August 23, 2013

Higher Prices Are Bad News All The Way Around

It’s Friday desk clearing time for this blogger. “A five-bedroom house in Las Vegas sold in mid-July for $499,000, double the price it went for three months ago. In Phoenix, a similar house sold this month for $600,000, gaining $273,000 since March. Both properties were bought and resold by investors. In Las Vegas, more than half of properties with mortgages are underwater, according to Zillow, a real estate data firm. In Phoenix, the share is a third. Someone who got a $350,000 mortgage in Phoenix or Las Vegas in 2006 probably is now more than $150,000 underwater, despite the surge in prices.”

“Those stuck owners give builders the opportunity to gear up to meet demand — at a cost. The average price of an acre of land is $400,000 this month, says Dennis Smith, CEO of Home Builders Research in Las Vegas. The same parcel would have gone for $200,000 in December, he said. ‘They’re clearly in bubbles,’ said Karl Case, one of the creators of the S&P/Case-Shiller property-value index. ‘What can go up can go down — real quick.’”

“‘We’ve got declining home sales right now, which is a consequence of declining inventory,’ said Brett Ellis, head of The Ellis Team with Re/Max Realty Group in Fort Myers. One problem is that there aren’t enough homes available to fuel a faster sales pace, he said. ‘We’ve got many people who can afford to make home payments but they’re underwater on their houses. They can’t sell — they’re locked in.’”

“Major numbers of new homes aren’t under construction yet because the cost of building one is still much higher than buying an existing house, said Jeff Tumbarello, director of the Southwest Florida Real Estate Investors Association. Prices will have to rise even higher to stimulate more availability of existing homes, Tumbarello said. ‘The problem with inventory is that it’s more and more traditional sellers (as opposed to foreclosures or short sales). They’re not giving their houses away.’”

“Protesters took to a downtown Bank of America branch and Fannie Mae’s corporate offices in Chicago. Steve Babson, a volunteer organizer with the Detroit Eviction Defense, who traveled to Chicago, said that Detroit has seen at least 70,000 foreclosures since 2009, and more than half of those homes, roughly 45,000, are still vacant. According to the Woodstock Institute, as of 2012, nearly one in 10 residential buildings in Cook County were vacant, and roughly 75 percent of mortgages in the county were owned by Fannie Mae, Freddie Mac, and Federal Home Loan Banks.”

“Maria Calvillo said she was was evicted in June. The 55 year-old daycare owner said she was paying $1,855 for her mortgage payment before she sought a loan modification with Indymac Mortgage Services three years ago. Calvillo alleges the lawyers she hired to help her navigate the loan modification process took $2,000 from her, told her to stop making mortgage payments and ‘then disappeared.’ Cavillo was denied a loan modification and her house was foreclosed upon in November. Fannie Mae, said the Mexico-native who is now homeless and staying with friends and relatives. ‘I don’t understand how they can do this to me.’”

“A massive jump in property prices in Dublin has prompted fears of a new housing bubble developing in the capital. A shortage of family-type homes in Dublin means that people are being priced out of the market. Property experts report that up to 100 people are showing up for each viewing. Broker Karl Deeter said the scarcity of housing was creating a new housing bubble in the greater Dublin area. He called for investor properties that were in arrears to be repossessed by banks to free up homes for families.”

“Prices were rising in Dublin, despite fewer mortgages being issued this year, Dermot O’Leary of Goodbody Stockbrokers said. This pointed to price inflation again becoming a feature of the property market. ‘The arrival of price inflation may trigger some potential buyers into action,’ he added.”

“If you’ve been eyeing the housing market in Metro Vancouver with astonishment over the last few years, that feeling could soon change. Last month, property sales in Metro Vancouver fell to a 10-year low, and parts of the Tri-Cities were in the same basement. Andrey Pavlov, a professor of finance with Simon Fraser University, noted prices in Vancouver have rocketed past those in places like New York and San Francisco, and in the case of the Tri-Cities, are comparable to suburbs of those major cities.”

“Pavlov argued home prices rose dramatically in the Lower Mainland, not out of income or general economic growth, but rather debt accumulation. ‘I think this engine of real estate price growth is now done,’ Pavlov told The NOW in an e-mail. ‘So I don’t see where the future support for real estate can come from.’”

“A major cash crunch in the economy along with a drop in property sales is proving to be a double whammy for realtors who are now defaulting on bank loans, suggesting that the situation may be getting out of control for India’s real estate sector. Real estate firms are finding it difficult to meet repayment commitments due to the visible slowdown in sales and the fact that majority of banks have virtually stopped fresh loan disbursals. Add to that the fact that RBI has ruled out further restructuring of realty loans. The number of new projects too have nearly halved due to the difficulty in getting funds.”

“Pankaj Kapoor, chief executive of Liases Foras, a real estate research agency, told Firstpost that home sales have gone down in recent months as there are barely any investors interested in entering the market right now while the current home valuations, especially in Mumbai and NCR are unaffordable for end users. ‘Some of the developers are over-leveraged due to a constraint in cash flows because of slowdown in sales and difficulty in getting loans. Add to that the fact that private equity players are all looking to exit their investments now. With no money coming in, real estate is in dire straits,’ he said.”

“Home prices rose 6 percent across the country in July. But Boston-area prices outpaced even those heady gains, posting an 8.4 percent increase in July compared to the same time last year, Zillow reports. In fact, home prices in Boston, as well as in Brookline, Cambridge and Arlington, have now shattered previous price records set during the housing bubble, Zillow finds.”

“The increases may be good news for sellers, but it’s definitely bad news for buyers struggling to get a foothold in what is already one of the country’s most expensive housing markets. With building permits in Massachusetts hovering at record lows during the first half of 2013, local towns do their best to keep out any new housing except for a few McMansions that will generate lots of taxes. Think prices can’t go any higher, that the market will naturally right itself? Well think again.”

“If anything, the even nuttier prices seen out in some of the major California metros, and in the Silicon Valley, are a preview of what the Boston area and Eastern Massachusetts can expect on our current trajectory. The average home price just hit $1 million again in the heart of the Silicon Valley market, numbers not seen since the real estate crash. That gets you a modest style ranch home.”

“Now there are one or two prolific numbskulls out there who I am sure are already hitting the comment board right now to accuse me of trying to drive up prices on behalf of all the Realtors out there. OK, so I will spell it out. The ever higher home prices we are seeing in the Boston area are bad news all the way around, threatening to drive middle class homeowners and buyers out to New Hampshire or out of New England altogether. I’m one of those homeowners and I love living here, but I don’t like the trends I am seeing.”

“It’s sensless to ask how things are going to end, because things as a general rule don’t. They rumble on, they morph, and yesterday’s drama becomes tomorrow’s eyebrow-raising justification for thinking that people used to be inexplicable idiots. Nonetheless, I read these stories of house prices rising again and I cannot help but wonder. How is it going to end?”

“Presumably it’s all about inflation. Presumably the idea is that mortgages grow and grow, pound for pound, but that’s going to be OK because each of those pounds, eventually, will be worth much less. Right? What about all the people who simply have to buy houses between then and now? Because it’s not like everybody is just going to take a breather from being alive for a couple of decades while this inflation does its magic, is it? No. Inflation goes up and up, and house prices go with it. And everything just gets worse.”

“My perspective on this is skewed, obviously, with my being metropolitan London scum etc, and thus having had the enormous privilege of spending ten times my annual salary on the sort of charmingly ramshackle pile of bricks that a Yorkshireman wouldn’t keep his pigs in. Houses in London are so expensive these days that the mind somewhat boggles at the thought that there are actually enough rich people around to buy them all. And of course there aren’t. It’s all debt. That special sort of debt that is perfectly serviceable and safe just so long as nothing whatsoever changes at all.”
Pandora’s box sets

“My experience, though, is everybody’s future. House prices are soaring everywhere, aided by the low interest rates we can’t afford to change and the government’s bizarre, cynical help-to-buy scheme. Home ownership, once seen as a ladder out of poverty, has become a millstone of the middle. It’s where all our money goes, meaning that it can’t go anywhere else, meaning that we grow ever richer on paper, but with nothing left to spend. I mean, look, I know I’m an idiot. But I do not understand how this is all going to be OK. Moreover, I don’t see any reason any more to assume that anybody else does either..”

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