April 26, 2013

The Not Yet Corrected Part Of The Pricing Model

It’s Friday desk clearing time for this blogger. “No one has to tell Stacy Brannan and Adam Smith that central Ohio’s housing market is hot. In the past two weeks, the couple missed out on three Clintonville-area homes despite touring the homes almost immediately after they came on the market and, in one case, offering full price. ‘The housing market has been picking up, but we didn’t expect it to be this insanity, where we didn’t even have a fair chance to get anything,’ said Brannan, who is planning a June wedding to her fiance, Smith. ‘It’s hard to not get discouraged.’”

“Bidding wars, same-day sales and offers above the asking price — unheard of a few years ago — can now be found in pockets throughout central Ohio where buyers outnumber sellers. Doug Turlo, an agent with in Gahanna, found out firsthand how alive the market is when he listed a two-bedroom, 1,100-square-foot home in Grandview Heights earlier this month. By noon, within three hours of listing the home, he had scheduled seven showings, and by 3 p.m., he was in contract for slightly more than the $229,900 asking price.”

“‘That’s the single-hottest market in central Ohio,’ Turlo said. ‘As soon as anything comes available, it’s a race to get there.’ The buyer of that house started writing the offer with his agent, Lauren Swieterman, before even leaving the house. ‘I tend not to be pushy, but at the end of the day, I want my buyer to be happy, so I say, ‘If you want this house, you’ve got to move,’ said Swieterman. ‘It’s crazy.’”

“South Florida’s housing market is on a tear, and that’s reducing many first-time buyers to tears. Increased demand from investors and a shortage of homes for sale have left many first-timers struggling to find a place. ‘The first purchase by far is the most overwhelming,’ said Ken H. Johnson, a real estate professor at Florida International University. ‘It’s a daunting process anyway, but now they’re coming into the market at a time when they have to be competitive with a lot of savvy buyers paying cash.’”

“Aside from the overheated market, first-time buyers face strict lending standards that make it difficult to qualify for mortgages. Agents and analysts strongly recommend that buyers meet with lenders before they begin looking so they know exactly how much house they can afford. ‘Our biggest hurdle is getting buyers to buy into that,’ said Chip Rowand, an agent in Broward County.”

“Getting preapproved for a specific mortgage amount allows buyers to act quickly once they do find homes. Well-prepared buyers may be able to win over sellers by agreeing to pay more than investors, who typically look for discounts, Johnson said.”

“Economist Edward Deak, Connecticut Forecast Manager for the New England Economic Partnership, said that the Connecticut market is on pace to expand throughout the rest of the year. One of the main issues confronting the Connecticut and even parts of the national market is income growth among families. Simply put, if housing prices continue to increase while income stagnates and the job market remains muted, fewer people will be able to buy homes.”

“He said he expects the state median price to climb into the range of $250,000 to $255,000. But to get there, lenders will have to loosen their standards, he said, like they have in other areas of the country.”

“Looking for signs of a housing bubble? Check this out: Vienna-based Navy Federal Credit Union is marketing 100 percent financing, no-money-down mortgages. ‘This product is phenomenal for homebuyers,’ said Katie Miller, VP of mortgage products, adding that it was geared toward creditworthy ‘first-time buyers who don’t happen to have $40,000 in cash sitting around.’”

“Housing starts are now inching up. Mortgages are easier to obtain. Even the ‘piggyback loan’ has returned. And time to lock up friends and relatives with short memories. While we’re at it, let’s lock up the government and its compulsion to push homeownership.”

“Last year, the liberal-leaning Urban Institute came out with a truly awful plan to help struggling young people buy a home. It would expand the federal government’s Housing Choice voucher program to include homebuyers. Housing Choice now gives low-income people vouchers to help them pay rent. It’s a good program. But handing out vouchers to buy homes?”

“‘In many ways,’ its report says, ‘this represents the worst of all worlds for these families: a ‘buy high, sell low, but don’t buy low’ prescription …’ But if you can now buy low, and still can’t afford a home, perhaps you should be renting. In good times and bad, the soundest investment advice must be heard over the bullhorns of the American Dream marketing machine. ‘They’re not making land anymore,’ the promoters still say. Well, they weren’t making land in 2008.”

“Blithely ignoring the lessons of the housing bubble, Obama has rehired many of the Clinton hands who inflated it in the first place, pursuing the same misguided policies that try to force people into homes they can’t afford in the name of ‘fairness.’ There are ‘affordable housing’ mandates aimed at getting Fannie and Freddie to take on even higher-risk borrowers. Through the Federal Housing Administration, houses are being offered to some low-income subprime buyers with minimal down payment and heavy subsidies.”

“The administration also is making it easier to sue a bank for not giving a loan, using a legal strategy called ‘disparate impact.’ Officials don’t have to prove that the bank is being racist in its actions. ‘It’s particularly galling that the people who are using the crisis to extend regulation are the same ones who sponsored the government policies that created the crisis,’ said Peter Wallison, former member of the Financial Crisis Inquiry Commission, a government group created to look into the causes of the 2008 crash.”

“The original cast of the financial disaster are back starring in a bad sequel. So here we go again. Thanks to a failure of accountability, the same social engineers who caused the crisis have wormed their way back into power. And they’re doubling down on their monstrous mistakes, inviting another housing calamity.”

“The Federal Reserve is continuing a loose monetary policy that is very similar to the one that got our nation into the housing bubble of 2005 to 2008. The reality is that neither fiscal nor monetary policy is effective any longer in dealing with the systemic structural issues in the Western world’s economies. The Federal Reserve’s policies are borderline negligent and irresponsible. It is creating the next bubble, which will make the bursting of the housing bubble look tame.”

“The value of allowing an economy to correct for excesses is that it encourages people not to engage in that behavior again. When irresponsible behavior is rewarded by irresponsible actions on the part of the Federal Reserve, the stage is set for the next economic calamity. As with the housing market, all of those who benefited on the way up will be seeking additional federal bailouts. This time, however, the sole responsibility for the disaster will belong in Washington.”

“Nevada’s construction defect law is being challenged by builders and the construction industry at the Nevada Legislature. Chapter 40 gives lawyers representing homeowners almost automatic payment for attorney’s fees and expert-witness costs from developers in settlements and decisions against developers.”

“‘The reality is we have too many homes in Nevada, and until that surplus is worked off, homebuilders are not going to come back,’ said state Sen. Tick Segerblom, D-Las Vegas. ‘But it will come back. The same laws were on the books in 2005, 2006, 2004, and homes were being built like hotcakes. So why is it now that the law prevents them from being built?’”

“Some neighborhoods are still feeling the aftershocks of the housing bubble bursting. According to a Newport News reassessment report, some neighborhoods — especially condominiums or townhomes — were again hit with double-digit decreases in property value. Warwick Townhomes in Denbigh, which suffered a loss of 22.55 percent for the 2013 re-assessment. Single-family home neighborhoods that suffered double-digit declines included Beaconsdale Deer Park, and Peach Orchard.”

“Foreclosures continued to be the story for financially distressed neighborhoods, city officials said. ‘We didn’t have one (non-foreclosure) sale in Warwick Townhomes,’ said Earl Scott, a city assessor.”

“Earl Wynings, appraisal supervisor for the Newport News assessor’s office, said often a neighborhood will avoid steep declines for years, then suddenly experience a substantial downswing. Wynings said he believes Hilton Village has fallen more sharply because prices in the village rose quickly during the boom years of the mid-2000s. ‘I remember those homes going up mighty fast,’ Wynings said. ‘People were buying 1,200-square-foot homes that were built in 1918 for $200,000.’”

“Marin foreclosures declined by nearly 56 percent year-to-year in the first quarter of 2013, and far fewer homeowners in the county entered the foreclosure process, according to DataQuick. ‘It appears last quarter’s drop was especially sharp because of a package of new state foreclosure laws — the ‘Homeowner Bill of Rights’ — that took effect January 1,’ said John Walsh, DataQuick president.”

“But Robert Bradley, CEO of Bradley Real Estate in San Rafael, said, ‘I believe there remains a significant number of homeowners that are underwater that have been making their mortgage payments. Many of them are going through their retirement funds and other savings to make payments. I have been encouraging these homeowners to think of a short sale as a sound financial planning and business decision.’”

“The city was a tale of two crises Thursday. On one end of Broad Street, the sing-song voice of an auctioneer echoed through Newark Symphony Hall as about 100 hopeful investors bid on 79 foreclosed properties at bargain-basement prices. Down the street, at City Hall, local leaders and community advocates spoke in somber tones, debating a way out of a foreclosure crisis that continues to ravage city coffers and the pocketbooks of its residents.”

“‘It’s as if my life, security for my family, a roof over our heads is a game to them,’ Newark resident Grace Alexander said, referring to Bank of America, whom she said would not modify her mortgage when she fell behind on payments. ‘Our impending homelessness is not a game to us.’”

“A report published by the real estate industry in the Netherlands states that the average home price is now 18% lower than it was at the peak in 2008, while detached homes lost 20%-25%. A separate, earlier, report estimated that 20% of homes, or over 1 million, are now underwater. Today’s report comes hot on the heels of a study issued Wednesday by a government commission, which took a full year to prepare and 121 pages to explain what went wrong in the Dutch housing bubble, and what should be done now to correct it.”

“The core problem is simple: from 1995 to 2008 home prices more than tripled (rose 200%+). Hence, if we round off to a 20% drop from peak levels, or 60% from 1995 levels when prices were a third of what they were in 2008, there’s still an increase of about 150% from the starting levels that needs to be dealt with. We can discount for, and let’s be generous, perhaps 50% for overall price inflation, but that still leaves us with a 100% increase, which is quite a bit more than the 60% absorbed so far.”

“You see the problem by now, of course: like many other nations, the Dutch today feel quite strongly that they have suffered enough already, and someone somehow needs to revive the housing market. But like everyone else, the Dutch wish to wish away the problem of the not yet corrected part of the pricing model. In their case, they want 200% (1995+100%) to be the new normal (a.k.a. the new black).”

“Not surprisingly, the government report says that A) all parties are to blame, and B) the government needs to get more involved, i.e. make sure loans become available for people who now can’t get them, a.k.a. people who are not the most likely prime candidates to buy a home that’s still some 33% overvalued. Though, admittedly, sucking in those last remaining suckers would prop up moribund builders, agents and lenders for a while longer. Whether that’s a government’s task is at the very least highly questionable (obviously, other countries, including the US, work on similar resuscitation efforts).”

“Throughout the western world it’s been an active collaboration of the governments and the banks and the real estate industry and the builders. It’s a very simple story really: this is a widespread tale of western societies transforming themselves into pyramid schemes; or perhaps we should say one big global Ponzi scheme. And these Ponzi things collapse, and there’s nothing anyone can do to ‘fix’ that: the poisoned chalice must and will be emptied to the last drop. Only, the politicians - legally - have their hands in everyone’s pocket, so they can throw around trillions of dollars and euros to hide the process of the plunging system for as long as it lasts. That’s where we’re at right now.”

“And it’s not that all of these folks have evil minds; the intelligence level of politicians in the Netherlands approaches zero as much as it does in other western countries. The issue is that the entire system has blinders on. They can think in only one dimension, and that one-dimensional thinking can in the end lead to one end only: complete and utter disaster. It’s everything on red every time and every day, and that’s not how the world works. Every time black comes up is, for these people, nothing but another reason to put it all on red again next time. A surefire recipe for mayhem. But it’s all they have ever learned.”

Weekend Topic Suggestions

Please post topic ideas here!

Bits Bucket for April 26, 2013

Post off-topic ideas, links, and Craigslist finds here.