Is the housing industry selling shelter or investment? – Orange County Register

The real estate industry seems genuinely concerned about the possibility of house prices falling – and ignores the “affordability” created by such declines.

Many researchers who saw little chance of house prices falling in 2022 are now dropping the odd hint that they may have been wrong.

Poor forecasting is an occupational hazard for the so-called “experts” in any crowd. What is troubling is what these gurus are preaching.

Market analysts seem to see no benefit to falling prices, even if it is one way to create more affordable financing options for house hunters. (Will drivers care if cheaper gas hurts energy industry profits?)

So why are many housing researchers reluctant to say “wait for prices to drop”? Or do you know there is a home “sale” coming up?

I’m afraid this is because prices have become so insane for so long that the hope of a big profit on a residential “investment” has become the main lure to ownership – rather than the comfort that such “shelter” brings.

The drive for appreciation has too many people looking for a home – not to mention investors, who make up about 30% of all home purchases.

Essentially, predicting no price gains means there is nothing else to sell.

Not semantics

I don’t want to pick on Lawrence Yoon, but the chief economist of the National Association of Realtors is influencing industry thinking.

He strangely stated earlier this month on LinkedIn that “the money invested in the stock market a year ago has quickly dissipated. Money invested in a home could easily have doubled in the past year (eg a $30,000 down payment on a $300,000 home that went up 15% to $345,000 would have yielded a $45,000 gain).”

He then added: “But future house price gains will not be as strong. There is an opportunity to go negative if mortgage rates go up to 7%.”

What does a stock market pullback after a long rally have to do with buying a house?

Yoon had previously insisted that home prices would not fall in 2022. He also saw the pace of home sales for the year holding on to 2021. Instead, they have now declined by 8% through May. And he misread mortgage rates, forecasting a slight rise to 3.7% from 3%. We are now at 5.5%.

Okay, he has a cloudy crystal ball. Happens.

And, yes, the Standard and Poor’s 500, the stock market’s key barometer, fell 21% in the first half of 2022. That was Wall Street’s worst start to a year since 1970.

But talk about “distracted” hyperbole. A terrible choice of words at best.

Collins online dictionary says “when something is wasted or when you waste it, it becomes smaller or less powerful until it disappears or disappears” or “When someone wastes money, time, or effort, he wastes it in a foolish way “.

This is not semantics. Smart stock investors know it’s a long-term game. Even after a rough start to 2022 — a much-needed correction, I might add — the S&P 500 is up at an 8% average annual rate since June 1970. Home prices, according to math from dqydj.com, have only risen 5% annually.

Expensive investment?

So what about Yun’s Homes vs Stocks analysis? It involves a hypothetical buyer who put $30,000 down a year ago on this $300,000 home, which has appreciated 15% in one year — generating a $45,000 “profit.”

Imagine how much it costs to buy, own and sell this home.

To unload this home and reap that “profit,” let me calculate the transaction costs (commissions, fees, etc.) of 6% — that’s roughly $21,000 spent just to unload the investment.

Let’s also assume a 3% mortgage from June 2021 — remember those days? — another $8,000 in expenses. Paying one point on this loan, another $2,700. And let’s generously assume a 1% property tax, another $2,700. Of course, we haven’t mentioned home insurance costs or perhaps association fees.

Leave a Comment

Your email address will not be published.