August 25, 2013

When Is A Housing Bubble Not A Housing Bubble?

Readers suggested a topic on the housing bubble hustle. “Just heard an ad on the radio for a national mortgage lender. The fellow said something to the effect of ‘as prices go up, interest rates are sure to follow!’ Imagine if someone made a similarly deceptive statement about a nutritional supplement. Or about any other product. Street corner hustlers run the shell game and dice and card games. None of these are government backed. But once the hustle becomes big enough, it becomes useful for politicians to protect and advance it.”

A reply, “Also, once a hustle becomes IMPORTANT enough, it becomes useful for politicians to protect and advance it. Lenders have a stake in keeping RE prices up so the value of their mortgages will be kept up. Homeowners and home buyers (who, together, make up the majority of voters) also have a stake in keeping RE prices up since this is where most of them have their money ‘invested’.”

“So many have an interest in High RE prices and few have an interest in lower RE prices so high RE prices is what we end up with.”

“There is no balance here, the other side of the argument (the lower-RE-price-just-might-be-a-good-thing argument) is never presented because it has been declared to be in the National Interest that RE prices be supported. This means hustlers have an unspoken license to hustle as long as their hustle acts to support RE prices. (A blatant example, IMHO, is the behavior of RE ‘investors’ who use huge pools of OPM to pump up RE prices in targeted areas so as to extract hefty fees for themselves in the form of capital gains and while doing so enjoy no opposition and no oversight whatsoever as to what they are up to.)”

The News Journal in Florida. “Andrew Hardesty has gotten used to country living. In 2008, he and his wife purchased a home near Flagler Beach that sits between a lake and what looks like a country field. Here’s the catch: Hardesty’s home is in the middle of an unfinished subdivision called Eagle Lakes. Today, more than 60 similar developments sit mostly vacant in Volusia and Flagler counties.”

“Of the subdivisions started in 2007, records show that 2,257 out of 2,554 lots have no homes on them — an 88 percent vacancy rate. A total of 19 subdivisions were created a year later. Today, 56 percent of those lots are vacant. John Adams, general manager of Adams Cameron & Co. Realtors, said new homes haven’t been needed recently as the number of existing homes soared to about 10,000. Now that number is down to 3,500.”

“‘We don’t have homes to replace’ existing ones that come off the market, he said, ‘and I think the builders understand that.’”

The Star Tribune in Minnesota. “Despite a barrage of new apartment buildings in the Twin Cities metro area, demand for rentals continues to outstrip supply. The average vacancy rate in the seven-county area dipped to 2.3 percent at the end of June, causing the average metro rent price to increase 3 percent to $979, according to a second-quarter survey by Marquette Advisors. Much of the demand is being fueled by young professionals and empty nesters who don’t want to make a long-term commitment to homeownership and are interested in the perks of urban living.”

“But with thousands of apartments on the drawing board, the metro market is expected to soften in the coming months, leading some to believe that a construction bubble is on the horizon. Despite lower rents in some suburbs, affordability continues to be a serious problem metrowide, particularly because most of the apartments being planned and built are upscale. A report by the Minnesota Housing Partnership (MHP) shows that since 2000, rents have risen by 6 percent while incomes for renters have fallen by 17 percent.”

“The study showed that low-wage workers in common occupations like food preparation and retail sales can’t afford to rent a two-bedroom apartment in any Minnesota county, and that statewide, there are only 38 units of rental housing available for every 100 extremely low-income renters. ‘When rental housing becomes too costly, all renters suffer, but the impact is especially severe for children,’ says the MHP’s executive director, Chip Halbach.”

“Marquette Advisors vice president, Brent Wittenberg said that for now, there’s no shortage of people — namely young professionals and empty nesters — willing to pay for luxury digs. ‘These are people who can afford to buy who are making the conscious decision to rent,’ he said.”

Global News in Canada. “Buying your first home may seem like a pricey move, especially for younger people and amidst growing concern Canada’s housing market could crash. The Canadian Home Builders Association – Lethbridge Region is going on the defensive, saying there’s no danger of that in Lethbridge, adding that the market is strengthened by younger buyers and a diverse southern Alberta economy.”

“One Lethbirdge home builder is selling condos in the $170,000 range and throwing in a semester of tuition, worth $4,000. The target market? Students. The CHBA believes the investment is more than financial. ‘It’s giving their children the opportunity to learn what it’s like to be a homeowner, so when they’re ready, they’re knowledgable,’ said CHBA’s Angie Zuba.”

The Independent in the UK. “When is a housing bubble not a housing bubble? When both the Chancellor of the Exchequer and the Governor of the Bank of England tell you it isn’t, of course. So, naturally, it would be wise to ignore the latest data from the Royal Institution of Chartered Surveyors (Rics) and the Government’s own Office for National Statistics (ONS). And within the details, both surveys suggest that while London – with its strange fascination for overseas buyers and investors – remains the powerhouse for the market, house prices and, more importantly, sales, are starting to move in most other parts of the country. Indeed Rics highlighted the point that two of the worst performers in recent years, the West Midlands and North-east, are now trending at 14-year highs.”

“Even now, the equivalent of Corporal Jones from Dad’s Army is running down the corridors of Whitehall and along the pavement of Threadneedle Street shouting: ‘Don’t panic. Don’t panic.’ Well, just ignore him.”

“The fact is that not only is the housing market taking off at a rate most economists find at least surprising, if not yet worrying, but the Government has already primed it to shoot ahead even more. The first phase of the Help to Buy scheme, which came in April and covered only new-build homes, has clearly stimulated the market. But there is every chance that when it moves into its next phase, covering older properties and including a government guarantee on part of the mortgage, the market could well become over-stimulated.”

“The Shore Capital economist Gerard Lane fears he may be a little cynical in his views on this subject. He suggests that the politicians (I assume he means the Tories) would not be particularly unhappy if there were something of a housing boom in the run-up to the May 2015 General Election. He even dares to imply that a housing boom, feeding through into the domestic economy during a period of cheap money, would make it easier for the Treasury to sell its stakes in Royal Bank of Scotland and Lloyds Banking Group. Come, Mr Lane, you are not being cynical enough.”

Bits Bucket for August 25, 2013

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