March 22, 2013

The Same Road That Got Us Here In The First Place

It’s Friday desk clearing time for this blogger. “Bursting bubbles can inflict large-scale harm on the economy. The Federal Reserve, which is charged with helping the economy, would want to stop, if possible, something like that from happening. Federal Reserve Board chairman Ben Bernanke suggested Wednesday that the central bank may be more aggressive in its approach to the next bubble, or at least consider using a different set of tools. Bernanke still feels the first line of defense against bubbles is made up of the traditional financial-stability-promoting toolbox.”

“He described Wednesday a ‘tripartite’ approach: first, sophisticated monitoring; second, supervision and regulation; and third, communication to influence the way financial markets respond to monetary policy. Those are ’some first lines of defense, which I think should be used first,’ he said—before considering monetary policy. Still, he said, ‘I have an open mind on this question. We’re learning–all central bankers are learning.’”

“During the height of the housing boom, some likened the feverish flipping game in Miami’s condominium market to a circus. The circus is back, and more high-flying than ever. At a recent party to launch a new project, acrobats swung over the crowd, and in gravity-defying flourish, poured champagne into the glasses of wide-eyed investors. ‘I believe in the future,’ said Argentinean Antonio Aguirre at the party. ‘The prices are going to come up faster, so today is a great time to buy.’”

“As the spring selling season gets underway, central New Jersey’s housing market, on life support not long ago, is running into a new problem few could predict: It doesn’t have enough inventory. Colleen Ferguson made an offer last Wednesday on a ranch-style home in Jackson that was listed for $100,000 and, with water in the basement and the upstairs gutted, sounded like a mess. Yet Ferguson, sitting in the office of her real estate agent, was worried that someone would swoop in at the last minute and outbid her.”

“‘I feel like I can’t go wrong with it,’ Ferguson said.”

“The housing market in Nevada County is showing clear signs of recovery, according to local experts. ‘The Bay Area is totally a seller’s market with multiple offers and selling well over the list price,’ said veteran Realtor Cheryl Rellstab of Grass Valley. Thus, ‘the Bay Area tends to drive our market up. When people change their mindset from, ‘The market is bad and it is risky to buy,’ to, ‘I better hurry up or I will have to pay more for less,’ they tend to jump in,’ Rellstab said.”

“Mike Perez, Dickson Realty broker and salesman said even though Nevada foreclosures have gone up 334 percent, it could help the low inventory and high demand for houses. ‘One thing that buyers struggle with is facing the fact that home prices are still at all time lows,’ he said. ‘So even if you’re submitting an offer above asking price for example, you’re still getting a great value in today’s market.’”

“Cary and Denise Strutton fear that at this rate, they’re going to be priced out, but they are still hopefully in finding their last home. ‘When you find a house that’s available you have to move on it, move on it now or else you will lose it,’ Cary Strutton said.”

“More than 56,000 homes in Palm Beach and Broward counties make up a so-called shadow inventory – properties in some stage of foreclosure that have yet to hit the market, according to RealtyTrac. That’s an increase of 55 percent from a year ago and offers hope to prospective buyers frustrated by a persistent shortage of homes for sale. Local Realtor boards say listings have dropped by about half from last year at this time. ‘Every day, I look to see what homes come on the market, but I haven’t found one I like,’ said Ryan Bivens, a Broward resident. ‘The good ones get contracts within a day. I want to be in something as soon as possible.’”

“Ken H. Johnson, a professor at Florida International University’s Hollo School of Real Estate, doesn’t expect the shadow inventory to hurt prices because so many buyers are clamoring for properties. He also said investment firms gradually will lose interest in the housing market as discounts diminish. ‘The banks aren’t going to give their homes away,’ he said.”

“As Vancouver’s condo market plummets, former prime minister Kim Campbell is suing a developer in an effort to get out of her pre-sale contract for a $1.8-million downtown condo. In an interview with The Province, lawyer Bryan Baynham said Campbell is one of 13 purchasers who he is representing in cases against the developer. ‘Nobody would get out of any real-estate transaction if the value of the unit, albeit delivered late, is more than the purchase price,’ Baynham said. ‘The perception of my clients, and I don’t know if it’s true or not, is that they can’t sell these units for what they purchased them for, and therefore they want their money back.’”

“The developer’s lawyer, Ken McEwan, said there was no late completion, no failure of disclosure, and Campbell and others have ’simply overlooked’ terms in the original contract. ‘People are perfectly happy in 2007 to sign a contract in the belief that the market will keep going up and they will make money,’ McEwan said.”

“Representatives from Denmark’s mortgage industry are meeting with the government today in the hope of easing repayment terms on interest-only loans that threaten to unleash a wave of foreclosures this year. Borrowers are struggling as a deepening property slump drives house prices down to 2005 levels. ‘Eighty percent of homeowners under 35 years of age are under water. That’s a lot,’ said Curt Liliegreen, head of the Center for Housing Economics in Copenhagen.”

“The number of people outside the workforce rose to its highest last quarter since at least 1996, as record numbers stopped looking for work, Jan Stoerup Nielsen, senior analyst at Nordea Bank AB said Feb. 13. The economy lost as many as 8,000 jobs last year, according to Danske Bank. The Danish central bank raised its benchmark interest rates in January. Even after that increase, the bank’s deposit rate remains below zero at minus 0.1 percent. The lending rate is 0.3 percent.”

“Irish bankers preparing for the biggest wave of foreclosures in the nation’s history are struggling with how to dispose of the homes as the central bank pressures them to go after owners of investment properties. ‘Banks are going to have to recruit people with property management and asset management skills as they are going to have to accept the reality of holding repossessed buy-to-lets for some time,’ said Jeremy Masding, CEO of Dublin-based Permanent TSB Group Plc, the largest mortgage lender during the boom. ‘One of their key skills will be offloading repossessed properties without undermining the market.’”

“If you’ve ever had any doubts as to what politicians believe is Britain’s top economic priority, yesterday’s Budget made it very clear. It’s house prices. Ever since the crisis began, government and Bank of England policy have been directed primarily at propping up house prices. Never mind that the housing bubble was a key part of the problem in the first place. Never mind that price falls would be the most effective way to get all these first-time buyers they keep pretending to care about, on to the property ladder.”

“In short, the government is trying to bring back the 95% loan-to-value mortgage. And it’s putting your money and mine at risk in doing so. As trade magazine Money Marketing points out, banks have to hold ‘around eight times more capital at loans over 90% LTV than for loans under 60%.’ So for this to be attractive, those rules have to be relaxed. Which seems to be going down the same road that got us here in the first place.”

“The big banks in Canada listen to no one. They have no intention of sacrificing excess profits just because it threatens tens of thousands of home owners and the Canadian economy. Why would the banks listen to any word of caution when the CMHC guarantees virtually every mortgage they sell and eliminates the risk that most people imagine lenders assume?”

“The problem is that housing is still the only source of real growth in the economy. According to the Conference Board of Canada, the resource sector (energy, forestry, mining, agriculture) accounted for a mere 7% of GDP in 2012 while housing (finance, real estate, construction) accounted for 27%. If the housing market goes south, just what sector does Marc Carney think is going to replace it as a growth driver?”

“Did Americans learn anything about reckless borrowing? CNBC reports a $7.2 billion (19 percent) surge in new equity lines of credit in the past year. While the AP reports the foreclosure rate has hit new lows in Arizona, Zillow says 45.5 percent of homeowners in the Phoenix area, for example, in the third quarter of 2012 had mortgages with negative equity.”

“Notwithstanding the copious grandstanding by politicians and government bureaucrats, nothing fundamental has changed since the bubble burst. And almost every new mortgage continues to come with the implied backing of taxpayers because the Obama administration actually has expanded the role of Fannie and Freddie in housing finance, even as they are stuck with more than $5 trillion in essentially worthless mortgage-backed securities.”

“So, almost every new dollar borrowed really represents a new risk for American taxpayers. Nothing has changed, only shifted.”

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