October 4, 2013

The Boom, The Bubble And Bulldust

It’s Friday desk clearing time for this blogger. “A leading economist has dismissed the possibility that Australia is heading towards a housing ‘bubble’. Australian Property Monitors senior economist Dr Andrew Wilson explained that comments made about the prospect of 20 per cent house price growth in Sydney over a year were ‘nonsense’. ‘That’s not going to happen,’ he said. ‘It makes very exciting reading – the boom, the bubble – but it is the boom, the bubble and bulldust at this stage.’”

“The typical Sydney house price soared by more than $500 a day last month as property prices surged amid historic low interest rates and buyers’ fear of missing out. Research commissioned by the nation’s biggest home lender, Commonwealth Bank, found most home buyers believed property prices were being fuelled by a fear of missing out, which was causing most to rush in before they had done their ‘due diligence.’”

“Massachusetts’ real estate market continued to smolder last month as the number of sales and the price of homes continued their steady ascent. ‘It’s a feeding frenzy, and people want to get in now before prices go up even further,’ said Timothy M. Warren Jr., CEO of The Warren Group. ‘My concern is that the market remains sustainable and we don’t see another crash. If it should persist, then it would be a little irrational exuberance.’”

“John Douglas Dudek bought 8 units in the 4700 block of Point Loma Avenue in September 2012 for $1.85 million. He just sold those same units for $2,384,200. That’s over half a million bucks in one year. The property that has now been sold twice within a year is a single-story courtyard apartment that includes 8 two-bedroom and one-bath units – which are small, each with 672 square feet. Did all that land really increase in value in that one year? Does this sale represent the return of the OB Housing Bubble?”

“Home ownership rates are at a 17½-year low. And the U.S. census shows new renters have flooded the market dramatically since the housing crash. The face of these new renters are two main groups — people recovering from home foreclosure and millennials, or the under 35 crowd. Sean Agnew runs his own concert promotion company in Philadelphia. He says owning a home isn’t a goal for him right now. ‘Financially I could buy a home if I wanted to, but right now it doesn’t appeal to me,’ he said. ‘I choose to rent mostly for the flexibility and mobility of getting to live in different places in the city or outside of the city.’”

“He also said he sees buying a home as a questionable investment at this point in his life and instead chooses to put his money into small businesses. ‘Making all the credit sacrifices for home ownership, assuming high levels of debt, changing your lifestyle so you can’t eat out as much or travel… makes it a much less attractive option today than it was historically,’ says Hughes.”

“More than half of all bank-owned homes in the Charlotte area are still occupied by their former owners, suggesting a ’shadow inventory’ of properties that might soon be up for sale, according to a report. RealtyTrac shows roughly 54 percent of 2,328 bank-owned homes in the Charlotte, Gastonia and Concord area have their previous owners still living in them. That’s above the national rate of 47 percent.”

“‘They represent a shadow inventory that is becoming more imminent as rising home prices motivate banks to sell off these homes to try to recoup their losses on soured loans,’ wrote Daren Blomquist, RealtyTrac vice president. Such properties are remaining, for now, off the market at a time when there’s low inventory of homes for sale in the Charlotte-area housing market.”

Read more here: http://www.charlotteobserver.com/2013/10/02/4360211/more-than-half-of-charlotte-bank.html#.Uk2xTxCpCUk#storylink=cpy

“At a Seattle City Council meeting, homeowners faced with foreclosure demanded action. In 2006, Pina Belrano bought a rundown fixer-upper - one she thought she could afford. After months of work and $100,000 in repairs, the house is a Beacon Hill gem. But, the single mother lost her job and she’s nine months behind on the mortgage. ‘So, I poured my heart and soul into it. Now, we don’t know where we’re going,’ she said. In Seattle, nearly 30 percent of home mortgage totals – mostly in the south end - are still underwater.”

“As Vietnam’s first property boom crashed around him, American developer Edward Chi kept promising investors their flashy apartments were on track. The businessman even told them he would sell his California properties to pay them back if construction stopped on projects. But Chi ducked out of a tense meeting with the prospective home owners last year and never returned, leaving the rusting foundations of an apartment block and at least 128 angry investors, many who had already put down more than $150,000 from life savings or bank loans.”

“Nguyen Ngoc Tuan, a 37-year-old engineer, said he paid $180,000 to Minh Viet, $80,000 from savings and the rest a bank loan from a local lender. He now rents a house, and plans to default on the loan. ‘The salaries of my wife and I are not enough to pay bank interest,’ he said.”

“Harpreet Pandher had spent more than a month casing apartments in Toronto’s frantic condominium market, and the one-bedroom gem at Queen’s Quay seemed custom-made for her lifestyle. The $500,000 price tag was not unreasonable—not, at least, by the giddy standards of her adopted hometown. But the more Pandher pondered that price, the more she felt a chill in the region of her shoes. ‘I would have been going paycheque to paycheque,’ acknowledges the 23-year-old. ‘I’d be giving up a lot of recreational things, even just going out with co-workers.’”

“In 2009, central bankers and political leaders here faced a Hobson’s choice: loosening access to credit might produce a housing bubble; but if they didn’t they risked strangling badly needed business investment. So, in March 2009, the Bank of Canada lowered its overnight rate to 0.25, and that year the federal government added incentives aimed at getting more people into houses. The effect has been to transform housing from a key sector of the economy into its main engine. Economist Ben Rabidoux, who spends a lot of time trying to bring attention to this warp, has taken to quizzing people about Canada’s leading industry. ‘It’s not manufacturing, not resource extraction,’ he says. ‘It’s real estate services. I think a lot of people would find that shocking.’”

“This Government loves exciting fresh ideas, so they’ve announced an extension of their plan to boost the economy, the Help to Buy scheme that makes it easy for people to borrow more than they can afford to buy a house, so that house prices will go up, making us all feel better off. If only someone had tried before to inflate an economy by lending huge amounts to people to buy houses, even if they couldn’t afford it, then it might be possible to predict how this might end.”

“One clue as to whether the main objective of this scheme really is to help first-time buyers, is that the loans they plan to back up are for properties worth up to £600,000.”

“Perhaps the most impressive side to this strategy, of imagining the economy is on the up because house prices are being encouraged to rise, is it doesn’t ignore the lessons of old economic history, it ignores the lessons of about five years ago. Usually it’s considered polite to wait a century before repeating a catastrophic mistake, but this lot are going for it straight away.”

Bits Bucket for October 4, 2013

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