October 18, 2013

An Opportunity To Lose A Lot Of Money

It’s Friday desk clearing time for this blogger. “One of Mark Carney’s first goals when he took over as Governor of the Bank of England in July was to build confidence among businesses and consumers that they could count on low interest rates being around for a while. The British are borrowing all right; trouble is, it seems to be mostly homebuyers. U.K. house prices which took flight this year have now surpassed the vertigo-inducing levels achieved in early 2008 as rock-bottom-interest rates inflated a bubble that promptly collapsed a year later.”

“It is interesting to note that many of the factors now in play in the U.K. housing market were very much in evidence in this country during Mr. Carney’s tenure at the Bank of Canada. It was a recovery built on real estate borrowing by consumers and one of the unintended consequences is that consumers are now buried under record debt. Is Canada going to regret its real estate mania? Will Britain? The jury is still out.”

“A top Federal Reserve official said on Thursday he is seeing fresh signs of a U.S. ‘housing bubble’ and warned about the central bank’s ongoing purchases of mortgage-based bonds. ‘I’m beginning to see signs not just in my district but across the country that we are entering, once again, a housing bubble,’ Dallas Fed President Richard Fisher told reporters. ‘So that leads me … to be very cautious about our mortgage-backed securities purchase program. No one knows when the bubble pops. But I would argue that … with each dollar we buy in Treasuries and mortgage-backed securities, we’re getting closer to the tipping point.’”

“In August, Broward County’s median price of $270,500 was up 26 percent from a year ago, according to the Greater Fort Lauderdale Realtors. Prices have been going up just over a year now after a six-year downtown and have reached comparable levels to 2008 median prices. Investors get the credit. Because of the strong competition, many of these funds often overpay for homes, said Jack McCabe, a Deerfield Beach housing analyst. ‘They have money in their war chests that they have to return to the investors if they don’t use it,’ McCabe said. ‘As long as they’re buying properties for less than they cost in 2006 or 2007, they feel like they’re getting a deal.’”

“Buyers in the tens of thousands are discovering that in 2013 there are plentiful ways to buy a home with little savings. A sweet deal for some buyers are mortgages backed by the U.S. Department of Agriculture. These loans can cover 100% of the cost of a home, which has to be in a ‘rural area,’ but much of the country falls within that definition. ‘Now is the time to take advantage of leverage,’ said New York associate broker Ray Schmitz with Rutenberg Realty. He added that he is seeing an increasing number of deals involving small downpayments and economics is on the side of those buyers. ‘This is a great time to borrow.’”

“Recently, the Federal Housing Administration (FHA) said it needs $1.7bn to cover losses, the first taxpayer-funded bailout in the organization’s 79-year history. To put that in perspective, if FHA were held to the same standards as private mortgage insurers, it would be insolvent to the tune of $25bn. For decades FHA’s underwriting practices have put families into homes they can’t afford. By financing failure, FHA has made foreclosures commonplace. One in eight families getting an FHA loan from 1975 to 2011 has already been or will end up in foreclosure.”

“FHA continues to sell hope and deliver harm by pushing families into homes they can’t afford, saddling them with loans that barely build equity. By tolerating such a high failure rate, families are left in financial ruin and communities are left reeling.”

“Southern California home buyers have apparently had their fill of bidding wars, home shortages and double-digit price hikes. Even as listings rose, sales tumbled. The stall is owed to multiple factors: buyer fatigue over skyrocketing prices, higher mortgage rates, an expanding supply of homes and a pullback by investors who had swarmed the market. Sellers have gotten a ‘wake-up call,’ said Steven Thomas of ReportsOnHousing.com. Asking prices have been trimmed, traffic at open houses has slowed and multiple offers are harder to attract. ‘It’s like everyone dialed it down,’ he said.”

“Even homes in good locations and priced right are sometimes languishing on the market longer, South Bay real estate agent David Keller said. ‘It should go pretty quick, and then it doesn’t,’ he said.”

“People looking to flip houses and make a profit in the Richmond area may have lost their opportunity. With an average flipped price of $231,244, real estate investors realized an average loss of $50,019, RealtyTrac reported. Investors sometimes get caught up in a buying frenzy, where they feel they need to purchase a property, said Daren Blomquist, VP of RealtyTrac. ‘This should serve as a caution that profits are not guaranteed in flipping houses,’ Blomquist said. ‘There’s an opportunity to lose a lot of money.’”

“An oversupply of inner-city apartments could see Melbourne underperform the other major capital cities in terms of house price rises over the next three years. BIS Shrapnel managing director Robert Mellor said Melbourne still had a ”lot of supply of inner-city apartments in the CBD, Docklands and Southbank coming on to the market over the next 18 months.’ The firm expects Melbourne’s median house price to rise to $605,000 by June 2016, from $569,000 now.”

“Property in high-end rental markets in some cities, particularly Lagos and Abuja, remain vacant for months and sometimes, years. Operators in the build-to-let market are anxious because they may not receive rental returns as earlier projected. ‘There is vacancy in every segment of the market. We have properties that are in the market for a long time, particularly when they are distressed,’ said a real estate sector player, Opus Wonodi.”

“Singapore is showing the rest of Asia how to cool a housing bubble. The government this year ramped up efforts to bring down property prices that surged to a record, adopting some of its strictest measures. ‘The government has enacted all these measures quite early,’ Vikrant Pandey, a Singapore-based analyst at the securities unit of Southeast Asia’s third-largest lender, United Overseas Bank Ltd. (UOB), said. ‘They want to contain a bubble from reaching levels where it brings down the whole system.’”

“”It is no wonder that laments or curiosity of how the other side of Malaysia lives is constantly heard. Skyrocketing property prices, high end dining options and glossy shopping malls swarming with international labels seems to be a norm for a portion of the population, while significantly out of reach for the others. We are seeing massive development projects, especially in Kuala Lumpur and the Iskandar region of Johor. The property market was encouraged to rise and prosper.”

“The massive pumping of capital-laden sectors, like real estate, should not be a prime driver of Malaysia’s economy. Housing is a necessity, by making it a difficult attainment it would have lower the livability of cities as well as the disposable income of the citizens, making the definition of poor even wider. And most importantly, it did not foster organic growth. The jobs it created for Malaysians are minute, the wealth it distributed are fairly concentrated, and the little white collar Malaysians that are involved in the sector are most likely victims of the viscous cycle, if not the speculators perpetuating it.”

“Certainly we could do better than just building houses for the sake of growth like a monopoly board game.”

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