July 13, 2014

It’s Another Fabulous Party

It’s Friday desk clearing time for this blogger. “The median price for a single-family home in the Houston area broke another record in June, jumping 11.3 percent to $214,000. Fay Mason and her husband recently made an appointment to see a newly listed house in the Meyerland area with a large backyard, new tile floors and granite cabinets. The morning of the showing, the Masons’ agent received a call from the listing brokerage that there were already 38 appointments to see the house and that there had been a typo on the price. ‘Instead of $289,000,’ Mason said, ‘it was supposed to be $389,000.’”

“A new crop of mega-luxury buildings in Manhattan are redefining sky-high prices. One 57 is the 1,000-foot high building looming over Central Park where an apartment has closed for as much as $90 million. Jonathan Miller appraises the units at One 57. He said if you were to walk by at night the skyscraper would be largely dark because a majority of the units’ owners are international and don’t live here. They are using the apartments strictly as investments.”

“The number of Santa Clarita homes listed for sale is rising – in fact, the inventory is near double what it was at this time last year, according to a local Realtor. As the inventory grows, however, sellers have been reducing their real estate prices more than they are increasing them, said Connor MacIvor with RE/MAX. ‘And the buyers are seeing they have more to choose from so they are taking longer to make decisions about writing offers,’ he said.”

“These houses are ghosts of the recession: In Oregon, banks typically must wait up to a year after a homeowner stops making mortgage payments to begin the legal steps to take ownership back. Foreclosures can take several years, though, depending on the bank and the mortgage. ‘I’ll go into a house, and the trash will be a foot deep, there will be buckets of human waste, bugs, rats, bins of needles. All the metal is gone. All the wiring is showing,’ said Mitch McKee, a senior housing inspector with the city’s Bureau of Development Services. McKee estimates that there may be hundreds more within the city limits. ‘We just see the ones that get really, really bad,’ he said. ‘It’s not going away anytime soon. If anything, it’s only going to get worse.’”

“It is the great Australian summer dream: owning a tiny shack on the coast close to the beach. But those areas are now among the worst hit by mortgage stress. Surf Coast Shire mayor Rose Hodge said nearby housing ­developments were leading to a ­population boom in the area, and were driving down some property prices for vacant blocks closer to town. ‘[But] people are still buying expensive homes,’ she said.”

“For Mr Balaji Lakshmanan, the four-year wait for his new Housing Board flat ended this week when he collected his keys. But another countdown began: to dispose of his existing flat, as required under HDB rules. He is part of an emerging group of home buyers caught between their newly ready Build-to-Order (BTO) flats and their old ones - which lack buyers in a sluggish market. It was valued at $340,000 in January - down from $380,000 the year before - and he is willing to accept $10,000 below that. ‘I don’t know if I can sell this house within six months,’ he said. ‘Now I have to pay for both.’”

“A few years ago, both new and resale flats were seen to be in short supply, with tempers running high over tough BTO competition and soaring resale prices. With over 28,000 BTO units to be completed this year and resale volumes still low, more buyers may find themselves struggling to sell in the coming months. Said Sembawang GRC MP Ellen Lee: ‘Looking at reports on the resale market, it may get worse.’”

“Among the harder-hit cities are midsized provincial ones like Wuxi, in eastern China’s Jiangsu province, about an hour by bullet train from Shanghai. Drive into town at night and you’ll pass rows of 25- to 30-story apartment blocks with just a handful of the apartments illuminated. ‘There’s nothing you can do,’ says Huang Jiqiang, an agent with Central Plains Real Estate here. ‘Now all the new housing complexes are dropping their prices and doing promotions because there are just too many homes,’ he says. ‘There aren’t that many buyers, and the pool of buyers is getting smaller and smaller. Homes are still under construction out there.’”

“‘Every local family has at least two or three apartments, so they have already enough space to live,’ says Huang. ‘If an outsider wants to buy a new apartment, they can’t afford it. A 970-square-foot apartment on average costs more than $116,000. The way they see it, that’s a lot of financial pressure.’ That’s especially true in a city where the average annual salary is just $8,200.”

“Big price gains began early in 2013 as investors swarmed distressed markets, buying up homes to turn around as rentals. While the biggest jumps were in markets like Phoenix, Las Vegas and much of California, other local markets followed, driven not by investors, but by short supply of homes for sale. That led to bidding wars. Sellers, say real estate agents, are now completely out of touch with what buyers can stomach.”

“‘In May, 40 percent of sellers surveyed by Redfin said that they planned to list their homes above market value even though home sales had dropped by 9 percent since the year before,’ the real estate brokerage’s chief economist, Nela Richardson, said. ‘Typically it takes sellers six to nine months to adjust to a price change, but this latest shift is longer. Prices have moved down and then up so much over the past five years that it’s even more difficult for sellers to have a realistic baseline for what their homes are worth in the current market.’”

“It’s one thing for the central bankers’ central bank to warn of cheap money distorting the world’s markets, but it’s another for more comprehensible anecdotes to start adding up to the trillions. In short order: Last year a record US$477 billion worth of high-yield bonds were sold, but US$340 billion worth have been offloaded in just the first half of 2014. Dutch interest rates have never been lower, not in 500 years. Fuelled by cheap money, there are more American mergers and acquisitions underway than there were at the previous peak in the heady pre-GFC days of 2007.”

“The Japanese government is lending trillions of yen to Japanese banks for almost nothing, at just 0.1 per cent, but the banks are turning around and giving the money back to the government by purchasing bonds. The Australian mortgage securitisation business is back in full swing with second-tier banks able to get as much funding as they desire at record low rates. For all their problems, Rome and Madrid can borrow for around 2.7 per cent – substantially less than the AAA Australian government.”

“With the junk bond industry booming, and M&A activity bubbling and the major central banks promising to keep money very cheap, it’s no surprise that Wall Street set record highs this week. It’s another fabulous party, but it’s beginning to make China’s shadow banking look safe by comparison. Funds manager Mike Mangan put this perspective on the unprecedented level of cheap money: ‘Meteorologists (and insurers) speak of the 1 in a 100 year flood. But what is happening in western economies (and Japan) is not even close to a 1 in a 100 year event. It has not happened in centuries and I would argue human civilisation hasn’t experienced the sort of monetary conditions we now bear witness to, since the Bronze Age. How and when it all ends, no honest person knows. But I strongly suspect that when it ends, it will end badly.’”

Bits Bucket for July 13, 2014

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