May 31, 2014

Bits Bucket for May 31, 2014

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May 30, 2014

A New Paradigm For Economic Prosperity

It’s Friday desk clearing time for this blogger. “Southern Oregon continues to give mixed signals on economic growth in the wake of the Great Recession. The number of jobs and workforce are in decline. Guy Tauer, a regional economist for Oregon’s Employment Department, suggests Jackson County construction outstripped demand prior to the recession, making for a bigger hole to emerge. ‘We overbuilt during the boom years, outpacing Oregon in terms of permits and construction employment,’ Tauer said. ‘In-migration, which fuels our population growth, has slowed. There’s an excess in available properties, rather than a demand to spur additional building.’”

“In many Milwaukee neighborhoods, the homes have a colorful but troubling name attached to them. ‘Zombie’ properties. Housing advocates say a zombie property is generally defined as one that is in foreclosure but hasn’t been resolved for more than three years. ‘These things keep rotting in our neighborhoods,’ says Art Dahlberg, commissioner of the city’s Department of Neighborhood Services. ‘I say to banks, ‘Help us understand why you don’t take responsibility for the property. And if you do not foreclose, why do you start the process at all?’ I’ve never gotten a satisfactory answer.’”

“Full recovery continued to elude the Philadelphia region’s residential real estate market in the first quarter of this year, as the value of a typical home fell 4.9 percent from the last three months of 2013. University of Pennsylvania economist Kevin Gillen said that with the latest decline, average house prices in the region were ‘barely above the post-bubble bottom they hit two years ago.’ Price declines were spread almost uniformly across the region, Gillen said, with nearly every county experiencing some price deflation.”

“‘That 4.9 percent decline is a seasonally adjusted number,’ he said, ’so it actually masks just how severely depressive this winter was. If you look at just median or average house prices, the quarterly decline was much larger.’”

“Mortgage broker Wendy Kircheck spoke at the Chamber of Commerce gathering about housing trends in Calabasas. The market recently doubledipped, but is recovering. The median price for homes sold in the city from February to May was $859,500, down a whopping 27 percent compared to the previous quarter, Kirchik said. But the drop had come on the heels of a 26 percent uptick during the previous five years. She said 78 percent of Calabasas homes are owner-occupied, which is contrary to the belief that landlords are snapping up homes in the city for use as rentals. She also said, ‘Many people think there’s a lot of cash buyers, but 85 percent (of the owner-occupied homes) still have mortgages.’”

“One leading Ottawa broker isn’t convinced the city’s condo market will heat up, despite optimistic reports from the Canada Mortgage and Housing Corporation. ‘I don’t think we’ll see it heat up – we’re seeing that the prices of condos have gone down five to 10 per cent,’ broker Sam Himyary. ‘Most condo buyers purchase them for investment purposes. For example if you buy a $300,000 condo with 20 per cent down, after the condo fees and taxes, the rent will barely cover your mortgage.’”

“Resale prices of completed non-landed private homes continued to fall last month, the Singapore Residential Price Index flash estimates showed, as sellers cut prices to keep pace with discounts for new homes, with the sharpest declines seen in non-central areas. ‘With developers giving discounts on new homes to move sales, resale sellers are under pressure to match such moves in price cutting to compete for the same pool of buyers,’ said Ms Anne Tong, chief executive officer of HSR International Realtors. ‘The drop in private resale prices is (also) due to an oversupply of units.’”

“Mainland developers are facing fresh roadblocks in their rush to reduce inventory by offering hefty price cuts as several local governments have set a cap on such discounts at 15-20 percent of a flat’s original price. Prices of new flats in Hangzhou can be reduced by up to 15 percent, China Times reported. Further reductions would nullify any transaction, the report said. A similar rule prevails in Dongguan, where buyers recently complained of not being able to sign online contracts after buying homes carrying a 20 percent discount. ‘Such rules limiting price hikes and cuts exist in almost all mainland cities,’ an official said.”

“The rule was intended to avoid volatility in property prices that might result in social unrest. ‘We can hardly achieve good sales without slashing prices to a larger extent as the market lacks confidence in the property market. If government hinders us from cutting prices freely, our days will be harder,’ a person in charge of the marketing department of a listed developer said.”

“Strangled by regulation and high prices, weak French housing investment is proving a major drag on the euro zone’s second-biggest economy. Bank of France Governor Christian Noyer has pointed out that housebuilding is falling short even though France ploughs more public money into the sector than any other developed country through a range of measures to encourage home ownership. ‘It’s a valid question whether these policies have only led to higher prices rather than construction,’ said Gardner.”

“Longer-dated mortgages have allowed French households to borrow more. Bank of France data shows household debt has risen to a record 84.8 percent of gross disposable income. Economics professor and real estate expert Michel Mouillart sees few options left for the sector short of allowing smaller deposit payments than the 20-25 percent usually required. ‘If we want to revive construction without using more debt or more public aid, all you have to do is make the French rich,’ Mouillart quipped.”

“We are living in an Orwellian economy where image is everything. Housing inflation in key hotspots is labelled a purely supply side issue by the Government despite the lack of credible data showing what is actually happening in these markets. The Government has a remarkable reluctance to collect such data. An Orwellian economy is reliant on the absence of truth.”

“The bulk of middle New Zealand has seen their perceived personal wealth rise largely as a result of housing inflation rather than increases in their earnings. Unless New Zealand has discovered a new paradigm for economic prosperity this is not sustainable. No country has ever become rich through house price inflation although before the global financial crisis many deceived themselves this was possible. What this Government appreciates is that if people are feeling wealthier they tend to vote for the status quo.”

“Surveys show an enduring desire to own one’s home. But the love is not what it was. So customer demand continues, Jane Zavisca, a University of Arizona sociologist, told me, ‘but not homeownership at all costs.’ ‘Young people who’ve seen others’ lives ruined by the pain of foreclosure seem especially wary of taking on a mortgage, according to Zavisca. The idea of a home as a means of saving for retirement — as something one could sell in hard times — persists. It is a financial asset, Zavisca said, ‘but not in the sense that the average individual should be making a living buying and selling real estate.’”

“What amazes me is that more Americans aren’t seething over one of the biggest con jobs ever perpetrated on an unsuspecting public. The housing bubble was a product of public policy. The Fed under Alan Greenspan kept interest rates low to keep the speculative frenzy going. Financial deregulation let lenders push snake-infested mortgage contracts onto the shoulders of ordinary people.”

“When the bubble splattered, ordinary people were left bankrupt, foreclosed upon and devastated both financially and psychologically. If Americans are less than enthusiastic about real estate, who can blame them?”

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Bits Bucket for May 30, 2014

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May 29, 2014

Markdowns Are Supplanting The Bidding Wars

Miami Today reports from Florida. “Tallying what’s on the drawing boards of real estate developers, greater downtown Miami appears to be on the verge of a condominium explosion. There are 49 projects with a total of 16,843 units in the preconstruction phase in the greater downtown area, according to data compiled by a website affiliated with the Miami Association of Realtors that tracks condo preconstruction projects in South Florida. In addition to those units in preconstruction, said veteran Miami real estate broker Ron Shuffield, about 4,500 units currently are in construction in the Brickell area alone.”

“As the situation stands, Brickell may be facing an oversupply of condos that could cause prices to stagnate, according to Mr. Shuffield, who has worked the local real estate market for 39 years. He estimated that once those units are completed, Brickell will have an inventory of condos that should take about 15 months to be absorbed. ‘Generally,’ he explained, when there’s an absorption period of ‘12 months or over, prices begin to stagnate at some point.’”

The Miami Herald. “South Florida homes continue to get pricier, but slowing sales momentum is signaling that buyers are balking at sellers’ lofty expectations as their choices widen. The median condo price rose 10.3 percent to $193,000 from a year earlier, but slipped 3.5 percent from March. Sellers commonly expect to command a higher price than the home that just sold down the street. Dickering over deals and markdowns is supplanting the bidding wars and back-up contracts of last year.”

“‘I try to counsel a seller that a house is worth what someone is willing to pay for it — not necessarily how much they need to buy their next house,’ said Philip Vias, a broker associate with Berkshire Hathaway HomeServices Florida Realty in Fort Lauderdale. ‘Unfortunately, some sellers are not as realistic as they should be.’”

“A key shift in the housing market continues to be the rise in choices for home buyers. In Miami-Dade, the number of single-family home listings rose 24 percent to 6,034; condo listings swelled 38 percent to 11,033. That was the highest level of existing condos listed for sale in Miami-Dade since May 2011, and it amounted to 7.7 months of supply — a level that tips the balance toward buyers. The swelling level of existing condos for sale comes as Miami-Dade is in the midst of a new wave of condominium construction.”

“‘It’s starting to slow a little bit, and I think a lot has to do with sellers’ expectations,’ said Bette Abrams, a Coldwell Banker agent in Coral Springs. ‘For the first time, I’ve seen price reductions. A year ago, people were jumping in with the full price and above the full price.’”

The News Journal. “The number of homes sold in Flagler County last month was the first time in nine months that sales have topped 200, but the sixth time in the last 12 months that sales have not been better than the same month a year ago. The median price of homes sold in Volusia County was $125,000 in April, up 8.7 percent compared to the same month a year ago, but down from $135,000 in March.”

“There were 3,818 homes for sale in April in Volusia County, up almost 20 percent from a year ago. Flagler County had 1,159 homes for sale in April, up 18.6 percent from a year ago. ‘Sellers feel confident to list their home and the good news is we are able to keep pace,’ said Ian Anderson, president of the Daytona Beach Area Association of Realtors. ‘While the market may have softened a bit, it’s like a train running steadily ahead.’”

The Sun Sentinel. “South Florida sellers aren’t seeing as big a bump in home prices as they did last year. The percentage increases have slowed considerably in recent months. In 2013, median prices in the two counties were soaring, with year-over-year gains above 20 percent. Home sales in the two counties increased slightly last month from a year earlier. Broward had 1,334 sales in April, up 1 percent. Palm Beach County’s 1,478 sales were 5 percent higher.”

“Over the past two years, buyers have complained about a shortage of homes for sale. But listings in both counties are on the rise as sellers feel more confident that they can get the prices they want. The percentage increases have slowed considerably in recent months. In 2013, median prices in the two counties were soaring, with year-over-year gains above 20 percent. ‘Those days are gone,’ said Liz Caldwell, a Fort Lauderdale agent who also sells in southern Palm Beach County. ‘It’s a more normal market now.’”

From WOKV. “Florida led the nation in foreclosures last month and Jacksonville is among top ten in the state. Realtor Christine Lee tells WOKV 50 to 60 percent of the sales for homes worth less than a hundred thousand dollars are in distress. ‘Under $100,000 you are definitely going to see some much more incredible and distressed foreclosure short sale rates.’”

My Suncoast. “The most recent numbers are showing around 1 in 4 real estate sales in our area still involve a short sale or foreclosure. Deb Bean-Guinto with Anytime Realty in North Port says you can still find a discounted home in the area. These days though, you are going to have to put some work in. ‘This is what you are getting for $110,000…a pool, a four bedroom house that needs work,’ says Bean-Guinto.”

“More and more homes like these are coming on the market every month. ‘As far as foreclosures, we are seeing more, but it is steady.’ Bean-Guinto says that could just be that a bank released a bunch. ‘They are holding onto homes and releasing so many at a time.’”

“In fact, driving around you will notice homes which look distressed, but are not for sale. ‘They are not in the MLS and it does the realtor no good to call the asset manager company, because they don’t want to talk to you. They have not done all of their work to release the home for sale,’ says Bean-Guinto.”

“Despite improvements with around a quarter of all local real estate sales involving a distressed home, it leaves the area in the bottom quarter of the country. ‘We are going to see foreclosures in this area for a couple more years I would think. None of us know how much is truly out there,’ explains Bean-Guinto.”

“Florida has more than 200,000 backlogged cases of pending foreclosure. In Manatee, DeSoto and Sarasota counties there are nearly 10,000.”

Bits Bucket for May 29, 2014

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May 28, 2014

A Pent-Up Inventory Of Distress

The Sentinel & Enterprise reports from Massachusetts. “Realtor confidence declined on a year-over-year basis for the sixth consecutive month in Massachusetts, as officials say longawaited increases in inventory may be crimped by prospective buyer’s ability to get financing. In addition, the Realtor Price Confidence Index registered an April reading of 77.8, down 5 percent from the year ago score of 81.5 and down 2 percent from the March reading of 79.7. April marked the first year-over-year decline in the price index in more than two years.”

“‘A drop in price confidence could indicate that the inventory of homes for sale is starting to move in a positive direction for homebuyers,’ said 2014 MAR President Peter Ruffini. ‘However, if financing continues to be difficult for buyers to obtain, an increase in inventory may not result in an increase in sales.’”

The Boston Globe in Massachusetts. “In contrast to the red-hot housing market that’s now spreading through Boston and close-in municipalities, there are still bargains to be had on Cape Cod and the Islands. Theresa Sammon and Brett Risser of Medford steeled themselves for an arduous search when they decided to look for a vacation property on Cape Cod, well aware of the bidding wars, escalating prices, and tight inventories in the Boston area’s frenzied real estate market.”

“But the married couple quickly found a two-bedroom cottage in Dennis Port, made an offer — without competition from other buyers — and bought it for $10,000 below the asking price of $265,000. ‘We were pleasantly surprised,’ said Sammon, the mother of two children and the owner of a pet spa in Somerville. ‘You could never touch a home like this for $255,000 in Medford or Somerville. No way.’”

Press of Atlantic City in New Jersey. “New Jersey now leads the nation with the highest percentage of loans in foreclosure, the Mortgage Bankers Association says. South Jersey is also mired in the problem. Sheriff’s sales on mortgage foreclosures in Atlantic County have nearly doubled from a year ago, said Pam Hoerter, a fiscal officer for the Sheriff’s Office. ‘There are more. A lot more,’ she said.”

“James Schroeder, a local attorney specializing in short sales, said the process is still very slow and cumbersome among lenders. A sale can take months after a contract comes in. Meanwhile, he said, lenders have been ramping up foreclosure departments in New Jersey, and Schroeder expects foreclosures to happen faster than they did in the previous five years. ‘The days of waiting two or three years and living without paying a mortgage are over,’ said Schroeder.”

The Times Herald Record in New York. “Vacant homes dot neighborhoods throughout this former railroad city. There are 155 vacant houses in the city, or roughly one in every 15 homes, according to city officials. Most of those are in foreclosure. Mayor Kelly Decker knows firsthand the destabilizing effect of these vacancies. He and his wife, Jill, have lived for the past 20 years on Ferguson Avenue. Five houses sit vacant out of 33 on Ferguson Avenue, including the one next door to the mayor’s. ‘I can tell you because I live right next door that no one’s ever come here’ to tend to the property, he said.”

27 East in New York. “A house is in foreclosure at 80 Further Lane in East Hampton—right next door to a residential property at 60, 62 and 64 Further Lane that reportedly sold for a record-breaking $147 million. Yet there are more foreclosures in the Hamptons—even on expensive homes like those on Further Lane—than one might imagine. A few years back, Kristopher Pilles of East End Luxury Ltd., a Riverhead-based real estate brokerage that specializes in distressed properties in the Hamptons, counted 14,000 active foreclosures in Suffolk County, with 1,000 homes in the Hamptons with mortgages of more than $1 million in some form of default.”

“Thanks to a backlogged court system in New York State, some properties whose owners failed to make payments during the recession years are only now facing foreclosure, which can take as long as four years, Mr. Pilles said. ‘There is such a pent-up inventory of distress,’ also called ’shadow inventory,’ he said. ‘Chances are, if you’re on a street with more than 10 houses, you probably have somebody on your street not paying their mortgage. At this point, we’re very busy, and there’s no indication it’s going to slow anytime soon.’”

The Connecticut Post. “Diana Byrd finds herself underwater after fighting a tide of job downsizing and devalued housing. But the Bridgeport woman said that she wants to stay in the condo she bought in the North End eight years ago, even though it has lost half its value. “Byrd’s situation is common in Bridgeport, where 42 percent of mortgagees owe more than their home is worth, according to a survey. That puts Bridgeport in 10th place nationally for the percentage of mortgaged homes ‘underwater.’ Hartford leads the nation with 56 percent.”

“‘I love my apartment, but I’m paying $1,600 a month for a mortgage, and there are common charges on top of that,’ said Byrd, a part-time computer sciences instructor. ‘I bought it for $160,000 in 2006, at the height of the bubble, and it is listed for $98,000 now.’”

Bits Bucket for May 28, 2014

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May 27, 2014

Booms Have Unintended Consequences

The San Francisco Chronicle reports from California. “After getting outbid on three houses, Shura Kelly decided not to mess around with 117 De Montfort St. True, it was in Ingleside Heights - not the Sunset District where she and her firefighter partner, James Quirke, grew up and would have preferred to stay. But the Sunset had become too expensive. Kelly, who runs a doggy day-care business, and her partner ‘came in strong’ with an offer of $810,000, 35 percent over the asking price of $599,000. The good news was that they beat out 46 other offers. The bad news was that someone else offered more than 50 percent over asking.”

“‘I thought for sure we had it but someone went bananas and offered $910,000 for a house in the Ingleside,’ Kelly said.”

“‘Housing affordability is the biggest single issue facing the Bay Area economy,’ said Ken Rosen, chairman of the Fisher Center for Real Estate at UC Berkeley. ‘Booms have unintended consequences.’”

From KTVU. “The strengthening U.S. economy has transformed the Bay Area’s already strong housing market into the juggernaut of the nation. Employment agent Debra Monroe said the 20 and sometimes 30-somethings she places tell her they’re are not thinking homes. ‘It’s not even on our bucket list of ideas anymore of what they want to do,’ said Monroe.”

“Home ownership will have to come somewhere else according to what they tell Monroe saying things like, ‘I’d be happy to move somewhere else where I could probably afford a house,’ and so it does affect peoples’ planning,’ she said. In fact, many of the folks who sell their Bay Area homes usually exercise one of three options. ‘When they see the houses that they’re gonna get for that price, that’s when the shock really sets in,’ said Pacific Union Realtor Kathee Shatter ‘They often move out of state or move north to a different county or something like that or downsize.’”

The Signal. “Local Santa Clarita Valley realtors noted some trends occurring in the market today. There are fewer multiple offers than a year ago when buyers were willing to write an offer on anything and as investors have mostly left the market. But the number of homes listed for sale has increased, taking pressure off of prospective buyers to find a home – any home. ‘In the Santa Clarita Valley cities there are anywhere between 10 to 20 new listings entering the resale market in a 24-hour period,’ said Connor MacIvor with Re/Max.”

“With that steady inflow of new listings, chances are good a buyer will find something in a relatively short period of time, he said. Buyers, however, are not ‘rushing’ into the market today as they were last year when inventory was slim. MacIvor points to the increase in the number of days a home is on the market compared to last year. ‘Real estate hinges on jobs,’ said Nancy Starczyk, president of the Santa Clarita Valley Division of SRAR. ‘The younger generation is finding it difficult to get employment; hence, they’re not looking at real estate investment early on, it’s being put on the back burner.’”

The Union Tribune. “Nearly five years after the Great Recession, more than 55,000 San Diego County homeowners are still underwater on their mortgages, says Zillow. The report found that in the first quarter of the year, 12.6 percent of homeowners with mortgages in San Diego County owed more on their properties than they were worth, down from 21 percent a year earlier. The drop in those underwater was aided by big home price appreciation in 2013. Still, the annual gains slowed in the second half of the year, and weren’t enough to get everyone’s value to recover to a point that they could sell their home for a profit or at least break even to get out of their loan.”

“Many of the areas with the most negative equity contain tract homes, built during the housing boom that led to the recession. These include eastern Oceanside, Otay Mesa, and Chula Vista, where many overpaid for tract homes, aided by loans that required little to no down payment.”

“‘Those houses got bid up the farthest, the fastest. They’re the ones who were the most vulnerable to swings of the market’ said Mark Goldman, a loan officer and real-estate lecturer at San Diego State University. ‘A lot of the people who bought there bought way beyond their means to repay and they were using the nothing down, stated-income loans and those were the markets that got hit the hardest.’”

The Daily Bulletin. “When John Bulgin bought his house in a Fontana neighborhood eight years ago, he didn’t think he would find himself living with his mortgage worth more than the house. But despite reports of an improving housing market around the country, that’s the situation he and 9.8 million households in the U.S. find themselves in: He bought his home for around $450,000, and the last time he checked, it was valued at about $270,000.”

“‘We refinanced, so the mortgage is a lot less than it used to be, but most all of these houses here, I’m sure, are upside down,’ Bulgin said. ‘We bought the wrong house at the wrong time.’”

“‘There’s a lot of happy talk about rising housing prices,’ said Peter Dreier, a professor of politics and chair of the urban and environmental policy department at Occidental College in Eagle Rock. Dreier said the report disputes the theory that rising home prices in an improving economy will rescue people from the recession and from the epidemic of underwater mortgages around the country.”

“‘It is true that the number of homeowners who are underwater has declined across the country,’ Dreier said. ‘But there are still many parts of the country where the recovery is bypassing entire cities and many neighborhoods, and there are so many underwater homeowners that the housing market alone will not rescue them. The Inland Empire is one of those areas.’”

From Bloomberg. “The golf courses and beaches of Los Cabos are luring Americans who are able to get home-equity loans to buy in Mexico as U.S. housing prices rise. Buyers, mostly from California, are purchasing condominiums, villas and estates ranging from $200,000 to more than $7 million following a plunge in prices, according to Deloitte & Touche LLP.”

“‘What I really wanted to do was take advantage of the market,’ said Joy Gipson of Lake County, California, who this year financed a 1,600 square-foot Los Cabos condo with a home-equity loan. ‘Real estate is starting to revive and I didn’t want to get priced out again.’”

“The 31 percent gain in U.S. home prices since January 2012 has given property owners more equity. That’s made it easier for them to get home equity lines of credit, or Helocs, for as much as $500,000. American buyers in Mexico are benefiting from the decline in the costs of credit lines, which have adjustable rates tied to the prime rate.”

“Gipson, 57, a marketer for the public transit program in Santa Rosa, California, bought her two-bedroom, two-bathroom condo in Los Cabos as a place to possibly retire. The $193,000 home is a six-minute walk to the beach. Gipson said the addition of more elite golf courses in Los Cabos will make it even more appealing to Americans. ‘It’s going to turn into San Diego South,’ she said. ‘I leveraged the equity in my house and spent my savings.’”

When Housing Prices Fall, Problems Will Be Exposed

The Wall Street Journal reports on China. “Pan Shiyi, the co-founder and chairman of Soho China Ltd., is taking a very bearish view on the housing market, which has struggled this year. Demand is also weakening in an expanding number of cities as banks tighten mortgage lending and sales are dampened by widespread expectations of price cuts. ‘I think China’s property market is like the Titanic and it will soon hit an iceberg in front of it,’ Mr. Pan told a financial forum on Friday, according to the China Business News. ‘After hitting the iceberg, the risks will not only be in the real estate sector. The bigger risk will be in the financial sector,’ he added.”

“He said serious problems lie with financial products like trust and wealth management products, as well as entrusted loans that charge higher interest rates than banks and are key financing vehicles for the property sector. ‘When housing prices fall 20% to 30%, these problems will be all exposed,’ he was quoted as saying.”

From Reuters. “The Chinese developer behind an eight-storey clubhouse with a billion-dollar view over Shanghai’s Huangphu River is turning to lower-end coffee shops and restaurants to fill the space, as a broad anti-graft campaign puts the brakes on conspicuous spending. Developers and owners of luxury residential property are also feeling the heat. ‘The Beijing market is particularly slow. There’s a lot of supply because people are dumping their high-end property into the market because of anti-corruption,’ said a manager of a property company who declined to be named.”

“In Beijing’s secondary home market, the number of units on sale in April doubled from January to 14,622 units, while average selling prices eased 2.4 percent during the period, according to property brokerage Midland Holdings. In Shanghai, a manager at a developer said sales of villas had been hurt as some investors were opting to go overseas. ‘It’s hard for an ordinary person to have many assets; one has to have power to generate money, and it’s difficult for him to be totally clean. These people have to protect themselves and their family so they’d rather invest overseas,’ said the manager, who declined to be identified.”

From NTD TV. “Since 2014, the Chinese property market has been suffocated with a glut of real estate inventory, sluggish sales, and a sharp drop in transaction volume. The market is awash with various promotional activities. Recently, ‘Zero Down’ was launched in Beijing. In the Greater Beijing area, lower-cost promotions were also heavily promoted recently. Prior to May 1, developers in Guangzhou also advertised slogans such as ‘Move in with zero down payment.’”

“Duan Shaoyi, Beijing Normal University MBA instructor and economic columnist: ‘It is the eve of the real estate bubble burst, many people are aware of it. They are hoping that the promotion will push up sales and reduce the losses in the future bubble burst. My advice is to sell the house as soon as possible. In the place where I live, 70% of the houses are occupied by mice, 20% by house nannies, and only 10% by the real owners.’”

Want China Times. “More than 30 Chinese cities, excluding Beijing, Shanghai, Guangzhou and Shenzhen, plan to relax restrictions imposed on housing purchases because of the slowdown in the country’s real estate market. ‘The housing market in China is not just slow but cold. If the downtrend continues, risks will be posted in the market,’ said an executive from a major real estate developer, adding that agencies might go out of business if the trend continues.”

“The trend of bankruptcies in Wenzhou continues unabated, according to a study conducted by the Chinese-language Economic Information Daily, while restricted lending to enterprises has made matters worse. It is understood that Zhejiang courts processed 346 cases of bankruptcy in 2013, up 145% from the previous year, and the total debt of the bankrupt enterprises amounted to 159.5 billion yuan (US$25.6 billion), nearly six times the 24.3 billion (US$3.9 billion) in 2012. Of these, the number of businesses going bankrupt in Wenzhou totaled 198 and the situation could be even worse this year.”

“Sources also indicated that over 90% of guarantee companies in Wenzhou have gone out of business. ‘The credit system is on the brink of collapse and we are afraid it will be difficult to make a breakthrough in financial reforms this year,’ a business source in Wenzhou told the paper.’”

From Forbes. “On Friday last week the owners of Hong Kong-listed Greentown China Holdings, announced that they would be selling up to 30 percent of their stake in the Hangzhou-based company to sometimes-partner Sunac Holdings. The sale would mean a relinquishment of control in the oft-troubled developer, which has been struggling during China’s current real estate slowdown.”

“The company’s soon-to-be former chairman Song Weiping played the part of wounded warrior in the message posted on the company’s website, comparing the sale of the controlling interest in Greentown to his future demise. The tycoon declared that, ‘Leaving the real estate industry makes it possible to preview death.’”

“‘This year will separate the men from the boys’ in China’s real estate market. That was the prediction from Ronnie Chan, the billionaire chairman of Hong Kong’s Hang Lung Properties, when I appeared with him at a real estate event in Shanghai last month. This seems to be the type of bear market moment that more experienced developers, such as the proudly non-PC Chan, relish.”

“‘In the past companies in China have not gone bankrupt. This is crazy. Bankruptcy is good,’ Chan stated. He added, ‘You need to use the toilet every day. You have to discharge something.’”

Bits Bucket for May 27, 2014

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May 26, 2014

Crisis Noninterruptus

Readers suggested a topic on what happens next. “1. How will whatever comes next compare to 2008? 2. How do we get rich Lahde-style off this thing?”

A reply, “We don’t know, but we have the prototype under a microscope. To paraphrase the Amish; expect the best, prepare for the worst. Consider that this will just be the second step in a flight of stairs. One thing we know is that tens of millions have been washed out of the mania and will not participate in the next stage.”

The Sun Sentinel. “During the first quarter, 68 percent of Broward County homebuyers paid cash, up from 47 percent in the first quarter of 2013, according to RealtyTrac Inc. And that number was higher than the year before, when cash accounted for 42 percent of sales in Broward. Investor Lex Levinrad said there’s ‘an absolute feeding frenzy’ among cash buyers looking for deals. He heads a club for real estate investors, and buys 15 to 20 homes a month in Palm Beach, Broward and other nearby counties.”

“Cash buyers are coming from Europe, Brazil and Russia, he said. A hedge fund contacted him recently about buying 350 houses in Palm Beach and Broward counties over the next 18 months. ‘If they have cash to invest, people feel like they will miss the boat if they don’t buy now,’ Levinrad said.”

The Tribune. “President Obama is going to make me rich. That’s because the Obama administration, which has done everything in the government’s power to hamper economic growth, just loosened lending standards so that people with poor credit can buy homes. Why not? It worked out well for some people the last time the government loosened lending standards.”

“See, back in 2002 or so, just as the housing bubble was forming, I was about to buy a townhouse for $165,000. I had the money. The owner was eager to sell. But my Midwestern cautiousness gave me cold feet and I backed out of the deal. If only I had known that government stupidity was about to cause the value of the joint to soar over the next five years.”

“The insanity of that time caused the townhouse I didn’t buy for $165,000 to soar to $525,000 in 2007 — before falling to about half that value following the collapse. I won’t miss out on a deal like that again. This time, I’ll ride the boom to its peak and sell just before the inevitable market correction!”

The Santa Cruz Sentinel. “The late, lamented housing bubble was inflated by a huge influx of borrowers who could not meet traditional standards for mortgage loans. These traditional standards included down payments of 20 percent as a safeguard against property values falling below loan values and borrower incomes of at least three times principal, interest, tax and insurance payments to insure buyers could afford their houses.”

“The influx of non-traditional borrowers was driven by Congressional quotas imposed on mortgage guarantors Fannie Mae and Freddie Mac. In 1992, 30 percent of Fannie/Freddie-backed mortgages had to be issued to borrowers with below-median incomes. By 2007, 55 percent of mortgages had to be issued to borrowers below the median with 27 percent issued to those in the lowest 20 percent of incomes. As private, profit-driven enterprises, it is no surprise that Fannie and Freddie chose to pump up their volume by relaxing their standards.”

“Did the government see the error of its ways and return to traditional lending standards? It did not. The Federal Housing Administration picked up where Fannie and Freddie left off with minimal down payment requirements. Low down payments, low interest rates and low prices stabilized the housing market. Prices finally turned higher in 2012. Now, with higher interest rates and higher prices making housing less affordable, prices appear to be stalling and may even be declining.”

“Will the government resist the temptation to loosen today’s standards? Stop making sense. Under the leadership of newly installed director Mel Watt, Fannie and Freddie plan to re-open the spigots to ‘help’ more borrowers enter the market. Specifically, Fannie and Freddie will not reduce the size of loans eligible for insurance, will shelve plans to increase guarantee fees and will again accept 100 percent of the risk on most new sub-standard loans.”

“Of course, we’ve been down this road before with disastrous consequences for the economy as a whole and underqualified borrowers in particular. As Ed DeMarco, Mr. Watt’s less feel-good predecessor, warned in a speech last week, ‘Do not confuse weakening underwriting standards and underpricing risk with helping people or promoting market efficiency.’”

The Durango Herald. “The ‘official’ dates of the U.S. financial crisis were 2007-08. Since then, we’ve had a few additional crises, in particular, the Euro crisis. But overall, the global financial crisis seems to have been contained. But I’m not so sure. Contained it might be, but the effects are long-lived.”

“For example, the Federal Reserve often discusses weakness in the labor markets, particularly as the Fed Chairwoman Janet Yellen is a prominent labor economist. And the federal officials often discuss weaknesses in housing markets. In January 2009, the Fed began an aggressive policy of loading the economy with easy money – quantitative easing – and continues to do so. The largest European economies and Japan followed suit, more or less, later that year.”

“And yet, the U.S. economy is still about 4 percent below where it should or could be. Herein lies the heart of the ongoing crisis. The Fed has done all it can to pump up the economy. The Fed’s balance sheet has gone wild and has been since the early days of the crisis. Housing remains anemic – this scares the federal government. New regulations put in place after the most recent housing bubble burst to prevent a three-peat are being relaxed. It’s déjà vu all over again.”

“For better or worse, I tend to think a little worse, the U.S. economy has become overly dependent on real estate markets as an engine for growth. But it does so for a couple of reasons. First, is the obvious impact on the real economy. You need wood, plaster, bricks, microwave ovens, etc. to make a house. There is a direct impact. Second, gains in real estate prices increase wealth and spur consumption via the ‘wealth effect.’”

“But neither of these comes without a cost. Investing resources in housing means other sectors are losing out. Wealth effects could be driven by speculation – just ask a Los Angeleno. But speculative gains could just as easily, and quickly, turn to losses. So, the standard relationship between financial markets and the real economy seems to have been severed. Crisis noninterruptus.”