January 11, 2013

As The Euphoria Is Replaced By Fear

It’s Friday desk clearing time for this blogger. “By all accounts the Phoenix housing market is showing signs of stability and recovery as the value of a typical single-family home continues to rise. While investors are playing a role in Phoenix’s housing recovery, Mike Orr, Center for Real Estate Theory and Practice at the W.P. Carey School of Business director points out over the last few years that trend has slowed. ‘Ultimately these investors are not so much a player in the markets as you are talking about,’ he said. ‘The rental rates don’t vary much as property prices do … the landlord is not making money out of it.’”

“When asked if the investor-fuelled housing recovery could be one that could again topple on itself, Mr. Orr replied, ‘No, I think that is a completely fake myth.’”

“With popular property markets like Vancouver and Toronto showing significant signs of softening, Asian investors seem to be shifting their focus south of the border, according to Canadians who specialize in marketing bargain-basement Florida houses and condos to snowbirds. ‘Some of our clients got beat out recently because they were waiting to book flights. Some Chinese investors bought up 35 (townhouse-condo) units without even flying in first,’ says Wayne Levy of Toronto-based Florida Home Finders. ‘They looked at a picture. They wrote cheques.’”

“The Bay Area’s housing market is playing host to a growing numbers of foreigners — many from China — who are looking for a future home, a good investment or a safe place to park their money. Wei Luo, an electrical engineer-turned-contractor and real estate investor, said he has helped at least 10 friends from China buy about 15 homes and condominiums in the Bay Area starting in 2009, and they’re clamoring for more.”

“‘All my friends, they say this price is so low,’ said Luo. ‘Some of my college classmates went back to China, started a business and now they come back and invest. Some buy and just leave it. They don’t even want to rent them out.’”

“Their appetite for Bay Area real estate rises from a mixture of politics and a growing global market in real estate, according to professionals. China’s housing prices appear to have peaked, encouraging some people to sell and look for other investments. There’s widespread political unease as a new government is formed.”

“I tell all my friends, ‘You got money? Buy, buy, buy,’ Luo said.”

“It was a bargain China’s zealous real estate buyers couldn’t refuse: at the East Asia Impressions Lake compound in suburban Beijing, apartments were selling for just 13,000 yuan ($2,086; £1,282) per square metre. Three hundred apartments in the compound went on sale at 0900 on a Saturday morning in late November. Within three hours, all of them were sold. China’s sizzling urban housing sector has been a fact of life since the country’s private real estate sector opened in 2000 and it is not uncommon to hear of whole apartment towers selling just as quickly. But a large chunk of Chinese society has been left out of the buying frenzy.”

“Duan Libin moved to Beijing from her native Yunnan province for university and decided to stay after meeting the man who would become her husband. She is desperate to move into her own home. The couple are expecting a child and would love to move before their baby arrives in April. However, their combined monthly income of 8,000 yuan means they could never afford to purchase even a modest apartment like the ones at East Asia Impression Lake. ‘Every day I work so hard, and then I have to return to a small space after standing on the crowded train for a long time,’ Duan says.”

“The expectant mother jokes that she would be an old lady before she could ever afford a home of her own in Beijing without government help. So why not rent forever then? Owning a home brings a sense of stability, she says, that can’t be found elsewhere. ‘If I buy an apartment, I have a home of my own. Every day when I get off work, and I see the light from my own house, I will see hope.’”

“Fewer people are achieving the great Australian dream of home ownership despite a big jump in the number of people signing up for mortgages in the past decade. The number of homes owned outright dropped in every state between 2001 and 2011, a News Limited analysis of Australian Bureau of Statistics data has found. However, mortgage numbers surged almost 45 per cent nationally in that period, from 1.87 million to 2.71 million.”

“‘The old model of buying the first home at 25 and paying off the mortgage at 50 has been eroded,” said social analyst David Chalke. ‘The group who traditionally would have paid off their home are those aged 50-plus. In 2000 18 per cent of that cohort had a mortgage - it’s nearly doubled to 30 per cent today. The majority of them never plan to stop work entirely, and they have been upgrading.”’

“Mr Chalke said the great Australian dream was still alive, with home ownership ranking second only to a happy family as our biggest sign of personal success. ‘It hasn’t shifted over the 20 years we have been measuring it, but the reality is increasingly that’s less likely to happen,’ he said.”

“Foreclosures declined slightly in Wisconsin in 2012. And there are still many foreclosures in the state that have been languishing for at least a few years. Russell Kashian, a Professor of Economics at University of Wisconsin-Whitewater, says many of the foreclosures that are working their way through the system right now in the state are actually cases of delayed foreclosures or what he calls ‘reforeclosures.’ He says the typical foreclosure can take 18 months to two years, however some foreclosures in the state have actually been lingering for up to five years.”

“‘We’ve found that about 35% percent of people who had foreclosures filed against them in 2012, were people who in 2010 or ‘11 had a foreclosure lawsuit filed against them,’ he says. ‘And for some in some fashion they were able to forestall the inevitable.’”

“Many details of the $8.5 billion mortgage foreclosure settlement that federal banking regulators announced Monday have not yet been finalized. Here are some answers for borrowers. Q: Who’s eligible for compensation? A: You’re eligible if your primary home was in some stage of foreclosure in 2009 or 2010 and your loan was handled by one of the participating servicers. Q: Must I prove that I was harmed? A: Probably not.”

“Q: What if I didn’t suffer a foreclosure abuse? A: You’ll still be paid. But it will may be a small amount. Q: What if I think I should get more than what I do? A: No appeals allowed. You still could sue the servicer.”

“Charles Wanless, a homeowner in the Florida Panhandle who is fighting foreclosure proceedings with Bank of America, says he doubts the money will benefit many who lost homes. ‘Let’s say they already foreclosed on me and I lost my home,’ said Wanless. ‘What’s $1,000 going to do to help me? If they took my house away wrongfully, is that going to get me my house back?’”

“Five years ago, Joseph Keller, 10 months behind on his mortgage payments, received notice of a foreclosure judgment from JP Morgan Chase. The 58-year-old former social worker and his wife packed up their home of 13 years and moved in with their daughter. Joseph thought he would never have anything to do with the house again. Then it started to stalk him. First, in 2010, the county sued Keller because the house, already picked clean by scavengers, was in a shambles, its hanging gutters and collapsed garage in violation of local housing code. Then the tax collector started sending Keller notices about mounting back taxes, sewer fees and bills for weed and waste removal. And last year, Chase’s debt collector began pressing Keller to pay his mortgage, which had swollen, with penalties and fees, from $62,100.27 to $84,194.69.”

“The worst news came last January, when the Social Security Administration rejected Keller’s application for disability benefits; the ‘asset’ on Avondale Avenue rendered him ineligible. Keller’s medical problems include advanced liver disease, hepatitis C and inactive tuberculosis. Without disability coverage, he can’t get the liver transplant he needs to stay alive. ‘I can’t make it end,’ says Keller. ‘This house, I can’t get out.’”

“Consider it a New Year’s resolution for Montrealers selling their homes at a time when the words ‘moderation’ and ‘reasonable’ are in vogue. Several real estate brokers say sellers now recognize they’ll have to lower prices that are no longer realistic. ‘Sellers are asking for prices based on a five-per-cent to seven-per-cent increase in value per annum over the past two to three years,’ observed Royal Lepage broker Ray Singh.”

“Singh and other Montreal real estate brokers are now seeing examples of houses being sold for $200,000, or even $500,000 below the original listing price. One suburban Montreal home listed for $2.4 million boasted a ‘fabulous solarium-style outdoor living room,’ O’Hara style staircase. But five months later, the Dollard des Ormeaux home sold for $1.85 million, or about 25 per cent below asking price. In another recent case, a four-bedroom Hampstead home initially listed for $1,095,000 ended up selling for $810,000.”

“It’s not just Vancouver where realtors’ BlackBerrys no longer buzz. In Toronto, the city’s once insatiable demand for living in 650 sq.-ft. glass boxes has evaporated overnight. A housing correction—or, possibly, a crash—is no longer coming. It’s here. With few exceptions, the impact will be indiscriminate as the euphoria of rising house prices is replaced by fear. The only question now is how bad things will get.”

“As people watch their net worth crumble—at least on paper—they are less likely to spend money on everything from new dishwashers to automobiles. ‘We talk about having a strong housing market because we have a strong economy,’ says Ben Rabidoux, an analyst at M Hanson Advisers. ‘But it’s also true that our economy is strong because we have a strong housing sector.’ He estimates that as much as 27 per cent of GDP can be linked to Canada’s housing market, a disproportionately large number compared to other countries, including the U.S. at its peak. ‘Take it away and that alone puts us into a recession, given where we are,’ Rabidoux says.”

“Bay Street is getting nervous. Avery Shenfeld, chief economist at the Canadian Imperial Bank of Commerce, recently warned Ottawa to ‘be careful what you wish for’ when it comes to winding down the housing market. He argued in a report that ‘a five per cent per year drop in housing prices, for example, would shed roughly a half-point off GDP growth through its wealth effect on consumer spending.’ He added: ‘That makes it even more urgent that the global economy is healthier come 2014, when the full bite of a housing slump on domestic activity will be felt.’”

“It all amounts to a dramatic reversal of fortune for Canadians, albeit one we brought on ourselves. Back in 2009, our hot housing market acted as a life preserver in a sea of economic uncertainty. Now it feels more like a cinder block tied around our necks.”

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