January 10, 2014

Not Only Irrational, But Systematically Irrational

It’s Friday desk clearing time for this blogger. “Real estate agents are hoping to capitalize on Colorado’s marijuana industry– selling homes to out-of-state buyers trying to move to the state for retail pot sales. Real estate agent Bob Costello said he will help clients find homes in pot-friendly cities like Denver. Ideally the home will be far from a school, well-ventilated and not too close to neighbors. ‘You see thinks like, I’m a Christian-friendly realtor or I’m a gay-friendly realtor. Great. So I’ll be a 420-friendly realtor,’ said Costello.”

“For 2014, Tim Hopkins, a former 400 North Board of Realtors president predicted new construction will be a ’strong force’ in the market, particularly in the southern half of the Forsyth County. ‘We’re seeing new construction like we haven’t seen in many years,’ he said. ‘There are new subdivisions going up all over the place, especially south of Hwy. 20.’ ‘If you drive around, [developers] are starting to build communities starting in the 400s and we haven’t seen that in years, probably since around 2007,’ said Tara Locke, president-elect of the 400 North Board of Realtors.”

“Brooklyn is chugging ahead as Manhattan’s notoriously expensive rental market is easing. The median rent in Manhattan fell 1.6% to $3,100, according to Douglas Elliman. The gap between Manhattan and Brooklyn is now just $440 - it has been hovering from about $300 to $450 since the fall. Back in 2008, the gap was closer to $1,100. ‘Prices are down and inventory is up, so all in all now’s a great time to be in the market for a new apartment,’ in Manhattan, said Citi Habitats president Gary Malin.”

“Sellers have been holding their homes off the market until after the holidays, agents say. One challenge in January will be helping sellers price their home according to the current market, instead of the expectation that values will rise, said Diane Busch, a Coldwell Banker agent in Indian Wells. ‘The problem is that sellers also tend to be a little too optimistic,’ Busch said. ‘They really need to look at what the numbers are for the sale of their property.’”

“Looking over their shoulder at 2013, desert real estate brokers say the year was a turnaround in equity sales. Fewer homeowners had short sales and foreclosures. Home prices leaped upward, and then flattened from summer through the end of the year. ‘Frankly speaking, we’re off the highs,’ said Rick Jenkins, vice president of the Orange County and desert regions for Coldwell Banker.”

“Britt Reints was preparing to travel for about a year, so she spoke to real estate agents about selling her home or renting it while she was away. ‘Once we found out it would take about ten years for us to even get back to even, we decided to cut our losses and short-sell the house,’ she says. ‘That obviously ruined our credit, but it also made us leery of purchasing again until we’re certain we want to live in one place for at least 15 years. The idea that paying a mortgage is just like paying rent—but better—is no longer something we can just assume.’”

“The number of properties sold in Hong Kong fell by more than a third last year to a 17-year low as a surge in sales tax, designed to burst a price bubble, turned off buyers in one of the world’s most expensive cities. Li’s Cheung Kong (Holdings) Ltd, the city’s second-largest developer, offered price discounts of up to 25 percent for a new residential home development launched last weekend. ‘In 2014 there will be pressure to cut prices further for inventory clearance,’ said CLSA property analyst Nicole Wong, adding that developers had already been forced to price homes in newly built properties some 20 to 30 percent below those for sale in older buildings. Supply for new homes may increase by up to 85 percent in 2014, she said.”

“According to transaction records from Singapore Real Estate Exchange agencies, 20.2% of HDB resale deals closed below valuation in December. In comparison, 13.0% closed below valuation in November. December posted the highest ratio of negative COV transactions since the financial crisis in May 2009, when the ratio was 25.9%. Five HDB towns saw more than 30% of all transactions closed with negative-COVs. More than half of all HDB transactions in Seng Kang and Punggol closed below valuation.”

“Prices of houses traded on North Korea’s black market are dropping precariously, causing panic among dwellers, according to sources inside the country. ‘Housing prices in Gilju-gun, North Hamgyong province dropped to around U.S. $500 from what was U.S. $3,300 last summer,’ a source from the province told RFA’s Korean Service on condition of anonymity. He said that in North Hamgyong’s Cheongjin city, the trading price for a two-bedroom home had plummeted to around U.S. $3,300 from U.S. $8,300 in the summer last year, and yet no buyers were showing any interest.”

“A second source in North Hamgyong province said that housing prices appeared to be linked to North Korea’s local unofficial marketplaces, or ‘jangmadang.’ ‘The overall cost of products at the jangmadang also declined around the middle of last month while house prices were falling,’ the source said. ‘In recent years, the housing prices and prices at the jangmadang had [simultaneously] skyrocketed … I think the increasing prices of houses slowed demand for housing and led to the housing price collapse.’”

“Nobel Prize winner Paul Krugman, warns against a Norwegian housing bubble. The Prime Minister dismisses his concerns, but Krugman fears her statements may end in humiliation. Krugman, however, thinks that Solberg statement is in itself a sign of a bubble-situation. ‘I had not expected political reactions to this. Can you imagine a president or state leader going out in the public to declare that there aren’t any bubbles in the market? That can quickly end in humiliation,’ Krugman states and adds ‘When politicians say that everything is ok, that is a sign of a bubble-situation.’”

“Former Federal Reserve Chairman Alan Greenspan, who presided over much of the housing bubble before leaving office Jan. 31, 2006, says it was impossible to predict the destructive outcome of that bubble. ‘It’s a question of what’s causing these various crises,’ he told MSNBC’s ‘Morning Joe’ program. ‘The basic problem is we can’t forecast beyond the immediate horizon. Everyone wants us to. But no one in the real world can do that.’”

“In looking back at the financial crisis, Greenspan said he has asked himself ‘is there anything that would have told me things were about to crack?’ The answer: ‘I would say no,’ Greenspan said. ‘There is no bubble out there which you can tell when it was going burst.’”

“It’s important to note that human irrationality played a role in the housing bubble, Greenspan says. ‘Everybody assumed a substantial part of human beings were rational. There are big disagreements on what proportion of it was not only irrational, but systematically so. Economists would essentially say if it were random, you could just forget it. But it’s not, it’s systematic.’”

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