June 6, 2014

From Continuous Increase To Inevitably Fall

It’s Friday desk clearing time for this blogger. “April was another month of double-digit jumps in home prices in Salinas – or if you are a young couple looking to buy a slice of the American Dream, you’d might see it as soaring costs. ‘Everybody I’ve talked to said they are extremely busy and things are moving,’ said Sandy Haney, Monterey County Association of Realtor’s executive director. ‘Cash buyers are edging out those who would opt to putting down a 5 percent down payment.’”

“These cash-in-hand buyers are actually investors, Haney said, and many of them are off-shore, particularly from China. Technically, a Chinese citizen cannot take more than $50,000 out of the country. But Haney said they ‘have a way’ of getting more money into Hong Kong, where it is saved until the day they can jump on a plane with plenty of cash on hand.”

“More than half of U.S. adults have had to cut back elsewhere to cover their rent or mortgage, according to a new survey. Additionally, about 7 in 10 of those surveyed said they believed we’re still in the midst of the housing crisis, with 19 percent saying the worst is yet to come. Only 1 in 4 say the crisis is ‘pretty much over.’ ‘For most Americans, the housing crisis is hardly a thing of the past,’ said Geoffrey Garin, president of Hart Research Associates, which conducted the survey. ‘There is a lot of reporting about the notion that America is in a housing-led recovery. That’s certainly not how Americans see things.’”

“Jennifer and Nick Denig’s Hanover Township home had been on the market for more than a year before it finally sold, at a loss of about $30,000. The couple bought the home in June 2007 for $115,000. The Denigs sold their home in April for $88,900, knowing full well it would never sell for the original price in today’s real estate market. ‘It probably wouldn’t have taken this long if we had listed at this price (originally),’ Denig said.”

“In the Lower Hudson Valley, one of the most affluent regions of the country, where one in five homes costs a million dollars, there are thousands of homeowners still struggling to pay their mortgages, often facing foreclosure. LaDonna Thompson Hutchins, a 30-year Manhattan postal worker, lives in a two-family house in Mount Vernon that her grandmother and mother bought in 1978; both have since died. With mounting medical bills and personal stress, Hutchins missed some mortgage payments. Now she owes $210,000, mostly in late fees and attorney costs and is working with a counselor to reduce the payments and get back on track. The balance on her mortgage is $466,000.”

“‘It’s my mistake. I refinanced a couple of times and fell behind,’ Hutchins said.”

“Foreclosure is hitting most socio-economic groups and most neighborhoods, said Peter Spino Jr., a White Plains-based lawyer who represents homeowers. ‘We are seeing recurring spikes in the (foreclosure) numbers,’ he said. ‘And it is climbing the economic ladder. The wealthy, who were able to stave off (legal action) because they had resources, have had those resources depleted.’”

“About 800,000 borrowers who remain enrolled in HAMP will see their rates gradually rise starting this year, eventually increasing payments by more than $1,000 a month in some cases, according to the special inspector general for the Troubled Asset Relief Program. In the Fort Hood, Texas, region, a quarter of a percent drop in home prices from December through February increased the number of underwater loans there by 20 percent, said Kostya Gradushy, Black Knight’s manager of loan data and customer analytics. A 0.02 percent price decline in the area around Little Rock, Arkansas in February resulted in a nearly 12 percent increase in underwater borrowers.”

“Even if borrowers are not technically underwater, those who have very little equity in their homes will most likely have to bring cash to the table if they decide to sell their homes just to cover the commissions of the real estate agents involved in the deal, Gradushy said. ‘So even if your house is worth exactly what you owe on your mortgage, you are still technically underwater,’ Gradushy said.”

“After five years of house price increases, Ecuador’s property market is now slowing, partly due to an oversupply of residential properties. There were more than 30 large condominium projects under construction in Cuenca during the first half of 2013, a slowdown from the 40 to 45 projects seen in 2011. In addition, fewer building permits were issued in 2013 compared to the previous year, according to the Cuenca Chamber of Construction. There has also been a decline in mortgage loans. ‘We are beginning to see an oversupply of housing for middle- and upper-middle-class buyers,’ said Roberto Vega, general manager of Smart Research in Quito. ‘We are seeing this in the more active markets, such as Quito, Guayaquil and Cuenca.’”

“Sales of Beijing’s second-hand housing stock declined 9.02% from April and and hit a new low since 2009. Prices fell by 5.55% compared to April. More concerning is that the inventory of commercial housing reached 77,058 units at the end of May, an increase of nearly 22,000 units in three months. NTD special economic commentator Jiesen Ma said China’s property market trend has changed from continuous increase in the past decade. The consensus is that prices will inevitably fall. Jiesen Ma: ‘Signs of price, sales and all aspects show that the turning point has arrived. Prices will fall in some areas. In fact, prices in certain areas already plummeted sharply.’”

“The Bank of England’s new risk watchdog, which this month will consider what to do about Britain’s surging housing market, cannot be expected to eliminate the risk of asset price bubbles, a senior policymaker said. ‘We are not responsible for house prices. We are responsible for financial stability,’ said Richard Sharp, a former banker of 23 years at Goldman Sachs.”

“The economy may be in recovery mode, but it would probably be doing better if the government would just get out of the way, according to the University of North Florida’s Local Economic Indicators Project, or LEIP. ‘Most pundits are blaming the GDP numbers on the perverse weather in the first quarter virtually everywhere, and we agree to an extent, but the investment numbers are troubling and they continue to tell us that the Federal Reserve policy oriented towards maintenance of very low interest rates is stifling recovery,’ the organization’s newsletter said.”

“The national economy is recovering, ‘but the hindrance on economic growth at this point is corporate and non-corporate investment expansion that is being deterred by interest rate policy at the Fed that motivates firms to focus more on their investment portfolios predicated on huge holdings of cash rather than producing products and services and selling to consumers and other businesses,’ the newsletter said. ‘The license that the Great Recession has granted Keynesian oriented governments to grow themselves will plague worldwide economic growth for decades to come, despite the ingenuity and entrepreneurial spirit throughout the world to countermand it,’ it said.”

“If you cling to tradition, the recovery in the US housing market should be great news for consumers. Right now, however, it just doesn’t look as if even a slightly healthier US housing market is of much help to the overall economy. Indeed, there’s an argument that rising home prices could end up being a drag on the economy.”

“It could be that the housing market, and the mortgage market, are still in a kind of wacky no man’s land in the aftermath of the once-in-a-lifetime crash of 2007/2008. The fate of mortgage giants Fannie Mae and Freddie Mac remains unknown; the securitization market hasn’t revived; the banks still haven’t developed solid new approaches to real estate lending.”

“But for now, relying on real estate to somehow jumpstart the entire American economy and return it to growth mode sounds like little more than wishful thinking.”

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