March 7, 2014

Stoking Bubbles That May Result In Tears

It’s Friday desk clearing time for this blogger. “You may think a shoebox-sized flat in central London costing more than £1m is an insane illustration of a property price bubble, but it could be the bargain of the century. According to projections by one of the biggest investors in ‘prime’ property in the capital, that average flat could fetch £36m by the middle of the century. Hugh Best, LCP’s investment director, said: ‘The average price in prime central London is now £1.5m, and has been growing at 9% a year, which we think is firmly sustainable. They have been growing at that level for 40 years and we see no reason for that to change.’”

“Australian Bureau of Statistics data show almost 10 per cent of private dwellings in the Hunter are unoccupied, including holiday homes. The bureau’s figures indicate this is an increasing and widespread problem, with similar figures across the state and country. Real Estate Institute of NSW Hunter chairman Wayne Stewart said said some pensioners who ‘own a couple of properties don’t rent them out for fear of losing their pension.’”

“In Mumbai, there are 41.86 lakh houses, according to the 2011 Census. Of this 4.79 lakh houses remain locked throughout the year, a house-to-house survey revealed. ‘This means that 12% of the houses remain empty at a time when there is a huge shortfall of houses. These houses are mostly bought for investment purposes,’ Pankaj Kapoor, managing director, Liasas Foras, real estate research firm, said. ‘If these houses come in the market, the artificially created skyrocketing prices will surely come down. Also, rentals will go down,’ he said.”

“The market obviously has some bubbles. It is absurd that it should take up to 40 years of a person’s average annual income to buy a house in big cities such as Beijing and Shanghai. The central government’s crackdown on corruption has also put strong pressure on home prices. The era of luxury watches and top-end liquor for officials is gone. How long will it be before the housing market, which has played such an important part in corrupt officials’ money-hiding schemes, sees the end of its frenzied days?”

“‘A considerable share of the property market is meant for houses that do not need to be there at all,’ Wang Shi, a real estate tycoon, said recently. This is why the biggest measure the government can take to regulate the market is taking on corruption, he said.”

“So far this year, the Tallahassee housing market has seen approximately 5 percent fewer homes listed for sale within the Tallahassee MLS than compared to the same period in 2013, according to real estate expert Joe Manausa. Homes priced above $100,000 saw the average asking price fall by about 5 percent as well. Yet, 26.5 percent of homes for sale in Tallahassee over the past 30 days were distressed, while the same measurement a year ago only showed 17.4 percent distressed.”

“‘If this trend continues, we very well could see last year’s real estate appreciation turn into this year’s depreciation,’ wrote Manausa. ‘We know there are still thousands of homes in the shadow inventory, the big question is will they be seeping into the market at a faster rate in order for the banks to clear out their remaining pools of non-performing assets?’”

“The house is full of everything the Moody family wants to leave behind when their foreclosure nightmare—five years and counting—finally comes to a close. The Moodys missed a single mortgage payment in February 2009 after Paul injured his back, lost his job, and drew down his bank account faster than expected. Five years later, the Moodys still haven’t come to a resolution. ‘You keep getting notices. Then we fight. Then we stay another 45 days,’ says Kim Moody’ ‘It’s been like that for five years.’”

“In New York state, 48 percent of loans that are 90 days or more past due have been delinquent for more than four years, according to Fitch Ratings. Families are trapped in debt, banks have yet to write down the bad loans, and thousands of distressed properties hang over the estate market. Since January 2013, disabled pensioner Mary Ann Daino, whose Staten Island home was destroyed in Hurricane Sandy has been trying to sign over the deed, plus a $25,000 insurance check, to her bank and be released from liability. She wants to move on.”

“Daino’s lawyer, Renee Cadmus, alleges that Wells prefers to collect foreclosure fees instead of resolving the case. ‘This situation is worse than the hurricane,’ Daino said. ‘I feel like I’m a prisoner, they won’t let me go.’”

“Although real estate experts say the number of home foreclosures in Phoenix is at its lowest point in a decade, dozens of families attended a foreclosure prevention workshop. Workshop participants ranged from young families to retirees with various reasons for their financial struggles including costly medical bills, rising utility costs, and unemployment. ‘Utilities are going up, food is going up, gasoline is killing us,’ Sun City resident Patricia Larson said. Larson and her husband are retired and are trying to lower their mortgage payment by refinancing their home. ‘Everything is up except for your Social Security.’”

“Other attendees, like Peoria resident Elizabeth Stewart, are still ‘underwater’ on their homes. Stewart, who purchased her home 15 years ago, has postponed her retirement the last three years so she could keep up with her bills. ‘I’m hoping to get guidance on what I can do to keep us in the house. I want to keep it,’ she said.”

“In the past two years Hong Kong has introduced a range of measures aimed at cooling its domestic property market. It has had an impact. Canada has just said a 28-year-old visa scheme designed to attract wealthy foreigners to the country is to be axed, amid growing fears of a housing bubble. Back in Australia, where, for instance, the median price of an apartment in Sydney is now $530,000, our policy makers seem divided on whether we even have a problem.”

“From a social policy perspective a disaster long ago unfolded. First home buyers as a proportion of total borrowers have fallen to a record low of 12.3 per cent nationally, from about 20 per cent at the end of 2011. As academics such as Clive Hamilton, professor of public ethics at Charles Sturt University, have noted recently, affordable property plays a crucial role in the health of any vibrant society. ‘It’s where people live, put down roots, raise families and join in their communities,’ Professor Hamilton wrote last month.”

“A U.S. Federal Reserve policymaker who has long criticized its bond-buying stimulus said on Wednesday the program has lasted too long, and there are signs it is now distorting financial markets and encouraging risk-taking. Dallas Fed President Richard Fisher amplified some lingering concerns that the central bank’s policy stimulus is stoking asset-price bubbles that ‘may result in tears’ for investors acting on bad incentives.”

“‘There are increasing signs quantitative easing has overstayed its welcome: Market distortions and acting on bad incentives are becoming more pervasive,’ he said of the asset purchases, which are sometimes called QE. ‘I fear that we are feeding imbalances similar to those that played a role in the run-up to the financial crisis,’ he said.”

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