May

31

What will the bottom look like for US housing?

Sale-hungry, real estate agents tout low interest rates as the best time to buy, and that of course would be today. But are we at "the" bottom? I say we are not. Here are some bottom recognition themes that I would expect to see if the economic contraction continues and the bailouts ultimately fail with high commodity prices persistent.

1. First time home buyers (young couples) will turn to consolidated renters-move in together and share an apartment. The average age of 1st time buyers will trend higher. First timers under a certain age may need a 30% dp and a co-signature.

2. Prevailing sentiment sentence: "You own a home, you are either rich, old, or crazy".

3. Why own a home, there are no tax deductions anymore?

4. Real estate agents will be scarce.

5. Most unsold homes consolidated under a government/bank/insurance entity, General Homes (GH)?

6. Large sections of most all major cities like Detroit will have huge inner city areas bulldozed clean of empty homes. People living in homes on streets that are scheduled to be wiped will be given an equal or greater value home in a different part of the city that is earmarked for urban homeowners.

7. Large corporations or entities will purchase huge city open acre zones to rebuild gated communities and downtown oasis business zones that will be the new coveted land. These areas will be far from the urban sections that house the remaining hangers on.

8. "Owning a home is an anchor. In this economy mobility is key."

9. In the event of natural disasters, like the recent tornado, that wiped a town in half. New act of God clauses will be written into insurance and fema guidelines to get those people who have been made homeless to not rebuild but to migrate to unsold homes nearby owned or not by GH. This will take homes off the supply list.

10. Imagine a terrible new Madrid quake-Diaspora of population will take large amounts of homes out of supply due to no rebuild rulings.

11. The cost of home maintenance and upkeep due to raw material pricing will make it even more difficult to build new homes or maintain existing ones, although labor will be lower in cost for these services due to high unemployment.

12. Saving up very large down-payments and/or paying for a home in cash will be in vogue.

13. Neighborhood demographics will be very important in determining where to live. Longevity of intact healthy home zones will be key to long term stable values and reselling ability. Questionable areas with unlived in homes, many elderly, poor schools will continue to decay.

14 Home with an empty lot next door will be more common. Empty lots may be turned into garden zones, for neighbors.

15. Farms make a comeback since the home's value may depend on its own earning potential. Urban farms are already springing up in some inner cities.

16. The decision to buy a home will be considered as one of the most important in one's life.

17. Corporations may decide to buy bundles of cheap homes near work locations to rent to employees. Offering living quarters as part of total compensation will ensure home upkeep, intact resale zones, and ultimately profit.

18. Your carbon footprint will be taxed based on your home's energy characteristics. This would lead to high efficient energy themes, smaller homes, and conservation of utilities. This will reflect disdain for older homes and lead to the reduction of older homes through teardowns. Increased EPA restrictions on remodeling are happening now.

19. Lowes or Home-Depot, Sears, one will be gone or combined.

20. You will have to pay a real estate agent a trip fee to be shown a home.

21. Expect further consolidation of real estate companies.

22. Home Builder bankruptcy filings will increase, expect a big name or two to go away.

23. Gated communities will become more the norm. Knowing your neighbors will be an important theme in terms of security and safety.

24. The starter home section of the market will devolve, breaking down into a more energy efficient, higher quality home. The move up home will become the new permanent home for most. The high-end homes for the wealthy will cost more, be taxed more and will not change much. As the middle class shrinks the homes will be more straddled-either higher end or junk/rent.

25. Condos, a double edged sword -great when filled and no vacancies, bad when values are down and vacancies must be shared as a burden to all association owners-will either thrive as high end high security safe zones or be bulldozed. The condo concept may merge with the home zoned concept. Fort thinking may surface where a condo buyer may want to pledge too not sell for x years-getting a place in the fort is what counts.

26. Homes far away from employment areas will suffer. Long commutes will be a large factor in a buyer's mind. Homes in solid employment zones may be coveted and handed down from generation to generation like apts. in NYC, or old plantations in the south.

27. The amount of crime relating to copper thieving and siding pulling will come down due to lack of hood home supply and or higher security of homes still intact.

28. Home security, already a growing sector will grow in terms of round the clock surveillance -google home watch, automated stun defense systems, etc. Castle doctrine shooting of intruders will increase.

29. Pet ownership will drop since less homes and more people renting which usually employ no-pet clauses. Large eating-machine pets and high vet bill pets will shrink. The McMansion has died and soon the black lab will be a memory. Animal hoarders will be prosecuted severely.

30. Remodeling for college return grads will be even more in vogue. Mother in law suite, will become elder child accommodations.

31. As more home based businesses increase watch for the home office deduction to vanish, to further tax the homeowner.

32. Double houses will take on a charm once again if near safe areas or employment zones. Owner occupies half and rents out the other. Security, tenant control and income stream makes this concept more appealing. Builders may build new double homes with upgraded features-this may be a budding area of green cutting edge trend for builders, a healthy niche.

33. Concept homes for divorced persons who need to stay in same home with kids will evolve.

34. Foreclosures start to dry up as the eventual end comes into view.

35. High interest rates return and cement the death of housing and the bottom will be in. Home ownership will be considered a luxury.

Sam Marx writes:

I live in FL, and 5 or 6 years ago we had 2 back to back hurricanes in my area and for the next 5 or 6 months, Waste Management trucks could be seen hauling away the debris, lots of branches, etc.

I know it sounds ghoulish, but investments in Waste Management type companies in the tornado belt area might be a good investment.

Pitt T. Maner III writes:

I remember a run-up in the price of a small powerline repair company (don't remember the name) that did work in the SE and maybe on some of the Carribean Islands after Wilma (?).

Powerline repair, telephone line and tower repair, etc. can come into play after big hurricanes particularly since the wind speed and forces are often higher as you move above land surface.

In West Palm Beach there was a rather dramatic example a few blocks away where heavy power line cables running in a north-south orientation started swinging and ballistically broke and cracked what looked like strong, rebar-encased concrete poles. Several very large electric support towers collapsed out in the Glades too.

After a big storm, there can also be a multi-month need for rental equipment to cut, clear, and load vegetation and debris and to rebuild structures.

It seems like it took 6 months to a year to clean up after Andrew.


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1 Comment so far

  1. William Kabourek on June 1, 2011 10:59 am

    Good thoughts. Here’s something else to consider.

    Popeye had it right when he used to say ” I can’t stands no more” and then light into Bluto. He’d be pushed to the brink and then explode. America has been pushed to the brink by the stupid financial press.

    I can’t stands no more talk about needing a rebound in housing and new home construction. It’s idiotic to hope for or expect that they work together. They pull at opposite directions. The last thing America needs is a rebound in new home construction. Now, contractors and construction workers may need a rebound in new construction, but underwater homeowners sure don’t. They need a reduction in supply and you don’t achieve that by building new homes [the same rant applies to strip malls and commercial flex space].

    Years of over building, over speculating, and over leveraging got us into our present situation and the sooner we stop adding to supply the better. We may stop adding to supply sooner if the financial media begins to understand the situation and ceases lamenting the poor new home statistics. What’s good for Lennar and D.R. Horton isn’t good for American home owners.

    Home prices aren’t going to rise, in over built parts of the country, until those parts are no longer over built. Simple! At present, in process foreclosures, vacancies, and shadow inventory remain excessive. A better economy and population growth will help. So will better reporting and conservative lending.

    Since government’s pump priming hasn’t helped and builders continue to build, what else may be a possible solution to static home prices? It’s not an original thought, but the following makes sense. We currently give green cards to immigrants that follow the rules and come to American with substantial cash to open a business. The concept isn’t new. If we want to jump start home pricing we need to stimulate purchasing from new buyers. Let’s expand our current program that accelerates green card ownership if the immigrant not only opens the business, but also buys a home. Greatly expand the requirements for cash invested in the country and value of the home; and most of all, the number of new, qualifying immigrants we will allow. Our housing overhang and price problems will start to mend as supply contracts.

    If we can stands no more we need to quit lamenting poor new home construction until supply recedes and we should consider expanding our immigration pool as a means of reducing supply.

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