August 2, 2013

The Ugly Face Of Greed Will Drive Prices Down

It’s Friday desk clearing time for this blogger. “Glendale home prices shot up 31 percent in the last year, according to a report from Arizona State University. Surrounding areas, such as Youngtown and El Mirage, also have seen large jumps. Two things are happening: Demand for homes is increasing as prospective homebuyers’ personal finances recover from the recession and homes are in short supply as builders significantly slowed new-home construction during the recession, said Michael Orr, director of the ASU real-estate center. ‘We’re only in the second inning of this recovery,’ Orr said. ‘People are going to be terribly surprised by how far prices rise over the next two years.’”

“It’s popular to suggest another housing bubble is forming, but Orr said he doesn’t see that. Instead, he said homes are gaining value as the market continues to recover, and prices reflect that. ‘Houses are still relatively cheap,’ he said. ‘Affordability will start to become a problem at some stage.’”

“Just 44% of Golden State residents were able to afford the median-priced home at the end of the first quarter, according to the California Assn. of Realtors. That compares with 56% during the same period last year. The percentage is expected to decline further when second-quarter data is published next month, reflecting sharp increases in home prices and interest rates. Sonika Desai, 30, and her husband,could have afforded a home priced around $500,000 when interest rates were hovering at about 3.5%, she said.”

“But they did not start searching for a home until April. When they did, the house hunt was maddening. When they did come across the rare home listed in their price range, bidding wars often pushed up prices to as much as $600,000, Desai said. ‘We had to back off,’ she said.”

“Today’s Inky report that ‘house flipping has come to Philadelphia’ seems especially absurd. After all, the nation is just barely recovering from a deep recession caused by the popping of the housing bubble, so why not enjoy a little bit of the same behavior that nearly ruined the economy in the first place? Inky reports: ‘[The] sweet spot seems to be in the $250,000 to $400,000 range,’ said broker Chris Somers of Re/Max Access in Northern Liberties. He had a settlement Thursday for a client who flipped a house in Passyunk Square, and ‘we got it sold in one day,’ he said.”

“But, you know, at least flippers are driving up housing prices artificially so that people who simply want to buy a home have a harder time of it. That’s awesome, right?”

“According to the Washington County Board of Realtors’ MLS, the average home price in the county so far this year is $226,396, an increase of 17 percent. Bob Raybould, a realtor with Vista Real Estate, warned against the ills of a bettering market. ‘The increase of homes being built puts a lot of people back to work but at the same time it raises the ugly face of greed in many,’ Raybould explained. ‘That greed will create an excess of inventory in the market and drive the prices back down. (I am) not certain why we in this industry don’t learn from history.’”

“A sale of federally owned land in the Las Vegas area is signaling a positive turn for the region’s beleaguered housing market and economy that collapsed amid the Great Recession. Karla Norris, BLM assistant district manager who oversees the act under which the land auctions are authorized, said the sale prices equate to $181,000 per acre. Over the last few years the going rates were between $5,000 and $25,000.”

“Seven parcels encompassing 109 acres were sold Tuesday. During the prior three years combined, only about 30 acres were sold. The BLM plans another land sale in the fall, when about 400 acres will be auctioned.”

“The foreclosure market, in its heyday in 2009, accounted for between 40 and 60 percent of home sales, according to Patrik Welty of Legacy Realty in Fenton. ‘We went from a low in 2009 of $123,000 to an average selling price today of $165,000,’ says Welty. In the larger market area encompassed by the Flint Area Association of Realtors, there are 2,320 homes for sale. ‘Typically, there would be about 4,500-4,800,’ said Sue Shangle, incoming president of FAAR. ‘Banks aren’t putting out foreclosures like they were a year ago. Now they’re trickling out.’”

“Statewide, California lenders filed more than 25,700 notices of default from April to June this year, according to the research firm DataQuick. That was up 38.7 percent from the previous quarter. Sam Heller with Keller Williams VIP Properties said the banks still have property to sell off because they lack the manpower to properly complete all the paperwork. ‘Many banks realized that they had created a huge overhead for themselves when they hired loan modification and foreclosure-processing personnel,’ Heller said. ‘They later got rid of many employees to improve the banks’ financial positions.’”

“Heller also believes that some of the foreclosures coming to market involve homeowners who received loan modifications during the recession. But in the end, the savings weren’t large enough to help them keep their homes — and now they’re in trouble again, he said. ‘They jumped from the frying pan into the fire,’ Heller said. ‘Many homeowners can no longer hang on by the tips of their fingers and will start letting go of their homes as winter arrives.’”

“You thought the mortgage crisis was over, Rhode Island? Um, no. The latest numbers, obtained by GoLocalProv from the state housing agency, show new foreclosures actually ticking up slightly in the first three months of 2013, the latest data available, adding to the pipeline of foreclosure to come. Meanwhile, the number of mortgage delinquencies—the prelude to foreclosure—is projected to rise for the rest of the year before finally dropping off. ‘The battle has just begun,’ says George Babcock, a leading foreclosure attorney based in Pawtucket. ‘What happens here on a daily basis…the mortgage nightmare is incomprehensible to me.’”

“Danette Briggs, a 42-year-old single mother of five never wanted the massive (to her) $244,000 mortgage in the first place—not after she saw around the time of the closing that the monthly payments would come to more than $1,800 a month, a huge portion of the salary she draws. But, she says, a loan officer warned her that the sellers would ’sue you if you back out of this.’ Briggs learned only later that there was no legal basis for such a threat.”

“The payments stretched her income to the point that she had wait to pay until after the second of her semi-monthly checks arrived, forcing her to factor in a $76 late fee every month. When the water tank broke and the sewer backed up, there was no margin for error. Within a few months of buying the home in 2006 she fell behind. She has already been through four attempts at loan modification, before one was successful in cutting her loan payments by slightly more than half, while stretching her mortgage out to 40 years. Still, she’s deeply underwater. ‘I didn’t realize it was going to be this difficult,’ she says. ‘It’s been a struggle. God has carried me all these years with this house, and I’m not going to lose it. I’m a fighter.’”

“The UK media seem obsessed with the idea that rising house prices is a good thing. If we get the slightest hint that house prices are set to rise, certain newspapers splash it all over their front cover. But why is it really seen as a good thing when house prices rise? Here is a theory – just a theory – as to why the Brits so love the idea of house prices as an investment.”

“The Brits have bought into a story. It was a story that had its roots in the 1960s and 1970s. At the beginning of this period, house prices to income were quite cheap. Over the following two decades four things happened. Firstly, as mortgages became more widely available, house prices to income rose. Secondly, as productivity grew, real wages rose. Thirdly, inflation meant nominal incomes rose very sharply. Fourthly, for much of this period, real interest rates were negative. These four factors, when combined with the magic of leverage, made buying a house an incredibly lucrative thing to do.”

“During this period the idea was born that when you enter the housing market the best thing to do was buy the most expensive property you could. This period also saw the birth of a new metaphor, ‘the housing ladder.’ The story that emerged during this period is so strong that people still think its lesson applies today.”

“But is that right? House prices are no longer cheap relative to incomes. Real incomes have not been rising for some time. Nominal wages have been rising only very slowly. Sure, real interest rates are negative again. But what will happen when the baby boomers retire, and many of them try to downsize, using the spare equity in their homes? What will happen if real interest rates rise, because of actions beyond the control of the Bank of England?”

“The narrative of the UK housing market suggests that house prices always go up. But many of the facts that created that narrative have changed. When pieces of the narrative are changed at a later date, the overall initial impression is unaltered. The narrative changes us, and retrospective changes to the narrative don’t reverse the original effect it had on us. Until, that is, the narrative is proven to be wrong beyond any doubt. By then, it may be too late to do anything about it.”

“The U.S. homeownership rate, which soared to a record high 69.2 percent in 2004, is back where it was two decades ago, before the housing bubble inflated, busted and ripped more than 7 million Americans from their homes. Housing industry and consumer groups are pressing lawmakers to make the American Dream more inclusive by ensuring new mortgage standards designed to prevent another crash are flexible enough that more families can benefit from the recovery. Regulators are close to proposing a softened version of a rule requiring banks to keep a stake in risky mortgages they securitize, according to five people familiar with the discussions.”

“Lawmakers currently shaping housing finance are seeking to reduce the government’s role in keeping rates affordable for riskier borrowers while ensuring homeownership is within reach of minorities and first-time buyers who could be needed to sustain the housing recovery as borrowing costs rise from record lows. Who will be able to buy property depends on the balance they reach, according to Anthony Sanders, a professor of real estate finance at George Mason University in Fairfax Virginia.”

“‘Low down-payment loans coupled with exotic adjustable rate mortgages helped fuel a massive housing bubble, which ultimately burst and took down the financial sector,’ said Sanders, who was the former head of mortgage-bond research at Deutsche Bank AG. ‘So the question now is do we want to do this again?’”

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