Some Buyers May Be Feeling Like Fools Now
It;s Friday desk clearing time for this blogger. “Watch out luxury homebuyers: Major cities across the globe are looking to wealthy real estate investors to boost their coffers. Lawmakers in Paris, London and New York City are mulling new taxes on high-end home purchases. Realtors say deals in Manhattan have slowed, despite the fact that the proposal is still in the very early stages. In Manhattan, the question of who is — or more importantly, who is not — living in multi-million-dollar highrises has been gaining attention recently as many units are sold, but remain unoccupied. New York State Senator Brad Hoylman said there are blocks in his district where 50% of the properties aren’t actively lived in.”
“‘For many, luxury homes are safety deposit boxes in the sky,’ said Jonathan Miller, president of residential real estate appraisal company Miller Samuel. ‘Any additional costs certainly reduces the attractiveness of the investment. Some [developers] will have to lower their prices, or the more likely option, offer significant concessions to remain competitive.’”
“Foriegn investors risk turning parts of Melbourne into a city of ‘ghost towers,’ a new report has found. The Prosper Australia study estimated that 64,386 or 4.4 per cent of Melbourne’s housing stock was potentially vacant. The tax reform group calculated the number of ‘overlooked’ vacancies in Melbourne based on a property’s annual water consumption. Docklands topped the list, with 17 per cent of properties not consuming any water over the year and 27 per cent using less than 50 litres per day. The growth suburbs of Cardinia, Clyde and Clyde North were next with a combined 46.7 per cent of properties considered vacant.”
“Industry expert Catherine Cashmore said cultural reasons might also be behind the empty apartments, particularly in the CBD. ‘There is a high proportion of foreign ownership within the city,’ Ms Cashmore said. ‘We do know from a cultural perspective that in Asia and China it is quite natural to leave properties empty. It is actually advantageous to leave it empty because it keeps that new appeal of the apartment. As soon as you have a tenant moving in it, there is damage that can be incurred and that can bring the property price down.’”
“Some home buyers apparently returned to property showrooms after Beijing announced a loosening of mortgage rules to support the country’s weakened housing market. Many analysts cite signs that property developers are still slashing prices to reduce inventories of unsold homes. During the Nov. 11 e-commerce sales push, online advertising banners showed that some developers are offering discounts of as much as 50%. ‘Some home buyers saw the recent loosening and thought that this would be a repeat of 2012 when prices surged after the policy loosening at that time,’ said Jinsong Du, an analyst at Credit Suisse. Citing signs that property companies are still cutting, he added, ‘they may be feeling like fools now.’”
“One industry player on the front lines has confirmed what one economist has said about worrisome Canadian markets. ‘The market in Regina has slowed down for sure,’ Jackson Middleton, The Kilted Broker, wrote on Mortgage Broker News. ‘There are builders with huge vacant inventory, from what I can tell they may have reached a little too far. In talking with local Realtors, the inventory on MLS is currently almost double what would be considered a balanced market.’”
“Home prices and sales dipped in September as the number of houses for sale across metro Phoenix continued to tick up. All are trends that have been playing out in the Valley’s housing market most of this year, according to Arizona State University’s W.P. Carey School of Business. Mike Orr, the school’s director of real estate theory and practice, said not to expect a big boost in the housing market until next year. ‘Demand has been much weaker since July 2013 and still shows little sign of recovery,’ Orr said. ‘We anticipate pricing will continue to move sideways over the next few months, and a significant increase in demand will be required to change things.’”
“Home sales in Inland Southern California were subpar, as escrow contracts were inked at the slowest pace for the month of October in three years. Gene Wunderlich, government affairs director for Southwest Riverside County Association of Realtors, said sales have been so sluggish that 2014 is shaping up to be one of the slowest years for sales since 2007 or 2008. ‘We’ve made back 50 to 60 percent of the prices we lost in most markets,’ he said. ‘It started out strong and then it wilted.’”
“More than five years after the foreclosure crisis began, the number of borrowers losing their homes is rising again. Most of the loans going through the foreclosure process now have been delinquent for several years, but a particularly troubling sign was the number of newly started foreclosures in October: 56,452 homes. That is a 12 percent jump from September. This was the largest monthly increase in foreclosure starts since August 2011. ‘Many of the mediation programs, loan modification programs and even short sale programs have run their course. Distressed properties that could not be saved by those programs are being placed back on the foreclosure track,’ noted RealtyTrac VP Daren Blomquist.”
“‘The backlog of delayed foreclosures continues to make its way through the pipeline, with many homeowners letting their homes fall into foreclosure when the Mortgage Forgiveness Debt Relief Act of 2007 expired at the end of 2013,’ said Mike Pappas, CEO of the Keyes Company representing Southern Florida.”
“In my first year of graduate school a professor offered my class a warning: ‘There is only one thing we know for certain in macroeconomics,’ he cautioned. ‘Bad monetary policy can do a lot of damage, but we don’t know what good policy can really achieve.’ Fourteen years and $4.4 trillion later, my professor’s warning may explain why central bankers are under fire today. This could foretell the end of the central banker power bubble.”
“Fed independence is now under more serious threat than ever. But an increased reliance on monetary policy, coupled with unrealistic expectations, undermines the Fed’s ability to stabilize the economy. If the Fed loses its credibility, its tools are less effective. Central bankers are among the most powerful people on the planet. But as Harvard economist Ken Rogoff points out, the only way they can maintain unchecked power is by setting humble and realistic expectations on what they can do. That may require popping their own power bubble.”
“Recessions have been made more rare because there has been an increasing expectation from voters that lawmakers and the Federal Reserve take steps to prevent an economic slowdown, said Polina Vlasenko, senior research fellow at the American Institute for Economic Research. This can be helpful in a simple recession, one based on fleeting factors, like a drop in demand for U.S. exports, she said. But when a downturn is caused by structural change in the economy, like the housing or dot-com bust, sometimes it can be better to let the adjustment happen and help the workforce adapt to the new reality, she said.”
“In a recession, companies are forced to think hard about how to change what they’re doing, she said. A company that can’t survive in a tough economic environment is probably not very efficient, she said. When times get tough, companies that are better organized, with better supply chains, tend to survive, she said. But if policymakers try to eliminate a recession, those improvements don’t happen as often, she said. With fewer recessions, mismatches in the economy have more time to grow, and when the correction finally does happen, it tends to be much more severe, she said.”
‘As soon as you have a tenant moving in it, there is damage that can be incurred and that can bring the property price down.’
Make you wonder why the places were built in the first place?
‘Melbourne City Council recently found 85 per cent of apartments in the municipality were purchased by investors as a “financial product”, while nationally, investor housing loans now account for about half of all housing loans (excluding owner-occupier refinancing).’
‘Mr Fitzgerald said capital gains of $60,000, for example, were so lucrative that renting out a property for $17,000 was a lower priority for some investors. “Not all investors do this but the super wealthy ones probably understand that if they left 10 to 20 per cent of their portfolio empty it enforces scarcity and pushes up rent and property prices,” he said.’
“Not all investors do this but the super wealthy ones probably understand that if they left 10 to 20 per cent of their portfolio empty it enforces scarcity and pushes up rent and property prices,”
Reminds me of the tulip mania canard. A buyer (who already owned a rare tulip bulb) would buy another rare tulip bulb and then proceed to destroy it in front of the seller meanwhile exclaiming that now they had even a rarer tulip bulb because the supply was just diminished that much more…….
EIGHTY-FIVE percent?
Wow…that’s some number. You’d think the local governments would put a cap on such insanity. The exposure alone…
I sure wouldn’t want to be a property owner/mortgagee in Melbourne.
Why are places ever occupied if tenants only serve to damage them?
Cash flow. It is much more fun to have cash flow. Appreciation is only fun on one day: close of escrow. Cash flow is fun 24/7/365!
And that cashflow will always be elusive for you JingleFraud.
I suppose if you are looking at prospective capital losses, cash flow can help offset the pain.
No capital losses here. No pain here. Just cash flow and principal reduction.
We are now 6 years along the plan, stroking extra principal reduction with the increased cash flow (paying more on the higher interest rate, 4.75% loans) and will be debt free in 15 more years or less.
Current combined LTV is sub 50%, but we are not selling, so it doesn’t matter. Buying real estate in 2008-10 was the best move of my lifetime.
I enjoy taking care of the properties and the residents appreciate the great service. In exchange, I get a nice return on my investments.
“No capital losses here.”
How can you know that before close of escrow?
Considering JingleFraud overpaid by 300%, it’s not even possible.
There is no escrow Whac. I am not selling anything.
The cash flow just keeps flowing. The debt keeps getting reduced. Soon, all the properties will be free and clear. Nothing to lose when that day comes.
Jingle male you probably timed it just about right then.
Often in life the work done in one year can outweight all the other years combined.
Seizing opportunity and calculating the risks. Buying below reproduction cost makes it a reasonable investment, particularly when the rent provides a strong cash flow.
You have no clue what “reproduction cost” is Jingle_Fraud.
Indeed. We should all sleep outside to keep our houses pristine.
For speculation, of course.
‘Nevada had the nation’s third highest home foreclosure rate in October. The notices of pending trustee sales were up 53.1 percent from October 2013, according to RealtyTrac.’
‘I’m like millions of other people across the country: Since the housing bubble burst in 2008, I have been fighting to save my home from foreclosure. I bought my home to care for my aging mother. When she passed, I decided to open up my home to those in need. I housed female veterans who were often homeless and struggling with post-traumatic stress disorder.’
‘When the recession hit, my home’s worth cratered, losing nearly $100,000 in value. To make matters worse, I also lost my job. I continued to make mortgage payments, but I was stuck in my home because my mortgage was deep underwater. I contacted my bank, JPMorgan Chase, before I was ever behind on my payments. I was told that in order to qualify for assistance, I had to be three months behind on my mortgage. So I took the advice of my banker and stopped paying my mortgage. When I applied for a loan modification, I was denied. Because I was delinquent, my home is now owned by the bank.’
‘While the economy is rebounding and home values are rising in many neighborhoods, underwater mortgages and foreclosures still plague low-income neighborhoods and communities of color. Since the collapse of the housing market, neighborhoods like Rainier Valley, South Park and Delridge have had more foreclosures than other parts of Seattle, and they still have the highest number of homes scheduled for auction.’
‘Citywide, there are nearly 11,000 homeowners underwater on their mortgages and a disproportionate number of them are located in south-end neighborhoods. Many homeowners are so deeply underwater on their mortgages that they will never see positive equity in their homes.’
“When the recession hit, my home’s worth cratered, losing nearly $100,000 in value. To make matters worse, I also lost my job.”
Anyone else notice the ranking of priorities here? The sure producer of income (the job) is subservient to credit (the house).
We have a long way to go.
From the MBA:
“The delinquency rate for mortgage loans on one-to-four-unit residential properties decreased to a seasonally adjusted rate of 5.85 percent of all loans outstanding at the end of the third quarter of 2014. The delinquency rate decreased for the sixth consecutive quarter and reached the lowest level since the fourth quarter of 2007.”
I think this indicates the market is returning to a more balanced condition, although Whac pointed out a couple of days ago, foreclosures are a lagging indicator of a busted market, not a leading indicator. All time high pricing peaks is a leading indicator and we are getting those, although not in Sacramento.
I don’t think the market direction is very clear, though I know some of you are certain the market is going to crater. I think it is going to limp along for a while. I think the forces of decline are lessening, not rising. The backlog of bank owned houses is ending and there are no new subprime borrowers acquiring properties from which they will walk away.
Prices are a lagging indicator. The majority of foreclosures are prime loans.
RISING prices are a leading indicator. I should have been more specific.
Falling prices are a lagging indicator.
The median is a lagging indicator. Even price per square foot is biased toward the end of a upward price movement.
‘The Phoenix-area housing market is unlikely to see a significant boost until next year. That’s according to the latest monthly report from the W. P. Carey School of Business at Arizona State University.’
‘The median single-family-home sales price was up 5 percent from last September, but that’s largely just because fewer sales are clustered at the bottom end of the market, not because individual home prices are rising much.’
‘The area has been experiencing sluggish demand and low sales activity for more than 14 months.’
‘After the housing crash, Phoenix-area home prices shot up from September 2011 to last summer. This year, prices leveled off and then rose somewhat. The median single-family-home price went up 5 percent from last September to this September – from $198,997 to $209,900. Realtors will note the average price per square foot rose 7 percent.’
‘However, the report’s author says the median increases happened primarily just because fewer sales are now clustered at the lower end of the market, with fewer foreclosures and short sales available. Only luxury homes above $2 million are seeing stronger-than-normal demand. Overall, the number of single-family-home sales is down 7 percent from last September to this September.’
“Demand has been much weaker since July 2013, and still shows little sign of recovery,” says the report’s author, Mike Orr.’
There are no buyers any more. Cash buyers are leaving, first-time home buyers are at record lows and getting lower. Move-up buyers need to buy low and sell high at the same time, since no one has or is building equity any longer. Good luck with that.
Hmmm, I wonder where we are going to put the next 15,000,000 people moving into California by 2060?
I don’t think you have to worry about it J._Fraud. CA population growth is the lowest in US history.
2060 is of no matter to me, I won’t be around. 2016 is another matter entirely. Demand is gone for the foreseeable future.
Not that it matters, but as far as where the 15 mil new minimum wage slaves will be living - in very small apartments, and busted up McMansions that no one else wants any longer.
The builders certainly understand the apartment trend, if you watch what they’re building, and what they’re not.
“The builders certainly understand the apartment trend, if you watch what they’re building, and what they’re not.”
Do you know why builders are building apartments?
It’s all about credit.
While credit for homeowners has not loosened up much, credit is flowing freely in apartment-land…and so you can build an apartment to a 6% cap, and sell it for a 4.5% cap and make a profit.
10 years ago, that was unheard of.
If interest rates rise, and thus cap rates for apartments rise from current crazy low levels to even 5.5% or 6%, you will see apartment development dry up until rents are much higher.
Nonsense. You do a great job of throwing around numbers but you’re looking at one effect in isolation. You look at financing costs while completely ignoring demand.
If interest rates rise, economic activity halts across all fronts, demand for all types of residential housing, both rented and purchased, drops as a result. In the case of single family houses, the drop will be from the current decades-low levels to near zero. Prices will plummet. Rents will follow the housing trend, just like they did the last time.
Rents are high because the market will bear high rents in areas where housing is insanely overpriced. I know about this first hand. And also because so much distressed inventory of all types has been deliberately held off the market for so long. If there are no margins, the builders won’t build. So what?
Rental Watch, if you’re as deceptive and slippery in public as you are on the internet, I can only imagine what kind of shady things you’re involved in.
You my friend are the most corrupt and deceptive person I’ve ever encountered on the internet. Ever.
Price is a lagging indicator J._Fraud.
Remember these important facts;
-Current delinquency and default rates are 700% higher than long term trend
-There are foreclosure moratoriums of some type in all 50 states
-Current housing demand is at 20 year lows and falling
-Current asking prices of resale housing are 300% higher than long term trend and 2x reproduction costs(lot, labor, materials and profit)
-Housing prices and rental rates are now slipping in all 50 states
Most importantly, housing prices have yet to bottom. And it’s a very long way down.
‘Citywide, there are nearly 11,000 homeowners underwater on their mortgages ??
Money line right there….Thats a big number and still that many after some recovery from 2008…Wow…
From the last link:
‘Managers who have seen recessions before tend to gain the skills needed for weathering the next one, she said. With recessions more infrequent, when one actually does happen, it tends to catch managers off guard, especially those who have never navigated through one before, she said.’
A connection?
‘Even as the job market continues to improve, many financial experts recommend that most Americans keep at least three to six months of expenses stashed away in an emergency savings account. Yet that message – despite years of shaky economic times – still hasn’t gotten through.’
‘Over 40 percent of Americans are living paycheck to paycheck, says a new report from Springleaf Financial, a consumer finance company. The findings, released today, apply to people across all education and salary levels.’
‘The study discovered that 24 percent of consumers have less than $250 in their bank accounts on any given payday – leaving them without reserves to handle unexpected costs.’
‘Among those surveyed who make more than $200,000 per year, 20 percent said they save rarely, inconsistently, or not at all. One in four consumers with a graduate degree actually couldn’t miss a single month of paychecks without having to borrow or sell assets.’
‘World stocks were mostly higher Friday as investors expected policymakers in Europe and Japan to open the stimulus taps wider as their economies slumber.’
‘Investors were awaiting eurozone third quarter growth data on Friday as well as a Japanese GDP report next week that could provide the pretext for a snap election to renew the government’s mandate for its unprecedented stimulus program.’
A lot of monetary policy these days seems to be about writing up the value of asset prices and writing down the real value of currencies.
Or has it always worked that way?
Seems like it has always worked that way…print lots more money, and each bit of money becomes less valuable vis-a-vis what you can buy.
A lot of monetary policy these days seems to be about writing up the value of asset prices and writing down the real value of currencies ??
Arn’t there only two ways out ?? Inflate or Deflate…
3. Deliver Goldilocks price stability (neither inflationary nor deflationary, but rather just right)
For some, a line of credit is just as good a safety net as savings. For many, borrowing, especially for a house, is the equivalent of a self imposed savings discipline, because each payment increases one’s net worth somewhat.
‘Are you better off buying or renting a home? If you’ve listened to the traditional advice, you’re likely to believe buying is the better choice, providing tax benefits and giving you a leg up on long-term wealth. However, a new study by HelloWallet contends that the buy vs. rent equation has been tainted by bad assumptions.’
‘Many buy-vs.-rent calculators overestimate the tax benefits of buying and underestimate the amount investors could earn on other investments, according to the study. In reality, median income families — those earning roughly $50,000 annually — got no federal tax benefit from homeownership in 75 percent of the cities studied.’
‘Moreover, for the average homeowner it’s not even an effective “forced savings” plan, Fellowes says. That’s because research found that the average homeowner moves within 9 years. Over that time, the vast majority of mortgage payments go to interest, not principal.’
‘A look at a loan amortization table shows the bitter truth. Consider a hypothetical buyer who borrowed $400,000 at 4.5 percent to buy a $500,000 home. His monthly payments amount to $2,027 per month. Over 10 years, he’s paid $243,240. But his mortgage balance has declined by just $80,000 to $319,532. Because he’s likely to pay 5 or 6 percent of the sales price to a realtor when he moves, even more of that forced “savings” evaporates.’
“In reality, median income families — those earning roughly $50,000 annually — got no federal tax benefit from homeownership in 75 percent of the cities studied.’”
Go back a year or two and you’ll find posts where I’ve demonstrated this over and over. It’s a “benefit” to less than 25% of borrowers. Closer to 20%.
The mortgage interest deduction is no benefit to the average borrower(sucker, target, what have you).
On top of the MID being of little use to the average borrower, for those others who can in fact take advantage of it -
It’s only good as long as you’re mostly paying interest, since the prinicpal pay-down portion is not tax deductible. This runs counter to the argument of “all those smart people putting away money by buying” - since this alleged incentive only rewards the foolish, and the amount of reward is in direct proportion to the extent that they are fools.
It goes hand in hand with 30-year mortgage terms, where few people ever pay down much of anything before they move and start the high-interest process over again.
In other words, if you’re really benefiting from the MID, you’re paying way too much interest to the bank, plus you’re making enough income that you shouldn’t be in that position in the first place!
Couldn’t you just throw the MID money back into the prinicpal and come out ahead?
“Couldn’t you just throw the MID money back into the prinicpal and come out ahead?”
Not if you stretched your discretionary income to the breaking point to buy the biggest home you could afford in order to max out the MID…
“Couldn’t you just throw the MID money back into the prinicpal and come out ahead?”
Not really. The larger the house, the larger the losses.
The question is whether he could have rented that same home for $160k (about $1,350 per month + Taxes + Mainenance) for that 10 years.
Big picture though, if you have the discipline to save and invest, there is really no advantage over the “forced savings” of buying. I think the “forced savings” view comes from the same people who think government is there to look out for you.
The two parts that people seem to ignore (that shouldn’t be ignored) are:
1. The investment opportunity cost of the down payment (you could invest that $100k in the S&P, etc.)–often argues for renting;
2. The “peace of mind” of ultimately having a paid-off house. However, in my opinion, this is mainly for people who may have a spouse who is less “investment minded” than themselves. Personally, I like the idea that if I were to get hit by a bus tomorrow, my wife could pay off our mortgage and simply not worry about the cost of shelter. However, if you are into investing for the long-term, there is no reason why your investments couldn’t provide the income to rent your shelter into eternity (if you are wise with your money).
“The “peace of mind” of ultimately having a paid-off house.”
The peace of mind renting for $1000 versus the breathtaking losses in the $200k-$400k range?
“the average homeowner moves within 9 years. Over that time, the vast majority of mortgage payments go to interest, not principal.’” And the usual suspects say: “I love it when a plan comes together!”
And what little does go to principal in that typical period of ownership time is lost in the transaction costs of buying and selling (the 6 percenter’s fees, title insurance, recording fees and taxes, etc.)
Now, if people take out mortgages with 10-20 year terms and put 20% down, they actually would accrue and hold on to some meaningful amount of equity, all other things being equal. This is how (and why) home ownership used to work for the average person or family. Plus, people used to have career jobs, and less lusting for bigger houses, and so they moved a lot less.
The Big Lie is that the old formula of achieving a measure of financial security through home ownership still holds. On closer examination, it simply doesn’t any more. It still could hold, but we’ve abandoned or changed all the aspects of the financial equation that made it work.
‘Oregon had the nation’s most dramatic year-over-year rise of foreclosure starts in the nation in October, according to RealtyTrac. In the state and around the nation, foreclosures that have been circling the runway for years are starting to land, the firm said.’
‘Lenders started 883 foreclosures in Oregon in October, almost four times more than in October a year ago. The state has one foreclosure in every 1,642 properties, according to the report. While Oregon led the nation in the year-over-year percentage increase, it forecloses on far fewer properties than in some hard-hit and more populous states as California and Florida.’
‘In Oregon, the rise in foreclosure rates in October illustrates the pent-up forces that have kept lenders from foreclosing on properties for years. The state has imposed rules extending more time and recourse to property owners, then strengthened them. Many lenders waited until the landscape was clearer before beginning proceedings.’
The state has one foreclosure in every 1,642 properties
I’m ignorant about historic or average rates for this figure, but 1 in 1642 sounds very small.Why is a number that small something to worry about?
It’s probably not unless people paid too much for houses. Then it snowballs.
‘almost four times more than in October a year ago’
‘Borrowers extracted an estimated $8 billion in home equity through cash-out refinancing of conventional mortgages in the third quarter, up from $5.6 billion in the second quarter and $6.1 billion in the third quarter of last year — according to Freddie Mac’s quarterly refinancing report. About 28% of refinancing borrowers took cash out in the third quarter, compared with 21% in the second quarter and 14% in the third quarter of 2013.’
‘Borrowers doing cash-out refinances have been taking out, on average, about $19,000 in home equity over the last quarter, Calk said, citing data from The Federal Savings Bank.’
A very worrisome trend. The masses have learned nada.
I could be wrong, but wasn’t the cash-out per borrower a lot higher in bubble 1.0? I seem to remember something like an average of $100k per borrower in CA in 2005ish.
That so many people would go to all the trouble and pay all the fees of a refi for a relatively small amount of new debt ($19k) is interesting. It’s starting to look like that, while the first bubble was all about greed and consumerism, the rebubble is more about desperation and just making ends meet.
That so many people would go to all the trouble and pay all the fees of a refi for a relatively small amount of new debt ($19k) is interesting.
They’re probably paying off their credit cards.
“the rebubble is more about desperation and just making ends meet.”
Correct but they’re merely borrowing again to meet former debt obligations. In this case, a mortgage. Once again, the reality of paying massively inflated prices(3x longterm trend price)for what is always a depreciating asset gets skimmed over.
The price is the problem. There is no way around it.
‘Rod Sheather Consultants Pty Ltd, an award-winning Canberra boutique building company, has collapsed owing local suppliers and subcontractors individual debts of up to $65,000 each. Mr Sheather said the ACT Planning and Land Authority’s failure to lift in a timely fashion restrictions imposed on his building licence in the wake of a dispute with a customer had directly contributed to the collapse of his business and the loss of more than a dozen full-time equivalent jobs.’
‘Mr Sheather said the collapse of his company would not leave a string of unfinished properties in its wake. “There will be minimal impact on customers,” he said. “I don’t anticipate any home warranty insurance claims; our business had been reduced to a trickle.”
‘Mr Shearer is upfront about going broke during the “recession we had to have” back in 1992 when interest rates were in the 15 to 20 per cent range. “A lot of others [builders] went broke at that time too,” he said. “But this is different and it could have been avoided. I know a lot of people aren’t going to have much sympathy but I feel like we have been done over.”
‘Australians should worry more about how fast property prices fall in China than risks of investor speculation in Sydney and Melbourne, say bankers and ratings agencies. Paul Gruenwald, Standard & Poor’s chief economist for the Asia Pacific, said Australia is “smack in the middle of the pack” on property price rises in recent times compared with other Asian countries.’
“The risk is the intersection of a non-bank credit boom going into housing,” he said. The heat is now coming out of the market there and “prices are falling in 69 of 70 cities across China – everything is softening.”
‘Almost half of all new residential lending in the past 12 months has gone to investors. In Sydney the figure is 60 per cent. The worry is that rent has not risen with property values and if interest rates rise, the squeeze on returns to investors may lead to a sudden sell off.’
‘Ken Hanton, director of asset transformation at National Australia Bank, agreed with Mr Gruenwald that China is “one of the [potential] shocks and real risks we face”. If Australia is experiencing a housing price bubble now, there must have been several in the past decade, he said.’
‘Two of three Batemans Bay real estate agents have blamed Eurobodalla Shire Council’s sea-level rise policy for falling house prices. John Haslem, of Elders Real Estate, specialises in premium waterfront properties, and is in no doubt that the council’s sea-level rise policy had taken its toll on real estate values, especially in the Surfside, Maloneys Beach and Long Beach areas. Mr Haslem said that in the past 12 months, two properties in Myamba Parade, Surfside, which had bank valuations of $1.5 million and $1.4 million, sold for only $1,050,000 and $980,000 respectively.’
‘Another house in Myamba Parade which should have sold for $750,000 brought only $475,000 while the vacant block next door which should have fetched $500,000 was sold for only $275,000, he said.’
‘Mr Haslem said a lot of “mums and dads” had seen the value of their investments falls. “You’ve got people who own a beachfront property and have lived there for 40 to 50 years; they watched the value increase over the years as the location has become increasingly desirable and now you’ve reached a situation where it’s declining because of the threat of rising sea levels,” he said.’
‘First National sales consultant Pat Jamieson believed recent falls in house prices across the Eurobodalla were the result of an overall correction of the market, and not necessarily because of the shire’s policy on sea-level rise.’
‘Home prices in Johor state, which takes in the huge Iskandar development zone, dipped in the second quarter for the first time in more than two years. Prices of high-rise units - which have sprung up in large numbers recently in Iskandar - tumbled 13.5 per cent from the first quarter.’
“Prices of properties launched up till 10 years ago have been gradually rising over the past 10 years,” said Mr V. Sivadas, executive director of PA International Property Consultants. “But in Iskandar in the last five to 10 years, developers’ pricing has shot through the roof.”
‘Developers have been hiking prices “indiscriminately” in response to changes in the minimum value for property purchases by foreigners, Mr Sivadas added. “The developers’ market will eventually find its own level. If developers can’t sell, they will have to be more innovative in marketing strategies or adjust pricing.”
‘Property prices are expected to stay weak or flat, especially for mixed-use and high-rise residential projects over the medium term, given the “more than ample” incoming supply by the end of next year, said Mr Wong. A study by property consultancy Landserve says 18,718 high-rise residential units are set to be added by the end of next year, with 40,374 units more by the end of 2017.’
‘The poverty rate in Massachusetts is the highest it’s been since 1960. The inflation-adjusted wages of the lowest-paid workers haven’t budged in decades. Income inequality in the state has become greater than in the nation as a whole.’
‘But it could be worse. Public benefit programs such as Medicaid, the health insurance program for the poor, food stamps, and the early education program Head Start are keeping nearly 842,000 people out of poverty in Massachusetts.’
‘US wages and productivity increased in tandem from 1948 into the mid-1970s, according to the report. Since then, workers’ earnings have flat-lined even as productivity has climbed. In Massachusetts, productivity more than doubled between 1979 and 2012, adjusted for inflation, but the median income climbed just 18 percent.’
‘At the same time, wages for the top 1 percent of earners skyrocketed. If wages across all income levels had grown equally, workers in the bottom 80 percent would be earning around $10,000 more a year, while the 1 percent would be earning almost $1 million less.’
‘Houston homes sales inched up in October despite forecasts that a slowdown is coming. “Most Realtors are not accustomed to this brisk a pace of home sales in Houston this late in the year,” HAR Chairwoman Chaille Ralph said in a statement. “This is typically when thoughts turn to the holidays and sales volume slows. Much of this year has defied prediction, but what helped the market keep up with buyer demand in October was an 11.1 percent increase in new listings.”
‘Zillow’s forecast Houston’s home values will increase 2.1 percent next year. Historically, Bayou City home prices have climbed about 9 percent annually since 2012.’
“It’s a huge drop over the past year,” Skylar Olsen, a senior economist with Zillow, told the Houston Business Journal earlier this month. “And that’s a very conservative projection.”
‘Six years after the housing bust, lenders are still offloading homes that have been in foreclosure limbo. And they’re stepping up their efforts. In October alone, nearly 60,000 of those homes were scheduled to be auctioned off by banks, up 24 percent from the previous month and seven percent from a year ago, according to RealtyTrac.’
“The rise in foreclosure auctions indicates that the banks and the courts are preparing for a spring cleaning,” Blomquist said.’
‘Buyers in Maryland, for instance, may see more of them on the market. The state had the highest foreclosure rate in the nation last month, with one in every 400 homes in some stage of foreclosure. The scheduled auctions in Maryland climbed 12 percent in October from a year ago. The number of REOs for sale shot up 190 percent. RealtyTrac also compiled data on foreclosure rates among the nation’s 20 largest metropolitan areas. Baltimore, where one in every 435 homes was in some stage of foreclosure, topped that list — just ahead of Miami and Tampa.’
‘Lenders also had an incentive to delay, said Greg McBride, chief financial analyst at Bankrate.com. They were basically waiting for home prices to rise, as they have in the past two years. That way they could get a better return on those homes, McBride said.’
Pick ten houses in an area you know.
-How many have been empty for months or years?
-How many are in default? (it’s easy to find out)
-How many are underwater? (this is easy to determine if you know the area)
How many are occupied by borrowers that haven’t made a payment in over 6 months? (this too is easy enough to determine)
Applied 2x in two states, 30% and 40% of the cases I counted are in some type of default whether the lender recognizes it or not.
offloading homes ??
I saw this just a few minutes ago Ben….Some company in Southern California just put on the market a bunch of Bulk offerings…17 houses to the package seem to be the common theme but one package was offered at $500,000,000….There were about a dozen packages offered…All were in Southern California…
And not a buyer in sight. And why would there be given the fact housing prices are grossly inflated and falling?
One wonders how long the federal government will prop up THIS mess via taxpayer money. Until 2020-2022, maybe?
Their propping isn’t doing much good. Demand is at 20 year lows, prices are falling in an environment of 25 million excess empty and defaulted houses.
I’m curious, are these investors selling rental properties in bulk? Or lenders selling REO? Or investors selling empty homes? Any idea?
It doesn’t much matter considering the end result for you is the same.
“Fed independence is now under more serious threat than ever. But an increased reliance on monetary policy, coupled with unrealistic expectations, undermines the Fed’s ability to stabilize the economy. If the Fed loses its credibility, its tools are less effective. Central bankers are among the most powerful people on the planet. But as Harvard economist Ken Rogoff points out, the only way they can maintain unchecked power is by setting humble and realistic expectations on what they can do. That may require popping their own power bubble.”
It is a conundrum.
‘Sydney’s median asking price for detached houses topped $1 million this week for the first time as sellers raised expectations in a booming market. The median asking price rose $10,600 over the past seven days, according to SQM Research Pty. That’s the highest since the firm began reporting the data in April 2009.’
“Right now it would be impossible to purchase a free standing house in Sydney’s inner ring for under $1 million,” SQM Managing Director Louis Christopher said. “I don’t see any change in the immediate future. It’s going to remain a pretty strong sellers’ market.”
“Price growth has moderated in the last few months,” said David Cannington, senior property analyst at Australia & New Zealand Banking Group Ltd. “The Reserve Bank is talking about increasing interest rates, so that will add some downward pressure on price growth.”
‘The housing market has been underpinned by the Reserve Bank of Australia keeping its benchmark interest rate at a record-low 2.5 per cent for 15 months. Investors now account for more than half of all new home loans. The RBA has indicated that regulators plan measures to target speculation by people buying residential property as investments.’
3:30 am ET
Nov 13, 2014
Banking
Fed’s Dudley: It Would Be ‘Premature’ to Hike Interest Rates Soon
By
Michael S. Derby
CONNECT
Federal Reserve Bank of New York President William Dudley said Thursday the time hasn’t yet arrived for the U.S. central bank to begin raising short-term interest rates.
While there’s been considerable improvement in the U.S. economy, “it still is premature to begin to raise interest rates–there remains slack in the labor market and the inflation rate is still too low,” Mr. Dudley said.
…
When you resort to price fixing schemes, you have no credibility. It is the full knowledge of the price fixing the erodes the confidence game.
“Fed independence is now under more serious threat than ever.”
Now there’s an interesting statement. How can the Fed be considered independent when it is an appointed position and the people who appoint the people who occupy these appointed positions will act to screen out - will act to select out - anybody who will not be on board with the agendas of the appointers?
If you want a Fed policy for economic reasons then you will appoint a person with one school of thought, but if you want a Fed policy for political reasons then you will appoint a person with a quite different school of thought.
It used to be (once upon a time) Fed appointees were the type who talked of “Removing the punch bowl once the party got started” but that was then and this is now; Now there is not a snowball’s chance in hell that such an appointee would even be remotely considered for the position.
The Fed isn’t interested in an economy that produces wealth.
Singapore:
‘Private rental prices continued to fall last month, marking the ninth consecutive monthly decline in rental prices, according to SRX Property. Prices have decreased 5.1 per cent since January, SRX said. Meanwhile, rents were down 5.3 per cent year on year last month.’
“The continued drop in rents is expected as it is currently a tenants’ market. Tenants have strong bargaining power as the current supply glut and declining expat demand are pushing down rents,” said ERA Real Estate.’
“The downtrend for private property rents has also affected the Housing Board rental market; in particular the demand and rents for the larger flat types,” noted ERA. “The competition for tenants from suburban private property owners who are lowering their rents for family-sized units to $2,500 to $3,500 a month are drawing tenants away from the HDB rental market.”
‘ERA expects this trend to continue as some 60 per cent of newly completed private residential units are in suburban areas.’
Let’s revisit 1 year ago;
“Vital Signs: Housing Inventory Remains Spacious”
http://blogs.wsj.com/economics/2013/11/06/vital-signs-housing-inventory-remains-spacious/
Millions of excess empty and defaulted houses. Now even even more, delinquencies and defaults accelerating, prices falling and housing demand cratering.
‘More than 8,200 new apartment units will be built in the Phoenix metro area next year, according to the CBRE Group Inc. real estate firm. That ranks seventh among U.S. cities as multifamily developments continue to come back faster than home sales and other real estate segments.’
‘CBRE project Houston and Dallas with the most new multifamily units with 19,700 and 16,200, respectively. The two Texas cities are enjoying strong job and population growth. Phoenix is lagging in those two areas in the post-recession economy. New York is next at 12,200 units, according to CBRE.’
‘Phoenix is, however, expected to build more new apartment units than Atlanta (7,400), Los Angeles (7,100) and Boston (6,800) The Phoenix market has seen a lot of new apartments being built with housing demand down and mortgage qualifications tougher. Scottsdale, Chandler, central Phoenix and Tempe are all seeing plenty of new apartments.’
Work permits and Section 8 for everyone!
‘Most of the loans going through the foreclosure process now have been delinquent for several years, but a particularly troubling sign was the number of newly started foreclosures in October: 56,452 homes.’
Here ya go RW:
https://www.youtube.com/watch?v=vHHwg6cV2lU
The real questions is: When were those loans originated. I bet they are 2007 vintage loans.
Between depreciation which occurs naturally and imposes massive losses on the owner and deflationary forces, imagine just how little a house is worth.
Add a pool and hot tub and you won’t make it out alive!!
Maine Housing Demand Collapses 89% YoY
http://files.zillowstatic.com/research/public/State/State_Turnover_AllHomes.csv
*The cratering occurred in just 6 months. Hows that for a KEEEEEEEEEEEEEEEEEYRAAAAAAAAAAAAAAAAAAASH!?
Washington, DC Rental Rates Crater 7% YoY
http://dc.curbed.com/tags/falling-rental-prices
“Royal Bank of Scotland to exit U.S. mortgage business”
http://news.yahoo.com/royal-bank-scotland-exit-u-mortgage-business-003450668–sector.html
Mortgage $$$ is drying up. The evaporation is accelerating.
‘The greater Miami area led the pack in foreclosure activity among the 20 largest metro areas in October, according to RealtyTrac. One in every 363 homes in metro Miami — covering Miami, Fort Lauderdale and Pompano Beach — had some type of foreclosure filing during October. Foreclosure activity in metro Miami rose 11 percent in October from September, fueled by a 67 percent monthly spike in foreclosure starts, RealtyTrac said.’
http://www.miamiherald.com/news/business/real-estate-news/article3853725.html#storylink=cpy
foreclosure activity among the 20 largest metro areas in October, according to RealtyTrac ??
A more in depth look at it;
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=newssearch&cd=1&cad=rja&uact=8&ved=0CB8Q-AsoAjAA&url=http%3A%2F%2Fwww.worldpropertyjournal.com%2Freal-estate-news%2Funited-states%2Fhome-foreclosure-news-us-foreclosure-market-report-for-october-2014-realtytrac-reo-sales-distressed-sales-daren-blomquist-8658.php&ei=cSBmVOqUPMm3OOakgIAM&usg=AFQjCNHovEoQ2dCxptrhOhLv1ardOuK8Zg&sig2=Iz3TdhzTT87Cno5_Qs3cXQ
Your link looks like a virus.
Dave,
Will you keep making mortgage payments on your sc house when valuations there drop by 70 or 80%?
70-80%? Why not 100%? 150%?
Those type devaluations may occur all the time in your imagination, but are not going to happen here in reality.
They’re already happening my friend. For the very simple reason that current asking prices are 2x reproduction costs.
Hey there Halfamillionmore!
Sure, 75% reduction is impossible. In 2005 any reduction was impossible. That little fracture we had in 2006 was when house prices went over 4% of median income nationwide. Normal is what, 2.5x? I wrote the other day that prices in San Diego county are 9x. How far will they fall to “normal” or how far to “disturbing”? You do the math.
Halfamillionmore - good one. The math is a little flawed though. In order for me to pay $.5M more in interest than someone, I’d have to actually pay that amount of interest.
As it stands, I’ll pay less than $80k in interest over the term of my note.
Here you go, math is fun:
http://www.amortization-calc.com/
You got ripped off my friend. And you’re proud of it.
Halfamil, we think you bought a $250,000 house. You said your monthly nut was up towards $2K I think. Maybe that was your idea of rent. $80K in interest? How much did you pay? What’s your interest rate and taxes? Would be glad to do some math with you.
‘not going to happen here in reality’
I’ve seen 90% declines in the past few years. More than once. In the distressed market, all sorts of things happen.
You should drive around north of Dallas for a few hours like I did recently. Read the billboards in front of the developments. $300k, $400k, zero down. A long drive to jobs that would support those prices.
You may be thinking of someone else. I am certainly the individual you said would pay $.5M more than you in interest, but those other numbers don’t resemble anything I’ve ever posted.
I have a 30 yr note @ 3.23%, principal is <$200k, I make extra payments towards principal which in the early part of a note makes a tremendous difference in the term and amount of interest paid. Even if I didn’t make the extra payments, I’d pay ~$100k in interest.
As it stands, I should have this paid in no more than 20 years with substantially less interest. I understand that my losses are incalculatable, that I overpaid by more than 3X the value of the house, that I will eventually suffocate and die due to the oppressive nature of having a mortgage, and that my heirs will be indentured servants to Home Depot as well. All that being said though, I am not unhappy with my decision.
Here’s a calculator that shows the impact of extra principal payments.
http://www.bankrate.com/calculators/mortgages/loan-calculator.aspx
You’re not disclosing anything. You must have gotten ripped severely.
What’s the problem? Why hide?
OK, so you did buy a $250,000 house, or pretty close.
Price $250,000
interest (3.23% @30 yr) $113,000
tax (3%) $225,000
insurance (1%) $ 75,000
depreciation (maint) 2% $150,000
Total $813,000
Maybe you didn’t make much of a downpayment. Still you are paying way over half a million more than me over 30 years, even if you change my assumptions quite a bit. At least you won’t be paying state income tax. Oh wait, neither will I! Buying in a bubble tags you for a long, long time.
Making early principle payments is a great idea. Still Half a Million More.
Dude, your numbers are so off it is laughable. If you are using these type numbers for evaluating your own circumstances then you are only fooling yourself.
Then spit them out. Let’s see “your numbers”.
Laugh all you like, they are your numbers. Unless you care to adjust some of the assumptions. I may be a fool, but your numbers won’t smack me in the back of the head. Maybe I did some stupid math. Show me.
Halfamil may be laughing too hard to answer.
The Lola is a broken record, adding little to the discussion. Her posts lack substance.
The insurance number is WAY high for a $250k home. It would be no more than $1k per year (and even that’s high).
Property taxes vary by state, but where I live, it’s about 1% (excluding special assessments).
Maintenance is completely dependent on the house–that’s a big toss-up.
Thank you for the input. My fire & etc. insurance is almost exactly 1%, but then I didn’t buy above rebuild cost. I have had insurance at 0.5% a time or two. I think Texas has 3% RE tax. I didn’t look into it too much, but they have no state income tax, so maybe it is close. Yes maintenance, depends a lot on the spousal situation too!
OK, here is where we are in the “halfamillionmore” challenge:
Price $250,000
interest $113,000
tax $225,000
insurance $25,000
maintenance $150,000
total $763,000
Depreciation isn’t a “toss up” R._Fraud. Try $2-$3/sq ft/year. And $1000/yr for insurance is cheap. It’s likely more than that. Property taxes in TX are as atrocious as anywhere in the northeast.
The clown paid far more than $250k BTW.
Blue: to be fair, you should offset his expenses with estimated value of home, assuming he plans to sell at some point and move into a retirement home or whatever. Also, I don’t see anything for income tax deduction, albeit nominal. And if you are a renter, you need to consider costs of moving every few years and security deposits that are not returned. Just sayin’.
^lolz.
wittbelle,
Since he claims to have an interest rate lower than ever available, I’m not sure we should give him a tax deduction. Possible, but I’m not convinced. We’d have to have some details.
Renting isn’t in this analysis. He “owns” and I own.
We still need generous suggestions to come close to scratching my claim. Anybody in Texas want to chime in about the RE taxes there? I’ve been maintaining houses for longer than Halfamil has been able to walk. I think HA is on the money.
“Fed independence is now under more serious threat than ever. But an increased reliance on monetary policy, coupled with unrealistic expectations, undermines the Fed’s ability to stabilize the economy. If the Fed loses its credibility, its tools are less effective. Central bankers are among the most powerful people on the planet. But as Harvard economist Ken Rogoff points out, the only way they can maintain unchecked power is by setting humble and realistic expectations on what they can do. That may require popping their own power bubble.”
All based on fraud and lies……..
http://www.zerohedge.com/news/2014-11-04/paul-singer-slams-fake-world-fake-growth-fake-money-fake-jobs-fake-stability-fake-in
Fed independence should be read as “Fed lack of accountability.” Luckily for the Fed, we have perhaps the stupidest population and electorate in American history, so until the inevitable financial reckoning day arrives, the Fed is going to have a free hand to faciliate Wall Street looting with impunity.
‘The investment terms hammered out between venture capitalists and entrepreneurs in the third quarter point to a slowing in the pace of deal-making from the white-hot second quarter, according to Fenwick & West’s latest Silicon Valley Venture Survey.’
‘Venture capital invested in the third quarter fell sharply from the second quarter’s torrid pace. Venture capitalists’ confidence fell in the third quarter from the second quarter. That’s not too surprising, given that Marc Andreessen and Benchmark Capital’s Bill Gurley have been vocal in sounding the alarm about how investor enthusiasm has pushed up company valuations.’
‘Inc. magazine offered one take on Fenwick & West’s latest survey results: “It could be the air is coming out of the tech bubble, if ever so slightly.”
‘One doesn’t have to be an entrepreneur or venture capitalist at the negotiating table to be concerned about venture capital activity in the Bay Area, which routinely gets at least a third of all venture dollars invested nationally. Venture capital drives the Bay Area’s broader economy, whether it’s the rent portfolio companies pay for office space, how much their workers shell out for housing or tabs at the restaurants where deals are made.’
http://money.cnn.com/2014/11/13/real_estate/cleveland-destroying-homes/index.html
Mr. Haflamil’s dream. Houses depreciated more than 100%.
Here we go… Calif. state agency shuts down new home construction in the Gold Country due to severe drought. If we have another dry winter this will happen with greater frequency… value of raw land will take a hit…
============
“The drought may have just killed hopes for housing and commercial growth in San Andreas.
A State Water Resources Control Board compliance order issued in October bars Calaveras Public Utility District from connecting any new customers to its water service until the utility can find a water source that the state deems “adequate and reliable.”
One of those hardest hit is Dave Sidle, owner of Dave Sidle Construction. At least for now, the order leaves Sidle unable to build several dozen small homes and duplexes on Foothill Terrace in San Andreas, a street where he said he’s already spent hundreds of thousands of dollars installing utilities, paving and curbs.
“Without water, you have nothing,” Sidle said during a visit to Foothill Terrace on Wednesday.”
http://www.calaverasenterprise.com/news/article_97f2dd76-6b8e-11e4-b236-ab671ee83acd.html
Text from a new West Hollywood listing posted today:
“Just lowered over 200k! Make offer! Sellers are very motivated!!! A lot of home for the money!!!”
So it begins… He who panics first (and uses enough exclamation marks) panics best?
“Here we go… Calif. state agency shuts down new home construction in the Gold Country due to severe drought. If we have another dry winter this will happen with greater frequency… value of raw land will take a hit…”
And developed land as well, I would think. How many people are going to want to stick around for dead lawns, empty swimming pools, not being able to take baths, etc. as water restrictions tighten.