Thursday, January 29, 2015

Gee I wonder why that is happening?


Said in the most sarcastic way. Denver housing hurt by too few listings.

Pretty soon there will be no blood left in the refi sector. Unless some really horrible things happen. And then the banks might not lend to allow people to take advantage of it. The existing home sales segment is also set to crater. When you have interest rates this low, why would you ever trade in your mortgage to "trade up"? To most people - what you pay per month is more important than having that big chunk of money in the bank. I don't understand it frankly, but I see it all the time.

I don't really track new home sales because I don't think I'd ever buy a new home. But I thought it was important now because that is going to be the only sector in town. I set this chart back to 1990 to see what a normal amount of new home sales used to be before the world changed. Surprisingly we are selling about the same amount of new houses as we did since the mini recession in 1990. Here is an expanded chart. Even the downturns where we were only building 400 thousand units were during stressful times in the US.

Housing is going to become extremely painful in the next few years. There will be a shortage at some point. Through the whole recession they have been building about half the houses in a normal cycle. For instance this year they built about 600 thousand units. They say a normal year before the recession was 100 thousand units. From the chart I think the real number for a normal year is closer to 500 to 600 thousand units. Averaged out. The current period of building only slightly over 400 thousand units has gone on longer than any downturn since the 60's. 7 years so far. In that 7 years, it looks like we actually got down to around 300 thousand units around 2010.

This will trigger your classic inflation. Too much money chasing too few products and services. And there really will be too few products in this sector. I mean, they can build new - if you can find the land and acquire the funding. Because you are going to have to pry existing homes out of those peoples cold dead hands.

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