November 8, 2013

A Kind Of Mental Illness

It’s Friday desk clearing time for this blogger. “‘Some sellers are acting like their house is a Louis Vuitton store and are sort of saying, ‘If you can’t afford it, don’t walk into my house,’ said Patty Da Silva, owner of Green Realty Properties in Davie, Fla. Letting the seller know why you want to live in the property they once called home improves your chances of winning a bid. That’s how home buyer Ann Banks recently landed a contract on a Cooper City, Fla., home.”

“‘I wrote a letter to the sellers and said that I wanted to be close to my grandchildren and that their home was so beautiful, so spacious and close to their school,’ Banks said. If you are not sure what to write the seller, speak from the heart, Banks said. ‘Let them know how important the house is to you, how special it is,’ she said. ‘Let them know you are going to take good care of it.’”

“According to Trulia, median home prices in Palo Alto have gone up 16.8 percent in the last 12 months, with the price per square foot jumping 23.4 percent in that time to $1,107. Local realtors have attributed that rise partly to the impact of Chinese buyers who are using cash to buy houses a continent away, often sight unseen. ‘I just sold a house yesterday where there were four people from China interested, and none of them had seen the house,’ said. ‘There has been an impact on market values because they’re all coming with cash and they know that in order to beat the other four, you need to bid it up.’”

“According to Patrick Chovanec, former professor at Tsinghua University, vulnerabilities have been driving wealthy Chinese to invest abroad. ‘Wealthier people in China have a sense of political insecurity, that if you get on the rich lists or attract too much attention bad things can happen to you,’ Chovanec explained. ‘So why not take at least some of their money and put it overseas? If the winds change, or if there is ever a crackdown, at least you won’t be poor.’”

“House prices are surging thanks to low interest rates and investor-led demand. Offshore buyers, mainly from China, are also becoming a driving force in the property market in Australia. In Sydney, supply can’t keep up with demand, and there is talk of a housing boom and even a bubble. Robert Mellor, from property forecaster BIS Shrapnel, has concerns about the over-supplied Melbourne market. ‘The biggest danger is where those overseas investors come in and don’t look at the fundamentals,’ he says. ‘There’s an excess supply developing and there won’t be enough people to occupy those dwellings.’”

“Reserve Bank Governor Graeme Wheeler shies away from saying the housing market is a ‘bubble’ but prices in Auckland are ‘certainly inflated.’ ‘My concern is that in this country, (New Zealand) there is a general feeling amongst many that house prices are always a good investment, that they will always continue to rise in price,’ he said. ‘The biggest risk [for New Zealand] is if anything happened to the Chinese economy.’ Over 235 years in the United States, bank loans had generated about US$14 trillion worth of assets. China had done the same in just the past five years. ‘So if anything serious happened to the Chinese financial system, it would rapidly feed through the Chinese economy and certainly affect New Zealand and Australia quickly,’ Wheeler said.”

“The credit crisis arising from a flood of loans advanced by underground banking services looms over Wenzhou, the mainland’s private business capital. It has wrecked the city’s property sector, driving some speculators to suicide. Wang Ye, a businessman in his early 30s, is choked up with emotion when he talks about the roller-coaster ride taken by the housing market, which cost him more than 1 million yuan (HK$1.27 million). ‘I borrowed money and bought two flats in 2010, when everybody was upbeat about the property market,’ Wang said. ‘Now I am debt-ridden and I have paid a high price for those stupid decisions.’”

“Wenzhou people have a deep-rooted habit of speculating,’ said Zhang Wei, an entrepreneur. ‘They are quick to buy and invest in any product whose price has the potential to rise in future.’ Unfortunately, those bold Wenzhou residents inflated property prices into a bubble that burst with tragic consequences.”

“Toronto condo developers are ramping up efforts to attract buyers, offering their biggest incentives yet amid a market glut. There are some 300-odd new condominium projects that are actively selling units in the Greater Toronto Area, says Mimi Ng, VP of marketing at Menkes Developments Ltd. ‘That’s a lot of developers with a lot of product that’s still sitting on their books that they have to sell.’”

“Sales of these units are being watched closely in Montreal, where real estate players are increasingly concerned a similar glut is forming. ‘In the spring of last year the market was a bit frothy and we saw a lot more undisciplined buying activity happening, and a lot of that was investor driven,’ Ms. Ng says.”

“Home prices in Oregon and the Portland area remain slightly overvalued, according to Fitch Ratings. Nationally, home prices are about 17 percent overvalued, Fitch says, driven largely by major price increases in coastal California. Home prices there are nearing their housing bubble peaks and may soon set new records. Investors and flippers may be contributing to a run-up in prices not supported by actual demand. That means recent double-digit annual increase are unlikely to continue.”

“‘A lot of people have gotten really excited about rapidly rising prices,’ said Stefan Hilts, a director at Fitch. ‘We’re just trying to plant a flag of caution.’”

“The combination of dramatic price increases and fewer bargain deals has been causing investor activity to wane. Investor purchases made up 22.7 percent of all sales in September — down from 23.7 percent in August and the peak of nearly 40 percent in July 2012. The local housing market overall has actually ‘cooled dramatically’ since July, says Michael Orr, real estate expert at Arizona State University’s W.P. Carey School of Business. ‘The main change is a steep fall in demand, which we can see in the 12 percent drop in single-family home sales activity just between August and September alone … The sudden weakness in owner-occupier demand since July is unusual and unexpected,’ said Orr.”

“Nobel Prize winner Dr Robert Shiller was asked when a financial bubble can be defined and how you can tell when there is a bubble. He repied as follows: ‘The core of it is that a bubble is a kind of mental illness. It has to have story: a price goes up, possibly speculatively, which draws attention, people wonder why the price is going up. Then others try to use this. They try to get people interested in the product, and so chase the price up even further.’”

“A new way of measuring poverty reveals California has by far the biggest share of people in economic despair, eclipsing states such as Mississippi and Louisiana, when housing and other costs are factored. The alternative yardstick, known as the supplemental poverty measure, found nearly 2.8 million more people are struggling across the country than the traditional benchmark shows. Using the alternative measure, California had the highest poverty in the country between 2010 and 2012 — 23.8 percent — followed by the District of Columbia and Nevada.”

“‘Anyone who has moved to California from somewhere else knows the dramatic increase of the cost of living,’ said Ann Stevens, director for the Center for Poverty Research at UC Davis. ‘It’s not more surprising that California looks more impoverished. It is really driven by the cost of housing.’”

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