It’s summertime here in the Northern Hemisphere, time for the neighborhood cookout. Many of the locals were there with their children and some with their parents. The Asian-style hot wings were great, and the ribs did indeed fall off the bone.
It was hosted in a newly built McMansion that seemed like it was 30% empty space, all entranceway and two-story living room with a catwalk to the bedrooms. Of course, we came in through the garage…
It’s the same architecture we’ve been seeing on the East Coast for the past 30 years, boring in its grandeur. It makes me wish for a something Spanish with a big black, nail-studded gate, courtyards, and a fountain.
Like all such gatherings, talk fell to real estate, as it’s the only thing we have in common. One neighbor who lived alone in an older ’80s-style house had recently added a five-car garage with an apartment above it. She was ratted out to the county by the busybodies for building two dwellings on one property, which she got around by building a causeway.
There was talk of the former Ravens football player building the 10,000-square-foot monstrosity that you could see from the firebreak trail. Some commented about the number of new houses for sale after years of little real estate action.
People are selling finally because prices are back to 2007 levels.
According to CNBC:
The most competitive, tightest housing market in decades may finally be loosening its grip, and that could put pressure on overheated home prices. The supply of homes for sale in the second quarter of 2018, the all-important spring market, rose at three times the rate of the same period in 2017, according to Trulia, a real estate listing and research company.
The inventory jump was the largest quarterly improvement in three years and could be signaling a slight thaw in today’s housing market. But it is just a start.
Thirty of the nation’s 100 largest cities, including New York City, Miami and Los Angeles, now have more supply than a year ago.
Are we at the point of a robust and liquid housing market? Is it time to buy Home Depot (NYSE: HD) and furniture stores Stanley (OTC: STLY), Bassett (NASDAQ: BSET), or American Woodmark (NASDAQ: AMWD)? No. Growth at La-Z-Boy (NYSE: LZB) is just 1.80%. HD is just 4.4%.
Of course, the time to buy real estate was in 2010.
At the time I wrote an article called “Make a 60% Annual Dividend: Real Estate, the Bargain of Your Lifetime.”
In it I did the math, writing:
You can buy a condo for $300,000 on the water in Ocean City, Maryland. The weekly rent for five months is $1,800 per week. That equals $45,000. The rest of the year, it rents out at $1,000 a week…
Or $35k — which equals $80,000 a year — minus 20k for management fees. That’s roughly 60k in income. You pay out 24k on your mortgage at 2,000 a month, including taxes and fees.
That leaves you with 36k a year in income — plus someone else is paying your mortgage.
Say you put 20% down or $60,000. That gives you a 60% annual return with the addition of long-term upside as the condo appreciates.
Today, that same condo goes for about $550,000, and the weekly summer rentals are about $2,800.
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Time to Sell?
If you did buy a house in 2010, you may consider selling. The bubble has already popped in Vancouver. Toronto sales fell 40% in April, and the price fell 17%. Sydney housing prices were down 4.9% over last year. Housing starts are off 22% in Israel. Though Ireland seems to be bucking the trend.
In the U.S., it’s a bit more complex because housing starts were up, but mortgage applications and building permits were down.
As I wrote last week, we are in a global money-tightening period. Money will continue to get more expensive.
The global central bank tightening will de facto lead to higher interest rates pushing the monthly payment on houses up. Given the same number of potential buyers, wages must increase or housing prices must come down. And wages haven’t gone up in real terms since 1971.
And this is why folks who have been wanting to move for the past 10 years just put their house on the market.
All the best,
Christian DeHaemer
Check us out on YouTube!Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
