A Very Dangerous Idea
It’s Friday desk clearing time for this blogger. “Jammie Sabin, president of Windsor-based Aspen Homes Inc. of Colorado said he has seen a sharp and welcome shift in consumer behavior this spring and summer compared to the past three years. Sabin said ’spec’ homes, those built without buyers backing the projects, are selling out. ‘The specs are selling as fast as we can get them up,’ Sabin said. ‘The number of people who are out there getting serious has about doubled, and they all seem like they have to go ‘right now.’”
“At the height of the real estate market in 2007, a 4,300-square-foot two-story home in the Daybreak subdivision could have fetched as much as $575,000. So it’s easy to see why, at a list price today of only $299,900, the seller has been inundated with offers — so many, in fact, that the listing agent decided to stop receiving bids after getting no fewer than 18 of them.”
“Inventory is low in most areas and price ranges, and buyers generally outnumber available properties. There also is an urgency among many buyers given the fact that mortgage rates have slipped into an almost laughable low and, like prices, are almost certain to increase. ‘If rates were at 5, 6 percent, I don’t think we’d be seeing such an urgency among buyers,’ said Adam Kirkham, co-owner of Kirkham Real Estate in Salt Lake City.”
“Suzanne Key with Ebby Halliday in Arlington, who has been a real estate agent for 22 years, said the market is running the gamut for buyers. She was involved in recent months with a buyer in Mansfield where four people were lined up to buy a $600,000 house. Yet some folks are still trying to sell their homes after two years on the market, she said. ‘It’s nothing like we’ve ever experienced,’ Key said. ‘The market is so different. We’ve got the lowest interest rates on record and combined with that, we have lots of foreclosures.’”
“About a month ago, Candace and Eddie Bill listed their 1,400-square-foot house in north Fort Worth. Candace Bill said she’s been commuting to Denton since moving into the house six years ago, but now wants to live closer to work. ‘We’re actually thinking about doing some improvements and staying here,’ she said. ‘My expectations for selling the house are realistic. It’s a little discouraging to see so many houses for sale.’”
“Shelby County’s real estate market is still feeling the effects of foreclosure activity, with a second quarter increase in activity following an even larger one in the first quarter. Holly Swogger, president of Memphis Investors Group, earlier this month hosted a panel discussion titled ‘Everything You Want to Know About Foreclosures. ‘These investors are really practical people. They drive around all sections of Memphis and Shelby County, and what they see is a lot of vacant houses that don’t even have the papers in the window yet that indicate they’re going into foreclosure,’ Swogger said.”
“The residence of the townhome units at 1002 Hwy. 98 in Mexico Beach don’t know what to do about apartment one—the bugs and dead squirrels that reside there are not good neighbors. The unit has been abandoned for the last three years and it has taken a huge toll on the building’s structure, and the crumbling drywall allows for bugs and small animals to get inside. ‘Our property value has diminished a great deal,’ said Chris Wilhelm, who shares a wall with the abandoned unit. ‘There’s dead animals in there. I don’t know what else to do—it’s going to fall down.’”
“The complexity of the foreclosure process has left Wilhelm with nowhere to turn while the property waits to be moved to foreclosure sale. Florida foreclosure timeframes are now longer than ever, with the average foreclosure lasting 861 days, or 2.4 years, according to RealtyTrac Inc. Wilhelm said he has hit roadblocks everywhere; he has gone to the health department, building inspector, code enforcement, city manager and council about the issue, to no avail. ‘If they don’t do something quick, it’s going to literally fall down,’ he said. ‘And I’m the first one that’s going to be affected.’”
“With sprawling housing developments and state-of-the-art skyscrapers, the outward impression is of a bustling metropolis. But look closer and the so-called Kangbashi New Area of the Chinese city of Ordos is anything but teeming with people. Known as the ghost town district of the wealthy mining city, it was built to house a million residents. But less than 30,000 live in this spanking new town, the construction of which started in 2004. There are many reasons why people have stayed away, soaring property prices being the most cited.”
“And despite pictures showing some of the country’s reported 64 million empty homes, Chinese authorities have since erected masses more buildings. China last year announced plans to build 20 cities a year for the next 20 years.”
“A state house is being marketed as an ‘entry level property’ - despite a probable price tag of $1 million. The real estate agent says the term refers to the starting price for a home in Westmere, rather than what first time buyers should be paying in Auckland. But a valuer in the area said entry-level properties started at about $700,000.”
“It did not give the council valuation of $900,000, made in July last year. Experts say the property is likely to go for more than $1 million. ‘This Westmere entry-level property is almost an extinct breed, but not quite,’ the advertisement says. ‘This attractive and comfortable 1920s, three bedroom bungalow has everything going for it.’”
“The lowest recent sale in Westmere was a derelict two-bedroom, 1920s bungalow on 468sq m which went for $741,000 in April. Another on the same road, a 1950s, two-bedroom brick home on 507sq m sold for $835,000. ‘It’s a time where there’s not a huge amount of listings and good, steady buyer demand,’ valuer Ross McCabe said.”
“Knight Frank’s Pranay Vakil tells Forbes India why property prices continue to be so stubborn. Q. How do existing buyers react to price drops? A: After having bought the property a buyer is not mentally reconciled to the fact that prices can go down. Take the case of a developer who has opened up a building for sale and completed 25 percent of sales at say Rs 10,000 per square feet. The developer later on finds that there is a lot of resistance at this price so he wants to reduce the price to Rs 9,000 per square feet for the new buyers. The first 25 percent of the buyers are paying at Rs 10,000 per square feet over the construction of the project and they will all come back to the developer and tell him to reduce their rates.”
“Q. Is this the same with real estate investors who collaborate with the developer? A: Investors typically are known to underwrite projects for developers. These investors make money through leverage. If he has money to buy one flat, he will book five flats with a 20 percent down payment. Sometimes he doesn’t have the intention of completing the payment because he wants the price to go up.”
“‘It is a very dangerous idea to think that dwelling prices cannot fall,’ RBA governor Glenn Stevens said in a speech today. ‘They can, and they have. We should never say a crash couldn’t happen here, and the Reserve Bank continues to monitor property markets and the performance of mortgages quite closely,’ said Mr Stevens.”
“Home prices in Australia have fallen 5 to 10 per cent from their peak according to the RBA. Measured against incomes, home prices are now close to where they were in 2002, Mr Stevens said. While admitting that home prices relative to income are higher than 20 years ago, Mr Stevens said ‘the problem is that there is no particular basis to think that the price-to-income ratio 20 years ago was ‘correct’. ‘Are dwelling prices overvalued?’ said Mr Stevens. ‘It’s very hard to be definitive on that question.’”
“Mr Stevens linked the increase in home prices to the global debt boom which was seen through the US, UK, and Europe since in the mid-1990s. ‘As everyone knows, dwelling prices rose a great deal over the decade or more from 1995, and not just in Australia,’ he said. ‘This occurred globally.’ The ‘widespread phenomenon…suggests that the global dwelling price dynamic had a lot to do with financial factors - and there is little doubt that finance for housing became more readily available.’”
“A day after RBC put out a report saying that Toronto’s condo market is not in a bubble, Capital Economics has come out with its own report saying that Canadian housing, including Toronto, is most certainly in a bubble. David Madani, economist with Capital Economics, said that Canada’s housing market is currently experiencing what appears to be a soft landing, but is, in fact, a bubble in the process of bursting.”
“A flurry of speculation has emerged about the fate of Canada’s housing market following changes to mortgage lending rules recently. Housing prices typically respond to changes in the market with a lag of five to nine months, according to Mr. Madani. ‘Overall, the willingness of buyers to pay these historically high house prices now looks to be proving fragile against the increasingly disappointing macroeconomic backdrop,’ he said. ‘The housing bubble in Vancouver already appears to be deflating, with only Toronto defying the inevitable. Accordingly, we expect substantial declines in house prices over the next year or two.’”
“‘There is always a stand-off period at the end of a housing bubble, when prospective buyers refuse to meet the price of sellers, who refuse to drop the asking price,’ he said. ‘Eventually it begins to dawn on sellers that the market has shifted and, as they become more desperate, they eventually agree to lower their asking price. But until that happens, any stagnation in prices can be misinterpreted as a successful soft landing.’”
