June 13, 2014

Watching The Same Movie Again

It’s Friday desk clearing time for this blogger. “Crews broke ground last month on a 47-rowhome luxury development in Chicago. Every apartment — starting at $562,900 — sold before digging began. Adam Kriticos, a mortgage broker, bought the last available home at the development. He had less than four days to make an offer after touring a model home. That didn’t faze him. ‘It’s not like we’re overpaying for where the market is now,’ he said.”

“The Maryland Department of Housing and Community Development has kicked off a program aimed at increasing the number of first-time homebuyers in Cecil County. ‘What the Maryland Mortgage Program does is overcomes the barriers to purchasing a home,’ said Heidi Ford, a VP with 1st Home Mortgage in White Marsh. ‘They may not have the assets to pay 5-percent down or for closing costs.’”

“Brittney Sweeney has less than a month left to find a new home for her family to rent in Bend, and the pickings are slim. ‘The hard part about it now, there is a shortage of houses, but (also) just the amount of money they’re wanting for these houses,’ Sweeney said. City Manager Eric King said that one question the city might explore is how many bank-owned homes are sitting vacant and whether the city can do anything to encourage institutions to make them available more quickly to renters or buyers.”

“Because of its improving housing market, California is a bright spot in the country’s tepid economic recovery, according to the latest UCLA Anderson Forecast. Economist William Yu predicts California’s real estate market could see increasing investment from China. ‘We can see that the Shanghai condo was sold for $995,000 and the L.A. condo was sold for $830,000 in March 2014,’ he said. In regard to China’s real estate market, Yu acknowledges that it’s puzzling that the average Chinese household can even afford a condo priced at nearly $1 million. For him, this is evidence that a housing bubble in China can’t continue, and that the ’smart money’ is moving to real estate markets in the U.S.”

“Trading volume and sales of Shanghai Commercial estates for the first week of June dropped nearly 80% compared with the same period in 2013. U.S. commercial real estate company CBRE said that nine out of 2013’s top 10 new shopping centers were in China. China’s shopping center construction area was more than half of the world’s construction area. China’s economic commentator Niu Dao: ‘Their planning is completely unreal. There are empty houses everywhere. I travelled five to six provinces in 2013. Protests are everywhere. People were told they would get a certain return on investments, but in fact they did not get any. Small shareholders’ money was all wasted.’”

“In Australia, leaders are struggling to replace revenue and jobs from a resources boom many people thought would last for years to come, based on the expectation that China’s heated growth would absorb ever higher amounts of resources for decades. Two years ago, real-estate agent Bella Exposito said she was selling as many as 25 houses a day as soaring coal prices lured workers and investors to this flyspeck Outback town. As of May this year, she has sold three.”

“Almost as quickly as it began, the boom stopped. Homes valued around a million Australian dollars are now lucky to get a bite at half that price, according to Ms. Exposito. About 300 of the town’s 4,000 privately owned houses are vacant, she says. Ashley Dowd, the manager of the Moranbah Community Workers Club, says it will take years to repay debts after his bar’s recent renovation. He receives job applications from residents laid off by local miners but says he is usually not able to provide much work, having cut his own staff to 15 from 20. ‘It will be batten-down-the-hatches and try and ride through this period the best we can,’ Mr Dowd said.”

“Former Reserve Bank of Australia board member Professor Warwick McKibbin has attacked the central bank for pushing official interest rates too low in a failed attempt to engage in the European, Japanese and US currency wars. ­McKibbin said ‘very loose’ monetary policy was more likely to fuel housing and stock bubbles than real and ­sustainable economic growth, reported AFR.”

“In his first Mansion House speech, Bank of England governor Mark Carney warned that ‘gradual and limited’ interest rate increases will be needed as the economy recovers. ‘It could happen sooner than markets currently expect,’ Mr Carney said. Mr Carney also warned the Bank may take action within weeks to cool the threat of Britain’s overheating housing market. He said the housing market is currently ’showing the potential to overheat,’ with prices rising at a rate of around 10% each year. The Bank is also concerned by the threat posed by indebtedness of over-extended borrowers, he added. The economy is ‘unbalanced internally and externally,’ he said.”

“The International Monetary Fund has found that there were 19 countries recorded with drops in prices, with the biggest decrease seen in India with a -9.1% drop year on year. In the IMF’s other calculations, Australia sits within the top five (with Belgium, Norway, New Zealand and Canada just ahead) in terms of house prices being above rents, as well as scoring in the top three (with Canada and Belgium taking out top spots) as continuing to be ‘out of reach of household incomes’.

“Deputy managing director for the IMF, Min Zhu, noted that house prices are inching up in the IMF blog. ‘But is this a cause for much cheer? Or are we watching the same movie again? Recall how after a decade-long boom, house prices started to fall in 2006, first in the United States and then elsewhere, contributing to the 2008-9 global financial crisis. In fact, our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises,’ Zhu wrote.”

“A recent article from CBS News summed up one of the major problems with the economic recovery: For most people, it doesn’t exist. While we may hear reports of rising home prices, decreasing unemployment and rising wages, a closer examination reveals that most of the benefits of the recovery goes to the highest income earners, leaving most Americans no better off. In housing, for example, the article stated that ’sales of the most expensive homes were up 21.1 percent through April of this year, while they’ve fallen 7.6 percent for the rest of the market. That follows a gain of 35.7 percent in 2013 for the top 1 percent and just 10.1 percent for less-expensive homes.’”

‘No wonder a CBS News/New York Times poll showed that 69 percent of Americans believe the economy is in bad shape, and 66 percent believe it isn’t getting any better. We often say that the recovery is fake, and it is. But more importantly, even the fake recovery doesn’t extend to most of the economy, because it is only focused on pumping up the asset bubbles.”

“The Bureau of Labor Statistics reported wages rising 1.9 percent in April, but the increases are going disproportionately to higher earners, with average earners more likely to have lower wages than higher wages. This is just another example of how unsustainable the recovery is. Even with all the firepower the federal government is putting into it, it’s doing very little to jumpstart the real economy.”

“Instead, it’s pumping up the asset bubbles. Yes, that helps somewhat — we’d certainly be in worse shape right now without massive borrowing and money printing. But inevitably, we will hit the wall. And for most Americans, the ride won’t even have been much fun in the first place.”

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