. Year-over-year, the Midwest remained unchanged, while the West declined a slightly. The South and Northeast declined by 1.8% and 5.7% year-over-year.
Total housing inventory increased by 0.9% in July, but remains 5.8% lower than its level a year ago. At the current sales rate, the July unsold inventory represents a 4.7-month supply, compared to a 4.5-month supply in June.
The July all-cash sales share was 21%, the lowest share since November 2009. Individual investors purchased an 11% share in July, unchanged from June, and down from 13% a year ago. The first-time home buyer share was 32% in July, down from 33% in June.
The July median sales price of $244,100 was 5.3% above the same month a year ago, and represents the 53rd consecutive month of year-over-year increases. The median condominium/co-op price of $228,400 in July was up 4.1% from the same month a year ago.
Just one month after posting a nearly four-year high, home sales in California took a step backwards in the month of July, with year-to-date sales falling from previous year for first time in 18 months, according to a new report from the California Association of Realtors.
The CAR report for June showed that closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 450,960 units in June, the highest level in almost four years.
But July’s lackluster sales data undid much of June’s growth, according to the latest CAR report.
CAR’s newest report showed that home sales in California stumbled in July thanks to low inventories and “eroding” affordability.
According to CAR’s report, closed escrow sales of existing, single-family detached homes in California totaled a seasonally adjusted annualized rate of 415,840 units in July, which is down 4.1% from the revised 433,600 level in June and down 5.1% compared with home sales in July 2015 of a revised 438,230.
While home sales remained above the 400,000 pace for the fourth straight month, sales also declined year-over-year for the fifth consecutive month, CAR’s report showed.
“Despite the tight housing supply conditions that have persisted over the past few years, home sales have stayed relatively solid,” CAR President Pat Zicarelli said.
“Even with a shortage of homes on the market, low rates and strong demand have been the norm,” Zicarelli continued. “Some regions, such as the Bay Area, are seeing an uptick in inventory as high prices are motivating sellers to list their properties for sale. While this could ease the inventory somewhat, supply remains tight, and low affordability is expected to be an issue in the short term.”
Additionally, CAR’s report also showed that the statewide median price remained above the $500,000 mark for the fourth straight month, but noted that there are signs of an expected slowing in price growth.
CAR’s report showed that the median price of an existing, single-family detached California home fell by 1.8% in July to $509,830 from $519,410 in June.
Additionally, July’s median price increased 3.9% from the revised $490,780 recorded during the same time period last year.
According to CAR’s report, more homes being sold at the high end of the market (over $1 million) and slightly fewer sales at the lower end (under $300,000) contributed to the year-over-year gain in the median price.
“California’s median home price rose again in July from last year, but the pace of increase has clearly slowed down in recent months,” said CAR Vice President and Chief Economist Leslie Appleton-Young. “While fundamentals such as increasing household formation and strong job creation continue to fuel housing demand and support price growth, low housing affordability and reduced buying power of home buyers has put a cap on how fast the statewide median price can grow.”
Sales of new single-family houses in the United States surged 12.4 percent to a seasonally adjusted annual rate of 654,000 in July of 2016. It is the highest figure since October of 2007 and much better than market expectations of 580,000. Figures for June were revised down by 10,000 to 582,000. New Home Sales in the United States averaged 652.45 Thousand from 1963 until 2016, reaching an all time high of 1389 Thousand in July of 2005 and a record low of 270 Thousand in February of 2011. New Home Sales in the United States is reported by the U.S. Census Bureau.
Imagine you are considering working with a potential client who seems apprehensive and possibly needy. Imagine you get the project. What might you wish you had considered and/or asked the potential client or yourself before deciding to work with them?
Here are some suggestions:
Why are these folks good clients for your company?
Over time, all companies have at least a gut level feel for what is a good fit regarding clients. Use that filter all the time. Ignoring it can put you, your people, and the company through thankless grief.
Why do these folks think we are the right contractor to work with?
Ask this question early on. The worst case is they expect something from your company that you simply can’t deliver. Better to find that out as soon as possible.
Have they been through a remodeling project in the past? If so, how did it go?
If they have never experienced the challenges involved in being a remodeling client, you are likely to be viewed negatively if you work for them. There are simply so many things that can go wrong during all phases of the planning and the actual remodeling.
If they have been through a remodeling project and it did not go well, question them thoroughly about why they think that happened. If all they do is blame the contractor then get clear about what they think the contractor did wrong. If you think the potential client was the real problem, not the contractor, then don’t work for them!
What are the client’s expectations about the process, in general? Do those expectations align with your company’s idea of what reasonable expectations are?
If so, great. But if not, what are the specific gaps? Are the gaps large or small? It’s better find out sooner than later. There is the distinct likelihood that they don’t align with yours. Talk it through. If there is not a meeting of the minds, refer another remodeler who might be a better fit.
Can the client listen to what your company says? Will they allow your company to be in control?
If they won’t listen now, they likely won’t listen when it all hits the fan. If you can’t be in control you will rue the day you decided to work with them.
Weekly applications for U.S. mortgages to buy homes slipped to a six-month low even as interest rates on fixed-rate home loans fell, according to data from an industry group released on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage activity for home purchases, a leading indicator of housing sales, fell 4 percent in the week ended Aug. 12. It remained 10 percent higher than the comparable week a year earlier.
The average rate on “conforming” 30-year home mortgages, or loans with balances of $417,000 or less, dipped to 3.64 percent last week from 3.65 percent, the Washington-based group said.
The average 30-year rate touched 3.60 percent in the week ended July 8, which was the lowest since May 2013 and not far from the historic low of 3.47 percent struck in December 2012, according to MBA data.
Weekly mortgage activity on home purchases reached an eight-month peak in early June before a decline since even as 30-year mortgage rates hovered near their lowest in over three years.
On Tuesday, the Commerce Department said housing starts rose 2.1 percent to an annualized rate of 1.211 million units in July, which was a five-month high.
Applications for loans to refinance also fell last week.
MBA’s seasonally adjusted index on mortgage activity for refinancing decreased 4 percent from the prior week. In early July, it hit its highest level since June 2013.
Freddie Mac (OTCQB: FMCC) today released the results of its Primary Mortgage Market Survey® (PMMS®), showing average fixed mortgage rates moving slightly lower from the previous week, remaining near their all-time record lows.
- 30-year fixed-rate mortgage (FRM) averaged 3.43 percent with an average 0.5 point for the week ending August 18, 2016, down from last week when it averaged 3.45 percent. A year ago at this time, the 30-year FRM averaged 3.93 percent.
- 15-year FRM this week averaged 2.74 percent with an average 0.5 point, down from last week when it averaged 2.76 percent. A year ago at this time, the 15-year FRM averaged 3.15 percent.
- 5-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 2.76 percent this week with an average 0.4 point, up from last week when it averaged 2.74 percent. A year ago, the 5-year ARM averaged 2.94 percent.
Average commitment rates should be reported along with average fees and points to reflect the total upfront cost of obtaining the mortgage. Visit the following link for the Definitions. Borrowers may still pay closing costs which are not included in the survey.
Attributed to Sean Becketti, chief economist, Freddie Mac.
“Ahead of the release of the FOMC minutes for July, 10-year Treasury yields were little changed from the prior week. The 30-year fixed-rate mortgage fell 2 basis points to 3.43 percent this week, erasing last week’s uptick. For eight consecutive weeks mortgage rates have ranged between 3.41 and 3.48 percent. Inflation is not adding any upward pressure on interest rates as the Bureau of Labor Statistics reported that the Consumer Price Index was unchanged in July.”