Friday, January 4, 2013

Housing, Housing, Housing

The Housing Rollercoaster

My finger is in the air and it says that housing is improving, but from which way does the wind blow? To listen to the news outlets and conduits of information, housing is hot in San Francisco, (mostly rental), not so hot in Sonoma County (single family), hot enough to set a fracking well on fire in North Dakota, and reprocessing foreclosures is hot in Chicago, HERE and existing homes sales are up – not a lot, but up. HERE
So what’s the problem?

Right now the two hottest issues in housing are apartments and foreclosure rentals. Apartments, especially in growth areas such as Washington D.C., San Francisco, and Silicon Valley are just plain nuts. Rents are climbing exponentially, they are now rising faster than compounded interest. To even quote numbers would be foolish; tomorrow they would be out of date. Supply and demand and the trends will continue until, well, until they don’t. There’s a bubble brewing here and when it blows it might be messy for the banks and backers. My guess is the builders know this and are waiting for the right moment to slow things down. Then again, I have before believed that builders are smarter than the average bear. Watch your backs here.

Rental foreclosures are just holding pens, like the ones in a stockyard. Lots of capital chasing empty houses and Fed backed short sales and escapes in the night. And like stockyards, these pens are holding those unfortunates waiting to be slaughtered; too many chasing too few. I wouldn’t be surprised that some early foreclosure buyers are packaging their collections and reselling them (at a higher price of course). Does that sound familiar? This is an area for foolish money and dreamy minds. It is not unlike the trend back in 2004-2006 where private groups pooled their capital and bought single family homes – thus driving up the prices. All hoping for long term returns in rent and eventual resale. Most of these ‘hopeful retirees’ had to go back to work, we all know that story. So big caution here as well.

I called out the public merchant builders almost two years ago to look at the fracking world of the upper Midwest and Pennsylvania. There would be big opportunities here for single family homes and maybe even rentals. Time has proven me right, but from what I see these public builders are staying away. This may be good for the locals but terrible for new immigrants to the state and the work force. My guess: North Dakota isn’t ‘cool’ enough for builders. Too bad, not only is there gold underground but on the land above as well.

The next few years will be very interesting when it comes to for sale single family homes. The foreclosures will shake out, rentals will stabilize, and then single family homes will be back. We will grow another 35 million people in America by 2050, like it or not. That is one million homes a year, all things considered. We are currently thrilled with the reports of 377,000 new home sales in 2012. What does this tell you? We are falling behind. Two things will happen, this will change and new home prices will continue to rise – again. This will also drag along existing homes prices, especially in the better neighborhoods. If we can’t keep up, I can smell a bubble, again.

Hold on tight, the next few years will be a rollercoaster.

Stay Tuned . . . . . . .

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