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US HOUSING
A SECTOR IN TURMOIL Bloomberg: There’s an Unusual Thing Happening in the Housing Market 
Residential homes in San Francisco, California, US, on Thursday, Sept. 8, 2022. Photographer: David Paul Morris/Bloomberg Original article: Peter Burgess COMMENTARY Housing is one of the main determinants of quality of life, but this is not much talked about by any part of the media. Housing market prices are determined to a large extent by interest rates and the related cost of having a mortgage and the affordability of owning a property. In the past few months the US Federal Reserve has raised interest rates ... that is the interest rate it charges banks, and therefore what they have to charge the retail customer ... to what used to be a more normal level. Mortgage rates are now around 6% rather than around 3% which is a substantial change. It is no surprise that there has been a drop of demand in this period ... the free market idea of supply and demand as a determinant of price does actually work. In this brief article, however, there is no mention of the fundamental problem of affordability in the housing sector. The existing stock of houses (appartments, etc) has been growing very slowly for yeas, especially the smaller lower priced properties. Builders and 'property developers' have built bigger and better houses to satisfy a higher priced and more profitable segment of the housing market while 'affordable housing' has been ignored. Essentially, new 'affordable housing' cannot be built profitably. The actual cost of building a decent house or apartment is too high for it to be affordable either to own or rent by most everyone at the lower end of the US economic ladder. Everything that is needed to build a decent house or apartment has gone up in price, but wages and wealth in the US population that needs housing has flatlined or declined over the last 40 years since the Reagan era. 'Public' housing and subsidies of various sorts have been tried going back a very long time, but they have rarely been successful for a multitude of reasons, both social and economic not to mention technical. One of the core costs of housing is the price of the land where is house or apartment is built. The price of land cannot behave in the same way as the price of other economic goods ... the quantity of land is fixed and more cannot be produced to offset high demand. This explains the real estate observation that the value of a property is based in three things ... location, location and location. It also explains why property developers will buy a building, knock it down and then rebuild at a higher density on the same land. In the case of major cities, this translates into building developers building higher and higher. The cost of building and the cost of occupancy of suitable shelter is a very serious problem and difficult to address using conventional economic thinking and the prevailing regulations and teax regimes and real estate and property developer behaviors. One possible way in which behavior may be changed is to address the issue is to separate the matter of land ownership from the buildings that are located on the land. If all land was in 'public ownership' rather than being owner more and more by private speculators, it would change the total cost of building ownership and occupation in a significant manner. Another way that better and more affordable housing can become a reality is by major changes in the technology and methods used for building in the modern era. I don't know exactly what the technological potential is, but my impression is that much of what is being done in the 2020s is not much different from what was being done in the 1920s, and in some cases the 1820s. I am in in 80s and one of my grandfathers built thousands of houses in Canada and the UK ... and I think he would fit right into the building industry as it now is a century on! Peter Burgess | ||
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There’s an Unusual Thing Happening in the Housing Market
Written by Tracy Alloway ... @tracyalloway September 16, 2022 at 10:15 AM EDT It’s no secret that the US housing market has been softening as interest rates rise at the fastest pace in decades. Higher mortgage rates mean the dramatic growth in home prices that we’ve seen over the past two years is beginning to slow. Sales of new homes recently came in at the weakest monthly level since 2018. Meanwhile, purchase applications are down 20% year-on-year, and so on. But the rapid pace of rate hikes has also resulted in an interesting statistical anomaly. Months of supply — or the number of months it would take for the existing inventory of homes on the market to sell at the current sales pace — has jumped to 4.1 from a record low of just 2.1 back in January of this year. And, as Morgan Stanley strategist James Egan notes, rarely have we seen an increase of this size. To some extent, the jump in inventory is to be expected. It’s maths. As sales volume falls while inventories rise, months of supply naturally increases. But such a jump is intuitively striking, and the key question for housing-watchers is whether the absolute level of inventory — which is still low by many measures, even as homebuilders have ramped up construction since last year — will turn out to be more important than its rate of change. A housing market that is structurally undersupplied is going to be a lot less vulnerable to fewer sales. Here’s Egan: “Months of supply has rarely increased as quickly as it has over the past six months. While we have a limited sample size of this kind of volatility, the size of this increase is normally associated with falling home prices 12 months forward. In fact, in the 34 instances in which months of supply increased by more than one month over any six-month period, [year-on-year Home Price Appreciation] was negative 12 months forward 88% of the time. While there have only been nine instances where months of supply have increased by more than two over a six-month period, home prices were always lower 12 months later.”The team at Morgan Stanley still expects home prices to rise this year, estimating a 9% increase for 2022 and more moderate 3% in 2023. But much of that forecast is predicated on inventory slowing. If it fails to do so, the team predicts a bear case of house prices falling 3% next year. In this article MS MORGAN STANLEY 87.43USD-0.83-0.94%
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