The big question for many is whether buying real estate today makes sense. Hopefully the 7 million foreclosures within the last decade highlights that buying isn’t always a simple decision. Investors have dominated the real estate market since 2009 and big money is clearly pulling back from inflated markets like those in California. This trend is fairly new but even with this minor twist, inventory is picking up and sales are staying very low. It helps to understand that many foreclosures are happening because borrowers are spread thin and maxed out. Most households are living paycheck to paycheck even those with higher incomes.
Existing home sales
Existing residential real estate sales are down more than 35 percent from their peak reached in 2006. Our population is growing and so are prices. The push for higher prices has come from Wall Street, low rates, and normal buyers competing with the investor groups. A big question that many are wondering is what will happen when big money starts to flow out of real estate.
What we don’t have to guess on is that this recent trend has made it tougher for first time buyers. First-timers are a small portion of the real estate market because investors are crowding them out. We also have a large number of young people living in the basement of their parent’s granite counter-top McMansion.
Despite the recent rise in home prices we still have 9.1 million home owners seriously underwater. What this tells me is that many people pushed their budgets to the financial limits merely to squeeze in. If this were truly a solid housing uptrend we would be seeing home builders doing what they do, building homes. We would also see existing home sales kicking butt. Yet we have a juiced up system with countless forms of accounting shenanigans. Some try to make it out as if economics and finance are somehow a new science. Remember, the Fed can literally change the rules as they seem fit for a brief period of time.
We’ve been adding many more rental households over the last few years; just in line with the big investor buying (those 7 million foreclosures had to move somewhere)
Take a look at the graveyard of 7,000,000 foreclosures. The Fed has turned the housing market into a speculative vehicle, with this volume of investor buying; you should proceed with the caution of buying a stock. This is another critical point in regards to perceived risk. You have people staying miles away from stocks (which are up 170+ percent since 2009) yet are more than willing to stuff their entire $20,000, $40,000 or $100,00 down payment into a highly prized piece of real estate that just went up double-digits courtesy of investor fever, and yet they feel this is safer bet. Essentially you have people with no cash, pathetic 401ks and retirement funds with 80 to 90 percent of their wealth tied up in one piece of real estate. People are emotional and that part of our brain goes haywire when you talk about the “nest” – you need only go to an open house to see these folks battle it out.
With 7 million foreclosures already processed and currently 9.1 million borrowers seriously underwater. It should be apparent that when it comes to buying a house, you really need to run the numbers. Investors have and are already pulling back from certain markets.