Buyer Competition
Home buyers aren’t just competing with each other for homes. Buyer competition comes from Wall Street and public investment groups. These groups have been funneling cash to purchase homes to rent out. At least one projection expects these groups to pour $40 billion into buying homes to rent over the next 18 months. Say the average home price is now $300,000. That equates to more than 130,000 home purchases. Blackstone, a large New York investment firm, just announced a purchase of a buy to rent firm. Blackstone is paying $6 billion for about 18,000 homes according to reports. It equals more than $330,000 per home. Other firms invest at the build stage in a new “build to rent” strategy.
Countries such as England have large stocks of home rentals governed by local boards. Many times these act to discriminate or rent to those who are deemed “suitable.” Let’s hope build to rent doesn’t take the same path in the US. At present though, home ownership rates in the UK generally parallel those in the US at around 60% to 70% for the past 50 years.
Home Ownership Rate Trending Down
The baby boomers took home ownership to high levels and each generation afterwards has trended lower. Home building was much simpler, homes were smaller, and cities had a more welcoming approach to adding housing. Since then, many cities and states (California, Oregon, Washington, and the northeast in particular) erected costly barriers to adding housing. Home prices in these areas reflect lack of supply more than too much demand. Demographic shifts to the Sunbelt result much from lack of affordable housing. Prices are high, which makes it harder to get a starter home.
Millennial Generation
Recent generations may not be as happy with a 30 year mortgage. Student loan debt has taken much purchasing power out of succeeding generations as companies added artificial requirements of degrees or advanced degrees for jobs. Colleges exacerbate the problem with sky high tuition and lack of critical thinking courses as they cater to masses of students needing remedial coursework.
A survey conducted by Bankrate in May found that more than two-thirds of millennial homeowners said they have big regrets about their purchase. The biggest complaint, by far, was that maintenance costs were unexpectedly high. The next two biggest complaints were the amount of the mortgage payment, and unhappiness with the rate.
Home ownership isn’t an answer to every question though. In many locations, renting overall is much more affordable. However, the trade-off comes in terms of the size of living space.
Crazy ? Buyers
Although there were wild and crazy trades in March, the hot market is slowing down and builders are re-starting projects. Some homes sold for double the ask price. The anecdotes usually involved sales in high cost locations such as California or people moving from high cost to lower cost locations. According to reports, there were more than 300 sales in March which sold for $1MM over ask price (expensive homes to start with). There were also many which sold for $500,000 over ask price. Many of these sales were one seller receiving well over ask price and then paying well over ask price-an essentially zero sum game. Or, if moving from high to low cost, still a gain from the sale to the new purchase. So, sell your home for $1 million over ask in California and only pay $500,000 over ask in Austin? The trade isn’t crazy. But these are becoming far less common as the market cools. Expect more cooling over the next six months as the market returns to more normal condition. Be prepared if you want to buy in the coming Advantageous Purchase Window.