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Pimco Housing Bear Kiesel Says It’s Time to Start Buying
Though a bit volatile I agree with upward movement in RE funds. I use VNQ, TRREX, REACX, and CSRSX. Pimco has a Real Estate derivative strategy, PETDX, that has done well but, I don't understand it very well.
Their are sections of the country that are booming again...your Texas and NYC to name a few. Lumber has performed well as a commodity as well. The banks/financials are what worry me.
Housing will take years (and quite likely decades, depending) to really ramp up again in general. However, prices are likely close to a bottom in many areas. There's probably another 5-10% of downside and maybe a bit more, depending on if things start turning South again. Properties in major cities (in terms of condos) are in many cases at prices they have not been at in ages - in locations that many probably thought a few years ago would never be this affordable again.
Older generations looking to downsize will create headwinds, and they will likely not find buyers for larger houses at the prices they would like. The McMansions will have to come down, because the competition will be at lower price points and more manageable houses that will be of interest to both first-timers *and* an older generation who doesn't want the big house to take care of anymore. Maybe some of the McMansions could be revamped as duplexes. The other headwind is going to be getting a mortgage. Ease of getting one swung way too far one way, now it's swinging towards much more difficulty. While that's a good thing in some ways it means less available buyers, and other issues will create less buyers, such as people who short sold their prior house.
I've seen all manner of HGTV shows from a few years ago where the young couple just starting out wants some ridiculous 3,000 square foot place. People are going to be looking for what they need - maybe not in every case, but more often. Utility, convenience. Location, location, location. People are not going to buy beyond their means to the same degree, and wind up with a house that costs that much more to maintain and results in all manner of other issues, tax and otherwise. Taxes will be an issue, although I question whether of not the rise in property taxes compared to the drop in property values (making the tax burden a larger and larger % of house value) is sustainable.
Overall, I think you maybe have another 5-10% (maybe 12-15%, tops) down (which will take a while longer), and then it's flat-to-very slight (but it'll vary heavily) *at most* price gains for a few years, and then maybe a few years after that you get low single digit gains for a few years beyond that. Gradually, over time, housing starts rising again at a more moderate pace. As of right now, you have houses in some areas that are likely below their intrinsic value and it's cheaper to buy then rent in many areas (if you can qualify for a mortgage), but that doesn't seem to matter. Those who can buy now and have a long-term time horizon (they're going to be living there, it isn't a "flip") will probably do okay. It's going to vary a lot by place. Again, I think location and convenience is going to be big - a major city condo that is in the middle of everything and going for a price that people haven't seen in ages is going to have a lot more value and interest than a generic condo in an area where one has to drive everywhere and there's a million other generic condos like it. Location, location, location. Is it near good schools, transit, etc?
The other thing I've noticed, and maybe it's just me, co-ops don't seem to be moving, maybe because people just take one look at the high HOAs (despite the fact that they cover a lot) and move on. As for HOA's, I think that may also be an issue with some condos where they may look fine on the outside, but further investigation may reveal people not paying HOA's, etc.
I definitely disagree with the people in financial media screaming (not saying Kiesel is being Cramer-like about housing at all, but some keep hyping it) about buying a house (and much like the fact that they scream about how people aren't buying stocks every five seconds) - buying a house right now for those who can is not a bad idea, but I think one has to have a very long-term view and reasonable expectations. Certain things will do okay or reasonably well over the next decade. Certain real estate will take much longer.
I'm positive on real estate, but realistic and think it'll do okay for someone who has a long-term horizon. Anyone expecting some sort of price ramp over the next few years resembling anything close to what was seen in the housing boom is going to be disappointed.
As for those who have bought in the last couple of years:
"(Reuters) - More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth, and Federal Housing Administration loans that require only a tiny down payment are partly to blame.
That figure, provided to Reuters by tracking firm CoreLogic, represents about one out of 10 home loans made during that period."
Comments
Though a bit volatile I agree with upward movement in RE funds. I use VNQ, TRREX, REACX, and CSRSX. Pimco has a Real Estate derivative strategy, PETDX, that has done well but, I don't understand it very well.
Their are sections of the country that are booming again...your Texas and NYC to name a few. Lumber has performed well as a commodity as well. The banks/financials are what worry me.
Housing will take years (and quite likely decades, depending) to really ramp up again in general. However, prices are likely close to a bottom in many areas. There's probably another 5-10% of downside and maybe a bit more, depending on if things start turning South again. Properties in major cities (in terms of condos) are in many cases at prices they have not been at in ages - in locations that many probably thought a few years ago would never be this affordable again.
Older generations looking to downsize will create headwinds, and they will likely not find buyers for larger houses at the prices they would like. The McMansions will have to come down, because the competition will be at lower price points and more manageable houses that will be of interest to both first-timers *and* an older generation who doesn't want the big house to take care of anymore. Maybe some of the McMansions could be revamped as duplexes. The other headwind is going to be getting a mortgage. Ease of getting one swung way too far one way, now it's swinging towards much more difficulty. While that's a good thing in some ways it means less available buyers, and other issues will create less buyers, such as people who short sold their prior house.
I've seen all manner of HGTV shows from a few years ago where the young couple just starting out wants some ridiculous 3,000 square foot place. People are going to be looking for what they need - maybe not in every case, but more often. Utility, convenience. Location, location, location. People are not going to buy beyond their means to the same degree, and wind up with a house that costs that much more to maintain and results in all manner of other issues, tax and otherwise. Taxes will be an issue, although I question whether of not the rise in property taxes compared to the drop in property values (making the tax burden a larger and larger % of house value) is sustainable.
Overall, I think you maybe have another 5-10% (maybe 12-15%, tops) down (which will take a while longer), and then it's flat-to-very slight (but it'll vary heavily) *at most* price gains for a few years, and then maybe a few years after that you get low single digit gains for a few years beyond that. Gradually, over time, housing starts rising again at a more moderate pace. As of right now, you have houses in some areas that are likely below their intrinsic value and it's cheaper to buy then rent in many areas (if you can qualify for a mortgage), but that doesn't seem to matter. Those who can buy now and have a long-term time horizon (they're going to be living there, it isn't a "flip") will probably do okay. It's going to vary a lot by place. Again, I think location and convenience is going to be big - a major city condo that is in the middle of everything and going for a price that people haven't seen in ages is going to have a lot more value and interest than a generic condo in an area where one has to drive everywhere and there's a million other generic condos like it. Location, location, location. Is it near good schools, transit, etc?
The other thing I've noticed, and maybe it's just me, co-ops don't seem to be moving, maybe because people just take one look at the high HOAs (despite the fact that they cover a lot) and move on. As for HOA's, I think that may also be an issue with some condos where they may look fine on the outside, but further investigation may reveal people not paying HOA's, etc.
I definitely disagree with the people in financial media screaming (not saying Kiesel is being Cramer-like about housing at all, but some keep hyping it) about buying a house (and much like the fact that they scream about how people aren't buying stocks every five seconds) - buying a house right now for those who can is not a bad idea, but I think one has to have a very long-term view and reasonable expectations. Certain things will do okay or reasonably well over the next decade. Certain real estate will take much longer.
I'm positive on real estate, but realistic and think it'll do okay for someone who has a long-term horizon. Anyone expecting some sort of price ramp over the next few years resembling anything close to what was seen in the housing boom is going to be disappointed.
As for those who have bought in the last couple of years:
"(Reuters) - More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth, and Federal Housing Administration loans that require only a tiny down payment are partly to blame.
That figure, provided to Reuters by tracking firm CoreLogic, represents about one out of 10 home loans made during that period."
http://www.cnbc.com/id/47191744
Anyone buying lumber can look at one of the Timber REITs, such as Potlatch (PCH) or Plum Creek. Potlatch is close to a 52wk low.