I make calls to Realtors, mortgage loan officers, builders, housing investors, and various individuals actively involved in the house and mortgage markets every day. I think their street level perception and anecdotes are extremely valuable to housing and mortgage sector research. When talking to these folks I think asking the right questions is paramount.
In the month of March — taken from over 100 calls — below are the most common responses to questions surrounding this housing market, sense of urgency to sell or buy, why they think ‘now’ is a good time, why time it’s different, etc.
Not only are many responses extremely similar to what I was being told going into the 2010 during the tax-credit period but statements like these are too ‘matter of fact’, completely wrong in many cases, urgent, and reek of herd mentality. All of which generally do not generally precede “durability”.
Most frequent comments or sales quotes by:
Realtors and Loan Officers:
• “Rates are at record lows and have to go higher from here.”
• “House prices are at decade lows and are forecasted to rise this year.”
• “Mortgage loans are getting tighter. FHA is doing away with low down payments and almost doubling their up front insurance fee”
• “Affordability is at record highs” (at least to those that don’t already own a house they can’t sell and with the down payment, credit history and job needed for a mortgage loan).
• “Investors are snapping up all the foreclosures and short sales and there are no more coming.”
• “Warren Buffet wants to buy 200,000 houses”
• “You have to buy now or get left out.”
• “Foreclosures are going away.”
• “House prices are at their lows and are forecasted to rise this year”
• “The gov’t is going to give large investors bulk REO.”
• “We have to buy now or we will be left out.”
• “We hear Warren Buffet is buying 200,000 houses”
• “We can live with lower cap rates because of the appreciation we are going to get over the next 5-years.”
First time buyers:
• “Rates are at record lows.”
• “House prices are at their lows.”
• “Our Realtor and loan officer say that investors are snapping up all the low priced houses and we will get left out.”
• “Who’s this Warren guy everybody is saying will price us out of the market?”
• “Mortgage loans are going to get tighter making it much more expensive to buy (than zero down now)”.
• “I would love to take advantage of these low rates and house prices and finally move but nobody will buy my house for what it’s really worth (obviously, for most their house is the best on the block and it should be “worth” what it takes to pay off the first and second mortgage, pay a Realtor 6% and provide cash to put down on a new house).
• “We don’t qualify for a new loan given how “tight” the banks are with respect to credit and cash down.”
• “We have reached out to our servicer who said we have to be in default to get a modification.”
• “Our servicer would consider a short sale but we may not qualify and are concerned about ruining our credit.”
• “Screw Warren Buffet, he wants to raise our taxes”
• “What do you know about the banks doing principal balance reductions for everybody from the $25 billion settlement?”
• “This time it’s different.”
• “We are really in recovery. All of our data tells us so.”
• “Also, Mark Zandi said so.”
Wall St Analysts:
• “The economy is expanding, jobs are growing and household formation will drive demand for years.”
• “Inventory is low, affordability is a record highs.”
• “Foreclosures are going away, and builders will have to bridge the gap.”
• “This will lead to 1.5 million housing starts in two years.”
• “House prices will increase 3% to 5% per year forever.”
• “The Fed jimmy’s rates down to the unsustainable level of under 4% in Q3’11 through the Twist ops announcement.”
• “Liquidity (once again) rushes back into the financial and mortgage markets.”
• “The ECB starts printing and then goes vertical with LTRO. The world is awash in liquidity. Junk assets rotate in heavy favor.”
• “This is married with record low house prices and virtually no precipitation or snowfall in major metropolitan regions throughout the nation.”
• “FHA telegraphs big changes coming in Q2 that will result in a much greater cost beginning April 1 than the zero to buy a house prior.”
• “Banks and mortgage servicers continue to avoid foreclosures at all costs on the back of heavy government regulations, new government can-kicking programs, and cycle high loss severities, reducing distressed supply.
• “The gov’t then releases a half dozen “new and improved” mortgage mod type programs that results in ready sellers, short-sellers, and strategic defaulters not carrying through with plans to sell or defaults, rather apply for a government hand-out reducing supply even further”
• “Warren Buffett gives housing a “strong buy” for the third-year running”.
• “Lastly, headlines are filled with gov’t bulk REO-to-rental schemes aimed at institutional investors that lights a fire under private investors looking to front-run them.”
Bottom line, viola’! The perfect storm of increased demand meets decreased supply. Unfortunately, all of this is either unsustainable or transitory and will end just like the homebuyer tax-credit of 2009/10.
Of my seven “perfect storm” items I list above, SIX are government induced. Only the “weather” phenomenon is not. I can’t give much durable economic weighting or benefit while forecasting to conditions created by the government or Mother Nature.