February 10, 2012

People Simply Went Mad Borrowing

It’s Friday desk clearing time for this blogger. “Investor demand is driving up sale prices on Brickell condos. Lisa Thomson, an associate on The Thomson Team at Coldwell Banker said the average asking price, which was $486,000 last year, is now $583,000 — and the average sold price has gone up from $279,000 to $352,000. Behind much this success is Brickell’s attraction to investors. ‘Maybe 70% of the units go to investors,’ Ms. Thomson says. ‘They want a place where they can vacation and then sell when prices are better.’”

“Emily Yao, who moved to Vancouver from mainland China six years ago, snapped up the still-unsold condominium on Vancouver’s East Side for $550,000, a difference of $9,000 below the original price tag. It’s a pattern being replicated across the Pacific port city, in a dramatic turnaround from the bidding wars, show day stampedes, and above-market offers that long dominated North America’s costliest property market.”

“Chinese investors, who have long helped to underpin the city’s red-hot market, are holding back because property market curbs back home means they have less cash available. ‘Since October, it was like someone turned off the tap. It became absolutely dead,’ said long-time realtor Pam Allen.”

“An increasing number of local developers and Chinese energy giants are issuing bonds amid tight liquidity. Every day since last week, 10-20 locally listed companies have issued debt. ‘Developers are thirsty for cash to pay off debts,’ said Kingston Lin King-ham, Fulbright Securities research director.”

“Roger never should have gotten that home loan. He never should have asked for it, but the bank never should have given it to him either. Six years ago, they wouldn’t. In some kind of bizarre paradox, the global financial crisis made Roger a better bet in 2009 than he was in 2005. Roger had achieved the ‘Great Australian Dream’. It wasn’t too long before he started to seriously fall behind. ‘It doesn’t take much to miss one. Each week you throw a lump sum of money at it and the following week bills come in and then all of a sudden…It’s just that sort of domino effect,’ Roger says. ‘It was at the point they were calling me every few days.’”

“I could probably keep pushing and pushing, but it came to the point where I’d realised it’s taken too much out of me. I’d just rather back off, back away. I probably should have thought about it more,’ he acknowledges.”

“The developers of the unfinished 32-story Phoenix West II told the City Council they don’t have the money to pay for amenities promised six years ago in better economic times. Units were priced from $650,000 to $850,000 in March 2009 and today they are averaging $510,000. ‘I have hocked and sold everything I own and lost my house,’ said Gene Brett of Brett/Robinson, one of the development partners. ‘My two partners and I have lost everything we’ve worked for and this will be our 45th year in business.’”

“No one at this year’s Urban Land Institute conference predicted when metro Phoenix’s housing market will rebound. Year after year, as the housing crash and economic downturn worsened, analysts and investors tried to forecast when the market would rebound. By 2011, the mistaken predictions had become a subject of some wry humor.”

“Homebuilders at the conference agreed building will pick up this year but said it will be a while before buyers go back out to the fringes of metro Phoenix, no matter how inexpensive the home is or how low gas prices go. ‘There are fringe parts of Phoenix where we couldn’t make a profit on a new home even if the land was free,’ said Steve Hilton, chairman of Scottsdale-based Meritage Homes.”

“The government reached a $26 billion deal with the five largest banks in the nation: Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Aly Financial. Those banks were charged with a laundry list of abuses that occured after the housing bubble burst. The settlement will bring about $1.5 billion to Nevada, to help struggling homeowners. But some homeowners aren’t happy with this settlement.”

“‘I’ve had three foreclosures on my block, that went for $190,000 or below,’ describes Patti Peery, who lives in the far northwest valley. ‘Other neighbors are just abandoning their homes altogether. How am I supposed to make up for that? I bought my house for $400,000.’”

“Though Peery’s home is underwater, she’s not delinquent on payments. But she admits her house payments are getting harder to make. ‘It comes down to a business decision,’ she says. ‘Do I want to stay in my house, or send my kids to college and make sure my husband and I can retire? Our home is taking all of our money.’”

“That’s why she doesn’t believe the federal mortgage settlement is enough to really help homeowners threatened by foreclosure. ‘It’s not going to make a dent,’ she says. ‘I’m never going to get what I originally paid for my house.’”

“NCB Stockbrokers said the price of buying a home will fall by at least a fifth in the years ahead as Ireland recovers ‘from the largest credit and housing bubble in OECD history’. The Dublin-based broker calculated that the eventual national decline from peak to trough will be 60pc. Average prices have fallen 47pc so far which implies that prices must fall by at least another 20pc before hitting rock bottom.”

“Prices in Dublin have already fallen close to this amount with apartment prices in Dublin down 58pc and house prices in Dublin down 54pc. ‘Ireland has had a classic and very big and bad asset price bubble,’ said Michael O’Sullivan who is head of research at the Credit Suisse private banking. ‘That is the cause of our malaise.’”

“The data available for personal credit in Ireland and elsewhere shows clearly that the level of borrowing by Irish households during the bubble years exceeded that in other European economies. A graph produced with the report showed how property-related lending, as a proportion of total lending, rose from about 45 per cent at the end of 2002, to almost 65 per cent by the end of 2005. Property-related lending accounted for four-fifths of all lending in 2006.”

“It wasn’t noticed until later that during the bubble years the banks themselves had gone on a borrowing spree, sourcing huge sums abroad for delivery to their Irish customers. Since the crash, the burden of this debt has fallen on to the State. In a paper in the Economic and Social Review in summer 2009, before he was appointed governor of the Central Bank, Patrick Honohan suggested that the strong economic growth in Ireland during the 1990s produced a false sense of confidence, or hubris, among policy makers. This opened the way for a subsequent ‘old fashioned property bubble.’”

“Taoiseach Enda Kenny said in Davos that what happened in Ireland was that ‘people simply went mad borrowing.’”

“Whether to move forward with the construction of more worker housing at Aspen’s Burlingame Ranch subdivision is a decision that will come to the City Council this spring against the backdrop of a sluggish market for homes and condos set aside for the local workforce. The Aspen/Pitkin County Housing Authority closed the books on one of the slower years in recent memory for the community’s employee housing program in 2011.”

“More notable was the number of prospective buyers — often fewer than a dozen takers for units that, in the booming days of the employee housing program — attracted larger numbers of lottery participants hoping to win a shot at buying a residence. Of late, the housing office has seen units go to someone who wasn’t a priority bidder and higher priced units don’t always fetch their full price, as determined by the caps on appreciation imposed by the housing program, said Cindy Christensen, housing operations manager. Such was the situation when she started working in the housing office 20 years ago.”

“‘I never thought we’d come back to this,’ she said. ‘Things were going so gung-ho for so long.’”

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