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Stessa Weekly Newsletter for November 28, 2018

The Stessa Weekly Newsletter is hand-curated every week to bring you insightful accounts of new features, investing tips, business insights, and market trends from the real estate ecosystem. This week, we will cover the 10th anniversary of the financial and housing crisis, the new reality of a slow housing market, and the terrible effect of wildfires on California’s housing market.

Housing bubble’s 10th anniversary

It’s been ten years since the U.S. housing crash that left many real estate investors and homeowners in various stages of financial stress. September 15th, 2008, marked the fall of Lehman Brothers and on December 30, 2008, the Case-Shiller Home Price Index reported its largest drop in history.

Many things have changed over the past 10 years, but one thing we’ve been reporting on recently is the pre-crash highs that housing prices have hit. As with anything in real estate, it all depends on your market, but there have been some that are making headlines this week we wanted to highlight.

Caitlin McCabe of The Inquirer reports on the overall Philadelphia market, noting experts believe there will be a cooling of the market moving into 2019 and a lot of new apartment supply to sort through before there is any significant jump in rent prices.

Mark Calvey of the San Francisco Business Times notes in an article last week that the Bay Area could be hard hit in a recession because of higher home prices, among other factors.

Mike Rosenberg of the Seattle Times points out that Seattle home prices are falling at the fastest rate in the U.S. after leading the nation in home price increases for nearly two years.

Samuel Stebbins of 24/7 Wall Street also reported last week on recent data from ATTOM Data Solutions which points to 4 metro areas that are at risk given higher pricesGreeley, Colorado; Kennewick-Richland, Washington; Dallas, Texas; and Houston, Texas. According to Stebbins, “the typical home [in these metros] is worth over 75 percent more than its peak value before the last housing bubble.” For reference, the article notes that the typical American home is worth 11.3 percent more today than its pre-recession peak, versus the 75 percent in these metros.

New home purchases drop, builders desperate

Prashant Gopal of Bloomberg Businessweek reports that hot markets are cooling fast as homebuyers are reclaiming the upper hand after years of rising prices.

 

Source: Bloomberg Businessweek

 

Gopal reports that this has led many developers across the country to offer some interesting buyer incentives, like trips to Lake Tahoe and Santa Barbara, and price concessions of up to $100,000. New home purchases dropped in September to its weakest pace since 2016 and Homebuilding stocks have lost over a third of their value this year.

 

Doug Short of Seeking Alpha reports on a less bleak view of new housing starts this week that offers a bit of a historical perspective, noting that “privately‐owned housing starts in October were 1.5 percent above the revised September estimate, but 2.9 percent below the October 2017 rate.” And, if we take the long view, we are well below historical housing start highs:

 

Source: Seeking Alpha

 

According to Robert Hughes of the American Institute of Economic Research, “Single-family housing construction and permits are weakening…The combination of rising interest rates and falling affordability is likely to provide resistance to a prolonged reacceleration in activity.”

 

In citing a new housing report from Goldman Sachs, Myles Udland of Yahoo Finance reports that there are three reasons why the housing market is slowing down, and will be for a long time: mortgage rate increases putting pressure on affordability, housing prices have grown faster than rents and incomes since 2012, and the 2017 tax law changes reduced tax benefits associated with owner-occupied housing.

California’s housing and wildfires

The unimaginable damage inflicted by the California wildfires has exacerbated California’s already challenging housing shortage, reports Zahra Hirji from Buzzfeed.

 

For instance, folks from Paradise, California, are now desperately looking for new places to live in nearby Chico, Hirji reports. In Chico, there is a frenzy playing out in the housing market with “homes repeatedly getting 15 or more offers and consistently selling above the asking price.” One Realtor notes in the area that they are 100% out of rentals.

 

This presents additional strain to an already difficult housing situation in California at large. According to the California Department of Housing and Community Development, “Production averaged less than 80,000 new homes annually over the last 10 years, and ongoing production continues to fall far below the projected need of 180,000 additional homes annually.”

 

Mary Williams Walsh from the New York Times reported last week that of California’s eight million houses, three million are located in what’s called a wildland-urban interface, almost 2 million of which are “considered highly prone to wildfire.” This has put pressure on insurers as well, who have been increasingly declining to renew homeowners’ policies in these fire-prone neighborhoods.