Sell off predictions may be premature

For years I have been reading about the “great real estate sell off”. Experts were predicting that starting in the year 2020, which is now less than a year away, baby boomers would start selling their houses.

I wouldn’t count on it. The oldest baby boomers will turn 73 this year. At the same time, the fastest growing segment of the workforce is those who are over 65.

There are baby boomers in their 60’s who have their 25 to 35-year-old children living with them and are helping them financially.

There were predictions that the great sell-off would result in a glut of houses on the market. Some even opined that real estate values would go down because of the sell-off.  I don’t see how that prediction can come true considering how large the Millennial generation is.

I am going to go out on a limb and predict that the number of homes put up for sale will rise slowly and that in 2032 we may see a sell-off because those who were born at the beginning of the baby boom and who are still alive today will live another 13 years on average. The oldest Millennials will be 51 by then.

People who are 65 and older have the highest rate of homeownership. I know my math isn’t exact but it isn’t any better or worse than anyone else’s.

U.S. census bureau and homeownership

 

How is the real estate market?

info graphic
Pending home sales 2019

In the Twin Cities there is a 2.2 month supply of houses and in St. Paul we have a 1.8 month supply. The number of houses on the market is up slightly from last this time last year but we need to keep in mind that last year we broke records.

We are in a strong seller’s market with few sellers. The forces of supply and demand continue to drive prices up. The national market is showing some signs of becoming more balanced between buyers and sellers but we are not seeing any signs of that in the metro area.

Those darn ice dams!

 icedam

I couldn’t help but notice all the ice dams on houses as I drove to a meeting yesterday. With all of the snow we have had and more on the way there will be a lot of ice dams and water damage from them this year.

The dams are caused by melting snow on the roof and heat leaking out from the house.  The snow at the edge of the roof turns to ice as it thaws and refreezes.

The water pools on the roof because the ice dam prevents it from rolling off the roof . . hence the term ‘dam’.  It does not matter how new your roof is you can still take on water.

The best way to handle ice dams is to prevent them. There are companies that will remove ice dams and damage the roof at the same time . . . or not. Removing the snow from the roof will stop new dams from forming.

It isn’t just snow on the roof that causes ice dams.  The University of Minnesota Extension web site has some great information about what causes ice dams and how to prevent them.

December home sales were down

Germania Bank Building
Germania Bank Building – 6 W 5th street – Corner of 6th and Wabasha

December Existing-Home Sales was down from the previous month’s 5.33M to a seasonally adjusted annual rate of 4.99 million units.

Lawrence Yun, NAR’s chief economist, says current housing numbers are partly a result of higher interest rates during much of 2018. “The housing market is obviously very sensitive to mortgage rates. Softer sales in December reflected consumer search processes and contract signing activity in previous months when mortgage rates were higher than today. Now, with mortgage rates lower, some revival in home sales is expected going into spring.” [Full Report]

I am not sure what any of this means. There were fewer home sales in St. Paul in 2018 than there were in 2017, yet there is still a shortage of homes for sale in St. Paul. Some months there were fewer than 300 homes for sale in the city which is very unusual. My theory has been that the reason for fewer home sales was because there were fewer homes for sale.

Higher interest rates can impact home sales but so can the lack of inventory. The inventory of homes for sale was at an all-time low in January 2018. This January the number of homes for sale is still very low but up 7% from last January.

When it comes to figuring out the housing market and the economy we usually figure out what happened after it happened and not before. Usually, I notice changes in the housing market about three months before they are reported by the media. Right now I am not seeing any changes in the market from a year ago but I am watching closely.

Remember when new construction was a thing?

If you go way back to the time before the housing market crash, like before 2007 you could find new construction homes for sale. I know I sold a few back in the day.

There are currently 33 new construction type properties for sale in Ramsey County and 5 in St. Paul. Average new construction prices are in the $400K range with 2500 square feet of finished living space.

Builders say they can’t make a profit on small affordable houses.  No, it isn’t your imagination. Housing is getting more and more expensive and there are more people living on the streets and in tent camps too.

The average rent in St. Paul is close to $1200 a month. Rents are lower outside of the city and in the nearby suburbs.

Wages have not kept up with housing costs.

Back porch and side entrance

How does the shut down affect us?

I would like to see the Federal Government re-open. I don’t understand why it is closed. I thought in a democracy there would be more checks and balances and that there were protections against tyranny. I was wrong.

Here is an infographic made by the National Association of Realtors (NAR) that shows the effects of the shutdown on real estate sales.

Infor graphic