January 31, 2014

The Fiscally Irresponsible Will Be Burned

It’s Friday desk clearing time for this blogger. “London’s homes generated more wealth than the entire New Zealand economy last year as their total value soared by in excess of £100 billion, according to new research. The last handful of London homes to go on the market for less than £100,000 have been sold or are under offer. Agents said a ‘milestone’ had been reached, with flats never again likely to be valued in five figures, barring a property market collapse. Property search engine Placebuzz founder Andy Hatoum said: ‘This may be the last time we see properties under £100,000 being sold in the capital — well on land at least, as the only homes available in the category are houseboats.’”

“The Houston real estate market ended 2013 on a strong note, according to the latest numbers. The average price of a single-family home rose to more than $265,000 dollars, up more than 10% from a year earlier. ‘If you’re inside the Loop, you’re probably at bubble pricing right now, based on the lack of inventory,’ said Shad Bogany, immediate past chair of the Texas Association of Realtors.”

“Multi-family sales in southern Maine continued a strong rise in key markets like Portland and Saco/Biddeford over the past year, according to Brit Vitalius, president of the Southern Maine Landlord Association. ‘Half of the properties that sold in Portland went under contract from March to May. ‘In the spring it felt like there was a mini bubble,’ he said.”

“The future appears bright for the Las Vegas valley, according to the Las Vegas Metro Chamber of Commerce. Even with the positive outlook, there are some concerns, especially when it comes to housing. ‘We’ve used some policy decisions to create a housing market that has quite a few people living in a home that they’re not paying for. At some point, that’s going to have to give,’ said Jeremy Aguero, principal analyst with the local research firm Applied Analysis.”

“Slow job growth and a slower judicial process are impeding Connecticut’s ability to fight through a foreclosure crisis that refuses to quit, according to economists statewide. ‘Our average length of time for foreclosures to go through the system is one of the longest,’ said Pete Gioia, an economist. Though Gioia acknowledged that the judicial process helps some homeowners who are trying to regain their financial footing, he said there are some ‘deadbeats who tool the system.’”

“Property repossessionss, home auction notices and mortgage default activity in the Scranton/Wilkes-Barre metro area soared by 60 percent, compared to 2012, according RealtyTrac. ‘I’m a little busier than I have ever been,’ said Joe O’Connor, who has been selling foreclosed properties since 1988. ‘They just keep coming.’ Some of the sales represent ’shadow inventory,’ which banks withheld from the market to forestall downward pressure on home prices, Mr. O’Connor said. ‘I have had more pre-sheriff’s sale requests than I have ever had,” he said. “I’m getting more (homes) over $250,000 in the last three years than I did in the 20 years before that. In my opinion, we still have another two or three years of increased foreclosures coming.’”

“All good things must come to an end. And so, after enjoying the lowest mortgage rates in 50 years, it’s time to wave goodbye. The Official Cash Rate is finally expected to start rising, possibly as early as next week - which means those who bought houses during the good times could be in for a rude awakening. More than 60,000 New Zealand households who own or part-own their homes are already stretched, spending 40 per cent or more of their total income on housing. By the end of the year, someone with a hefty half-million dollar debt may need to scrape together an extra $400 or so each month.”

“Westpac chief economist Dominick Stephens says some people may have been operating under the mistaken impression that low interest rates would last forever. ‘We may find that some highly-leveraged borrowers are surprised and put in a difficult position by the substantial series of interest rate hikes that we think is coming, he said.”

“Yang Bin, economist: ‘China’s housing prices have been a growing bubble. Prices in Beijing have been exaggerated and unreasonably higher than similar in the United States. I want the bubble to fail. We all hope it will fail. It’s too unreasonable. The average Chinese lifetime income can’t manage to buy a house. The government works with the developers. They make the profit, one sells the land, and the other make the money. They monopolize the industry and deprive people of their life-time hard work. The high price has seriously affected the spending power of China. The house prices kill the entire spending power.’”

“Penrith’s booming property market could be headed for a sharp fall, leaving many out of pocket, a home-seeking economist has warned. ‘Either [home] prices fall 50 per cent or incomes rise by 50 per cent,’ said Rodney Forrest, who lives in Penrith and is managing director of an investment research house. He said this was because median home values in Penrith, about $455,000, were priced at about six times the average local income, far above the global average of three times local income.”

“‘We have rapid credit growth and maniac irrational expectations: the two ingredients of a bubble,’ Mr Forrest said. ‘Once the bubble bursts, the fiscally irresponsible will be burned.’”

“Janet Yellen probably will confront a test during her tenure as Federal Reserve chairman that both of her predecessors flunked: defusing asset bubbles without doing damage to the economy. Investors got a taste of the hazards in recent days when news of a slowdown in China’s economy, coupled with expectations of reduced stimulus from the Fed, helped trigger a rout in emerging markets that had been pumped up by easy money imported from the U.S.”

“The Fed is devoting ‘a good deal of time and attention to monitoring asset prices in different sectors’ to see if bubbles are forming, Yellen, currently Fed vice chairman, told the Senate Banking Committee on Nov. 14. ‘By and large,’ she said, ‘I don’t see evidence at this point in major sectors of asset-price misalignments, at least of a level that would threaten financial instability.’”

“Stephen Cecchetti, former economic adviser for the Bank for International Settlements, agreed with Yellen that there aren’t many signs now of dangerous financial imbalances. Yet that’s not a reason to sound the all-clear. ‘We’re into the sixth year of zero interest rates,’ he said. ‘You do worry that there’s got to be something going on that maybe you’re missing.’”

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