When The Easy-Money Punch Bowl Goes Dry
It’s Friday desk clearing time for this blogger. “Real Estate Institute NZ sales figures for May show Auckland residential values were up 7.8 per cent on last year, setting a new record median of $500,000. The increase in the number of sales compared to last May was 27.6 per cent. QV issued three-monthly figures on Tuesday that showed annual house property growth for Auckland was 6.8 per cent and the average sale price was $627,411. It’s a double-edged sword, low interest rates but high prices.”
“John Gray, president of the Home Owners & Buyers Association, says the association is concerned some buyers are being careless. ‘People are in a bit of a frenzy and are not doing due diligence. Because of the pressure that has been brought to bear by agents saying, ‘You’ve got to get in quick, got to make the offer unconditional’, that means people drop their guard in the heat of the moment and have been caught out,’ he said.”
“More West Australians than ever are defaulting on their home loans, according to figures published yesterday by the Supreme Court of WA. The Community Housing Coalition of WA yesterday described the figures as yet more evidence of housing stress in the west, where rents are climbing fast and the public housing wait list reached 23,000 last December.”
“House prices have also fallen - the median Perth house price has dropped from $505,000 in March 2010 to $469,000 in March this year, leaving some homeowners with mortgages bigger than the value of their homes. Community Housing Coalition of WA chief executive Barry Doyle said he believed the record repossession cases were a result of ‘imprudent lending and perhaps imprudent borrowing.’ ‘A few years ago a lot of people on low incomes ended up borrowing heavily because there were government incentives and fairly lenient lending practices,’ he said. ‘They were given mortgages that didn’t really take account of their ability to pay.’”
“Zhu He, a real estate sales manager in Beijing, reports that the owners of an 800-unit apartment complex in central Beijing have pulled dozens of apartments off the market. The property values in some real estate markets of the country have declined by half. Zhu notes: ‘Real estate is too important to the Chinese economy.’”
“Memories are still fresh of home prices more than doubling in some cities including Beijing and Shanghai in 2009 and 2010 soon after the country rolled out a massive stimulus package to prop up growth on the wake of the financial crisis. Fears of being priced out of the market again have recently pushed some would-be home buyers in a few cities to queue up overnight for new apartment launches, according to domestic media reports. ‘Panic as well as real pent-up demand will drive up home prices,’ said Xianfang Ren, an economist with IHS Global Insight in Beijing.”
“Australian lenders are cutting borrowing costs by selling mortgage-backed bonds in the US, funding loans for what is the world’s second-most expensive housing market. ‘People are saying ‘look at Australia, that looks good, there’s no bubble there’ and are buying,” said Andrew Feltus, Boston-based portfolio manager at Pioneer Investment Management, which manages $US186.5 billion globally.”
“Former Memphis mayor Willie Herenton is underwater on a five-bedroom, 4.5-bath house. The house is for sale for $369,000. Herenton said he sold another home in his same subdivision, Banneker Estates, in a short sale. He’s both divesting and downsizing his real estate holdings. ‘My son owns a home here and lives in Chicago. We have excess real estate and we’re doing some consolidation. I have several homes.’”
“Lighthouse Point Commissioner Chip LaMarca is facing foreclosure on his home after, records show, he stopped paying his second mortgage, per Gossip Extra. LaMarca said he took out the second mortgage on his $319,000 home in 2006 to put money into his construction business, which appears to have faltered along with the rest of the construction industry. ‘I’ve been on the phone with the bank and I’m hoping they’ll work with me,’ LaMarca said. ‘People who seek office are people… Nobody’s perfect.’”
“Occupy Marin has taken up the cause of a Mill Valley couple who are trying to avoid being evicted from the home they lost to foreclosure. John Graybill said that with the encouragement of a World Savings employee they took out a second equity loan of $600,000 — even though the house had most recently been appraised for just $243,000. Graybill said the World Savings employee lied on the loan application indicating that the couple had two new cars and $100,000 in home furnishings, which they didn’t have. The loan featured an adjustable interest rate and balloon payments.”
“‘We were foolish. We shouldn’t have borrowed the money,’ Graybill said. ‘We shouldn’t have used our home as a checkbook.’”
“U.S. lenders are notifying more delinquent homeowners they face foreclosure. The homes that do eventually end up in foreclosure may initially spur another drop in prices as the inventory reaches the market, said Mark Zandi, chief economist of Moody’s Analytics Inc. ‘More price weakness could ignite more defaults as more underwater homeowners think that prices aren’t going to rise anytime soon,’ Zandi said. ‘The threat is that a vicious cycle is re-ignited. I don’t expect this to happen, but it is a risk.’”
“Premier Wen Jiabao acknowledged that the economy was experiencing ‘relatively large’ downward pressure and went on to say, as reported by Bloomberg: ‘We must unswervingly continue to implement all manner of controls in the property market to allow prices to return to reasonable levels. We cannot allow prices to rebound, or all our efforts will come to naught.’”
“To the reformers, fixing the real estate crisis is an existential matter for the Chinese economic system and the future of the country. On his Weibo blog, an influential economist in Jiangsu province shared the concluding phrase from his briefing to a meeting chaired by Premier Wen during his visit: ‘The Communist Party rose to power by accomplishing an agrarian revolution; if the land system breaks down, it will shake the very foundation of the nation.’”
“China’s banking system is derided as an ATM for unproductive, government-directed investment. When the easy-money punch bowl goes dry and the economy goes south, the banks’ lazy bad bets come back to haunt them.”
“A recent NewsLeader editorial touched on the negative effects of record-low interest rates. The general rationale behind driving down interest rates is that such a policy is beneficial to the Canadian economy. Well, that all depends on how and by whom said benefits are defined. Regarding Canadian consumers it has been and continues to be devastating. The temptation to go on a borrow-and-spend spree has proven irresistible to consumers who view low interest rates as ‘cheap money.’ One consequence is that the ratio of household debt to disposable income has risen by 40 per cent over the past decade: earlier this year it breeched an astounding 150 per cent, and continues to rise.”
“And then there is everyone’s favourite topic of conversation: real estate. Canada’s house prices have doubled since 2002. Low interest rates have fuelled a buying frenzy. Add to that a favourable Capital Gains Tax regime and encouragement of foreign ‘investors’ and the consequence is that the market is now influenced by speculation rather than the needs of ordinary Canadian families seeking a home, more and more of whom are being excluded from that opportunity.”
“Reading Ross Gittins’s article last week (’Houses hit affordability ceiling, the price plateau is here to stay’) I started to think that perhaps my dinner party crowd is a little different to his. We’re not worrying if housing is getting unaffordable; the people sitting around my table are talking about raising kids in a rental or moving out of the city. They know housing is unaffordable.”
“If only 24 per cent of properties are affordable to 60 per cent of buyers in Sydney, then who is buying the unaffordable properties? Well, there are 1.7 million property investors in Australia, encouraged by negative gearing and capital gains tax exemptions to invest in housing and shelter their other income. There are also many households who’ll stretch themselves to the financial limit to get their piece of the great Australian dream, even if they might not necessarily be able to hold on to it.”
“Gittins is right when he says that we’ve seen a structural shift to a lower interest rate environment, but servicing the loan isn’t the whole picture. Because households now borrow so much more, we’re actually paying banks almost twice as much in interest payments than we were back when interest rates were at 17 per cent – and it takes much longer to repay the average home loan.”
