Wednesday, May 04, 2005

Housing "Within Reach": NAR

They are talking in code over at the "Voice for Real Estate." "NAR President Al Mansell, said the index shows there is a lot of flexibility in the market. 'There would have to be a significant rise in mortgage interest rates for affordability to decline to the point where the typical family could only afford a median-priced home. None of the forecast models show interest rates getting even close to that point, underscoring the soundness of housing as an investment for the foreseeable future.'"

It must be hard to talk about affordability, when prices are out of balance with family income. Especially when the membership doesn't want prices to fall to the affordable range.

"The association’s First-Time Homebuyer Affordability Index shows a typical first-time buyer household, with an income of $31,909, had 76.6 percent of the income needed to purchase a typical starter home in the first quarter with a 10 percent downpayment. The median starter home price was $160,500, during the first quarter; the typical first-time buyer could afford a home costing $122,900."

15 Comments:

At 9:26 AM, Blogger Greenlander said...

Boy, these NAR people really know how to sling BS!!! Their "chief economist" David Lereah is over the top with this kind of BS sometimes.

http://www.realtor.org/Research.nsf/Pages/LereahD

That slimy dork doesn't even know how to pick a decent-looking tie.

 
At 9:46 AM, Blogger deb said...

Even after reading the article I can't understand how it is possible that homes are more affordable than last year. Home prices rose at 2-3 times the rate of inflation. Wages barely keep up with inflation. Mortgage rates are about flat.

How do you get MORE affordable out of that???

Not to mention the problems on our coasts. Gee, they don't talk much about how great the affordability statistics are for CA and other bubbly places. Our median price is almost ten times income.

 
At 9:53 AM, Anonymous Anonymous said...

i just can't believe this stuff anymore from them... it's completely silly... my question is, if and when this thing crashes, can people sue over bad numbers and statements?

 
At 9:56 AM, Anonymous Anonymous said...

Interesting idea regarding sueing the NAR. That sure would put them in their place.

 
At 10:22 AM, Anonymous Anonymous said...

Really, think about it. The NAR is deceiving the public for their own (NAR members) financial gain.

They can manipulate the numbers anyway they want. I even heard that they have now combined the condo and SFR sales statistics, which would result in the false appearance that the sales numbers are up and prices are down, the lower prices of the condos would bring down the median price.

 
At 10:29 AM, Blogger goleta said...

Realtors don't make money unless people are buying. For the time being, they are doing whatever they can to make buyers believe the high prices are justified. Once the tide turns and buyers no longer think prices are reasonable, they will be pushing sellers to lower the prices until people start buying again.

 
At 10:30 AM, Blogger deb said...

Actually the median condo price is about $10k more than the SFR price. I am sure due to the location of most condos (higher priced areas).

 
At 10:34 AM, Blogger burbanman said...

goleta said: "Once the tide turns and buyers no longer think prices are reasonable, they will be pushing sellers to lower the prices until people start buying again."

Already happening here in Ottawa.

FSBO listings (www.grapevine.ca)in my neighborhood are at least 25% higher than the MLS listings (www.reboc.ca).

The realtors know the drill and are forcing the markets inevitable downturn.

 
At 11:21 AM, Blogger Sunny said...

Anon 9:53

Yes you can sue over numbers and statements. There is a complex body of law under the Truth in Lending Act (TILA) whereby a borrower can sue their lender for rescission and damages if loans did not meet disclosure and in some cases substantive requirements. A while back I participated in a TILA case, and it is fascinating stuff. IMO, look for that area of law to explode in the next three years (generally the statute of limitation is 3 years and for other causes of action its 1 year).

 
At 11:56 AM, Anonymous Pete said...

Well, lets pick this apart briefly.
"Median family income".
This begs numerous questions such as:
How big is the family?
What stage in their career is the breadwinner/secondary income earner in?
What part of the country do they live in?
Now, what kind of loan ratios (debt to income, etc.)and rates are they talking about?
What is the property tax rate?
These and a host of other questions can be posed relating to the dubious validity of the NAR's figures and math.
Basically my point is that you can cook the numbers to make anything look good, even though in real life situations it will never pencil out.
In addition, don't forget that interest rates are still at historic lows, debt to income raitos have climbed to over 40% of both wage earner's salaries and the widespread availabllity of "teaser"/"creative" financing type loans.
I also believe the median price of homes nationwide went down in March, if I'm not mistaken.
I could go into more mathematical detail but will not belabor the point. Bottom line, their numbers are BS and don't prove a darn thing. Remember, it's the NAR talking.

 
At 12:31 PM, Anonymous Anonymous said...

Asking a realtor if it's the right time to buy property is like asking a stock brocker if it's the right time to buy equities or a car salesman if it's the right time to buy a car. These people will create whatever rationalizations to make you buy. Come on people, caveat emptor!

If you want to know when to buy real estate then just follow the simple fundamentals. For income properties pay no more than 10x annual cash flow. For residential, no more than 3 times your annual income. If all you can get is a dive for that price then real estate is probably priced too high.

 
At 12:56 PM, Anonymous Anonymous said...

Anon 12:31 you said:
"If you want to know when to buy real estate then just follow the simple fundamentals. For income properties pay no more than 10x annual cash flow. For residential, no more than 3 times your annual income. If all you can get is a dive for that price then real estate is probably priced too high."

In my area houses are selling for at least double of what your cash flow model would bare... ie a house that brings in about $1200/month in rent sells for about $300,000...

I do not think the houses will ever come back to a level to support that model... but I am young and new to the real estate market, and would love to hear from those that have some more experience...

I currently rent for $1000/month in a property that would cost at least $275,000... So I cant see buying anytime soon. Any thoughts out there would be appreciated :)

 
At 2:35 PM, Anonymous Anonymous said...

Anon 12:56

You could buy decent properties that met this criteria in the greater Seattle area in 1995.

I bought my house in 1996 for $175,000 (and probably could have rented it out for about $13000/year at that time). Today I can probably sell it for $375,000 or so. But, if I were to rent it out I could probably gross about $15,000 a year in income. Given that it's a single-family property I would probably say that a gross cap-rate of 8 is pretty decent. So the fair value of my house is $15,000/.08 = $187,500. Multi-family properties should always have a minimum of a 10 gross cap rate.

So, you are correct. Renting is a much better deal right now (atleast in my neighborhood). Additionally, it was not that long ago (relatively speaking) that this model calculated prices that were at fair market value.

IMO I think you should be patient. Markets always revert back to the mean.

 
At 3:35 PM, Anonymous leewhee said...

***

---Multi-family properties should always have a minimum of a 10 gross cap rate.---

It's amazing how the value of apts and homes have gone up compared with rents. Over the past 10 years here in NorCal, valuations have nearly tripled while rents have barely budged.

San Francisco is an interesting case in point. We own a few apt buildings in the city (though sold 2 last fall). In 1996, our studios were renting for $450 and the 1-bedrooms for about $650ish. These are old, kind of funky downtown buildings that mostly attract pensioners, immigrants and working poor. They are rent-controlled. We rarely have vacancies because these are quite reasonable buildings.

During the dot-com boom, everything went nuts. Occupancy was basically 100% throughout the city. Our studios shot up to $700-$750 and the 1-bedrooms were $1,050-$1,200. But that boom went bust. We ended up renting a few at those prices, but the people left when the jobs left.

Today, the studios are going for $550-600 and the 1-bedrooms for $700-$750. So we're nearly back to where we were in 1996. Yet the value of the building itself has tripled! So we sold it. The buyer paid something like a 5 or 6 cap rate.

When I see these discrepancies, I can only wonder how long this mirage can go on. I think the big difference b/w renting and owning has a lot to do with how they're financed. Renters pay cash out of pocket. Owners borrow the money. So renters are very price-sensitive. Owners don't so much. They just come up with clever ways to borrow so that the pain is put off until sometime in the future.

 
At 8:45 PM, Anonymous Anonymous said...

leewhee:

Congratulations on your investment! But now what are you going to do with the cash? It's almost like your locked into RE unless you take a big tax hit on capital gains.

 

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