Saturday, March 31, 2018

Investing – Home Prices Fall In Majority Of The Biggest Markets

S@ANT  /  at  March 31, 2018  /  No comments

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If you have owned a house, or a portion of residential real estate, including condos, and vacation homes you are aware of the price increases that have occurred for a period of five years that 's has ended more than a year ago. In terms of investment, owning a home for half a century has been a wonderful way to create wealth. This is one of the few investment methods where you could actually live in your investment, while it has increased in value. Most investors do not know that from World War II to last year, there has never been a single year when house prices have dropped at the national level until last year.

The owners relied on a regular annual increase in the price of the house they lived in to create a wealth effect. For many, it was their only source of forced savings. It was also a part of the American dream - owning your own home and living there.

Studies are now available showing that at the end of last year, a number of housing markets have declined. In fact, 149 different markets were down. The east and west coasts of the United States and the northeastern cities were the hardest hit.

You were in Florida last year, it was impossible not to see thousands of super cranes embarking on the process of building condominiums from 20 to 50 floors. The vast majority of these condos were purchased speculatively with the buyer signing the contract never anticipating the need to conclude the contract.

We have not yet seen a massive number of bridges. They are people who have signed non-recourse agreements with the builder and who are able to abandon the agreement without having to write a check. They will lose the deposit they have deposited.

Florida may well be the state that takes the biggest hit in real estate. Sarasota was down 18% at the end of the year, while Melbourne was down 17%. We are talking about the decline in real prices. At the national level, prices fell by 2.7%.

Many analysts do not fully understand what this means? Do motivated salespeople stay longer on homes in anticipation of getting their higher price later? Are some sellers taking their homes off the market or putting them on the market until prices are firmer, maybe later this year?

And the sales themselves?

In addition to lower prices, there is less real sales, which leads to a larger inventory of unsold homes. Forty different states reported a decline in sales. At the national level, the number decreases by 10.1% of the actual number of houses sold, regardless of the price. Three different locations reported physical sales down more than 30%. They include Nevada, Florida and the District of Columbia. Virginia reported a drop of 20%.

Six states reported an increase in sales, six out of fifty. They included Alaska, Arkansas, Illinois, Kentucky, Mississippi and Texas. There was no impact on Utah where sales were stable.

What you really need to watch is the VACANCE rate. The vacancy rate is the number of homes in the market where no one lives and they are for sale. At the national level, this number still seems to oscillate around 2%. At the end of the year, the number rose to 2.7%. This is a massive increase because 2.7% is the highest in 50 years, and that's only because they started calculating the number 50 years ago.

You have owners who are waiting and will not sell at a price lower than the price they want. This explains the increased vacancy rate. On top of that, you have another problem. Sometimes the seller has to sell. He will take what he can get, even if he establishes a new lower base from which everything else can be negotiated.

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Once this base is established, other buyers and sellers see it. The seller reacts with alarm. The buyer responds with joy, but also because the buyer does not know if prices are falling again. This is how the sale of panic sets in, and no buyers. Buyers are moving away while waiting for even lower prices

It's the same as the stock market, the sellers once they've seen higher prices, do not want to sell at a lower price. Many prefer to wait, hoping, and it is the hope that the price will come back. Only the forced seller will do the trick. It can be an estate, or a divorce settlement, or a housing relocation that forces the actual sale. Regardless, once the sale hits the market for everyone, there is a new fit in the market.
Where is the BIAS now - UP or DOWN?

It is hard to say whether the year-end figures have torn off the centuries-old excesses that have occurred in real estate markets over the last five years, while everything has gone crazy upwards. There may be more to do. If you look at the stock market, most homebuilders hit their lows several months ago when they all hit new lows for several years. Since then, they have rallied well. If the real estate market has more to go down, these stocks will probably have to build double funds before the decline is actually over.

If, however, the vacancy rate rises from here and the price declines hit their bottom, most of the damage is behind us. The economy as a whole and interest rates look good, so we do not expect any damage from a drop in GDP this year. What seems to be happening is that we are looking at a wear and tear of excess produced since the late 1990s in the residential real estate in this country?

The geographic segments of the country that have seen the largest increases in real estate prices are now those experiencing declines. It's the same story, and history never changes, only affected areas of the country change. Our work shows that prices and vacancy rates still have some way to go. At the same time, we believe that housing stocks may decline, but the absolute funds established months ago will hold. We are already out of these funds.

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