July 20, 2014

There Is Going To Be Mayhem

It’s Friday desk clearing time for this blogger. “While few doubt that the arts and tourism have rescued Marfa from decline, some see a price to be paid for being the darling getaway spot for well-heeled visitors from Houston, New York and California. While the new values instantly made many locals richer — at least on paper — they bring worries about facing higher taxes and about families priced out of the home market. ‘My house was appraised at $22,000 in the year 2000 when I moved in. Last year its market value was $60,850, and this year it’s $120,290,’ said Marge Hughes, 70, a retired county employee. ‘A couple of the rich types moved in and paid an arm and a leg for a lot, and then resold it for more.’”

“Alma Cabezuela, director of the city housing authority, also felt the shock of the new appraisals, as her house and an adjacent apartment each roughly tripled in value. Like many here, she wonders what the future holds for Marfa, particularly for those with deep roots but modest means. ‘It’s crazy. I work, but there are other people on fixed incomes. I guess we’ll all leave Marfa,’ she said. ‘This will become another Santa Fe, New Mexico.’”

“Soaring single-family home prices in much of the Bay Area are near or above pre-crash peaks — and topped $1 million in San Francisco for the second month in a row, according to DataQuick. In the Pleasanton-San Ramon area, more homes are being offered for sale with some price reductions, said Jennifer Branchini, president of the Bay East Association of Realtors. ‘Sellers may be a little over-zealous in their pricing and buyers not so over-zealous in their willingness to pay those prices,’ she said.”

“In the Brentwood-Clayton area, ‘it’s kind of leveling off price-wise,’ said Lynne French of Lynne French and Associates. ‘It’s not that they are going down, although some are edging down a little bit, but they definitely leveling off. I think buyers are deciding to hang it up because it’s not affordable any more.’”

“Shahram Kordestani, who has been renting homes in London and southeast England for about 12 years, said when interest rates rise, the jump in mortgage payments will hammer buy-to-let investors who have helped push up property values. ‘There is going to be mayhem,’ said Kordestani. ‘Whoever pays those prices is going to suffer.’”

“The conventional wisdom behind the Australian dream of home-ownership could be flawed, according to a research paper published by the Reserve Bank of Australia. The RBA’s conclusion is that house prices would have to rise at the same rate as they have for the past six decades for owners to be as well-off as renters. Former real estate agent Martin Beard was pleased to hear it. He has been renting in Newtown for 11 years and has no interest in buying a property soon.”

”’I look at the massive amount of money that gets tied up in your home … I live debt-free, basically,’ he said. ‘We live in a big home in a great suburb that is so close to everything with big living areas and a lock-up garage.’ The 55-year-old said he previously owned three or four properties in the inner west but now ‘the equation’ has changed. ”I think we bought our first house with a deposit of $10,000 and the mortgage was relatively small,’ said Mr Beard. ‘I don’t think that incomes have changed that dramatically in that time but now property prices are astronomical.”

“In Hamilton, the average price of a home lists around $400,000; in Calgary around $460,000. But Regina home prices average just $300,000, in Halifax, they average $275,000 and in Quebec City, just $268,000. And in those regions, prices have either cooled or dropped altogether. ‘Outside of a few major metros, the boom is over,’ said housing analyst Ben Rabidoux. ‘In fact, we’re seeing now a number of markets that are seeing weakness that we haven’t seen in 20 years.’”

“Dimitris Pikrodimitris took out a mortgage four years ago when he was drawing an annual income of 27,000 euros (US$36,720). But the economy quickly sank into a debt crisis, forcing Greeks to tighten their belts and driving the insurance agent’s wages down to just 6,500 euros last year. ‘I have difficulty even making basic expenses. I haven’t paid the loan for the last two years,’ Pikrodimitris told AFP. ‘When I took the loan, I took a risk and the bank took a risk. Eventually I will lose my home (while) the bank will never lose.’”

“Repayment has stalled on around 30 percent of mortgages and business loans, and around 50 percent of consumer loans, says Victor Tsiafoutis, a lawyer offering guidance to debtors. ‘This is a bomb that is going to blow (and cause) a breakdown in the bank system,’ Tsiafoutis said. ‘Imagine a default of 70 billion euros. Who is going to pay this money?’”

“‘I pay my taxes and the zombie property is the first thing I see every time I open my front door,’ said Phyllis Frankel, who contacted the Journal News about an abandoned property across the street from her Monsey home. Erin E. Meagher, president of the Landmarks Preservation Society of Southeast has seen zombies in her neighborhood. ‘Some of them were at one times the nicest homes on their blocks now sit alone rotting away and bringing down property values. One can’t even buy them if they wanted to because they’re not listed for sale.’”

“The stagnation in fixed-rate mortgages appeared to be mirrored by data in the July edition of CoreLogic’s MarketPulse Report. ‘The very low-end price segment was weak throughout 2013, and that weakness started to expand upward in the second half of 2013,’ wrote Sam Khater, deputy chief economist at CoreLogic. ‘The migration of the slowdown in sales beyond the lower-middle of the price distribution is a concerning development given that higher-priced home sales had been one of the few bright spots. If the slowdown continues heading into the fall, it indicates that the higher-priced market is entering a new phase where the generally low-rate environment and rapid increases in the stock market are still not enough to power home sales increases.’”

“‘I still think the sector has legs, especially in rental construction,’ says Logan Mohtashami, a senior loan manager at AMC Lending Group. ‘The problem that some people are having is that there is no strong expansion. But we don’t have a housing shortage – when traditional inventory comes back to the market, it will be so much cheaper than new houses.’”

“Hyman Minsky believed that a confident society moved through a cycle of three phases, which he called the Hedge, the Speculative and the Ponzi stages. The dangerous Ponzi phase starts when banks start to lend on the necessary assumption that asset prices will rise (or the loans will be affordable).”

“All it takes at this moment is a Minsky Moment – that awful split-second where everyone realises that asset values are based on assumptions of the borrower’s ability to pay, but where borrowers simultaneously go into default. At which point negative equity generates real losses, the bubble bursts and the financial market can be utterly endangered.”

“The notion of Beijing as a regime of real estate salesman was reinforced this week after the Communist Party’s local flagship newspaper in an eastern Chinese city published a front-page article urging people to buy real estate in one of the country’s best-known ghost towns. ‘Good Opportunity to Buy Houses in Our City’ proclaimed the headline emblazoned across the top of the Tuesday edition of the Changzhou Daily. Quoting mostly real estate executives, the paper said there’s ‘no downside for housing prices in our city.’”

“In an article carried on its digital news portal People.cn (in Chinese), the party’s flagship newspaper lashed out at Changzhou Daily’s piece as an indirect approach to rescue the local housing market. People.cn’s article also identified the two authors of Changzhou Daily’s story as a reporter from the paper and the head of the propaganda office of Changzhou’s housing bureau, respectively. ‘As a local Party newspaper, Changzhou Daily even went so far as to urge the city’s residents to buy houses on its front page, saying it was the best time to do so. This kind of market support measure betrays a lack of moral principle,’ said the People.cn‘s article.”

Bits Bucket for July 20, 2014

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