December 28, 2012

A Large Number Of Sellers-In-Waiting

It’s Friday desk clearing time for this blogger. “Herbert Crockett, a retired human resources director, said he bought a $904,000 hotel-condominium suite at the Trump International Hotel & Tower, Toronto, attracted by a presentation that showed he could make as much as 27% a year on his investment. Crockett is now suing Trump and the hotel’s developers for $2.6-million, and says he’s losing $7,000 a month because the unit he rents out is occupied on average about a quarter of the time. ‘It turns out that the hotel had nothing to do with him and that it isn’t a good investment after all,’ Crockett said.”

“The brewing legal trouble is the latest sign that the real estate boom in a city with more skyscrapers under construction than any other in the world may be cooling as sales drop and prices climb. ‘When people buy units purely as an investment and not to ever live in, it’s a sign that the Toronto market is on thin ice,’ said John Andrew, a real-estate professor at Queen’s University in Kingston, Ontario. ‘The luxury market always feels the cracks of a housing market first. Here we have the canary in the coal mine.’”

“The average price of a property in Spain fell by 15.2% in the third quarter of the year, compared to the same period of 2011, according to the National Statistics Institute. This is the 18th consecutive quarter in which prices have fallen. ‘There are currently approximately one million newly built homes for sale, in addition to over 200,000 repossessed properties; furthermore, there are an unknown number of exchanges of debt for property agreements in place, as used by financial institutions. It will take many years to absorb the stock of properties, even if sales volumes return to 2003/4 levels of 250,000/300,000 units a year,’ commented Juan David Garcia from global market analysts Fitch.”

“For Irish banks, whose losses forced the government to follow Greece in seeking a bailout, the true cost of the debacle is about to hit. Banks have largely held off on repossessions or debt forgiveness after taxpayers were forced into a €64 billion rescue of the financial industry. While they have set aside about €6.4 billion of provisions for expected bad loans, actual write-offs in the 30 months through June were €250 million, say Goodbody Stockbrokers.”

“‘Banks have been playing a waiting game, hoping things improve,’ Lars Frisell, chief economist at Ireland’s central bank, said in Dublin two weeks ago. ‘That’s not happened. It’s time to stop procrastinating, to find out where the losses are and crystallise them. Take the losses.’”

“More than 40 percent of foreclosures cleared from Florida’s courts in recent months were dismissals, cases that likely will boomerang back into the overloaded judicial system when lenders are better prepared to continue their pursuit. Some homeowner attorneys complain that lenders have gotten used to winning in Miami-Dade’s courts and are heading to trial whether their evidence is admissible or not. When a case goes to trial when the sides say they are not ready, the judgment may be appealed, rejoining the backlog of foreclosure cases to be heard.”

“‘By and large if people are saying they need more time to get ready, and it’s been sitting there for three or four years, three or four years is enough time to get ready,’ said Miami-Dade Circuit Judge Jennifer Bailey, who sat on the state’s foreclosure task force.”

“The Oregon Legislature and Supreme Court have at least one definite topic on their agendas in the new year: finding a solution to the state’s foreclosure standstill. Oregon’s new foreclosure mediation program was supposed to give home­owners one last chance at keeping their homes. Instead, it brought out-of-court foreclosures to a halt. Faced with new requirements and costs, lenders simply stopped filing new foreclosures, the Oregonian reported.”

“By November of this year, preliminary reports showed the number of court foreclosure filings had more than tripled, to 882 in a month. By comparison, more than 22,000 Oregon homes had a foreclosure notice in the out-of-court system in all of 2011, according to Realty­Trac. ‘We still think this is just a fraction of what will be pending out there,’ said Doug Bray, trial court administrator in Multnomah County Circuit Court.”

“Maine home sales increased more than 20 percent in November, the second month the state’s residential real estate market has experienced double-digit growth. The demographics in Washington County are such that 80 percent of Billy Milliken’s clients are people buying second homes, so it’s a market driven by discretionary income. ‘In the economy we have been in that did not exist,’ the owner of Jonesport Realty, told the Bangor Daily News. ‘So much of our real estate sales are contingent on what’s happening in the rest of the world. We’re not building factories, fisheries are closed to new participants … we’re not pulling a lot of working families into Washington County.’”

“‘I have clients that have been looking for houses for six months because there’s so much demand right now in Phoenix,’ said Bradley Manhoff, Autobahn Mortgage LLC. Meanwhile, the Federal Reserve keeping interest rates artificially low benefits perspective home buyers. ‘Rates are so low people can afford a lot more than they would have been able to afford before,’ said Manhoff. ‘When you can get interest rates in the low 3s on a 30 year fixed, people say that’s almost free money.’”

“Australian mortgage holders have escaped more than $21 billion in extra interest payments this year, according to new Treasury data obtained by Fairfax Media. Since the Reserve Bank started cutting the cash rate over the past 12 months to crisis lows of 3 per cent, new figures show that, in NSW, home owners avoided paying $6.4 billion over the year compared with the two previous years.”

“But the record low interest rates have not benefited all Australians. Self-funded retirees and pensioners who rely on interest payments from savings accounts were the worst hit, the latest rate cut of 0.25 percentage points eating into their incomes. A seniors lobby group, National Seniors, said that the more than 1 million people who rely on savings and term deposits as income could be losing an amount equivalent to 25 per cent of a person’s wages following the series of rate cuts since November last year.”

“The Treasurer, Wayne Swan, who was last week forced to abandon his vow to deliver a surplus next year, was unrepentant, saying his economic settings were helping ‘working families.’”

“At the recent Beijing International Property Expo, Wang Jing’s eyes widened. The island country of Cyprus, which had a booth at the expo, offered a list of properties at steep discounts. She didn’t know much about Cyprus, but that wasn’t important. Wang read about a beachfront apartment on the Mediterranean island. The price was 350,000 euros ($463,000), which is cheaper than many three-bedroom apartments in Haidian district. ‘I am considering purchasing one. If my son cannot enroll in the best primary school in Beijing, I can still send him to study at the top universities in Europe 10 years later,’ the 33-year-old graphic designer said.”

“According to a survey by SouFun International, a real estate platform in China, the United States, Canada and Australia are the priority targets for Chinese overseas property investments. Huang Shucheng, CEO of a real estate website based in Shanghai, said around 40 percent of Chinese investors in the British market are aiming for high returns on their investments. ‘Since last year, when many cities (in China) limited the number of homes one could purchase, many Chinese people went abroad to buy a house. My business in the British market has grown by about 30 percent since 2011, and purchases in Canada have increased even more,’ said.”

“With anti-corruption investigations on the horizon, so many panic-stricken regime officials in China are hurrying to get rid of secret investments that some analysts believe property values in Beijing and Shanghai will drop. The China Times and Oriental Morning Post both reported that officials were rushing to dump property in Jiangsu and Guangdong provinces at fire sale prices this week.”

“A manager of a financial consulting firm in Jiangsu said that about two months ago he began receiving phone calls from a series of heavyweight customers, according to the China Times. ‘All of them were public servants, and strangely enough, every single one of them urgently wanted to sell off some properties,’ he said.”

“‘These four houses must be sold as soon as possible. Don’t sell them any cheaper than two million yuan each,’ one Jiangsu official was overheard saying on the phone in public. According to South China Morning Post, ‘Property agents have reported receiving mass-produced text messages, for example: ‘Eight sets of hard-to-find flats, owner selling all at once.’”

“The rate at which lenders have been doling out foreclosures and other distressed properties has made sense and has had a lot to do — perhaps more than other single component — with rising home prices in many areas. The flow of foreclosures to the market coupled with the managing of the absorption rate is the residential real estate story of the year for 2012.”

“Why? Had the infamous ’shadow inventory’ of distressed homes been dumped on the market all at once, many neighborhoods would still be reeling — not only from a poorly maintained inventory of homes, but also from a larger number of sellers-in-waiting who are current on their loans yet wanting to sell for a figure higher than their purchase price.”

“Two major incidents have analysts scrutinizing the flow of foreclosures to the market more than ever: The detrimental effects of a possible ‘fiscal cliff’ and the upward revision of shadow inventory by a California research firm specializing in distressed properties. Some analysts believe that if lawmakers take a restrained approach — extending the residential mortgage interest deduction and most tax cuts — the impact on housing would be positive. However, other observers believe if lawmakers charge hard and push everything over the edge at the same time — including the once-untouchable mortgage interest deduction — the economy could falter and the housing market could suffer.”

“That would mean more foreclosures, additional shadow inventory and more would-be sellers waiting for things to calm down. Some might not want to wait — again. The last thing we need is another set of sellers tossing house keys to their lender.”

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