August 17, 2014

The Super Piggy Bank That Couldn’t Go Wrong

It’s Friday desk clearing time for this blogger. “Southern California home sales plunged in July and show little signs of rebounding. The pain is especially acute for brokers, who depend on a commissions. ‘There are a lot of hurting agents right now,’ said South Bay agent Leo Nordine, who said his volumes have been roughly flat this year. ‘There are too many agents and not enough sales.’”

“‘Dick Beeson, principal managing broker of Re/Max Professionals in Tacoma, said the market is healthy. And more inventory would come online and help further balance the market if lenders would bring their bank-owned and distressed properties to market faster, Beeson said. Lenders are well aware that home values are improving, so they are waiting to ‘maximize every property,’ he said.”

“Foreclosure filings in Meriden, Wallingford and Southington have increased since the peak of the financial crisis. If foreclosures are increasing this long after the start of the financial crisis, homeowners may have continued to make mortgage payments through the recession but ‘finally ran out of steam or a means to do so,’ said Robert Porter, chairman of Quinnipiac University’s finance department. Larry Madow, a Wallingford real estate agent, said he is having a harder time selling foreclosed properties because they’re often ’sitting vacant for a few years,’ causing deterioration.”

“In New Jersey, state court records show 31,500 new foreclosures cases have been filed as of Aug. 1, on track to be at least the third-highest annual total in state history. Sheriff’s sales have hit a four-year peak, and bank repossessions almost doubled in May. There have been shocks to the housing market before, said James Hughes, dean of the Edward J. Bloustein School of Policy and Public Planning at Rutgers. But this downturn has dovetailed with a change in attitudes as well as fortunes. ‘Up until the Great Recession, housing was the super piggy bank, the investment that couldn’t go wrong,’ Hughes said. ‘Now people know it can.’”

“At a glitzy show stall for a new residential development in Hong Kong, property agents re promoting the latest trend in the overcrowded city — high-end ‘micro-flats’ which still come with an eye-watering price tag. some of the newly built studio flats measure as little as 16 square meters (177 square feet) and are on sale for HK$1.5 million — almost US$200,000. ‘I’m 33 years old and I really need my own place,’ says Single entrepreneur Mike Ko. ‘The market is too expensive, so buying a studio flat is a good first step to home ownership,’ he said.”

“Agents are selling the pint-sized flats on the basis that the market boom will only continue. ‘You want to buy now because prices will just go up,’ said one agent at the new Mont Vert development in the suburban neighborhood of Tai Po. ‘You are saving, in a sense.’”

“The rental market has returned to pre-boom prices, with the downturn finally taking effect. ‘Many investors were given high rental appraisal prices and can no longer find tenants,’ said Angie Wallwork, the office manager of 360 Property Management Mackay. ‘Not all landlords are rich investors, the majority are ordinary people trying to get ahead,’ she said. Many owners of vacant property weren’t local and there were some who ‘haven’t even seen their houses,’ Mrs Wallwork said.”

“The glut of vacant homes across China owned by small investors has fueled a cottage industry: companies that help owners rent their homes for short-term stays. Wang Xiyuan said he has no plans to buy more property, preferring instead to focus on managing what he already owns: three apartments in Beijing and two in Changzhou. ‘Buying investment homes in hopes of flipping them for profit? That era is over,’ he said. ‘The villa has been empty till now, but I’m considering putting it up for short-term rentals if there is demand,’ said Mr. Wang.”

“More than one in five homes in Chinese cities is vacant, according to a survey. If China’s property market sees a sharp price decline, panicked investors of these empty units could rush to sell, said Li Gan, the professor who oversaw the survey, ‘and this could potentially trigger a housing-market collapse.’”

“A report recently disclosed that in May and June of this year, Hangzhou City of Zhejiang Province, Wuxi City of Jiangsu Province, Ningde City of Fujian Province, Xinyi City of Jiangsu Province and others are all experiencing defaults on personal mortgage loans. Xie Zuoshi, a Professor of Economics and International Trade School of Zhejiang University of Finance says, ‘Why did this happen? This must be due to prices falling more than the down payment. Or the value of the house now is lower than the returned loan payment to the bank in the future.’”

“Mr. Yang, Heye Real Estate Brokers Company, Zunyi City of Guizhou Province: ‘House prices fell too much now. It is impossible for the government not to save. Government is certainly able to produce some liberal policies to promote house transactions. If no one buys, then the economy is of course paralyzed.’”

“Xie Zuoshi: ‘Relaxing the restriction order or abandoning the restriction order cannot stop the falling housing prices. So what’s the aim for me to buy a property? I buy a house in the hopes that the value increases in the future. If the house prices are expected to fall, then I do not buy. If I do not buy, what sort of use is there in relaxing the purchase order, I would have had no intention to buy.’”

“In an interview with London-based Central Banking Journal last week, Reserve Bank governor Raghuram Rajan had warned of a global crisis arising from an asset price crash due to the cheap money policy followed by most countries in the developed world. ‘We are taking a greater chance of having another crash at a time when the world is less capable of bearing the cost,’ Rajan warned. ‘Instead of the political system taking action, reforming the economy, etc, as industrial countries also need reforms, they are relying on the monetary authorities to provide whatever boost that was required. I thought this was dangerous because monetary authorities across the world are boosting asset prices rather than real activity.’”

“Janet Yellen and other central bankers ignore the intricate mechanisms that balance supply and demand; they want to force people to demand more. They have no interest in discovering prices; they want to impose their own prices and they could care less what Mr. Market has to say. They believe they can improve the markets, control them, whip them into shape and force them to do their bidding.”

“‘No need to lift rates to curb risk, says Yellen’ is how the Financial Times reported her position last week. Someone must have told her that prices of houses, art, bonds, stocks and other assets are all getting closer to bubbledom.”

“Some lose their money because they are stupid. Some run into a ditch because they aren’t paying attention… or because they are paying too much attention. Some are too cautious. Others are too reckless. Some are arrogant. Some are ruined by timidity. Others by pride. Whatever your weakness, Mr. Market will find it. He will encourage you to dig yourself in deeper and deeper… Then he will fill the hole!”

Bits Bucket for August 17, 2014

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