US pending home sales fell -1.3% in April compared with expectations of a +0.6% gain for the month. The March data was revised down slightly to show a decline of -0.9% and there was a -3.3% annual decline in sales. This was the first annual decline since December and the sharpest annual decline since June 2014. According to National Association of Realtors (NAR) chief economist Yun, contract activity is fading this spring because significantly weaker supply levels are undermining affordability conditions. Yun was also pessimistic that supply levels would increase in the short term which would continue to hamper sales growth. The results reinforce concerns surrounding a slowdown in the housing sector, although the situation is complicated by the fact that sales are being undermined by supply issues rather than weakness in demand. Some in the industry are hoping the potential for higher home prices will increase the number of properties on the market over the next few months, in turn helping to rebalance the market.
Silicon Valley’s tech boom has given rise to one of America’s biggest millionaire hot beds, with the world’s most successful companies providing some of the best paying jobs in the country. At the same time, this boom has also created the most expensive real estate market in the country. To understand just how insane Bay Area home prices have become, consider this – Palo Alto, a suburb about four miles north of Google’s headquarters in Mountain View, California, is considering building subsidized housing for families who earn between $150,000 and $250,000 annually. The low-end of that range is nearly three times the median American family income of $53,000! But in Silicon Valley, skyrocketing real estate prices have made it impossible for middle-income wage earners like teachers, firefighters, government employees and even doctors to live even remotely close to where they work. Since 2012, the median home price in San Francisco has risen +88% to around $1.25 million. It’s a similar situation in surrounding Bay Area towns, where it’s estimated that less than 20% of families can afford to buy a median priced home. In San Francisco, it stands at just 11%. Media outlets recently got wind of a billboard that seems to perfectly sum up how out-of-control the market is, advertising homes starting in the low-$1,000,000! Even rent is through the proverbial roof, averaging about $4,500 a month in San Francisco. There are loads of stories out there about city dwellers creating make-shift living spaces in the back of trucks, building rooftops and little-used closets. Earlier this month, a widely circulated story about a guy renting a plywood box parked in his friend’s living room for $400 a month prompted the city of San Francisco to issue a notice that living in “pods” was illegal. Interestingly there are recent signs that the real estate boom out West might be starting to ebb. Bay Area real estate broker Redfin say March housing prices actually fell -1.8%. They say the drop is due to residents being “fed up” with the high prices and crazy competition. That price drop hardly makes a dent though, when you factor in that San Francisco home prices skyrocketed over +20% in the last quarter of 2015. The crazy prices don’t stop at living spaces – commercial property values have also been part of the boom, with landlords charging upwards of $1,000 per square foot for office space. That’s in part been fueled by one of the lowest office-vacancy rates in the country, standing at just 5.9% the end of last year. Again though, there are signs that bubble is bruising a bit as venture capital funding is slowing and a wave of consolidation is sweeping through the tech sector. This has led to an increase in subleases that charge rents more than -15% below the regular leases. Some lesser-known tech companies have even decided to pack up and leave Silicon Valley altogether, opting for more affordable tech hubs like San Diego, Seattle and Austin. It cuts the companies’ overhead while also allowing them to attract talent, as a $150,000 annual salary goes a lot further in Texas than it does in San Francisco.
The National Association of Counties released a new study last week that showed just 214 counties nationwide had fully recovered from the recession as of last year. They use four indicators in determining progress – total employment, the unemployment rate, size of the economy and home values. While not all of the counties that have failed to fully recover are still at prerecession levels for all four factors, 16% were lagging in all of the indicators. Most of those that had bounced back are in states benefiting from the energy boom. Last year, 72 of the recovered counties were in Texas, the most of any state. Nebraska followed with 22. Minnesota, Kentucky, North Dakota, Montana and Kansas each had at least 10 fully recovered counties. Meanwhile, in 27 states, not a single county had fully recovered. The recovery is spreading out from the energy-rich center of the country—in part because a massive drop in oil prices is reversing job creation there while providing an economic benefit to larger metro areas near the coasts. Numerous counties on the West Coast, Nevada, New York, Florida and the Carolinas recorded better than 4% economic growth last year, the NACo study found. But a large swath of counties in Texas, Illinois and other states in the middle of the country suffered economic contractions last year. You can find more details over at Real Time Economics. Click the map for a larger view.
Zillow’s second quarter analysis of U.S. rental and mortgage affordability shows that renters in the U.S. spent 30.2% of their monthly income on rent, the highest percentage ever. Before the real estate bubble and bust, U.S. renters could expect to spend about 24.4% of their incomes on rent. They go on to say that unaffordable rents are making it hard for people to save for a down payment and retirement. Zillow’s chief economist, Dr. Svenja Gudell, says, “There are good reasons to rent temporarily – when you move to a new city, for example – but from an affordability perspective, rents are crazy right now.” In fact, mortgages are much more affordable, with payments averaging 15.1% of monthly household incomes, less than the historical average of 21%.
This article is only an excerpt of the 8/17/15 Van Trump Report. Sign up for a free trial by clicking here.
Data released by the Census Bureau on Tuesday reveal that the U.S. homeownership rate stood at 63.4% for the second quarter of 2015. The rate is down slightly compared to the first quarter (63.7%), and it represents the lowest level of homeownership in America since 1967. If the homeownership rate drops just a few more tenths of a percentage point, it would reach a new all-time low since the government began tracking such data in 1965. The bull market and an improving jobs picture would seem to bring with it rising homeownership levels. Yet as a recent and in-depth Harvard Studypointed out, many would-be homeowners—particularly younger ones, in their 20s, 30s, and 40s—are still struggling in the aftermath of the Great Recession. Wages have been stagnant for the middle class, and many households are cautious about jumping into homeownership in the face of hefty student loan debt and memories of being burned in the housing crash. Rising home prices don’t help ownership levels either. In case you are wondering the highest home ownership rate in the U.S. occurred back in 2004. Another interesting note is despite the improvements in the housing sector, rental markets have continued to tighten. The national vacancy rate has dipped to 7.6%, its lowest in nearly 20 years. As a result, rents rose at a 3.2 percent rate last year—twice the pace of overall inflation. Many believe the influx of older renters has pushed up what landlords can charge, making it harder for would-be first time home buyers to scrape together money for a down payment. Over the past decade, the percentage of young renters age 25 to 34 facing a “cost burden”—meaning they spend more than 30% of their income on housing—has jumped to 46% from 40%, keep in mind they also have the massive student loan burdens as well. Remember, Baby Boomers desperately need “move-up” buyers to sell their homes to, as an estimated 26 million “Boomers” will be looking to selling their homes during the next 15 to 20 years. Certainly something to think about…
This article is only an excerpt of the 7/29/15 Van Trump Report. Sign up for a free trial by clicking here.