EC The 50 Altered States Of American Housing

It all comes down to economics, though not of the kind associated with the dismal science variety. Economics in this case refers to the economics of the deal, as in making the math work so there is a profit in the end. This has proven to be no easy feat against a backdrop of stagnant median incomes and near-zero interest rates, which are but two of the factors at work.

The Wall Street Journal reported that fees on everything from the cost to service roads, sewers and parks to environmental quality standards and the required number of bricks on a home’s exterior have risen appreciably in recent years. Add it all up and the cost to comply with regulations has leaped by 29.8 percent over the past five years. That’s helped catapult the growth of the median price of a new home to roughly a third over the growth of existing home prices.

In the adding-insult-to-injury department, at least from the perspective of a potential first time home buyer, builders have done the math and determined that the real money to be made is in larger, more luxurious homes. Are builders wrong-headed in their actions? The short answer is no if they intend to stay in business.

For validation of their logic, look no further than the latest new home sales figures, which beat the forecast by a mile: consensus was calling for sales to come in at annualized rate of 562,000; instead they clocked in at a 592,000 rate, the highest in over eight years though still shy of the 25-year average of 715,000. But here’s the catch – the lift came from homes priced north of $400,000. Homes priced below that point fell over the past month.

As of June, the median new home price was north of $300,000, up 6.1 percent over last year. Is it any wonder plans to buy a home are hovering near their lowest level in a year?

“I think we can let go of the idea that if builders build more homes, then somehow homes overall will be more affordable,” wrote housing guru Logan Mohtashami in his latest missive. “We have a permanent housing inflation problem that started four decades ago and will not be easily cured by dithering with the inventory of larger homes.”

At least, and this is a stretch, housing inflation is not quite as hot in the resale market where price appreciation has slowed to 5.2 percent over last year, the slowest pace in eight months. Perhaps this slight cooling can be explained by the relative resurgence in first-time homebuyers. At 33 percent, the June data revealed that first time homebuyers had the healthiest showing since mid-2012.

The question is where does the market go from here? Bank of America’s Michelle Meyer and her crack team of housing analysts recently endeavored to answer that very question.

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David P. Goldsmith 5 years ago Member's comment

A great read as always @[Danielle DiMartino Booth](user:22665).

Moon Kil Woong 5 years ago Contributor's comment

Federal Reserve and Fannie and Freddie Mac have created a horror story by disrupting the free market and yet they blame the free market for the conundrum. Eventually, high value homes will face a similar disunity as their inefficient and overvalued natures break down. In the end everyone loses when the market is disrupted by the greed. Yes it is the greed of bureaucrats and banks including the Federal Reserve that created this mess that is only growing worse by the day.

This story is far from over as the young and middle class pay the price for misdeeds done in the name of prosperity for the well connected and sold to the public as lies upon lies.