December 27, 2013

Back Into Conversations We Were Having Pre-Bust

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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