Posted: 09 Oct 2014 10:15 AM PDT
It may feel like 2006 all over again when it comes to the housing market. Gimmicks and giveaways are creeping into the market because homes aren’t selling like builders had hoped. Back in 2006, just before the crash of 2008, no-document mortgages greased the way to the top of that housing bubble. Today it’s freebies such as swimming pools, built-in barbecues and cost reductions. This may seduce some renters to stretch their wallets with the allure of being an “owner”. How quickly people forget the prelude that eventual leads to foreclosures or valuations being “underwater”. According to a recent Bloomberg report builders from California to Florida “…are sweetening offers as sales slow in some of the country’s most volatile housing markets.” “Buyers, suffering from sticker shock after large price gains in 2013, are pulling back after the U.S. government cut the maximum size for mortgages with low down payments. In Phoenix, the Federal Housing Administration’s loan limits dropped well below the median price for a new home”, the report noted. The culprit that necessitated the housing market stimulants was the federal government. At the beginning of 2014 the FHA cut loan sizes in 652 high-cost U.S. counties. This included Phoenix, Arizona where the limit dropped to $271,050, nearly $24,000 below the median prices of a new home, from the previous maximum of $346,250. The maximum loan size in the Las Vegas area was cut by 28 percent while in Sacramento, California area max loans shrunk by 18 percent. “We were having a nice robust recovery and then that happened,” said Buddy Satterfield, president of the Arizona division for Shea Homes.”When you take the FHA limit down to $271,000, you hit us right in our sweet spot.” FHA mortgages for new homes in the Phoenix area fell 39 percent in August from a year earlier, while the number of buyers financing existing homes with the government-insured loans gained 12 percent, according to RL Brown Housing Reports, a consulting company based in Scottsdale, Arizona. Once again the biggest challenge for home buyers is to be able to qualify for mortgages. The Bloomberg report said nearly 48 percent of FHA borrowers who purchased Phoenix-area properties from Meritage Homes Corp. in 2013 wouldn’t qualify under the new limits. Nationwide builders are advertising incentives such as discount pricing, appliance packages and even offering to pay closing costs for buyers. Builders are competing with a huge new supply of previously owned homes partly because investors who bought after the market bottomed are cashing out. Property managers are wise to prepare for further motivations for renters to become buyers. One of the keenest ways to prevent an increase in vacancies is to stay appraised of the cost of ownership. If your residents realize it’s significantly less costly to rent than to deal with the costs of ownership they’re less likely to make the switch. Also, do what you can to make your rental units feel like home.
The bottom line is that the housing market is being artificially goosed into bubble mode, the bubble will eventually burst. Your residents may need to be reminded what happened the last time this occurred.