Is there a US HOUSING BUBBLE?

Good read from the Federal Reserve Bank of Dallas

• https://www.dallasfed.org/rese...

  The key here is that prices are out of step with financials.  If you look at the charts you can see that this tipping point was mid 2021.
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• As my Private Clients know I have been Bearish on the overall Worcester multifamily market since July 19th, 2021 when I said the following in an email.

• I believe Worcester has hit a high water point for CERTAIN TYPES OF MULTIFAMILY
  
  Let's look at the numbers.
  About 6 weeks ago, everything was flying high, there were about 40 multis on the market at a time and a bunch were coming on and clearing each week.
  Almost overnight that number has jumped to 60 multis on the market, that is a 50% increase in inventory.
  And almost simultaneously the buyers went away. I have been going to open houses on Saturdays for 3 years and it is now like a ghost town. People used to line up to see and buy anything. Now people only make the trip if there is a deal to be had, or a very particular property or location.
  The places that ARE SELLING are because of:

  • PRICE
  • LOCATION
  • QUALITY
  • VACANCY- FHA AND OWNER OCC BUYERS ARE STILL THERE
  • BIGGER BUILDINGS

  The stuff that is NOT SELLING

  • HIGH PRICE
  • LOW RENTS
  • NO VACANCY
  • POOR LOCATION, SIDE OF A HILL
  • NO PARKING

  Keep in mind that everything was selling 2 months ago like it was going out of style. THE ABILITY TO SELL JUNK IS GONE.
  I am not getting on the Redfin bandwagon calling the drop, see article below, but the selling of bad multis is past
  https://www.redfin.com/news/housing-market-update-price-drops-over-4pct/
  
  WHY IS THIS HAPPENING?

  • There are still people looking for housing
  • Prices in Boston keep going up and pushing people west
  • There is a structural problem in housing, due to the ability to work remote, or hybrid work
  • huge frustration of buyers who are now willing to wait it out
  • LOW APPRAISALS

  It looks like the appraisers are getting scared and they don't want to be the ones blamed for increases in values. If they don't have direct comparable properties they will not give a high appraisal. If the quality or the rents are low, they are reducing values. They don't want to be the ones left holding the bag.
  That being said, if you are looking to buy or to sell let me know and we can have an honest conversation about particular properties.
  

• NOW ON APRIL 4, 2022 I echo what I said before, except for the appraisals.

• Appraisers cannot hide from the facts, and people were continuing to purchase Multis in Worcester.  This has driven up actual prices and appraisals.  But we are seeing a pull back in all but the most exceptional multi family properties that are being purchased by end users.

• In my client pool of 25% down investors more than 75% have stopped looking.  Look at this chart.

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• Interest rates in December 2021 were 3% and now they are at 4.42%

• Just using principal and interest, the change in interest rate from  3 to a conservative 4.25% the change on a $450k mtg is up from $1897 to $2214/month to a $317/month increase.  That is up 17% so on a $600k 3 family you need to collect $317 more a month to just be where you were in December.
  

• The issue now for the market is the lagging appraisals.  The opposite of what was happening in July 2021.

• Appraisers will be forced to use houses purchased in February of 2022 with rates locked in from December 2021 as comparisons for houses purchased now in an entirely different rate environment.

• My advice, April 4th, 2022---Hurry up if you want to sell, as there are less investors looking, rates are going up, and prices are coming down.