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business newsHome Ownership Is in Secular Decline
By
Adam Katz
Aug 09, 2011 10:20 am
This bodes well for those seeking long-term rental income as the spread between what you purchase and renovate an asset for, and the rental rate you can get for it, will likely improve.
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I have been getting bombarded with questions about what the state of the debt ceiling debates and now the downgrade of U.S. Treasury debt does to the already flattened housing market. So let’s talk about it:
The obvious result is that borrowing costs are likely to go higher at some point in the future, which does create a headwind for a pricing recovery given that a greater percentage of people’s monthly payments will be allocated to pay more interest on loans. That much is obvious. What is not so obvious is how it makes the already shrinking pool of potential buyers even smaller. In past articles, I’ve stated my belief that home ownership is in a state of secular decline and that over time, it is likely that we will see government backing of mortgage loans to be all but phased out, if not completely extinct. Over the weekend, I got the following email from a mortgage company:
As of yesterday, there were a total of 16,455 homes for sale in Maricopa County according to the Arizona Multiple Listing System (MLS). There are another 17,639 homes that are listed as either "Pending" or having an accepted offer but AWC "accepting written contingencies." Given the pace at which homes are falling out of escrow, I think we can safely state that there are approximately 30,000 homes for sale in Maricopa County, which for those of you who don’t know, is the greater Phoenix/ Scottsdale area, Chandler, Mesa and a great deal of the urban sprawl that surrounds it.
Of that approximate 30,000, a total of 28,920 for sale or are pending are listed below the local FHA limit of $346,000. Furthermore, if one were sort with a price limit of the impending $271,000 limit, there are 26,711 homes for sale. So I posture this question, particularly to lenders with whom I negotiate who are asking me to pay more than my offered price: What happens when another 8% of the current homes on the market eligible for FHA financing are put out of the eligibility reach? It is wrong to assume that those sellers will likely have to reduce prices thus putting more pricing pressure on the market? No, I don’t think it is wrong to assume that. More pressure is coming, folks, and I’ll say it again: Home ownership is in secular decline. And, as I have also stated in the past, this bodes well for those seeking long-term rental income as the spread between what you purchase and renovate an asset for, and the rental rate you can get for it will likely improve -- even more so if banks decide to take more bulldozers to more houses in your area.
The obvious result is that borrowing costs are likely to go higher at some point in the future, which does create a headwind for a pricing recovery given that a greater percentage of people’s monthly payments will be allocated to pay more interest on loans. That much is obvious. What is not so obvious is how it makes the already shrinking pool of potential buyers even smaller. In past articles, I’ve stated my belief that home ownership is in a state of secular decline and that over time, it is likely that we will see government backing of mortgage loans to be all but phased out, if not completely extinct. Over the weekend, I got the following email from a mortgage company:
****CRITICAL ANNOUNCEMENT****
The FHA maximum loan limit in Maricopa County is about to be reduced from $346,250 down to $271,050 on October 1, 2011.
2011 Temporary FHA Loan Limits About to Expire
Congress has not acted to extend the temporary FHA maximum loan limits and on October 1, 2011 they will expire in favor of the standard loan limits set back in 2009.
For Maricopa County, AZ, this means a max FHA loan of only $271,050. Submit your FHA loan applications by August 29, 2011 if the loan amounts exceed $271,050 and the property is located within Maricopa County.
The FHA max loan amount varies by county, so check with us if you are concerned about how the expiration of the temporary FHA loan limits will affect other counties in AZ and across the nation.
Other temporary loan limits on conventional programs are also set to expire, although these mostly affect 'high cost' markets. Phoenix is not considered a high cost market.
We anticipate that many families will be caught off guard by the news that the FHA loan limit is about to drop significantly, and will scramble to finalize home purchase transactions so that they can 'beat the deadline' and submit this FHA loan apps before August 16.
If you or someone you know is looking to buy, please give me a call as soon as possible so we can make the deadline
As of yesterday, there were a total of 16,455 homes for sale in Maricopa County according to the Arizona Multiple Listing System (MLS). There are another 17,639 homes that are listed as either "Pending" or having an accepted offer but AWC "accepting written contingencies." Given the pace at which homes are falling out of escrow, I think we can safely state that there are approximately 30,000 homes for sale in Maricopa County, which for those of you who don’t know, is the greater Phoenix/ Scottsdale area, Chandler, Mesa and a great deal of the urban sprawl that surrounds it.
Of that approximate 30,000, a total of 28,920 for sale or are pending are listed below the local FHA limit of $346,000. Furthermore, if one were sort with a price limit of the impending $271,000 limit, there are 26,711 homes for sale. So I posture this question, particularly to lenders with whom I negotiate who are asking me to pay more than my offered price: What happens when another 8% of the current homes on the market eligible for FHA financing are put out of the eligibility reach? It is wrong to assume that those sellers will likely have to reduce prices thus putting more pricing pressure on the market? No, I don’t think it is wrong to assume that. More pressure is coming, folks, and I’ll say it again: Home ownership is in secular decline. And, as I have also stated in the past, this bodes well for those seeking long-term rental income as the spread between what you purchase and renovate an asset for, and the rental rate you can get for it will likely improve -- even more so if banks decide to take more bulldozers to more houses in your area.
See also: Minyanville's Housing Market Report by Keith Jurow.
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