Overview:
There are various reasons for the great stall:
There must be numerous compelling reasons for people to purchase real estate.
If the abundance of reasons is primarily negative, people will elect not to purchase.
Get out of Dodge:
Decisions of leaving and attitudes of defeat are influenced by bad governance in cities like Los Angeles, San Francisco, Portland, Denver, Chicago, New York, and Baltimore.
Regulation Fatigue:
California has passed hundreds of laws that diminish property rights, promoting social engineering to eliminate single-family zoning and replace it with high-density, stacked-and-packed apartments. These laws, including the wealth taxes and the Mansion tax, are not just punitive but also shift liabilities to property owners, making the future of real estate ownership uncertain. Many buyers have decided that it is not worth the brain damage. This regulatory landscape, combined with high interest rates, is a significant factor contributing to the decline in the market.
Los Angeles City Mansion Tax:
You can find an article on this website about the onerous taxation of successful people.
Engaging in reverse gentrification:
Forcing policies that drive lower socio-economic and transient people into higher socio-economic neighborhoods.
The Great Coming Property Tax Bomb:
Most cities heavily rely on property taxes. Because the commercial segment is stagnating, cities and states will attempt to compensate for this in residential areas rather than cutting expenses. Governments rarely cut taxes; they merely shift the burden to a new segment (victim).
The 'locked-in-effect':
This term refers to the situation where buyers are hesitant to give up their 3% and 4% loans for higher interest rates and payments, a significant factor in the market decline.
The Fed’s Monetary Policy: Interest Rates Are in a ‘Qualitative Fog.’
If interest rates decrease, a refinance frenzy is likely to occur, potentially stimulating inflation. If rates remain unchanged, stagnation is happening for those considering higher debt service, as fewer buyers either cannot qualify or show no interest in purchasing or refinancing, a significant market influencer.
Systemic stagnation is occurring, leading to oversupply and "shifting Market Dynamics.’
This systemic stagnation is a key factor influencing the current market dynamics.
Interest rates of 5.5% :
(The magic number) would stimulate buying, but also inflation.
Many markets, including Florida, Texas, Arizona, Tennessee, and California, are witnessing the fastest price declines.
Property insurance premiums are dramatically increasing and, in some cases, doubling.
In some cases, the insurance premiums can be almost as high as the loan payments, such as a 2.9% or 3% mortgage.
Insurance companies are reluctant to provide insurance replacement costs, which are required by today's dramatically increased development costs. Older homes often require material modifications, such as installing water flow leak detection devices, to meet current insurance underwriting standards.
Homeowners’ association dues are rising rapidly:
Following the 2021 collapse of the high-rise condominium complex in Florida, new regulatory requirements mandate that HOAs obtain engineering reports and conduct regular exterior deck inspections. They are given a very short time to make the required structural changes. The cost can be prohibitive for some property owners on a fixed income.
The loss of certainty regarding the upward trajectory of inflationary value growth, as discussed above, is affecting the market.
Some high-leverage investors, as well as their lenders, in the fix-and-flip market are upside down and cannot sustain the required cash flow to make payments, property taxes, insurance, and maintenance.
In contrast, the property is being marketed, and as a result, they are lowering their prices, exacerbating the downward trajectory.
Buyers see what is happening and therefore consider the opportunities to be a buyer's market.
Inflationary cost of building materials:
Rising material costs can increase building costs by 3-5%. Add tariffs on materials and components, such as appliances, and production prices have risen as much as 50%.
Supply chain disruptions can push up the cost of construction as they wait for available materials.
Large corporation purchasers are pausing:
Institutional buyers pause when the economic environment is considered volatile and returns are not guaranteed.
Foreign capital purchasers are pausing, except for the Chinese buyers.
Strength of Rental Housing:
In communist leaning cities, productive people are fleeing in droves to avoid the rising taxation of top earners. The same applies to cities, where the free lunch progressive parasites control the city and criminal activity is tolerated as a way of life. Good examples are Los Angeles, Portland, Chicago, Baltimore, and New York.
The affordability gap has left most purchasers with the only option of renting.
Rental housing remains strong in most markets.