Luxury Home prices Devolution Ratio is in double Digit
April 25, 2018
Is Luxury Home prices Devolution Ratio is in double Digit ?
Will House Prices Fall?
In the last housing bubble, home-builders submitted permits for new construction. That was less than 1 million in 1990 during the recession. It gradually rose throughout the 90’s, exceeding 1 million in 1998. It remained at that level until 2002, when it surpassed 1.5 million. It hit a new record of 2 million in 2004 and 2005. In 2006, housing prices began falling. Home-builders sought more than 1.5 million permits. That fell to less than 1 million in 2007. By 2009, it had collapsed to 500,000. They’ve only gradually recovered to 1.3 million in 2017. They are expected to drift lower, to 1.1 million by 2020. Home prices in Denver, Houston, Miami, and Washington, D.C. are at least 10 percent higher than sustainable levels, according to CoreLogic.
At the same time, affordable housing has plummeted. In 2010, 11 percent of rental units across the country were affordable for low income households. By 2016, that had dropped to just 4 percent. The shortage is the worst in cities where home prices have soared. For example, Colorado’s stock of affordable rentals fell from 32.4 percent to only 7.5 percent since 2010.
In March 2017, William Poole, a senior fellow at the Cato Institute, warned of another subprime crisis. He warned that 35 percent of Fannie Mae’s loans required mortgage insurance. That’s about the level in 2006. In some ways, these loans are worse. Fannie and Freddie lowered their definition of subprime from 660 to 620. That means the banks are no longer calling borrowers with scores between 620 and 660 subprime. Poole was the head of the Federal Reserve Bank of Kansas who warned of the subprime crisis in 2005.
In 2016, 5.7 percent of all home sales were bought for quick resale. These “flip” homes are renovated and sold in less than a year. Attom Data Solutions reported that’s the highest percentage since 2006, during the last boom. DFW Market snap Colleyville -30% , the Park Cities -28 %, Fairview -26%
More than half of Dallas-area neighborhoods saw a decline in home purchases in early 2018 after years of rising sales. The largest decreases in sales came in high-priced neighborhoods in Colleyville (-30 percent), the Park Cities (-28 percent), Fairview (-26 percent) and Northeast Dallas including Lake Highlands (-20 percent). Median sales prices were $400,000 and more in each of these neighborhoods that saw the most significant first-quarter declines. Moderate and low-priced homes are still growing at a fast rate in the Dallas area while appreciation for higher-cost homes is much slower.
Sales of the most expensive million-dollar-plus homes were down by 5 percent in the first three months of 2018. Purchases of houses priced between $190,000 and $300,000 were up from 15 percent to 18 percent in the first quarter. Home listings declined sharply in some of the more affordable residential districts including Lancaster (-24 percent), Duncanville (-17 percent) and Southeast Dallas (-12 percent).
How does supply and demand affect the housing market?
Housing supply is also an important dynamic to consider when looking at a then-and-now analysis of the housing market. Since mortgages were being given out with little regard to the borrower’s ability to pay back the loan, new home building skyrocketed to meet the new demand. In 2005, new home sales hit a 52 year high with 1.28 million new homes being built. Ten years later, only 500,000 new homes were constructed, dropping 61 percent from the peak ten years prior. An overall lack of inventory continues to be a driver in price appreciation.
Following Trends and Practice will determine the future Housing market:-
- Job Market
- Household saving trend
- Subprime lending
- Weak underwriting practices
- Predatory lending
- Increased debt burden
- Financial innovation and complexity
- GDP & Commodities
- Banking system
- Systemic crisis