March 21, 2014

When Easy Money Is No Longer Easy

It’s Friday desk clearing time for this blogger. “Alyssa Hellman, who lives in a historic condominium building in the West End neighborhood of Washington, D. C., gets letters from people interested in buying her home every few months. ‘I don’t exclude the idea of selling if the right person or offer came along,’ she said. But the right offer is a high one. ‘I’m not going to sell it at market rate, because I really don’t want to move. Sellers in this scenario can often name their price,’ Hellman said.”

“Home sales in West Michigan were down 16 percent during the winter months of December, January and February, according to the Grand Rapids Association of Realtors. Ryan Ogle, owner of Blu House Properties, said he’s eager to see if the warmer weather will generate new listings. ‘We have unlimited buyers right now, but we have nothing to sell them,’ Ogle said. ‘Whenever we do have a listing, it sells right away.’”

“The Namibian reported last year that on 10 May 1990, a three-bedroom house in Windhoek’s Khomasdal area was advertised for N$84 800. In May 2005, a three bedroom house in the same area was valued at N$400,000. Five years later in 2010, a similar house in the same area was valued at N$650 000. In 2012, however, the same house’s value nearly tripled to N$1.5 million. Today that figure has swelled further. Minister of Trade and Industry, Calle Schlettwein, admitted that Namibia’s real estate market is now one of the most expensive and ranked fourth in the world after Hong Kong, Dubai and Brazil. ‘Our concern is from a price point of view,’ he said.”

“A gleaming new Mercedes CLA is the latest enticement being dangled before Ottawa condo shoppers. The car itself sells for $33,900 retail. The deal is valid until the end of April and applies to all of the roughly 65 condos still unsold at the 200-unit SoHo Champagne. ‘We thought it was a good synergy with Mercedes because they are a luxury brand, and we are a luxury brand,’ says Mastercraft Starwood’s Jason Ryan.”

“The CEO of the property agency Midland Realty, Ronald Cheung, argues that capital outflow will be a greater concern for property buyers and speculators rather than the increase in interest rates. He was asked whether young people in Macau can afford to buy their own houses, to which he replied with a very straightforward: ‘Right now the property prices in Macau are extremely high, even more expensive than those in Hong Kong. Don’t think about buying houses! This is not a joke.’”

“The AFR ran a series of interesting articles over the weekend on the nascent glut of high-rise apartments being constructed across Australia’s major capital cities. ‘Even more supply is coming, with 41,400 high rise apartments approved last year, a 30 per cent increase on 2012. The surge is driven by Asian and local developers and is being encouraged by state governments, low interest rates, and changing demographics. Offshore investors and local self-managed superannuation funds have helped to prop-up demand but experts are now warning investors to keep clear.”

“‘We are beginning to see high-rise ghost towns,’ said Christopher Koren, former auctioneer and 30-year veteran of the property market.”

“China’s debt issues may continue producing negative noise in coming months, and repayment pressure is bound to increase as more debt matures and economic growth slows, experts said. ‘The challenge is to digest the stock of debt, formed mainly during the former economic stimulus plan, and not trigger systemic disruption,’ said Tang Jiangwei, a senior economist with Bank of Communications Co Ltd. ‘And how to support sustainable growth when easy money is no longer easy.’”

“If you look at Trulia’s estimates of price per square foot, you see San Francisco, New York, Washington and Boston now have prices above their 2008 levels. Now, I thought we all agreed that in 2008, prices were too high, and there was a big bubble. What are we to think of even higher prices in 2014, when the economy has been staggering along on life support for six years?”

“I can tell a story about these cities in which they’re somehow special and the money will just keep rolling in. But I can also tell a story in which people are paying more than they should for houses in my neighborhood on the assumption that today’s $750,000 house will be tomorrow’s $1.5 million retirement fund, even though incomes in D.C. can’t really support an entire city’s worth of seven-figure homes.”

“I might even tell a story where today’s ultra-low interest rates give several cities full of smart upper-middle-class professionals a badly contagious case of money illusion.”

“It was interesting to see Boston Mayor Marty Walsh man up to the fact apartment towers taking shape on the city’s booming skyline are out of reach for the vast majority of Bostonians. As I’ve noted, the new towers opening up in downtown Boston are aggressively seeking to push rents to next level, with $3000 a month studios and penthouses with a monthly tab of $12,000. ‘Eight-five percent of the people of Boston can’t afford to live in these buildings,’ Walsh remarked.”

“Purchases of previously owned homes in the U.S. declined in February to the lowest level since July 2012, figures from the National Association of Realtors showed. Prices rose 9.1 percent from a year earlier, the group said. The number of previously owned homes on the market rose 6.4 percent to 2 million. At the current sales pace, it would take 5.2 months to sell those houses, the highest since April 2013, compared with 4.9 months at the end of the prior month. Less than a five months’ supply is considered a tight market, the Realtors group has said.”

“‘Prices are rising much faster than people’s incomes,’ Lawrence Yun, NAR chief economist, said at a news conference. ‘The biggest factor is affordability,’ which has been declining. Faster job growth can help ease the sting of higher prices and borrowing costs, he said.”

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