November 29, 2013

Locusts, Hot Money And Vacant Houses

It’s Friday desk clearing time for this blogger. “Builders are putting up new homes in 33 different communities in the Boulder Valley, said Veronica Precella, chief executive of the Boulder Area Realtor Association. Anthem Highlands homes ranging from 1,900 square feet to 3,200 square are expected to sell for $300,000 to $550,000, said Robyn Asbury, director of sales at Richmond American. The Candelas neighborhood going up in Arvada will feature 4,800-square-foot homes in the $600,000 to $800,000 range, Asbury said. Calmante homes are expected to sell in the ‘low 500s’. Overlook town homes are expected to sell for the ‘high 300s to the low 400s,’ said aul Gortzig, director of sales. ‘We want to price (Calmante and Overlook) in line with what the market is asking for,’ Gortzig said.”

“‘Our homebuyers are finding slim inventories,’ Precella said. ‘Now we’re going to add 20,000 houses to the market.’”

“The supply of homes for sale in the San Fernando Valley increased 21.3 percent from a year earlier in October, but the bump in inventory did little to move the market, the Southland Regional Association of Realtors said. Last month, sales of previously owned houses fell 18 percent to 521 properties, from 635 a year earlier. Sales rose 3.4 percent from 504 in September. The median house price increased 22.4 percent, to $465,000 from $380,000 a year ago, and fell 10.6 percent from $520,000 in October.”

“‘Buyers must accept that deep discount prices are gone, and sellers who ask too high a price will see diminished activity and possibly no multiple offers,’ said Jim Link, the association’s CEO.”

“Across Portland, hundreds of homes—one expert says it could be as many as 1,000—sit vacant in foreclosure limbo. In many cases, the absentee lender doesn’t maintain them, the city isn’t monitoring them, and squatters are moving in. It’s a strange problem to plague a city where vacancy rates are at all-time lows and home prices are soaring. ‘We identified early on that this was going to be the fallout from a massive foreclosure crisis,’ says Angela Martin, executive director of Economic Fairness Oregon. ‘The city wouldn’t have to police it if the owners were taking responsibility. But that hasn’t happened.’”

“Real estate agents say the big cash investors who took over the Las Vegas housing market last year are now leaving. ‘They made their money and right now they’re dumping their product right now, and that is why there is more inventory available,’ Omar Lopez with Cosmopolitan Real Estate said. ‘Now with the inventory going higher, we’re going to see builders offering great incentives.’”

“Julia Lau, a leading Vancouver real estate agent, told me this year that 80 per cent of buyers were mainlanders. Compared to Hong Kong, roiled by talk of locusts and Chinese hot money, there’s been little backlash or even discussion about this phenomenon in Vancouver. Dr David Ley, a geographer at the University of British Columbia, said Chinese migration was ‘undoubtedly’ a driving force at the top end of the market in premier districts. Ley said he was surprised there had been no ‘political pushback’ against the effect that various Canadian immigration schemes had had on Vancouver’s property market.”

“For instance, under the popular investor-class scheme, visas are granted to foreign millionaires prepared to loan C$800,000 to a provincial Canadian government interest-free for five years. Such schemes have attracted 36,892 rich immigrants to British Columbia over the past eight years, of whom 66 per cent were mainland Chinese. With Hongkongers and Taiwanese included, the proportion from China rose to 81 per cent. Nearly all of these millionaire households have settled in Metro Vancouver. The investor visa scheme is so popular that the government last year froze new applications to deal with a backlog.”

“Chinese interest in Australian residential property is booming, with chief executive of McGrath Estate Agents John McGrath describing it as the biggest surge from an offshore market in his 30 years in real estate. ‘In some suburbs 90 per cent of new product will sell to Chinese buyers,’ he said.”

“The most infamous example of absentee owners is the £1.2 billion One Hyde Park development, which was dubbed ‘London’s Mary Celeste’ after it emerged only three of its 85 apartments were used as full-time homes. Shadow housing spokesman Emma Reynolds said too many homes were becoming money-making schemes for rich foreigners who have no intention of living in London. ‘Ideally we would like to stop altogether people using London homes as piggy banks for the world’s wealthy,’ she said. ‘There is a housing crisis in London yet there are about 50,000 empty homes.’”

“While politicians glibly talk about housing the people of New Zealand in new, cheap and cheerful residences that won’t tear bank accounts to shreds, the key thing that’s easy to overlook is the attitude of the construction industry itself. Therefore the latest Ministry of Business, Innovation and Employment (MBIE) report on the construction sector provides some thought-provoking reading.”

“‘Twice as much income for the same amount of work’. In fact one said ‘I never accept any commission for a house under a million dollars.’ Then there is the ‘chief executive of a building firm’ who said that their main driver was providing return for shareholders ‘and we don’t build low cost, affordable homes because they are unprofitable.’ Then there’s another architect: ‘Why would a builder who does three houses a year build a couple of low cost houses? Spend equal amount of time at it…There could be a profit, a modest profit. But it’s too modest and too risky.’”

“Mumbai’s residential property market is in ‘dire circumstances,’ says Knight Frank. The unsold stock of homes in Mumbai has reached 130,000 units and developers have been delaying new launches to focus on selling the existing inventory. To that end, developers have been reducing prices by up to 25 per cent, particularly in the premium segment, it says. ‘Widely believed to be in the midst of an asset price bubble, the cash-strapped Indian real estate landscape today is rife with escalating unsold inventory levels,’ the report said.”

“Norway is moving closer to easing mortgage lending standards as the nation’s deflating property market prompts concern among lawmakers that existing regulations are too tight. Real estate prices, which have doubled over the past decade and touched a record high this year, are now dropping faster than the central bank had predicted. ‘It’s a rather hard landing,’ said Erik Bruce, senior economist at Nordea.”

“Last week, Janet Yellen was asked at her confirmation hearing if the Fed’s unprecedented run of accommodative monetary policies might be leading to a bubble in asset prices. Yellen would do well to acknowledge that the Fed’s current policies may not be working as well as they should. In the immediate aftermath of the financial crisis, quantitative easing made sense as an emergency measure. The emergency is over now, but the practice continues. The most obvious beneficiaries of the Fed’s policies are those who own stocks and other assets: among them, the one per cent of Americans who received ninety-five per cent of the income gains between 2009 and 2012. Despite Yellen’s opinion, there are signs that an asset bubble may indeed be forming: rising home prices, stocks, and subprime car loans among them.”

“Thomas Hoenig, the former head of the Kansas City Fed, who had long voted against interest-rate cuts, explained the current challenge succinctly in the film ‘Money For Nothing: Inside the Federal Reserve’: ‘The United States has consumed more than it’s produced, systematically, for at least a decade. What country, in history, ask yourself, can do that indefinitely, forever?’”

Holiday Topic Suggestions

A Turkey Day report from Forbes. “According to the American Farm Bureau, the price of a Thanksgiving dinner for 10 is actually 44 cents less than last year. Affordable food prices represent good news for American consumers as we start the holiday season. Adding to the good news for home owners, housing prices are up about 6% across the country. Many Americans will feel a little bit wealthier this holiday season as their biggest asset has appreciated and costs – for Turkey at least – stay low.”

“Ironically, falling prices are exactly what central bankers around the world are trying to avoid. The immediate focus is on keeping rates low to stimulate the economy, increase growth and reduce unemployment.”

“Using prices for chicken as a stand-in for turkey, I compared prices for cities around the country. There is clearly a huge difference in the prices that families will pay for their Thanksgiving dinner across the country. These changes show differences in cost of living between cities. Many of the cities that have had high annual home price appreciation also had high prices for chicken. Prospective homebuyers in these areas may feel the opposite side of the wealth effect, as both housing and food are increasing rapidly at the same time.”

New York Magazine. “Your family’s conversation at Thanksgiving dinner will probably begin with fairly innocent topics, and move on to slightly more serious ones. But the overwhelming odds are that, sometime between the second helping of turkey and the pumpkin pie, someone at your Thanksgiving table will bring it up: the economy. Lucky for you, when your Uncle Chad (and it’s always Uncle Chad) starts talking about the stock market, the deficit, or Ben Bernanke’s money-printing machine, these handy talking points will help.”

“The subject: Quantitative easing (”QE”). The one-minute summary: Since the financial crisis, the Federal Reserve (the money-think place in Washington) has been boosting the economy by buying a lot of stuff from banks. That program is called quantitative easing. It’s been pushing stock markets to all-time highs, and it’s made a lot of people on Wall Street very rich. It’s probably going to end soon.”

“What Uncle Chad will say: ‘The markets are addicted to easy money, and Ben Bernanke just keeps printing, printing, printing. We’re going to get massive inflation and the dollar will become worthless. You’ll see, it’ll be the Weimar Republic all over again.’ Is he wrong? Yes. There has been no significant inflation since the end of the financial crisis, despite the dire warnings of Bernanke haters. And while QE hasn’t worked perfectly, it’s helped keep unemployment from rising to Depression-era levels.”

“Say this to end the argument: ‘You know, Uncle Chad, you’re right. The dollar is being totally debased by all this reckless money printing. Hey, how’s your gold fund doing these days?’”

“The subject: Wall Street greed. The one-minute summary: Wall Street banks break the law sometimes, and are generally greedy. What Uncle Chad will say: ‘If Eric Holder and his cronies actually did their job, all these crooks would be in jail.’”

“Is he wrong? Not totally. There was a lot of bad behavior on Wall Street this year. (As in every other year.) But this has been a historic year in terms of punishing Wall Street misdeeds. Eric Holder wrung a $13 billion settlement out of JPMorgan Chase for mortgage fraud – the largest corporate settlement in history. Hedge funds are pleading guilty to insider trading. And while it’s true that no major bank executives went to jail over the financial crisis, the new chair of the SEC, Mary Jo White, is taking a tougher approach to busting financial crimes than her predecessors.”

“Say this to end the argument: ‘Unfortunately for Eric Holder, it’s not against the law to be stupid.’”

The Housing Bubble Blog on November 26, 2008. From the comments, “Comment by 2banana 2008-11-26. ‘I am buying with three small kids (so flame away). However, it is either cash or credit card that will be paid in full when the January bill comes in. I can not understand people who go into debt for Christmas and take 5-6 months to pay it off (and I do know people like that).’

“Also - something we all do as a family is ‘buy’ gifts from the Samaritans Purse (like a well or medical supplies for a village). It is very interesting what the kids ‘buy’ with their own money. Sometimes it is very surprising (like they use all their money they saved for other things for this). Maybe that is the best present of all.”

“Comment by Olympiagal, 2008-11-26.

‘I can not understand people who go into debt for Christmas and take 5-6 months to pay it off (and I do know people like that).’”

“I know people like that, too. Crazy, innit? But HERE’S even a worser and crazier thing: a few years ago I worked with a girl who was getting a divorce after 3 years of marriage and, get this, part of the terms they were arguing over was who had to keep paying off the bills for their…wedding. Huh? Huh?

“Comment by Olympiagal, 2008-11-26. ‘Tell us about your newborn, Muggy. Is it cute? Are you training it to be a good future HBBer? Can it say ‘Mama, dadda, loan-to-value ratio’, and stuff like that?’”

“Comment by Olympiagal, 2008-11-26. ‘I come from a giant clan of exuberant Christmas-lovers. And I do mean ‘giant’; I’m from Mormon Land, also known as Utarr, and they take that advice from Sweet Baby Jeebus to ‘multiply and replenish the earth’ seriously. Lessee, I’ve got 67 cousins on my dad’s side. I forget how many on my mom’s side. I don’t pay attention to that side anyhow, as them’s boring. They all still have all their fingers, no scars, and few jail-house and/or homemade tattoos, for instance. And, for some reason, most of them have grown up to be dentists. Odd. I think that’s odd. Don’t you guys think that’s odd?’”

“‘I mean, that’s a lot of dentists. I bothered to show up to one of their reunions and everyone was peering inside each other’s heads.
Outta there!”

“My point is: we love Christmas! Christmas! Christmas! *sits up straight and emits a mighty whoop from the festive Olylungs*”

“And yes, that would be first cousins. And ’bout near every single one of us has got mighty lungs, a translucent hide, a fondness for misbehaving and for trees, and a desire to see what happens if you poke something, anything, who cares what it is, with a stick. These would appear to be what Mendel termed ‘dominant traits’.”

“Hahahaha! That seems funny to me, for some reason.”

“Ahhhh, family… I can’t wait to see them all. And to argue with them all. Maybe I’ll argue alphabetically this year. I suspicion I missed a few arguments last year, in the hurly-burly.”

Bits Bucket for November 29, 2013

Post off-topic ideas, links, and Craigslist finds here.