Animal Spirits: Spring Home-Buying Season Starts in January

“I’m seeing twice as many buyers this January as last January…People have finally figured out that prices are moving up, interest rates are really low, and they don’t want to miss out on the opportunity.”

Just as there’s a vicious downward cycle that can wreck financial asset prices and the economy if left unchecked, there is also a such thing as a positive feedback loop. We’ve talked about how this loop works its magic on fund flows into stocks as the 3- and 5-year performance numbers start to look materially better than those of the bond market. Once this begins, it can feed on itself for awhile.

In housing, there is something similar underway as stories of housing prices increasing begin to make the rounds in the media. This in turn drives more people out to bid for homes and thus self-reinforces.

There’s a great example of this sort of thing in the Real Estate section of the Los Angeles Times today:

There is growing evidence, anecdotal and statistical, that there are more shoppers on the prowl in many parts of the country than is customary for this time of year, more people requesting “preapproval” letters from mortgage companies, more people visiting websites offering homes for sale and more people telling pollsters that they expect home prices to continue rising and that the worst of the housing downturn is long past. There is even data showing that during holiday-distracted December, there was a jump in visits to homes listed for sale.

Mortgage rates, it’s safe to assume, are not going much lower. In the meantime, housing inventories have contracted by half in some parts of the country and rents have increased to the limit in terms of their being competitive in the lease-vs-buy calculation.

On top of this, an entire generation has been stuck living with mom and dad for too long, postponing the formation of their families and the beginning of their lives. This kind of pent-up demand shouldn’t be underestimated.

And so we get home-buyers who would normally be coming out in the spring emerging from hibernation a few months early this year. When you see a positive feedback loop in its early stages, don’t sleep on it.

Source:

Home selling season isn’t waiting until spring this year (LAT)

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Fund Flows and the Positive Feedback Loop (TRB)