The Housing Bubble

The Union Tribune reports from California. “Q: What do you think the San Diego County median home price, now standing at $415,000 (via DataQuick), will be at the end of 2014? Linda Lee, president of the Greater San Diego Association of Realtors: ‘While it’s difficult for any expert to predict market prices, I believe the median price will be higher at the end of 2014 than it currently is now. I estimate the median home price in San Diego County will be approximately 21 percent higher at the end of 2014.’”

From ABC News 10. “Homebuyers Jeffrey and Amy’s dream home includes a spacious kitchen and bright rooms – something a Rancho Penasquitos home has but again, it comes down to the price. A 4-bedroom home in that area is going for $649,000, a drop in price since it was listed in September. ‘Prices have stabilized and because of that, it will be less competitive,’ said Angela Ordway, who is with the Greater San Diego Association of Realtors. ‘We won’t see a lot of multiple offers, so there will be good chances that the first-time home buyers can get those key properties.’”

“‘As newlyweds, we were saving for a down payment and no matter how much we save, we can’t keep up with investors,’ said Amy. ‘The prices are definitely intimidating,’ said Jeffrey. ‘I’m thinking about a few years later down, is it going to drop in price if we’re putting down that much money?’”

The Sacramento Bee. “The housing market roared back to life – for a while, anyway. During the first half of 2013, the market pulled out of its five-year tailspin faster than anyone predicted. At midyear, prices were up nearly 30 percent compared with 2012 – and about 50 percent from the trough two years ago. And then, as summer began, the carousel stopped. Higher prices shooed away many of the investors. Almost out of nowhere, the inventory of homes for sale doubled. Experts called it a breather, not the end of the comeback. Pat Shea, president of Lyon Real Estate in Sacramento, predicted a ‘more stable appreciation’ in prices in 2014 – something in the 5 percent to 10 percent range.”

The Desert Sun. “In November, there were 745 homes and condos sold across the desert, a 7.7 percent drop from the year before, according to DataQuick. Existing single-family home sales fell 18.8 percent from November 2012. Declining sales were due to a short supply of homes across the desert, agents said. But new construction homes have bumped up some inventory, and agents expect more homeowners will put their houses on the market after the holidays. John Burge, president of the Palm Springs Regional Association of Realtors, expects the high end of the market to pick up in January.”

“‘The homes priced a million-plus have taken a price dip,’ said Burge. ‘We’ll see that disappear in the middle of January. More of our buyers will be back on the market looking.’”

“During the summer, the desert hovered around three months of inventory. In November, the inventory increased to about five and a half months, according to the California Desert Association of Realtors. Jon Caruana, an HK Lane agent based in La Quinta, said he had 15 listings at his lowest point. Now, he has about 40 listings, he said. Caruana said investors who snapped up short sales mainly cared about price. Now, with more equity sales, buyers are looking for the bigger package: upgrades, location and appearance. ‘We’re getting back to a market where your house really has to look good,’ Caruana said.”

The Santa Cruz Sentinel. “The recovery has yet to reach the high end. For homes selling for more than $1 million, the median price rose less than 1 percent. ‘Only two sales have been above $3 million this year,’ said longtime agent Tom Breszny. ‘We had more sales over $2.5 million and $3 million in 2008 (the crash year) than what we had this year.’”

From CBS Local. “With soaring real estate prices, and little supply of homes to occupy, East Palo Alto may allow homeowners to let people live in their garages and storage buildings. ‘The housing crunch does not get any easier, it doesn’t get any less expensive. And we don’t want to end up with people going homeless,’ East Palo Alto Councilmember Ruben Abrica told KPIX 5.”

The San Francisco Chronicle. “Art Concordia, a teacher with the district since 1998 and at Balboa High School since 2002, recently moved to his in-laws’ house in Pleasant Hill. His wife is pregnant with twins, and they also have a 13-month-old and an 11-year-old son from a previous marriage who lives with them half-time. He said it would break his heart to leave Balboa, but many nights, he and his son don’t get home until after 8 p.m.”

“‘When I have my son with me, that’s just brutal. By the time I get home, the 1-year-old is usually asleep,’ he said. ‘I get paid well - there’s no way I am saying I don’t make good money. It’s just the cost of living is so high.’”

The Los Altos Town Crier. “The California Association of Realtors recently reported that housing affordability in the third quarter of 2013 fell for the sixth consecutive quarter. California housing affordability hit a record high of 56 percent in the first quarter of 2012. The third-quarter 2013 figure fell below 35 percent for the first time since the third quarter of 2008.”

“Homebuyers needed to earn a minimum annual income of $89,170 to qualify for the purchase of a $433,940 statewide median-priced existing single-family home in the third quarter of 2013. The monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $2,230, assuming a 20 percent down payment and an effective composite interest rate of 4.36 percent.”

“The composite interest rate was 3.72 percent in the third quarter of 2012. The median home price was $339,930 in the third quarter of 2012, and an annual income of $65,828 was needed to purchase a home at that price. The California Association of Realtors reported that nearly every county experienced a double-digit decline in affordability when compared to last year.”

“In Santa Clara County, only 21 percent of homebuyers could afford to purchase a median-priced single-family home in the third quarter of 2013, down from 32 percent in the third quarter of 2012. Buyers needed to earn a minimum annual income of $165,420 to qualify for the purchase of an $805,000 median-priced single-family home. The monthly payment, including taxes and insurance on a 30-year fixed-rate loan, would be $4,140.”

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WGCU reports on Florida. “According to the latest Market Trends statistical report from the Fort Myers-based real estate company Land Solutions, Inc., home permits up 61% in Lee, Collier and Charlotte Counties. ‘Where we’re at right now is ‘Wow,’ to put it in one word, it’s been an incredible year.’ said Land Solutions CEO Randy Thibaut. According to Thibaut, its all part of a positive trend, but that there’s also concern and confusion about the market as we look toward 2014. ‘While we’re experiencing these great results and everyone’s getting back to work and permits are being pulled and homebuyers are buyer, we also have to look at, ‘Is it too good to be true?’ The main question that we get is ‘Is this sustainable? Are we in another run up?’”

From Miami Today. “Brickell’s development business is back, and it’s booming. Whereas last decade saw empty condo towers standing tall as skeletal reminders of a recession past, 2013 saw the continued construction of the Brickell CityCentre, as well as the sale and groundbreaking on numerous other projects from developers like Related Group and Rilea Group.”

“‘Construction has come back really fast, a lot faster than everyone thought,’ said Diego Ojeda, VP of the Rilea Group, which broke ground last week on its 1080 Brickell Ave. condominium project, the Bond. The 43-story residential building offers 328 planned units, averaging around $500,000 a unit, Mr. Ojeda said. Looking forward, however, this boom in construction not just in Brickell but across Miami may be hampered by construction costs.”

“‘Construction costs have already escalated a lot, mainly in cement and metals. You’re seeing an increase by the month,’ Mr. Ojeda says. Because cement and metals aren’t simply finishing materials for interiors, a delay of a month in planning will result in a jump in construction costs, he said. So build now, and build fast.”

The Miami Herald. “While home and condo prices in Miami-Dade and Broward counties continue to post double-digit gains from 2012 levels, real-estate experts broadly agree that price increases will slow during 2014, just as sales are doing. ‘There are definite, definite signs the market is shifting [from a seller’s market] to a more balanced one,’ said Mark Zilbert, CEO of Miami Beach-based Zilbert International Realty, who has watched prices for beachfront and Brickell-area condos cool modestly from their summer peaks.”

“With prices up sharply, more inventory is coming up for sale. The selection of Miami-Dade existing homes and condos listed for sale continued to increase in November, with a 14 percent gain in single-family inventory from a year earlier and a 23.5 percent jump year over year in condos on the market. More unit owners have been listing their condos for sale, sensing that now is the time to sell — before a host of new projects under construction are completed. ‘Sellers are finding more competition [from the increase in available inventory], and sellers aggressively pricing their condos are going to find they’re not going to move,’ said Zilbert.”

“Meanwhile, cash-rich investors are seeing fewer bargains in South Florida. ‘As home prices have increased, it’s starting to cool off a lot of investors and hedge funds,’ said Stephen McWilliam, past president of the Greater Fort Lauderdale Realtors.”

The Tampa Tribune. “A conspicuous drop in condominium and townhome sales in the Tampa Bay area last month may have been caused by the perception of unaffordable flood insurance rates, if not the reality, real estate agents say. Most agree that stories of skyrocketing flood insurance premiums on older properties scared away many buyers.”

“The problem is the federal flood insurance reforms mostly don’t affect condominiums, at least not yet. ‘For a lot of people, buying on the water in Florida is psychological,’ said Cliff Roe, who runs Roe Realty in Seminole. ‘I think what it boils down to is everybody is confused about flood insurance and people just aren’t buying.’”

The Tampa Bay Times. “Tampa Bay home sales slid 10 percent last month compared to a year ago, as short sellers and cash buyers continued to exit the market, new MLS data show. About 2,500 existing single-family homes sold locally in November, down from about 2,800 the year before, the largest year-over-year drop in three years. Recovering prices have squeezed out investors, with cash deals dropping last month to 40 percent of total sales, the lowest point since early 2012.”

“Low inventories of good homes for sale — because sellers are asking too much, or are waiting for prices to keep climbing — are stalling potential buyers. And Realtors in Pinellas said ‘we can’t deny’ the effect of substantial flood insurance increases on slowing potential home sales.”

The Sun Sentinel. “2014 might be the year the market finally takes a breath. Analysts predict prices will stop rising at a breakneck pace, bringing moderation to the market and making homes a more stable and predictable investment. On an annual basis, the median single-family home price in Broward County has increased by more than 20 percent for 12 consecutive months, the Greater Fort Lauderdale Realtors said recently. Palm Beach County’s median has jumped by double digits for 13 months in a row, according to the Realtors Association of the Palm Beaches. Historically, home values increase at about 4 percent a year.”

“‘What I’m seeing is the rate of growth will be slower — but that’s a positive thing,’ said Jonathan Gelman, a real estate lawyer for the Greenberg Traurig firm in Fort Lauderdale. ‘A slower rate of growth will help us avoid the frothiness or a bubble in the market.’”

“A leveling of prices in 2014 will make conditions less favorable for sellers, experts say. Sellers will face more competition and won’t be able to dictate terms as they did in 2013. ‘There is a window of opportunity,’ said Douglas Rill, broker for Century 21 America’s Choice in West Palm Beach. ‘But it’s really important that if a seller has something, they should get it on the market quickly.’”

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A reader suggested a topic on changes in lending. “Is there time to save the Spring? We have FHA loan limits dropping, but that could be changed pretty quickly. A little micro taper, same. Prices starting to drop in some areas again. I seem to recall this happening once before after the crash, drops that looked like they’d start to turn the tide back to a more historically normal real estate market, and then they put in the floor.”

The Daily Herald. “Starting Jan. 1 Federal Housing Administration guidelines change and the limit for single family homes goes down to $271,050 from $323,000. That means that if you’re wanting to buy a home with an FHA-insured loan you will get less house than you could if you closed by the end of the month. For two-family homes the new FHA limit will be $347,000, and $419,425 for three-family homes and $521,25 for four-family homes in Utah County.”

“The good news for local sellers is that they, on average, are getting nearly their asking price for well-priced homes. That doesn’t mean that listings aren’t expiring or being taken off the market. Many of the potential sellers I’ve talked to whose listings have expired say they now want to wait until spring before relisting. Many are hopeful that waiting will net them more cash for their homes. The threat, however, is that interest rates are ticking upward, which could affect their sales price.”

“Meanwhile, as the economy gets stronger, mortgage rates are also working their way up, which affects both buyers and sellers. It’s not the time to wait to buy. With every uptick you buy less home or pay more for the home you want. So now buyers have a one-two punch to deal with: rising prices and interest rates. And then FHA comes along and lowers the limits. Go figure. Fully one third of all home purchases in this country are funded with an FHA loan.”

The Milwaukee Journal Sentinel. “Lenders say new federal rules that stress a cookie-cutter approach to who qualifies for a mortgage are about to make it more difficult and time-consuming for many home buyers to get financing. The rules, which take effect in January, are intended to ensure borrowers can repay their loans. They contend the standardized rules issued as part of Congress’ financial reform package are an overreaction that will make it tough for some loan-worthy consumers to get a mortgage; perhaps enough of them to affect the housing market recovery.”

“‘This is going to really affect consumers,’ said Thomas J. Pamperin, chairman of the Wisconsin Bankers Association. ‘This is going to be a big deal.’”

“One key concern of bankers is what the federal Consumer Financial Protection Bureau is calling a ‘qualified mortgage.’ Under a rule that takes effect Jan. 10, a borrower’s debt expenses must be no more than 43 percent of total gross income to be eligible as a qualified mortgage. A qualified mortgage has the bureau’s ’safe harbor’ protection, meaning a lender is protected from lawsuits by homeowners who claim their foreclosure resulted from flawed underwriting.”

“The new rules say mortgages that exceed the 43 percent debt-to-income cap won’t have the stamp of approval by the Consumer Financial Protection Bureau and wouldn’t have the same legal shield if the loan ever went bad. Mortgages underwritten to the standards of Fannie Mae and Freddie Mac and other federal agencies also will be considered qualified mortgages.”

“Pamperin said the rules don’t take into account that banks in many smaller communities know their customers and whether they can make their monthly mortgage payments _ even if their debt-to-income ratio is greater than 43 percent. ‘There’s a lot of people who are self-employed. There’s a lot of people who make their living from the land in some manner. When you start talking about income … these people really know how to make a dollar go a long way,’ Pamperin said. ‘So when there are rules that come out that say, ‘We know what people need to spend on housing,’ it’s difficult for these people to understand that somebody in Washington is making the decision as to who’s going to qualify for a mortgage.’”

“The financial condition of borrowers will receive more scrutiny as lenders attempt to make sure debts and income are what borrowers say they are, bankers say. ‘Right now we’re turning over boulders in someone’s history,’ said Michael Kellman, senior vice president for consumer credit sales at Brookfield, Wis.-based North Shore Bank. ‘Now we’re going to be turning over every pebble.’”

8 News Now. “Underwater Nevada homeowners may end up owing tens of thousands more in taxes if the federal government does not act soon. When people short sell their home or when banks forgive part of a homeowner’s loan, the feds count that as extra income on taxes. Congress is set to let the Homeowners Tax Relief Act expire at New Years, which means Nevadans already in debt could face even more debt.”

“Foreclosure expert Tony Martin says 2013 was a roller-coaster year for the Las Vegas housing market. ‘If you take away the ability to short sell, I think the only option that you have for banks to raise capital is to auction,’ Martin said. If auctions get flooded, then all Las Vegas home values, which are slowly climbing out of recession lows, could start sliding once again.”

The Portland Business Journal. “Homebuyers in Portland and 21 other metro areas are more optimistic about their chances of finding the right home as the residential real estate market cools for the winter. Redfin, an online real estate firm, surveyed 518 active homebuyers who have toured with a Redfin agent in the months since August the week of Nov. 21 to 24. Interestingly, homebuyers showed unreasonable expectations around mortgage interest rate. Redfin said more than 80 percent of buyers believe that the ‘normal’ rate for a 30-year mortgage is below five percent. In reality, the interest rate for a 30-year mortgage has averaged 6.7 percent since 1990.”

“Of concern, 40 percent of homebuyers told Redfin they would be unable or unwilling to buy if mortgage rates rise further — a likely event.”

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It’s Friday desk clearing time for this blogger. “The secondhand housing market cooled in December in Beijing and Shanghai as turnover fell, and an increasing number of sellers dropped prices, leading industry observers to wonder if the move indicates an inflection point in the white-hot property market. In Beijing, the volume of secondhand transactions decreased 16.6 percent in the period from Dec 1 to Dec 22, compared with the same period in November, according to Homelink. In October, 59.7 percent of sellers registered at the brokerage offered a lower price than in the previous month, and the same ratio rose to 69.3 percent in November and to 71.8 percent in December. The same thing happened in Shanghai.”

“In some cases, the closing price for a single unit dropped 250,000 yuan ($40,851) in a short period, while the offering price for some homes on sale also fell by more than 10 percent, Chinese media reported. ‘The credit supply at the end of the year is usually tight, and that contributed directly to the cooler secondhand market. Whether this is a temporary phenomenon depends on the credit supply at the beginning of 2014. If credit conditions remain similar, then this could last,’ said Zhang Dawei, director of Centaline Property’s research center. ”

“Capital has been fleeing Southeast Asia as investors seek higher returns in North America. ‘Property companies will do badly, particularly in Singapore where there’s a perceived housing bubble,’ Lee King Fuei, a Singapore-based fund manager at Schroders, which oversees about $420 billion. ‘Singapore’s neighbors have not been doing so well, particularly Indonesia, where many of the property buyers in the city come from,’ said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management Ltd. ‘There’s no driver to spur investor interest in Singapore. The recent penny stock crash isn’t really helping the case for investing in Singapore.’”

“At the end of the second quarter this year, says a Liases Foras report, the Mumbai Metropolitan Region had an inventory of 58 months, NCR 41 months, Hyderabad 32 months, Pune 31 months and Bangalore 30 months. ‘This has been one of the worst years in the realty sector… sales are down, inventory is high and prices have peaked,’ says Pankaj Kapoor, managing director, Liases Foras, a real estate research firm. ‘There is a wide gap between affordability and pricing, which is why sales are not happening.’”

“After years of a hot streak, the real estate market in Canada appears set to cool to a simmer in 2014. ‘Credit growth has slowed down, home ownership levels are at record levels and employment growth is moderating. Everything is telling me that this market is going to level out, go sideways. Maybe go through a bit of an adjustment,’ said Scotiabank chief economist Warren Jestin.”

“With a budget of around $400,000, Mike Lock and his wife were severely limited in their options in Toronto where the average house price in November was nudging $540,000 - up 11 per cent year-over-year. But last week, their offer of $385,000 for a house in east Toronto was accepted. ‘Back in 2010, I thought things would go down because prices were so high. But it just continued shooting up since then,’ he said. ‘I’ve learned the lesson that you can’t time the market; you buy when you can and you hold for a long time.’”

“Rising home prices and diminishing housing affordability pulled home sales down across California last month.The median home price of an existing single-family house in Fresno increased to $193,020 last month from $182,620 in October. A year ago, the median home price was $148,240. ‘Improving home prices are a double-edged sword for the housing market,’ said Kevin Brown, the 2014 association president. ‘While welcomed news for homeowners and prospective sellers, diminished affordability is squeezing out many buyers and dampening their enthusiasm for home purchasing.’”

“Existing home sales dropped for the first time in more than two years statewide and nationwide and slowed considerably in Alachua County in November. The 6.6-month’s supply of homes on the market also includes a portion of distressed properties and stagnant listings that are priced too high, said Greta Rice, president of the Gainesville-Alachua County Association of Realtors. ‘There’s not as much inventory to go around as far as customers are concerned,’ Rice said.”

“Now that demand for Big Sky property is on the rise, so are the prices. ‘We’re starting to see pricing more ($300,000) and up. The common blight of a resort town is how expensive the real estate is, the dirt underneath the home,’ said Big Sky Real Estate owner Martha Johnson. While there is plenty of opportunity for employment, those prices aren’t affordable for most of the Big Sky workforce. ‘We’re entering right back into the conversations we were having pre-bust. We’re having problems finding housing for employees in Big Sky, so that pushes pressure out towards Bozeman and down south towards West Yellowstone,’ said First Security Bank General Manager Joe Miller.”

“While the data supporting the case for a housing bubble are out there, few people are actually paying attention, real estate advisor Mark Hanson said on CNBC. ‘According to our research, house prices on a monthly payment basis today, with rates at 4¾ percent, are more expensive than they were in 2006 at the height of the bubble. And that’s because from 2003 to 2006, people used other than 30-year fixed-rate loans,’ he said.”

“In California, housing prices on average are 26 percent lower than they were in 2006, while housing payments were 12 percent, higher, he noted. ‘There’s not a lack of supply in which to live out there,’ Hanson added. ‘There’s hundreds of thousands, if not millions, out there of individual and institutional investors who have bought houses who are readying them to put on the market.’”

“U.S. District Judge Jed S. Rakoff spoke exclusively with CNBC in some of his first public comments following the controversial essay in the Jan. 9 edition of the New York Review of Books headlined, ‘The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?’ In the article, the judge writes that if the financial crisis is a result of intentional fraud, ‘the failure to prosecute those responsible must be judged one of the more egregious failures of the criminal justice system in many years.’”

“‘If you prosecute a CEO or other senior executive and send him or her to jail for committing a crime, the deterrent effect in my view vastly outweighs even the best compliance program you can put in place,’ he said. ‘I think it’s common sense to say that the longer away from a crime it gets prosecuted, the less deterrent effect there is.’”

“Five years after the 2008 housing bubble burst, history is repeating itself. The Associated Press reported this week, a number of economists are worried the Federal Reserve’s policy of maintaining super-low, below-market interest rates is inflating asset bubbles throughout the economy.”

“Nothing in economics is so politicized as the forecasting of business cycles, and for every bear who sees a pending collapse, there are two or more bulls who say never mind the torpedoes, full speed ahead. For them, bubbles aren’t a bug, but a feature, at least until they burst. That is the problem with bubbles. Not only can no one agree on when the economy is in a bubble until it’s too late, no one can even agree on whether bubbles are good or bad until it’s too late.”

“Oddly, no one ever seems to think bubbles were good after the fact, by which time the embarrassing proclamations are already in print or on YouTube for all posterity to see. In an Aug. 2, 2002, column, Nobel Prize winner and New York Times columnist Paul Krugman wrote, ‘To fight this recession the Fed needs … soaring household spending to offset moribund business investment. And to do that … Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.’”

“We saw how well that worked.”

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