I had a realtor call me the other night out of the blue. He wanted to know if I was planning on selling my house in the next few months. He said he had people who wanted to buy but there wasn’t much listed in my town.
When asked how he got my name he just said he was going by the map but sounded shocked when I said I wasn’t planning on moving.
The truth is we have been talking about it. You don’t need a five-bedroom house in one of America’s most expensive suburbs if the offspring have departed. Not that they actually have departed…but moving out from under them at this stage in life seems like a viable plan.
The problem of course is that housing prices after 2021 jumped 50 to 80%. Houses that should go for $500,000 are listed for $949,000. But they aren’t moving. They’ve been sitting for more than a year.
Sure a few of your neighbors who live far from cities got a good deal selling at the height of COVID fear, but that was three years ago. It’s all about “return to office” now especially with the Federal Government.
Arm and Leg
The payment on a half-a-million-dollar loan without PMI is $3,684 at 6.98%. If you add in taxes and insurance you are at $5,694.
The average salary of someone with a college degree is about $6,000 a month. So, an educated couple both of whom work could make the payment. But they would be well over the 43% debt-to-income (DTI) level needed to get a loan. But they are somehow getting them anyway.
Which is why you have charts like this:
Twenty years ago the share of borrowers with DTI over 43% was at 30%. Now it is near 65%. There was a great article in the WSJ today by Allysia Finley https://www.wsj.com/news/author/allysia-finley
She writes:
The FHA loan portfolio is far riskier than it was before the 2008 housing crisis."
"About 7.05% of FHA mortgages issued last year went seriously delinquent—90 or more days past when a payment is due—within 12 months. That’s more than at the 2008 peak of the subprime bubble (7.02%).
Under the guise of Covid relief, the Biden administration masked the growing troubles in the housing market by paying off borrowers and mortgage servicers to prevent foreclosures. Of the 52,531 FHA loans last year that went seriously delinquent within their first year, only nine resulted in foreclosure.
The FHA instituted a program that pays mortgage servicers to make borrowers’ missed payments for them. Missed payments are added to the loan’s principal but without interest. The FHA also pays servicers to cut monthly payments for delinquent borrowers by 25% for three years, with the payment reductions also added to the principal without interest.
Consider a borrower who misses five $4,000 monthly mortgage payments. The servicer will add the $20,000 in missed payments to the mortgage and reduce monthly payments by $1,000 for three years—adding another $36,000 to their mortgage. So the borrower is $56,000 deeper in debt, though with no additional interest. If he misses payments again, the servicer rinses and repeats, getting paid $1,750 every time it lathers up. The FHA also lets servicers charge borrowers legal fees—typically several thousand dollars—that are added to the mortgage principal.”
The FHA made payments to servicers 556,841 last year to prevent foreclosures. In other words, servicers are getting paid to give out risky loans to people who won’t pay. Wow. It all makes sense now.
We did this in 2005. It didn’t work. In fact, it just about blew up the world.
Markets need to go down. Investors need to fail. The dumb money must be cleared out. You have a situation where people who scrimped and saved to buy an overpriced house will get the rug pulled out from under their feet when all of this nonsense stops. And it will stop.
Heck, with DOGE on a rampage, it might have stopped already and the real estate market is like Wile E. Coyote spinning his legs over the cliff holding a sign and trying not to look down.
We will find out in the spring.
All the best,
Christian DeHaemer
Outsider Club
Consumer Spending
https://www.outsiderclub.com/cracks-in-consumer-spending/
Got Oil?
https://www.outsiderclub.com/oxy-finally-goes-up/
About the Recent Selling…
