The Housing Sales Roller Coaster

Posted on in Housing, TV Appearances

With new home sales up and existing home sales down in April, radio show host Jim Bohannon called it a housing sales roller coaster in a recent interview with Collingwood’s Chairman Tim Rood. Although new home sales have picked up, existing home sales have flattened out because there is a lack of existing homes up for sale right now. Rood explained that, “There’s millions of homeowners that find themselves underwater, meaning that they have no equity or more debt than they have value in there house, or they find themselves in a situation where they only have say ten or fifteen percent equity and the challenge for them is that the transaction costs associated with selling their property and then having enough equity to move into another one, they feel kind of trapped and there just isn’t a lot of upward pressure from the demand side to make that change.”

When Bohannon asked Rood if the lending industry has finally gotten its act together following the housing crisis, he responded that while it has been argued that the Community Reinvestment Act was a major driver of the housing crisis it was really deregulation that brought the system down. “Washington in the late 90s early 2000s said, ‘you know what theres a lot of old rules that were applying to banks that we should strip away we should just trust that wall street and the banks will act in their own self-interest and not do silly things like lend to people who can’t pay for their mortgages because ultimately that will crater the system.’ Its kind of like that scene in Animal house where Otto goes, ‘You messed up, you trusted us.’ Well that’s exactly what happened. They just got away from themselves and trusted that values would always go up and therefore it doesn’t matter whether somebody can pay because they will always have a way out.”

Further, Bohannon asked, “As I understand it, new construction on homes in April was up twenty percent but a lot of the surge in home start numbers actually was in apartment construction which made up forty percent of that. What do you think of that?” To which Rood responded, “Yes, these developers are no dummies, they are taking advantage of the fact that you have millennials who aspirationally still have a desire to buy a house but they’re just doing everything later but in the meantime as they are being drawn out of their parents basements they are being drawn into the city.”

He continued, “If the millennials do get addicted to that urban lifestyle, the challenge is that you’ve got a whole generation of people that are looking to downsize, you’ve got the boomers for example that are stuck in the suburbs and we always thought they would want to move south, go to retirement go play some golf, go fishing, but it turns out they too want to move to these urban areas which is creating more demand for those residences, those apartments, driving up rents but who the heck is going to take up and sop up all the inventory in the suburbs if that plays out. There was a recent study that was done that shows how seniors and the greatest generation as they pass away there’ s some analysis being done that says, ‘ok so what is their financial health at the time of death? What kinds of assets do they have?’ Right now the statistics are coming back that only about 20% of these folks that have been passing away had any financial assets outside of their home equity and this was the most prosperous generation in American history. You know what are we going to do if we find the millennials priced out of the market or making lifestyle decisions that keep them out of the housing market never saving, never building up equity, sooner or later these folks are going to want to retire or have some sort of health issue and Uncle Sam’s going to foot the bill.”

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