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A Barbell and a Plan: Allan Weiss Sees Trouble and Opportunity in House Prices

Jun 26, 2020 by Marc Rapport

Allan Weiss has lived through, and closely tracked, a few major housing market disruptions in his long career, and he says this one is like no other.

The co-founder of Case Shiller Weiss is now operating Weiss Analytics and providing multilayered analytics of residential marketing conditions.

In his analysis, he sees a pandemic-induced barbell that has put discounting pressure on home prices at the low end ($250,000 and less) and high end of the market ($700,000 or more), with comparatively straight-line stability in the middle.

Weiss says unlike other major hits on housing prices -- including in the early '90s and the Great Recession that kicked off in late 2007 -- this one is nationwide, rather than concentrated on the coasts or in regions like the Northeast.

"I've never seen one with simultaneous pressure across the country divvied up by price like this," he told Millionacres in an interview.

Opportunities for bargain hunters

Weiss Analytics released a report earlier this month that concluded: "Thousands of sellers are pricing homes below market levels, creating opportunities for bargain-hunting real estate investors and first-time buyers."

Large portions of new listings in some areas ranged from 2% to 11% below their pre-pandemic market prices, the report said. Leading the nation in percentages of properties discounted were three Texas markets: El Paso, San Antonio-New Braunfels, and Killeen-Temple.

Meanwhile, at least one-fourth of all new listings were priced lower than pre-pandemic market prices in many of the nation's top 25 markets, including New York City, St. Louis, and Baltimore.

Real estate investors can find bargains even in markets where median prices are rising, the report said.

"Sellers are discounting their homes for many reasons," Weiss said in the report. "The sharp decline in April sales motivated many sellers to price their homes to sell. Homeowner equity is at an historic high, and many may owe nothing on their homes. They may simply want to sell quickly to trade up or relocate, and that is a choice they can make."

Financial pressures from unemployment also may be forcing many to consider cashing in on their equity to make ends meet, the report noted.

Pricing pressures at the top and the bottom

In his Millionacres interview, Weiss said what sticks out to him in his firm's analysis of 400 markets across the country is the pressure on pricing at the low and high ends and stability in the middle, creating the barbell effect when charted.

"Houses in the $200,000 to $250,000 range and lower are behaving one way, and so are houses from $700,000 on up, while those in the middle are behaving very differently, really more stable," thus the straight line, he says.

In distressed areas, particularly in Midwestern states such as Ohio, Michigan, and Missouri, sales volume has not been recovering as rapidly as national averages. Median prices in some of those markets, such as Akron and Dayton, have dipped to as low as $30,000. He also cites downward pressure in markets with median prices in the $50,000 to $60,000 range, such as Memphis and Birmingham.

Sharp discounting is also happening on the upper end, such as in some California markets where homes that recently could have listed for $7 million are being discounted in million-dollar chunks down to $4 million or so in some cases, Weiss says.

He also warns, "That security in the middle range might be short-lived because the rate of foreclosures is at an artificial all-time low."

Creating space between "For Sale" signs

The veteran market analyst says he's personally seen some savvy investors become billionaires timing such markets, but he also has some ideas about how a low tide can lift all boats when it eventually rises.

Weiss is concerned that the market is being artificially boosted right now by the millions of forbearances and other pandemic relief measures in place and that foreclosures could quickly come off record lows when such measures expire.

He says he's working with other stakeholders on an idea that would combine attracting investors to the bond market while providing a kind of social distancing in neighborhoods that could become clusters of foreclosures and oversupply, thus driving down prices and ramping up social and other kinds of instability in those areas.

The basic idea would be for a local government entity to buy a share of people's houses so they can pay off their mortgages or forbearances and stay in their homes. The money for that financing would come from bond sales, and the obligation would be repaid by home sales.

"It needs to happen fast"

There already are various kinds of equity arrangements in which investors own shares of homes, and the municipal bond market is certainly a well-established entity.

Combining the two could be a creative way to forestall large numbers of individual homes going on the market at one time, creating space between "For Sale" signs and hopefully preventing the cratering of prices and equity in those neighborhoods.

"The bonds would be an opportunity to own tax-advantaged investments tied to home appreciation and backed by a lot of real estate, and the community wins, too," Weiss says. "All the pieces are there to make it happen.

"That's why I'm an advocate for this idea, and I think it needs to happen fast."

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