April 25, 2014

It’s A Madness

It’s Friday desk clearing time for this blogger. “In 2005. Peter Fields, the president of Fields Construction, began work on a 100-house subdivision called North Oaks, in neighboring Salem, Virginia. Now those houses have owners, and new houses are rising. But things aren’t good enough to lead a builder like Mr. Fields to crank up the pace of production. What is keeping Peter Fields from building more houses isn’t too much competition from foreclosures or excess houses from the boom years (inventories are fairly tight by historical standards) or a shortage of land (he has 30 more lots graded and ready to build upon) or a shortage of capital (his bankers are eager for him to continue building).”

“It’s simple as can be: ‘We’ll build more houses as soon as we see some people ready to buy them,’ he said.”

“Continually sagging permit volume for single-family homes means demand for newly built homes in the Tucson area is waning — and maybe their prices aren’t helping. Ginger Kneup, who publishes the monthly Southern Arizona Housing Market Letter, suggests looking at new-home pricing to see how competitive the local industry truly is with its resale counterpart. The current median resale home goes for about $160,000. The current median new home sells for about $248,000.”

“Roughly a quarter of a million dollars may be too high now that pent-up demand has been relieved in the recession-stalled move-up market, Kneup submits. And really, what can Tucson afford? Pairing that with another question: ‘With income barely keeping up with inflation,’ she asks, ’should we really be so surprised that demand is weakening?’”

“What is going on here in East Idaho? The newest numbers from Greg Johnston at Keller Williams Realty show over 500 houses on the market in Bannock County alone. ‘At the end of March of 2014, we had 523 homes on the MLS listed for sale,’ said Johnston. ‘At the same time a year before we only had 463 homes for sale. ‘What’s happening is now we’re getting too many homes on the market where it is going to prevent homes from appreciating like they have in the last year.’”

“A dominant force at play in South Florida’s market is the dramatic increase in residences for sale. In Miami-Dade, 6,074 single-family homes were for sale in the MLS in March, up 23 percent from a year earlier. Miami-Dade’s rising inventory of existing condos comes in the midst of a major boom in the development of a new generation of towers. Condo expert Peter Zalewski said a build-up in condo inventory east of I-95 — where according to his analysis there is currently 9.9 months of supply — warrants watching. ‘It’s not dangerous yet, but if that number continues to grow, it could be an early sign of recalibration occurring,’ he said.”

“Activity seems particularly brisk in Shore counties hit hard by Hurricane Sandy, where ‘there’s a lot of rebuilding and renovations taking place’ and delayed projects coming on line, said Cindy Marsh-Tichy, president of the New Jersey Realtors Association. That has not been enough to prevent New Jersey’s real-estate market from shrinking. Even more than underwater mortgages, Marsh-Tichy said real-estate spending prior to the bust is keeping people out of the New Jersey market now.”

“‘People tell me they bought at the top of the market and then put money into the home,’ she said. ‘They’re worried that they’re not going to get their equity back.’”

“Mum and Dad property investors could be hit by the next raft of clampdowns on mortgage lending from the Reserve Bank. Wellington Property Investors Association president Jackie Thomas-Teague said the change would have an impact on smaller investors, as commercial rates would be unaffordable for them. While anyone who had five rental properties should be taking it seriously as a business, it would be wrong to treat them all as if they were major property investors.”

“‘I would be losing money hand over fist’ paying commercial rates, she said. ‘If they do this, rents would [have to] rise to make investments worthwhile, or the bottom would drop out of the investment market and, by extension, the property market.’”

“Luxury property developers in Singapore are facing their worst sales outlook in six years as a raft of government measures to cool one of the world’s most expensive real estate markets bite. The dearth of buyers has created a supply glut which is only likely to worsen within the next four years. Government data shows 82,575 new, private residential units are expected to be built between 2014 and 2018. That means an annual rise in the supply of property of around 20,000 units, around twice the average of the last 10 years.”

“‘Either the population will need to increase tremendously in the next few years or else there will be a lot of vacant units,’ said Nicholas Mak, executive director at SLP International Property Consultants.”

“Over 100 villas here have stood empty six years after they were built for locals in the Chinese city of Beihai in Guangxi Zhuang Autonomous Region. Some of the homes cost over three million RMB (285,900 GBP) and it was thought that a new rising class of wealthy people would snap them up. Entire cities have been built complete with skyscrapers, shopping malls, highways, parks and other facilities. But like in Beihai, they are empty of people and have morphed into soulless dead zones.”

“The construction industry not only employs hundreds of thousands of Chinese, but it has displaced hundreds of thousands of others who have been forced off their land and homes to make way for construction projects. ‘It’s a madness – homes built to stand empty!’ said one local who lives in a wooden shack.”

“Recently, the International Monetary Fund warned that China’s economy is likely to face a hard landing. Many economists believe that the Chinese regime needs to move quickly, in order to wean its economy from runaway credit, over-investment and excess capacity. Booming credit growth has swollen debt in China to roughly double the GDP. ‘The risk is not slower growth,’ said Markus Rodlauer, Head of IMF’s China mission. ‘The risk is that growth is not allowed to slow.’”

“Our central bank is essentially taking billions of dollars a year from average Americans, who are still struggling to get by in a bombed-out economy, and it is giving it — yes, giving it — to the very banks that helped cause the 2008 financial crisis in the first place. Analyst Richard Barrington estimates the Fed’s policies have cost savers $757.9 billion since the crisis. ‘It’s a stealth bailout,’ Barrington said. ‘Low-interest-rate policies have helped bail out banks, the stock market and real estate, but the Fed has not publicly acknowledged the cost of those policies. Unlike the other bailouts we’ve seen, this one has become open-ended.’”

“It just doesn’t make sense to the average mind. The Fed has responded to a crisis caused by too much borrowing by encouraging even more borrowing. It has allowed too-big-to-fail banks to become even bigger. It has helped inflate the national debt to nearly $18 trillion with its monthly asset purchases. It has created a junkie economy that seems hopelessly addicted to historically low interest rates, ever-increasing borrowings, and a non-stop printing press rolling out dollars.”

“Boisterous cheers for rising asset prices, largely fueled with the Fed’s funny money, have shouted down the debate. Payoffs are how corruption spreads. Now some might ask, what do I mean by corruption? Let’s put it this way: Ugly people don’t always know they’re ugly. And people who’ve been completely co-opted by the wealth and power of a globalized banking system, do you think they know when they’ve become tainted by the normalized corruption all around them?”

“I’ve noticed they rarely, if ever, use the term ‘moral hazard’ anymore. They have blinded themselves even to the law of gravity with the sheer amount of brain power that they put into everything they say and do. And they’re completely trapped in this thinking that trillions for the banks will solve everything.”

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Bits Bucket for April 25, 2014

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