February 28, 2014

Seeing The Effect Of Unabated Speculation

It’s Friday desk clearing time for this blogger. “Houses sold in one day, above asking price, with multiple offers. It’s the reality of the Austin area’s hot housing market. Realtors have a unique way to get you the house of your dreams. These pocket listings, as they’re called, are nothing new. In Austin however, they’re becoming more prevalent as realtors use them as a tool. It’s the result of a housing market realtor Matthew Layman describes as ‘crazy, bananas.’ ‘Your buyer was frustrated because you’re going against that multiple offer situation and a lot of times paying way too much,’ Layman says.”

“In La Cañada Flintridge, the number of homes for sale eked up by one to 28 last month. The number of homes sold showed a healthy gain from seven in January 2013 to 16 last month. The median price for a home shot up from $1.19 million to $1.48 million in a year-to-year comparison. Paul Habibi, real estate professor with the UCLA Anderson School of Management, said sales of high-end homes priced over $5 million are ‘on fire.’ While there may not be many of them on the market, the ones that are for sale are fetching ‘egregiously high’ prices, he said.”

“The foreclosure rate in Maryland has steadily risen in recent months. A consortium of community and civil rights groups are pressuring Maryland legislators to commit to a six month moratorium on foreclosures in the state. Del. Aisha Braveboy joined state Sen. C. Anthony Muse in introducing legislation in the General Assembly that would put more restrictions on banks during the foreclosure process and on how banks maintain foreclosed properties. ‘The [legislation] will hold the banks accountable and prevent the artificial depreciations of home values in our state,’ she said.”

“The number of New York and New Jersey homeowners losing their houses reached a three-year high in 2013. Banks in these states have been slowly working through a backlog of delinquent loans that enabled borrowers to skip mortgage payments for years. Now these properties are poised to empty onto a market where affluent Manhattan suburbs neighbor blighted towns that are struggling most with surging defaults. Jon Pardi, a 62-year-old resident of Edison, said he could no longer pay his loan because his commission-based income as a mortgage broker dropped to $20,000 a year from a peak of more than $100,000. Having little confidence in New Jersey’s housing market rebounding, and the career prospects for loan officers, Pardi is training to become a holistic nutritionist.”

“‘My odds are down but the chances of saving my home aren’t zero,’ Pardi said. ‘If I start making money again, everything changes. But if jobs don’t come back for me, and for my country, then it’s going to keep moving in a down direction.’”

“‘Inventory is down, there’s no doubt about it,’ said Jan McInturf, owner and broker at McInturf Realty in New Philadelphia. McInturf said there were a high number of homes foreclosed on over the last few years, and he anticipates more to be added. ‘Homes were foreclosed on in massive amounts and we’re still slowly recovering from that,’ McInturf said. ‘And, from what I understand, there is still a surplus of homes that are going to be foreclosed on yet this year and brought back on the market. The government intervened and stopped all that from happening so our market wouldn’t be so saturated that it would really hurt us.’”

“The party might be over for Vancouver’s high-end luxury housing market, according to Immigration lawyer Richard Kurland who’s studying the impact of Canada’s investor program – and more importantly, what will happen now that it’s been cancelled. Kurland foresees a wave of listings for high-end properties seeking buyers before the market drops. ‘I’ve been waiting for this to happen,’ Mr. Kurland says. ‘I expect to see ‘for sale’ signs on expensive properties sprouting like mushrooms, once people figure out what it means to cut off 1,000 buyers at the high end.’”

“The property sector is divided in its opinion on the direction of China’s housing market, with a pessimistic sentiment growing among buyers and worrying some developers, the Shanghai-based China Business News reports. ‘There is a real worry about becoming a buyer at peak prices,’ said a woman surnamed Li, who had bought a house in Guangzhou at the end of last year. ‘I already have trouble sleeping.’”

“Speculators looking to make quick profits by flipping newly built properties are likely to be disappointed this year, the Malaysian Institute of Estate Agents said. With most of these properties scheduled for completion in 2014 and 2015, the primary market will be flooded and depress prices, said MIEA president Siva Shanker. Shanker said many Malaysians had previously rushed to buy new properties from developers, thanks to incentives such as interest-free loans during the construction period. ‘Now we are going to start seeing the effect of this unabated speculation in the past three to four years,’ he told reporters.”

“More than 11m homes lie empty across Europe – enough to house all of the continent’s homeless twice over – according to figures collated by the Guardian from across the EU. In Spain more than 3.4m homes lie vacant, in excess of 2m homes are empty in each of France and Italy, 1.8m in Germany and more than 700,000 in the UK. There are also a large numbers of vacant homes in Ireland, Greece, Portugal and several other countries. Many of the homes are in vast holiday resorts built in the feverish housing boom in the run up to the 2007-08 financial crisis – and have never been occupied, many of which were bought as investments by people who never intended to live in them.”

“‘It’s incredible. It’s a massive number,’ said David Ireland, chief executive of the Empty Homes charity. ‘Homes are built for people to live in, if they’re not being lived in then something has gone seriously wrong with the housing market.’”

“The housing recovery ought to be gathering steam, since the economy is improving, the unemployment rate is falling and banks are easing up on lending standards. Yet the opposite seems to be happening, with home price gains flattening out and sales of existing homes–the vast majority of all sales–dipping. ‘We’re just losing our general sense of optimism about housing,’ real-estate expert Robert Shiller, a professor at Yale University, said in a recent conference call. ‘It’s not fun anymore.’”

“Home prices fell by about 35% on average from 2006 to 2012, according to the S&P/Case-Shiller index, and they’ve bounced back by about 25% since then. But the pace of growth is likely to slow in 2014. Many analysts expect modest price gains of 5% or so in 2014, but another downside surprise is distinctly possible. ‘There really is a worry we might see falling prices by 2015,’ says Shiller.”

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February 27, 2014

The Market Reached Its Peak At The End Of 2013

The Denver Post reports from Colorado. “Metro Denver home sales prices slipped for the third month in a row in December but still were 9 percent higher year-over-year, according to Case-Shiller. ‘I think what we are seeing overall is a very slight moderation more related to seasonality,’ said Metrolist CEO Kirby Slunaker said ‘The reason I say that is because we are at 9 percent year-over-year. If you look at the Case-Shiller Index for January 2013, it was sitting at 134, and in nine months it went to 147. That is a 13 point increase in just nine months — a pretty aggressive increase.’”

“In 2013, single-family home sales in metro Denver beat a record set during the housing boom. There were 42,762 detached single-family homes sold, which surpassed the previous record of 41,682, set in 2004. Those homes sold for an average price of $336,831, which also was an annual high.”

The Albuquerque Journal in New Mexico. “Sales of existing homes across the US and in New Mexico plummeted in January to the worst pace in 18 months, the National Association of Realtors said. In New Mexico, separate reports of non seasonally adjusted sales — statewide and in the Albuquerque metro area — also showed a strong dropoff in January from December. ‘Such a picture confirms that the U.S. housing market reached its peak at the end of 2013 and further reacceleration is unlikely near term,’ Annalisa Piazza of Newedge Strategy said in a research note.”

The Phoenix Business Journal in Arizona. “The Phoenix-area real estate industry has been somewhat tight-lipped on its opinion of the controversial ‘religious freedom’ bill that’s waiting for Gov. Jan Brewer to either sign or veto. But the few local housing experts I did speak to collectively agree that Senate Bill 1062 being signed into law would be a damaging blow to the market and its recovery, which has been slowing in recent months.”

“‘If it hurts business; it hurts housing because business drives housing,’ said Michael Orr, a housing expert at Arizona State University’s W.P. Carey School of Business.”

“Orr noted demand is already weakening. Despite the fact that there were 36 percent more homes on the market Valleywide in December than a year earlier, sales had taken a 17 percent drop, according to Orr’s research. Part of that drop in sales was due to a loss of interest from out-of-state buyers.”

The Wall Street Journal on Arizona. “Home prices in Phoenix posted their first monthly decline since 2011 in December, according to the S&P/Case-Shiller price index. The latest figures show Phoenix is off to a less than promising 2014. The number of homes for sale in January stood 29% above their levels of a year earlier, according to the Arizona Regional Multiple Listing Service Inc. Meanwhile the number of homes sold in January fell 17% from last year, the sixth straight month in which sales have fallen from a year earlier.”

“If Phoenix cools, that could portend ominously for parts of California, Nevada, and Florida that have shown similar rebounds in recent years. ‘Demand is really getting quite low. Each month it seems to get a little worse than I expect,’ said Mike Orr, a real estate director at the W.P. Carey School of Business at Arizona State University. Last year, the problem for builders was that they were running out of homes to sell. ‘Their biggest problem now is not having enough people coming through the sales offices with good credit,’ says Mr. Orr.”

“Investors accounted for just 19% of homes sold in December, according to Mr. Orr, down from a peak of nearly 40% in July 2012. Demand from Canadian buyers has also cooled as the exchange rate becomes much less favorable compared with a few years ago. Prices could turn negative ‘if the current situation lasts much longer,’ says Mr. Orr.”

“Mr. Orr says it’s ‘over-simplistic to write this all off on investors,’ said Mr. Orr. ‘It’s not just investors and it’s not just weather. We’ve had glorious weather here.’ Instead, Mr. Orr says demand from entry level buyers is weak, and that younger households seem more inclined to rent, either because they can’t afford to purchase, they can’t qualify for a loan, or they simply aren’t interested in ownership.”

Inside Tucson Business in Arizona. “By the end of this year, roughly 1,150 units constituting about 3,200 beds will be built for students, in the towers and elsewhere within blocks of the University of Arizona. And university-area property owners are already feeling it. Allan Mendelsberg, who specializes in apartment and investment sales at Picor, said as the 2013-14 school year approached, owners of smaller, dated campus-area properties got desperate and took big reductions just to fill units.”

“Now, student-geared complexes along First Avenue, Stone Avenue and north of Grant Road are shifting focus, angling for the nontraditional students, foreign exchange students and small families to fill the three- and four-bedroom units. ‘There’s definitely supply versus demand question that lingers in the marketplace,’ Mendelsberg said.”

“Mendelsberg said the complexes that were at the top of the heap 10 to 15 years ago have all changed hands within the last couple of years as owners saw the writing on the wall. ‘There’s a reason for that, I think,’ he said. ‘The previous owners have started to realize what’s going on and a lot of them wanted to exit.’”

“Many of his chats are with frustrated owners, and the financials aren’t pretty when he approaches lenders. ‘I’m embarrassed sometimes to try to even get financing,’ he said. There just aren’t many cash buyers willing to purchase properties in less desirable parts of town, properties that need a lot of updating, and owners feel stuck. Mendelsberg said he sold a southside complex at a $500,000 loss because the owner, who owned it for less than a year, just wanted out.”

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February 26, 2014

Three-Years Of Exuberance Jammed Into One

The Union Tribune reports from California. “Housing, which zoomed up 18.4 percent in price last year, faces “uncertain” prospects this year, according to Tim Sullivan, newly named local chairman of the Urban Land Institute. Sullivan, a real estate industry consultant, said last year’s housing market was one of ‘exuberance.’ ‘Now I’d characterize the 2014 outlook as one of optimism but still with a level of uncertainty,’ Sullivan said, ‘because we had such a nutty 2012 and ‘13 with home prices moving up quickly and a little bit of land selling — maybe a three-year period of exuberance jammed into one. The market is now reeling again and there’s concern and uncertainty.’”

“‘From a residential side, it’s very solid — prices are up — but now we have a concern, after a year of affordability,’ he said. ‘We can’t win for losing and we can’t lose for winning.’”

The Los Angeles Times. “Across a large swath of Southern California, owning a house has become less attractive financially in the wake of rapid home price gains last year. The mortgage payment on a median-priced, three-bedroom would exceed the rent on a comparable property in Los Angeles, Orange and Ventura counties, according to a RealtyTrac analysis, based on prices from the fourth quarter of 2013. Nationwide, there were only 29 large counties in that situation, including the Northern California counties of Santa Clara, Alameda and San Francisco. A year earlier, nowhere in Southern California was rent cheaper than monthly house payments.”

“The median price for a three-bedroom L.A. County house was $417,333 in the fourth quarter. The monthly house payment for such a home rose 40% compared with the fourth quarter of 2012. To qualify to purchase such a house, a buyer would now need to make at least $95,389 annually, according to RealtyTrac. That’s about $42,000 more than the median-household income and $27,000 more than the income needed to buy the median house a year earlier.”

“‘The widening disparity between rent and home prices underscores a growing affordability crunch across the region. Real estate experts say the high costs, without corresponding income growth, have depressed sales. ‘The cost of financed homeownership is becoming dangerously disconnected with still-stagnant median incomes,’ RealtyTrac VP Daren Blomquist said in a statement.”

The San Francisco Business Times. “The Bay Area’s luxury home market is signaling a slowdown ahead even as prices late last year were still showing year-over-year double-digit increases. First Republic Bank’s Home Prestige Index found that luxury home prices in the Bay Area are near records amid tight supplies of homes selling for $1 million and often more.”

“But it’s the commentary from real estate agents that set off alarms for careful followers of the luxury housing market.” In discussing First Republic’s latest quarterly figures, real estate agents in California’s luxury housing market are using telltale language of trouble ahead, with such phrases as ’supply is plentiful’ and the ‘market is solid,’ while others see ‘buyer resistance’ and ‘expect the market to level off.’”

“That type of talk that could prompt home owners to put their properties on the market before prices fall. Real estate agents say that pricing and demand for the limited supply of homes on the market is approaching levels last seen just before the housing market began to crater in 2007. Earlier this month, Christopher Stafford and Terry Wright, both of Paragon Real Estate Group, sent an email to clients alerting them to ’shifts in the San Francisco real estate market.’”

“‘It is far too early in the year to reach definitive conclusions regarding substantive changes in the market, but there are indications of a number of shifts,’ the Paragon agents said. ‘From the hurly burly on the street, the word is that the quantity of offers coming in on new listings is declining. Where a new listing might have attracted 10 or 12 offers last spring, three or four are coming in now; where three or four offers would have arrived, the seller is getting one.’”

The Merced Sun Star. “Merced County home sales prices dipped in January. Merced’s median-priced homes sold for $149,330 in January, which was about $11,000 less than during December but about $12,000 more than January 2013, according to the California Association of Realtors. Across the state, home prices dipped an average $28,000 last month. The state’s median sales price was $410,990 in January, 22 percent more than a year ago.”

“Retired aerospace engineer Owen Klasen was rejected last year when he sought a second mortgage to paint and re-roof his house. Home prices hadn’t risen enough, the loan officer told him. But last month, the same loan officer offered him more than double the credit he needed. ‘I told him I needed $25,000′ on a home equity line of credit, said Klasen, who lives in Fillmore in Ventura County. ‘He said we were qualified to go up to $60,000.’”

“Klasen is among a wave of homeowners in California and nationally who are again putting their homes in hock — despite the costly lessons of the housing meltdown. Homeowners in the six-county Southern California region took out 47,542 home equity lines of credit last year — 48% more than in 2012, according to research firm DataQuick. The median credit line was $100,000.”

“The same trend is taking hold nationwide. Bank of America, for instance, saw its home equity business surge 75% last year compared with 2012, said Matthew Potere, who oversees home equity lending. In the fourth quarter, BofA issued $1.9 billion in new home equity credit lines, up from $1 billion a year earlier. In Southern California, the heaviest borrowing is in the wealthiest neighborhoods, where prices are closer to their peaks during the bubble, DataQuick figures show. Orange County’s Villa Park, with a median home price topping $1 million, had the highest rate of equity credit approvals last year.”

“But homeowners in the affordable Inland Empire also took out more equity credit lines. ‘You are seeing national home prices rising,’ said Kelly Kockos, Wells Fargo’s senior VP of home equity. ‘It’s no longer just the coastal markets.’”

“In high-end markets, which recovered first, some borrowers are using home equity credit lines of $100,000 to $250,000 ‘as a financial tool’ to buy more real estate, said mortgage broker Richard T. Cirelli in Laguna Beach.”

“Adam and Kimberly Smith work at high-tech firms in San Francisco, where prices skyrocketed last year. They recently obtained a credit line on their two-bedroom North Beach condominium. The couple, in their early 30s, plan to rent out the condo and buy a home in the high-end East Bay suburbs. Three-bedroom homes there start at $1 million. Borrowing $50,000 to $100,000, combined with their savings, will give them a 20% down payment on the suburban home they crave. ‘We know we can make an offer this weekend,’ Adam Smith said.”

The Bakersfield Californian. “His son received leniency, but disgraced real estate executive Carlyle ‘Carl’ Lee Cole was sentenced Monday to 17 1/2 years behind bars — the full term recommended by prosecutors — for participating in Bakersfield’s most notorious mortgage fraud conspiracy. The sentences reflected what U.S. District Judge Lawrence J. O’Neill called a ‘tragedy at all levels.’ He described the situation as a hard-working son being lured into his father’s ‘egregious, planned, white-collar heist.’”

“On Monday, Carl Cole was ordered to pay $28.5 million in restitution, and Caleb $663,950. Asked how he would repay the restitution, Caleb told reporters, ‘that’s a good question.’”

“Carl Cole’s business partner, David Marshall Crisp, pleaded guilty Dec. 16 to the same set of crimes. Crisp and his wife, Jennifer Anne Crisp, who has pleaded guilty to one count each of mail and wire fraud, are scheduled to be sentenced March 31. Prosecutors essentially accused David Crisp and Carl Cole of setting up and carrying out a $30 million mortgage fraud scheme that shocked Bakersfield and forced foreclosures throughout the city.”

“A total of 15 defendants are alleged to have participated in the conspiracy to defraud mortgage lenders by using ’straw buyers’ — including Caleb Cole — to buy homes at inflated prices using almost entirely borrowed money. Prosecutors say the homes were resold to new straw buyers at ever-higher prices in order to extract the equity that had built up on paper. Ultimately, most of the properties entered foreclosure as the group was unable to keep up with loan payments.”

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February 25, 2014

If Problems Arise, They Will Be Hard To Deal With

A report from the Denver Post. “As the listing agent for a new development near the University of Denver, Liz Richards has sold six row homes since December — and who was buying them came as a surprise. ‘Half of them are Chinese buyers with cash — there seems to be a lot of cash,’ said Richards, a broker with Kentwood City Properties in Denver. ‘This is a brand-new trend.’”

“Chinese buyers paid a median price of $425,000 for their U.S. home purchases in 2012, according to the NAR, more than double the $183,000 median price shelled out by Canadian buyers. Golden Realtor Jim Smith, after hearing the pitch at the NAR convention in San Francisco in November, signed up and hired a student from Colorado School of Mines to translate his listings into Mandarin. ‘There is a factor here of them wanting to export their dollars,’ Smith said. ‘They want to move their wealth out of the country before the Communists seize it if there is a change in attitude.’”

The Wall Street Journal on China. “China’s red-hot property market is showing its strongest signs yet of a cool-down, as price growth eases, credit for many developers dries up, and some start to cut prices at new housing projects. In some markets, developers are also worried about an oversupply of homes. Developer DoThink Group last week said it cut prices by 12.2% at its North Sea Park project in the eastern Chinese city of Hangzhou to 15,800 yuan ($2,592) per square meter from 18,000 yuan per square meter.”

“Analysts said the price cuts in Hangzhou and in the nearby city of Changzhou are an indication that those places have an oversupply of housing, which could spread to larger cities. In Changzhou, the developers of a 21-tower project announced discounts last week. Prices were reduced to an average of 7,000 yuan per square meter, with some units selling for 5,380 yuan per square meter, down from an 11,000-yuan price tag in December, according to property broker SouFun Holdings.”

“‘The risk in the property sector is currently underappreciated, and the price cuts in Changzhou and Hangzhou are worrying signals worth investor attention,’ said Nomura economist Zhiwei Zhang in written comments. ‘A sharp slowdown in property investment is possible and would increase systemic risks.’”

Global Time on China. “Share prices of property developers plunged on Monday. A private survey of 100 cities by Soufun, China’s largest online property consulting company, indicates five more cities witnessed falling prices compared with December. The sliding share performance was also in response to recent reports of falling prices in the southern Chinese cities of Hangzhou and Changzhou, signaling a downturn in the property market.”

“‘Minimum price of apartments for sale is now 11,800 yuan ($1,935) per square meter, down 6,000 yuan from before,’ Zhang Yu, a saleswoman at a newly built residential community named Champs Elysee located in north Hangzhou, Zhejiang Province, told the Global Times. ‘Our rivals have also cut their prices,’ Zhang said.”

“StarRiver, a high-end property in Changzhou, East China’s Jiangsu Province, went further by offering almost a 60 percent discount to as low as 5,380 yuan per square meter during the past three days, said a saleswoman who declined to be named.”

Xinhua on China. “The average monthly increase for new homes slowed slightly to 0.49 percent last month from 0.51 percent in December, with the average in the four first-tier cities — Beijing, Shanghai, Guangzhou and Shenzhen — slowing 0.1 percentage point from December, the National Bureau of Statistics said in a statement. Prices of existing homes also moderated, declining in 13 cities, as opposed to only five in December.”

“Senior NBS statistician Liu Jianwei partly blamed tighter credit. Since the beginning of year, commercial banks have become wary of lending to the property sector after a liquidity crunch last year. Industrial Bank suspended loans to some property projects until the end of March, as well as steel, cement, construction and other sectors related to property. Industrial Bank’s unilateral action is a reminder of risk in the property sector this year.”

“‘Due to tight liquidity, if problems arise, they will be hard to deal with,’ the Shanghai Securities News cited a minute from the bank as saying Monday.”

The Hong Kong Standard. “Rumors that the Industrial Bank will curb lending to the property sector drew heavy selling in real estate and banking stocks in Shanghai and Hong Kong. Although Industrial Bank and other mainland lenders denied the rumors, skeptical investors rushed to sell. Things do not look favorable this year. As the US Federal Reserve will certainly continue to taper its bond-buying, funds are leaving emerging markets.”

“Local developers are queuing up to clear inventory, while land auction prices in Tin Shui Wai hit a 12-year low. Hangzhou was the first to lower the price of new flats, which saw those who bought at higher prices damage the sales office and showroom.”

Want China Times. “Hong Kong’s property market bubble may burst as local tycoon Li Ka-shing’s Cheung Kong Limited and the special administrative region’s largest commercial real estate agency Sun Hung Kai Properties have been underselling their inventory and price decline is up to 45%. Lee Chun, a manager at Click Property Agency Limited, a local real estate consultancy firm, said that transaction volume, which was earlier pegged at about 300 a month, had now dropped to 10-20 a month.”

“Louis Chan, Centaline Property Agency’s head of residential sales also stated that the secondary market had declined by 75% to 2,000 from 8,000 a month. The falling house prices and plummeting transaction volume have led to property agencies facing bankruptcy and have boosted the unemployment rate in the sector.”

From Al Bawaba. “I remember visiting Hong Kong in the depths of the property bust in 2008, when one-fifth of all homeowners were underwater on their mortgages and, more recently, when there is a vibrant secondary market for garage space in office towers in Central! Hong Kong property prices have doubled since their post-Lehman lows. The spectacular rise in Hong Kong property was due to the Federal Reserve’s epic monetary printing spree since the Hong Kong dollar is pegged to the US dollar, the legacy of a past Deng-Thatcher era crash in the 1980s.”

“Property bubbles distort the competitiveness of even a post industrial services economy. Yet property is the most dangerous, illiquid asset class of them all, a lesson the Gulf learned the hard way in 2008 (and many times earlier, but professional amnesia is an occupational necessity for bankers, property developed and home flippers!). It is entirely possible for property prices to plummet by 50 per cent to 70 per cent when a property bubble explodes due to a global macro shock. Sadly, Hong Kong now faces such a macro shock as China’s credit/shadow banking system deflates and the Fed taper triggers a protracted rise in global liquidity.”

“Financial crises triggered by a property crash can poison a nation’s banking system, corporates and homeowners for at least five to seven years. Five years after the Wall Street subprime crisis, the US economy can deliver barely two per cent GDP growth despite the $3 trillion money printing spree of the Bernanke Fed. Japan was devastated for two ‘lost decades’ after its property bubble peaked and crashed in 1990, when the Imperial palace in Tokyo was worth more than all the land in California.”

“The 1997 currency meltdown in South-east Asia led to property crashes, bank runs, IMF lifelines and even regime changes from Jakarta to Bangkok, Seoul to Hong Kong. In a world of hyper-kinetic, leveraged, cross-border capital flows when panic spreads at the speed of light across the electronic arteries of the global financial markets, a property collapse in Hong Kong will create havoc, systemic risk and contagion across Asia. Nor will a financial and property market havoc be limited to Asia. As an investor, I cannot forget the malign ghosts of 2008 when the angels of darkness spread misery across the world. It can so easily happen again.”

Bits Bucket for February 25, 2014

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February 24, 2014

True Last Week, Also True Last Decade

The Orlando Sentinel reports from Florida. “Orlando-area home prices dropped in January from a month earlier and the inventory of listings increased, edging the area closer to becoming a buyer’s market. The median sales price during January for homes in the core Orlando market, which includes mostly Orange and Seminole counties, was $149,950 – down from $160,000 in December, according to a report by Orlando Regional Realtor Association. A year ago, median prices for the Orlando market were $127,000.”

“Sales were down from a year earlier too. In January, members of the association closed on 1,800 sales – an 11 percent decrease from a year earlier. The market had a 5.5-month inventory of listings during January – the highest level since February 2011.”

The Tampa Tribune. “It may feel like the region’s once-hot housing market has hit the brakes, but an economist for the state’s leading Realtors group insists a recent month-to-month drop in existing-home sales isn’t cause for alarm. Realtors are feeling the effects from a slowdown in buying by the likes of Blackstone Group’s Invitation Homes. They slowed their buying dramatically recently, though, because housing prices rose so much that the investors couldn’t get the financial returns they wanted. ‘I think what you’re seeing there is investors retreating from this market,’ said Florida Realtors chief economist John Tuccillo.”

“Short sales — sales in which the home sells for less than what’s owed on the mortgage — also were down by 46 percent statewide in January when compared with this time last year. They’re dropping in tandem with the overall rising prices for houses, Tuccillo said. Tampa Realtor Mary Diaz wonders if many of the short sales never went through and the banks took the houses back. She said she’s noticing more bank-owned properties hit the market in Brandon, especially.”

“An early report card on how rental-home powerhouse Invitation Homes from Morningstar gives some clues on how some of Invitation Homes’ rental homes are performing. The company started with a pool of 3,207 homes in October, all of which were occupied and generated monthly rental payments of $4.2 million. By January the company had 252 vacancies and its monthly rent collections had fallen to $3.9 million, Morningstar’s report says. That’s a vacancy rate of 7.9 percent.”

“Morningstar had expected a vacancy rate of 8 percent all along, but the issuer of the bonds, technically called Invitation Homes 2013-SFR1 Trust, expected a lower vacancy rate of 6 percent, Morningstar said.”

The Tampa Tribune. “As development hot spots such as Miami overheat, market watchers say foreign investors are increasingly spending their yen, yuan and loonies in Tampa Bay — even as the source of their spending remains largely hidden from view. One in four foreign buyers of American homes, townhomes or condos last year chose Florida, spending more than $6 billion, Realtors’ data show. About $370 million of that was spent in Tampa Bay.”

“Realtors here have done everything from hosting social outings for Russian prospects to chartering tour buses for Chinese buyers hoping to scout out suburban homes. It’s hard to quantify just how much money flies into local development or transactions from spenders outside our borders. Investment advisers here say foreign money is typically tucked inside shell companies or equity funds. ‘Foreign capital is oftentimes very secretive,’ said John Stone, the director of multifamily housing and foreign investment for commercial real estate brokerage Colliers International. ‘They don’t trust easily.’”

“Brokers say that spending has boosted South Florida’s skyline, fueled a new boom for waterfront condo skyscrapers — and led prices there to soar. By last month in South Florida, developers had proposed or begun building more than 25,000 condos across 187 towers from Jupiter to Key Biscayne.”

The Buenos Aires Herald. “Economically speaking, over the last 20 years, when the kettle has started to whistle in Argentina, fast-talking Miami salesmen have flocked to Buenos Aires to draw in real estate investors. The pattern is repeating itself now, but profits are often exaggerated. Even if people manage to licitly send money abroad to buy and let out an apartment, long-distance investors usually have to face management costs and are obliged to front maintenance expenses, which chip away at profits.”

“A high-end apartment in central Miami goes for about US$700,000, while in the suburbs, an average one sells at US$400,000. Mcafka developer Fernando Levy Hara says that for a two-bedroom apartment in the booming central Miami, maintenance and tax expenses rise to between US$200-400 per month each, meaning that from rent of ‘US$1,800 per month, you are left with an income of US$1,000, or between four and five percent of the initial investment.’ When administration fees are deducted, the figure drops to US$880 a month — not a mouthwatering number.”

“Such returns are chipped away further by the commission charged by local banks to receive money from abroad, which is obviously exchanged at the official rate. All this assumes business is conducted in adherence to Argentine law. When asked if Mcafka offers guidance to potential investors seeking to send money to Miami for real estate projects, Levy Hara said that developers don’t look into the source of cash.”

“Those who already have offshore, often undeclared bank accounts, are the target clients for real estate development and investment companies such as Key International for their Brickel 1010 luxury tower development, although some do have rent transferred directly to Argentina. Asked how relevant Argentine clients were to the company, Sales and Marketing Director Liliana Paez told the Herald: ‘They’re very important; people from countries that are having problems are some of our biggest clients, they’re in the top 10 buyers, for the world.’”

“Levy Hara said the US tributary system ‘makes no distinction between foreigners and locals’ when it comes to real estate except for the inheritance tax, ‘which is fairly high.’ ‘There are zero restrictions for foreigners, it’s an open market,’ Key International Vice-President Inigo Ardid agreed.”

The Palm Beach Post. “Federal mortgage backer Freddie Mac issued its monthly housing market outlook yesterday and it’s not looking good for homebuyers in South Florida. According to the report, homes in Palm Beach, Broward and Miami-Dade counties are ‘not affordable’ for most families under current underwriting standards. ‘We’ve gone from talking about how cheap housing was to how expensive it is in a very short period of time,’ said Jack McCabe, chief executive of McCabe Consulting and Research in Deerfield Beach. ‘Flat incomes, no job creation and higher housing costs are the elements that break markets.’”

The News Press. “Home prices were rising, credit was easing, speculators were losing their fear of failure and greed was just starting to be fashionable again. Yes, all that was true last week, but it was also true last decade: 2004 fits the bill just about as well as the present. Now presenters at The News-Press Market Watch are wrestling with what to say about the year just gone by and what’s coming next — and thinking about how things turned out last time around.”

“‘In 2004 and 2005 there was optimism, and I have to admit that I joined with everyone else and drank the Kool-Aid and thought and hoped the increase in the market at 50 and 60 percent a year would never stop,’ said Randy Thibaut, who handles sales and development of large tracts of land. ‘But I realized, deep down, that it couldn’t last forever.’ Now, he said, ‘It’s starting to feel a little like déjà vu all over again. The difference is this time I’m not drinking the Kool-Aid.’”

“Residential real estate broker Denny Grimes said one difference between then and now is the increased availability of market data that would show the risk of a bust. But in the end that likely won’t be enough because the lure of easy money is just too hard for some to resist, he said. ‘Not long ago there was a helicopter picture of a black SUV going down the highway throwing money out the window,’ Grimes said. ‘You can yell at the people on the road, ‘Don’t take it’ all you want. They’re going to take it. But when the music stops, you better have a chair.’”

Bits Bucket for February 24, 2014

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

February 23, 2014

A Catalyst For Unforeseen Consequences

Readers suggested a topic on the global housing bubble. “I remember in 2008, 9 and 10 it was fascinating to read how the Chinese, Brazilian, Canadian and Australian housing markets were impervious to the fact the US housing market was tanking badly. Values in those countries were still headed north. Now that those countries’ markets appear to be tanking, will it have any effect on the US housing market recovery? Or is it likely the US market will putter along without much impact from outside its own borders?”

A reply, “Meditate on how much equity California households were liberating to reinvest it in housing markets further inland leading up to the 2008 meltdown. Then think hard about the so-called “all cash” investors from China; was the cash really free, or was it a spillover of an excess of Chinese leverage into the U.S. housing market?”

One said, “Overseas markets tanking may affect coastal high priced areas like silly valley. Probably won’t do much for Flyover.”

The Wall Street Journal. “Over the last two weeks, several major investment houses have published reports exploring the idea of a hard economic landing in China. They include ‘We don’t expect it to happen’ caveats. But what if it did happen? Would the rest of the world tank as well?”

“A catalyst for this concern has been the end of America’s easy-money policies, which buoyed emerging-market economies. The gradual end of the Fed credit flood has sparked concerns that developing countries with high fiscal and trade deficits, excess credit growth, currency risks and other problems could face a liquidity crisis, leading to a broad loss of confidence.”

“‘Given that China is the largest emerging economy in the world and has contributed more than 25% to global GDP growth since 2010, a sharp slowdown or deleveraging in China will likely affect everyone and every market,’ UBS said in its ‘How Might a China Hard Landing Affect the World’ report.”

“The third way that a hard landing in China would affect the world is through market contagion, when a loss of confidence spreads with unforeseen consequences. The Asian financial crisis in 1997, sparked by seemingly inconsequential devaluations in Thailand and the Philippines, drew in economies with supposedly sound fundamentals, including Singapore and Hong Kong. ‘You often hear people say emerging markets are a worry,’ UBS economist Tao Wang said. ‘They could be bearish on China and bullish somewhere else. If you’re really bearish on China, though, I’m not sure you can be bullish on anywhere else.’”