The Housing Bubble

Some housing bubble news from around the world. 4 News, “Another set of towers, in model form, are backlit in the suite of a 5 star hotel. Capital Towers is in fact a project in Stratford, East London. The flats are up for sale at events like this that span east Asia, and in Kuala Lumpur, 6,500 miles away. Buyers crowd around the models checking out the floor space and attractive features. This foreign sales drive is repeated in Hong Kong and Singapore, targeting investors across Asia. It’s a quite a sales job. Right now Capital Towers doesn’t actually exist: it is half derelict factory half hand car wash. But it is due to complete by 2016. Knight Frank calculate that 75 per cent of new builds are going to foreign owners, half of those from East Asia.”

The West Australian. “Despite a subdued economy, housing prices are rising two or three times faster than consumer prices and auction clearance rates are at three or four-year highs. Investors are taking a bigger share of new loans. Low interest rates are fuelling the fire. And stories of clearly out-of-the-ordinary prices are emerging - like the widely reported house in the Sydney suburb of Eastwood which sold for $2.39 million, beating the reserve price by over $1 million.”

“This sale, along with anecdotal evidence of strong demand from China, suggests the Australian residential property market could be suffering - or enjoying, depending whether you are a seller or a buyer - a spillover effect from China’s ongoing economic boom.”

The New Zealand Herald. “On the eve of new mortgage lending restrictions coming into effect, there are signs the first-home-buyer market has gone off the boil. Sam Bellairs of Glover Real Estate in West Auckland said that over the weekend, the agency’s three offices received only one offer on a house despite there being a usual number of listings. There were usually at least five offers. Yesterday, the Titirangi office received only one phone call, compared with the usual two dozen on a Sunday. ‘The phone has certainly got a lot quieter,’ Mr Bellairs said. ‘That’s a bit unheard of.’”

The Jakarta Post. “Bank Indonesia (BI) introduced on Wednesday a new mortgage regulation to help curb excessive loan growth and ease property speculation. ‘Our data shows that the amount of people owning more than one property has been increasing since 2010, when the figure was 4,700. It grew to 6,500 in 2011 and to 8,300 a year later. As of April, outstanding multiple mortgage loans stood at Rp 31.8 trillion [US$2.75 billion],’ BI communications department director Peter Jacobs said. ‘We expected that the mortgage growth rate would decelerate when we implemented a similar regulation last year. However, as it turned out the rate remained high.’”

The China Post on Taiwan. “Local property developers and sales agencies said Saturday that they are upbeat about the housing market despite growing concerns that the central bank will raise its key interest rates in the fourth quarter. Developers have launched NT$179.4 billion (US$6.06 billion) worth of residential property projects. It is second biggest amount in five years. Lai Cheng-yi, chairman of Shining Building Business Co., said the markets at home and abroad remain awash in liquidity in the wake of the U.S. Federal Reserve’s surprise decision in mid-September to continue its monthly US$85 billion bond buying program.”

From First Post. “Raghuram Rajan, the governor of the Reserve Bank of India (RBI), was in Frankfurt yesterday to receive the Fifth Deutsche Bank Prize for Financial Economics. In his speech he said things that would have embarrassed central bank governors of the Western nations, who are busy printing money to get their economies up and running again. And this has again led to several asset bubbles in different parts of the world. As Rajan put it in Frankfurt ‘We seem to be in a situation where we are doomed to inflate bubbles elsewhere. We should wonder whether lower and lower interest rates are in fact part of the problem, I say I don’t know.’”

“Why are they still continuing to print money? If they stop printing money then interest rates will start to go up and this will kill whatever little economic growth that has started to return. Hence, the choice is really between the devil and the deep sea. In the last paragraph of his speech Rajan said it is at such times that ‘excesses typically build up. One source of concern is housing prices that are at elevated levels around the globe.’ The central bank governors are ignoring what is going on before their eyes and that is not a good sign. Or as Rajan put it in Frankfurt ‘When they (central banks) say they are the only game in town, they become the only game in town.’”

The Independent. “Tim Redmond, a veteran Mission resident and former editor of The San Francisco Bay Guardian, sits in a café, grumbling as the Google buses come and go outside. Though he doesn’t much care for the start-up douchebags, Redmond blames not individual tech workers for the current crisis, but property speculators and the lawmakers who have let them take advantage of their precious commodity: space.”

“‘If we had a major earthquake in San Francisco, the water mains all broke, and some guy showed up with a water truck and started selling water for $10 a gallon, people would be pissed,’ he says. ‘That guy would be ridden out of town; he’d be attacked with sticks and pitchforks. But that’s what the real estate people are doing right now – and they’re getting away with it.’”

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Readers suggested a topic on local market observations. “Report on your county. 1st: Fairfax Va - inventory still low- lots of INwesters buying around me. One chopped down all the trees- a feng shui move I guess.”

One said, “Volusia County, FL. 529 properties owned by Federal NMA. 443 currently owned by major banks: Deutsche, Suntrust, B of A, Wells, Fifth Third, among others. 437 sheriff’s sales scheduled for October. Same old shacks for sale that were listed two years ago. Some fell off the radar during the summer, but most will show back up again when the snowbirds arrive. Private equity seems to be sapping up everything that doesn’t already have granite and stainless.”

The Herald Tribune in Florida. “A recent newspaper story about the number of $1 million-plus houses that sold in August caught the attention of Kim Ogilvie, a top-selling Realtor with Michael Saunders & Co. The high-end market may be seeing a lot of sales, she noted, but more than half of the purchase prices of those August transactions were for less than the sellers had paid for the properties. ‘Buyers are still very sensitive to price,’ she said, especially when they are spending $3 million or more. ‘They are not willing to throw their money around.’”

“Yet in such an environment, and with the headlines touting price gains of 10 to 12 percent, Ogilvie said, ‘Sellers are so cocky that everyone is trying to raise their prices 10 percent. I am losing listings because they want to raise their asking prices. Some agent will get that listing (by agreeing to list at an inflated price) and then have to cut the price’ to sell the house. ‘We could see another bubble; we could be the victim of our own creation.’”

eNews Park Forest in Illinois. “Home prices in Chicago may be on the rise again, but the housing recovery is bypassing families like the Gutierrez’, who face eviction this winter. Time is running out for Domynika Pawelczak, Juan Gutierrez and their teenage daughter, who have been ordered to leave their home by early November.After the Gutierrez family began writing letters to TCF, the bank offered them a new loan less than a week before the May auction. But the offer increased the principal by $22,000, asked for $4,000 up front and reset the mortgage for 30 years again.”

“Nearly 7,000 Chicago-area families received notices of foreclosure activity in August.’It was like we had never made a payment, even though we have lived in this house for over 8 years now,’ says Pawelczak.”

The Calgary Herald. “Although the real estate market in the Phoenix, Ariz., area passed its best-before date a couple of years ago, there is still room for Canadians to lay claim to a bargain or two, says an industry watcher. ‘It’s far too late for Canadians to capitalize on the bargains that existed in 2009 through 2011,’ says Mike Orr, director of the Centre for Real Estate Theory at the W.P. Carey School of Business at Arizona State University. ‘However, prices are still going up and likely will continue to do so until a significantly greater supply comes to the market.’”

“Calgarian Evelyn Studer, an executive and single mom, first entered the Phoenix housing market in early 2012, putting in an offer on an investment property that cleared the short-sale process 10 months later. Since then, she has closed on a second rental home — another short sale — and recently put down a deposit on a recreation home that she is having built. All three properties are in Goodyear.”

“‘Now, although prices are going up, they are still reasonable. For instance, the base price of my recreational property went up more than $10,000 (US) in six weeks, but is nicer than my Calgary home and for half the price — and it will have a pool and hot tub,’ Studer said.”

The Sydney Morning Herald in Australia. “Buoyant auction clearance rates have underpinned price growth in Melbourne and Sydney this year, but instead of triggering a sigh of relief at the market’s return to health, there are fearful cries of a boom and surging house prices. Agents are having none of it. ‘Adjectives like ’solid’ are more accurate than ’surging’,’ says Paul Castran of Castran Gilbert, a Melbourne agency that sells everything from development sites and apartments to family homes. ‘The boat has left the dock and we are just at the beginning of a new cycle,’ Castran says.”

“Frank Valentic, from Advantage Property, who acts for investors and home owners buying and selling property, says the number of investors on his books has doubled in the past 12 months. ‘People have a herd mentality. When they see the market moving, they want to jump in. Investors were sitting on the fence last year. Home buyers will always need to upsize or downsize, but investors don’t have to buy so they are looking at the timing and they see growth now,’ Valentic says.”

“About 25 per cent of his investor clients are buying for super funds. ‘They are mainly at the lower end of the market, spending around $500,000 depending on the size of their super fund, rather than the family upsizers in the $1 million to $2 million market,’ he says.”

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It’s Friday desk clearing time for this blogger. “As most local Americans in Miami haven’t fully recovered from the crisis, international investors are filling the void. ‘Ninety percent of my clients do not live here at all,’ said Miami-based realtor Andy Katz. ‘I go out and shoot the video of five properties that they may like. If there is one that they really like, they get on a plane, but most of my clients do not get on a plane, they just say ‘hey I am going to purchase let me wire the money,’ he said.”

“Those looking to gain a foothold in Metro Vancouver’s already pricey housing market are facing another hurdle as key financial institutions across the country move to hike mortgage rates. Credit Counselling Society’s Scott Hannah advises homeowners in tight financial situations to adjust their spending habits so that they can meet mortgage payments. Better to let go of the car altogether than go into consumer debt and risk losing a house, which in the long-term will earn equity, he said. ‘The worst thing you can do when the rates go up quicker than the housing market cools off is now be in a position where you have to sell your home,’ Hannah said. ‘You’re going to lose money.’”

“In August, Jonathan Stilley, an Austin realtor, addressed the state licensing board about a complaint he submitted involving a possible appraiser mistake that could have over-valued a home in a north Austin neighborhood. According to real estate records reviewed by the KVUE Defenders, the home sold in April for $325,000. That’s $50,000 more than the second highest priced home in the area. Since the home sold, home prices in that neighborhood jumped. In 2012, the average home listed for about $204,000. Homes are now listing for nearly $60,000 more. ‘These kind of things can cause real estate bubbles,’ said Stilley. ‘This is exactly what happened in Phoenix and in Scottsdale and in Miami and in Los Vegas, and the people who get hurt, are the ones holding the bag at the end.’”

“Of the 39 first-time foreclosure filings this year in Flossmoor, 46 percent were conventional mortgages, 23 percent were adjustable rate mortgages and about 31 percent were Federal Housing Administration loans, said assistant village manager Patrick Finn. He said the overwhelming majority of FHA mortgages were taken out well after the housing market’s collapse. ‘This is suggestive of a pattern where individuals may have attempted to capitalize on depressed prices but still borrowed beyond their means,’ he said.”

“Gary Pleskac paid too much for his house in Chesterfield County. Pleskac bought his house for $166,500 in 2005. A Realtor told him she could list the property for $139,000. ‘I didn’t buy at the top of the market, but you could see it from there,’ he said.”

“Clayton Gits of Keller Williams Realty in Richmond said the housing market is skittish. It stalled this summer after the interest rate on a traditional mortgage loan rose a full percentage point to about 4.5 percent since May, he said. ‘The housing market is addicted to these low rates,’ Gits said, adding that rates are still low by historic standards but have been kept artificially low through the Federal Reserve buying bonds and mortgage-backed securities via the printing press. That, along with the nation’s high deficit and debt levels, does not bode well for the housing market or the economy in general, he said.”

“This shadow inventory of homes that are vacant — or soon to be — totals anywhere from 40,000 to 80,000, a conservative estimate, according to Dennis Smith, president of Home Builders Research, a Las Vegas consulting firm. Yet just a few miles away, backhoes and bulldozers are breaking ground for new homes. Buyers stream into sales offices and model homes. ‘In this town, if they’re empty now, chances are they’ve been occupied by squatters,’ Smith said. ‘And if they’re empty now, the upkeep on that house is zero.”’

“Tighter credit and falling housing prices in the eastern Chinese city of Wenzhou have led to a wave of mortgage defaults and abandoned properties in the city, where persistent property-price drops have flown in the face of a national upturn in prices. ‘The loose credit environment in the previous years caused many people in Wenzhou to be excessively leveraged. The party is over and some people are being forced to sell off their assets,’ said Johnson Hu, an analyst at CIMB Securities.”

“Home buyers at two housing projects on the city’s fringes are in dire straits. The two projects - one in New Town and the other in west Howrah - had been launched with much fanfare around the same time in 2006, both endorsed by the government. Seven years on, they remain hopelessly unfinished, having failed to meet several deadlines. Souvik Das, who lives in Dubai, said his loan application was approved on February 8, 2013, days before the bank printed the auction notice. ‘Why did the bank not warn us about the project status? We would never have bought apartments in a project mired in financial difficulties,’ said Souvik, who continues to pay Rs 55,000 as EMI fearing he will otherwise be declared a defaulter.”

“Developers of several high-end housing projects in Ho Chi Minh City are making large price cuts to spur demand as the prolonged property slump continues. The high-end segment suffers from excessive supply while there is great demand for housing among low-income earners. Official data shows that in HCMC the number of unsold apartments has crossed 12,610. Economist Tran Du Lich said the high-end segment should not be aided since the market has to resolve itself with developers lowering prices, which is ‘the best solution’ to improve liquidity.”

“Real estate agents are working with second-tier lenders to organise finance for borrowers with small deposits amid fears of the house market seizing up once new lending restrictions are imposed. Australian lenders coming into New Zealand fell outside the restrictions while non-trading banks were already here. Professionals Lower Hutt owner John Ross said his firm is so concerned about the impact of the restrictions it is working with alternative lenders to help buyers into homes.”

“‘We have gone straight to some lenders,’ he said. ‘We need to have finance so we can keep selling houses.’”

“At what point did things become so unsustainable that none of my friends in high-paying jobs in Sydney can afford the deposit on a house without their parents’ help? And even then, if they are lucky enough to have wealthy parents, they are lumbered with huge mortgages as the average house price is about $700,000 and the average unit $500,000. You see ‘entry-level’ houses advertised for $1 million.”

“Where does the bubble end? With 100-year mortgages that we pass onto our grandchildren? Somewhere along the line our parents’ generation became enamoured with debt. The very notion of debt is that it is OK to have, until it’s not. Debt is not growth. Our grandparents didn’t believe in debt and were debt free in the 1970s. Why should our parents have more right to an investment property through tax breaks than a young person to a first home? Why does our government feel compelled to protect the status quo?”

“Remember the last stage of any bubble is the fear of missing out. If we are indeed here in Sydney property now, it might not be such a good thing for our parents or the politicians, but it might just help those of us forgotten by them too.”

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The Los Angeles Times reports from California. “Buyers signed fewer contracts for homes in California last month. Pending home sales fell 5% in August from July, the California Assn. of Realtors said Monday. The group’s pending-sales index dropped 9% from last year. The index represents contracts signed but not yet closed — a sign of future market activity. ‘Rising interest rates over the past several months at the specter of a tapering of the Fed’s stimulus program sent buyers to the sidelines in August,’ the association’s chief economist, Leslie Appleton-Young, said in a statement.”

The North Bay Business Journal. “The North Bay has seen housing prices improve markedly over the past year. The San Francisco Bay Area as a whole has seen median home prices rise 31.7 percent in the 12-month period between August 2013 and 2012, according to DataQuick. In places like Marin County, values in some central areas have nearly risen to levels seen before the recession, said Blaine Morris, president-elect of the Marin County Association of Realtors. ‘Everybody who bought a house in 2010, 2011 feels pretty smart right now,’ he said.”

“It is a trend that, along with an uptick in interest rates, has given pause to some prospective homeowners and caused a period of frantic bidding to quiet down significantly, said Bill Facendini, president of Terra Firma Global Partners. ‘I think the consumer is taking a step back,’ he said. ‘Everyone is still wanting to make a good business decision, even if it’s their home.’”

The Merced Sun Star. “Merced County’s roughly 37 percent bump in housing prices in the last year is a sign of an improving housing market, according to some experts. Los Banos has seen a bump of about 35 percent in the past year, DataQuick said. Delhi’s roughly 43 percent increase in home prices during the last year is the county’s highest. Terry Ruscoe, owner of Merced Yosemite Realty in Merced, said a ‘vast majority’ of his clients come from the Bay Area and Los Angeles. A big draw for those investors, he said, is their children attending UC Merced.”

“Ruscoe said investors don’t see those levels dipping again. ‘Parents come in and they want to invest in the area, because the prices are so low compared to Los Angeles, Bay Area, San Jose,’ he said.”

“Los Banos’ proximity to the Bay Area and connection to Highway 152 has made it a bedroom community for a few decades. So, the low home prices have attracted buyers, according to Larry Borelli, owner of Borelli Realty Services in Los Banos. ‘They know that right now it’s pretty much at the bottom, so they just buy, buy, buy,’ he said.”

The Sacramento Bee. “Bay Area investors and long-distance commuters are hitting the road again and bidding up home prices in the Northern San Joaquin Valley. Stockton has seen its median home price rise by 30 percent in the past year, according to DataQuick. Tracy, a burgeoning bedroom community for Bay Area “super commuters” in the boom, experienced a nearly 40 percent gain in the median home price from August 2012 to August 2013. And Lathrop saw its median home price soar by nearly 50 percent.”

“‘Especially Tracy, Lathrop and Manteca have really felt the Bay Area influence coming out,’ said Aaron West, an agent with PMZ Real Estate in Modesto. At first, the buyers were professional investors scooping up cut-priced homes 10 at a time, he said. Then came some Bay Area residents who wanted to buy one or two rental homes. Now, with prices rising fast in the Bay Area, homeowners are once again driving across the Diablo Range to seek out homes they can afford, he said.”

The Union Tribune. “After Milly and Arnold Lee tied the knot in 2008, they settled into a two-bedroom, two-bath apartment in University City where the rent was $1,450 per month. After annual increases, the landlord now charges the couple $1,800. Arnold Lee, 34, a mail carrier, and Milly Lee, 33, a hospital administrative coordinator, said they are looking to spend $400,000 to $475,000 for a three-bedroom, two-bath home possibly in Escondido, San Diego or Mira Mesa.”

“Experts think it’s also a good time to buy because housing prices will only continue to go up, thanks to the rent increases, shortage of supply and growth of well-paying jobs. ‘Our rent has gone up every year,’ Arnold Lee said. ‘We need to capitalize on low interest rates. We need to make an investment. One of my dreams is to own a home.’”

The Santa Cruz Sentinel. “Jamie and Kyle Lawler have given up on Santa Cruz. The couple, married a year ago, tried to buy a home in Santa Cruz, but after making 16 offers and striking out each time, Jamie decided she’d had enough disappointment. She left her job with an email marketing company in Sunnyvale and took a job in San Luis Obispo. As of August, the couple was in Shell Beach in North Pismo. ‘We know that a lot of the houses being sold were strictly to be remodeled and either sold again, or rented out to the UC Santa Cruz student population,’ she said.”

“The couple is among the first-home home buyers who got caught when the median sales price shot up from $449,000 in February to $585,000 in March, turning the buyers market into a sellers market. The median price has been at or more than $600,000 ever since. Lawler said the 16th offer was ‘the one where I thought we had it for sure. We overbid, wrote out the appraisal contingency, if the house appraised for less that what we offered, we would pay the remaining in cash,’ she said.”

“A friend of hers who knew the sellers put in a good word. None of it made a difference, so she asked herself: Why stay in Santa Cruz? ‘I love the area, the people, and the vibe,’ Jamie said. ‘But did I love my three-hour round trip commute and knowing that it would take my whole paycheck to go toward mine and my husband’s mortgage?’”

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