The Housing Bubble

The Mercury News reports from California. “The turbocharged Bay Area housing market ran out of gas in July as the region turned out the lowest annual price gain in almost two years, according to Corelogic DataQuick. It’s most likely the inevitable winding down of a long run of astonishing price gains. Single family home prices are up about 50 percent in two years in Alameda and Contra Costa counties and about 25 percent in Santa Clara and San Mateo counties, and are up about 40 percent in the nine-county Bay Area. ‘Inventory has crept up, and more inventory is coming on all the time now,’ said Barbara Lymberis, with Perfect Harmony Properties in San Jose’s Willow Glen.”

“Alameda County, which along with San Francisco saw the sharpest year-over-year price gains in July, is cooling off in August, according to Glen Bell of Better Homes and Gardens Real Estate in Berkeley. ‘Prices are leveling off and we’re seeing some downward pressures,’ said Bell, who tracks the East Bay housing market. He said that about 13 percent of homes for sale in Berkeley have seen reductions in asking prices, and even more are slow to sell. ‘It’s an eye-opener for a lot of agents,’ Bell said.”

The San Gabriel Valley Tribune. “Southern California home sales hit a three-year low for the month of July and the region’s median home price dipped to $413,000, industry tracker CoreLogic DataQuick reported. ‘Prices came a long way in a couple of years, and now a lot of would-be buyers just can’t stretch their finances enough to buy in today’s more conservative lending environment,’ said CoreLogic DataQuick analyst Andrew LePage. ‘The more spectacular annual price gains of a year ago — over 20 percent — seem far back in the rear view mirror now.’”

“‘It’s really being driven by sellers, in my opinion. They are listing their properties way too high. I don’t want to say they are greedy …. but they always add another 10 to 15 percent on top of what the fair market value is. But buyers are not fooled by it. And as soon as we reduce the price the home sells within a couple weeks,’ said Robert Smith, a Realtor with Centennial Realty in Valencia.”

The Glendale News Press. “Anne McDonald, a Realtor with Hall & Chambers Real Estate in Glendale, said properties that are ‘listed at the right price’ are still seeing multiple offers, while prices are being reduced more often on homes that may be overpriced for the market and have not sold for several months. Prices are also being reduced more often on ‘unique’ homes, which may not have a yard or have small bedrooms, McDonald said. And as more homes go up for sale, it’s having a calming effect on the market. ‘As inventory rises, prices are stabilizing,’ McDonald said.”

The Union Tribune. “From June to July, the median home price in San Diego County declined by $5,000. At the same time, activity in the county’s real-estate market declined both over the month and annually. In July, there were 3,474 transactions closing in San Diego County, down from 3,736 in June, and an 18.5 percent drop from the 4,260 transactions in July 2013. In July, there were 8,122 active listings in the county, up from 5,443 a year earlier, the San Diego Association of Realtors reports.”

“Gary Kent, a La Jolla-based agent with Keller-Williams, said he considers the current housing market to be the first balanced market since 2000, meaning it’s not a strong buyer’s or seller’s market. ‘I think that’s partly because prices have reached the point that we have some people selling because they like the price they can get for the house,’ he said. ‘The flip side is that buyers aren’t seeing what looked like bargain prices anymore. Some buyers are dropping out of the market saying, ‘Well, it’s not a bargain.’”

From CNBC. “‘Homes that are in good condition and priced well are still selling quickly,’ said Geoffrey Schiering, a San Diego Realtor. ‘The inventory of homes for sale has risen slightly, but remains at a relatively tight 3-month supply. However, the number of closed sales has dropped substantially…this suggests that as some sellers have begun pushing their list prices higher, more homes are failing to sell.’”

The LA Times. “As the Stinson Beach County Water District board prepares to vote Saturday on a rationing regimen, the talk here is of the town’s split: full-timers whose numbers are dwindling versus an ever-increasing number of out-of-towners with multimillion-dollar second homes, many used as seasonal rentals. Vacation rentals are ‘a political hot button,’ and some longtime residents are calling for a ban said Sarah Butler, a broker with Oceanic Realty. But Butler called that notion ‘ridiculous. It’s what our economy is based on now. It would literally pull the rug out from under Stinson Beach.’”

The Press Enterprise. “When the California Homeowner’s Bill of Rights took effect in 2013, monitors of foreclosure activity across the nation predicted banks would take a collective pause on repossessions. RealtyTrac VP Daren Blomquist said he believes today that numbers are coming in to show the timeout is truly over. RealtyTrac reported that 575 homes were taken back by lenders in Riverside and San Bernardino counties in July, up 27 percent from July 2013. ‘What’s driving the increase continues to be the REOs,’ Blomquist said. ‘We have now seen five consecutive months where the bank repossessions have increased annually.’”

“Bank repossessions have rebounded in many other Southern California metro markets. San Diego’s overall foreclosure activity increased 12 percent in July from a year ago due to a 40 percent jump in REOs; Los Angeles’ overall foreclosure activity increased 10 percent as the result of a 58 percent jump in bank repossessions.”

“Blomquist said that banks that kept houses with mortgages in default out of the REO pipeline are coming out of limbo. ‘It demonstrates that the market is definitely improving, but there is a bit of a soft underbelly in California – still, with the lingering foreclosures that have been held back, in part, because of the Homeowner’s Bill of Rights,’ he said.”

The Property Report from Thailand. “There’s a new language of tourist in Chiang Mai and it’s not Russian. Ubiquitous signs in Mandarin have appeared all over. From spas to property agents, everyone seems ready to cash in on the tourist yuan. A noticeable aspect of this development is the change to the city skyline as condo buildings have been popping up in outlying neighbourhoods, and prices have been spiking at THB80,000 (USD24,700) per sam, double what it was four years ago. Targeting the new arrivals is Kingsfield, a Singaporean-managed company with a strong architectural background. They have been conceptualising several modern developments, including The Consulate Residence, across the city and hoping to market them to Asian expats. ‘They’re not buying one or two, they’re buying six,’ says Matthew Lim. This is likely as a safety mechanism to externalise money, he explains.”

“Bernard Yeo from Century 21 group and manages one of the few international property brands in the city. ‘The Chinese buyers are mostly businessmen who have accumulated some funds and see the potential of Chiang Mai growing further,’ he says. ‘They’re quite fast in making decisions. So long as they feel the price is right, they will execute it without giving it any second thoughts.’ He points out that they like the clean air and freedom, though most are buying as investments rather than residences.”

“But is a bubble developing? In spite of the growth, the number of empty new shophouses constructed along the three ring roads that girdle the city is very obvious. The emerging middle class can create demand among the slew of new housing developments, yet the number of new condos seems optimistic. In spite of politics and a strong baht, the market demand is being sustained by Chinese money. Major alterations to the Chinese economy could be a blow for the city.”

From Xinhua. “China’s property sector showed new signs of cooling in July, with more cities reporting month-on-month price drops, official data showed on Monday. Out of 70 major Chinese cities, 64 saw month-on-month price declines for new homes in July, compared with 55 in June, the National Bureau of Statistics (NBS) said. ‘Within four months, new home price drops spread from individual cities, with only four in March and eight in April, to the record high of 64 cities in July. The pace of cooling in this round of property adjustments is faster than market expectations,’ said Zhang Dawei, chief analyst at real estate agent Centaline Property.”

“Zhang said the latest data suggested that the cooling trend was still evident. Growth of property investment decelerated for six months straight starting in February. In July, monthly property sales stood at 81.15 million square meters, representing a year-on-year decrease of 16.3 percent and a month-on-month dive of 34 percent. Zhang said rising inventory suggested that a housing oversupply has begun to show in some cities.”

From Dow Jones/Beijing. “A whiff of desperation lingers over China’s property markets. Investors betting on a quick real-estate recovery would be wise to consider the consequences. Last week the housing bureau in the southeastern province of Fujian announced a province-wide programme to insert itself in the market, directing local authorities, property developers, banks and construction firms to team up to rescue financially struggling projects.”

“Prices are sliding, and inventories of unsold properties are high across China. A recent study by data tracker China Real Estate Index System showed that 17 Chinese cities have housing inventories that could take more than five years to digest. There’s also an oversupply of property developers in need of financial help. Investors have taken local government easing moves as the beginning of the end of the property market’s woes. They might be better off taking it as a sign of how bad things really are.”

From IFR Asia. “Default rates in China’s trust loan sector are set to rise in the next 18 months as regulators rein in credit growth and loans to underperforming companies come due. The default rate in the country’s roughly Rmb11trn (US$1.79trn) trust industry could hit 5% this year and next year, according to analysts and economists. Trusts backed by loans to lacklustre industries, such as coal and real estate development, are expected to have trouble meeting repayment schedules, sources said.”

“‘With the industry’s current capacity, we estimate that it can handle a default rate of maybe 2.3%,’ said Yifan Hu, head of research at Haitong International. ‘According to the most conservative estimate, the default rate will be 5%, which is a huge distance from 2.3%.’”

“There are some signs that initial efforts to control bank off-balance sheet financing and non-bank lending, including trusts, has paid off. Total social financing, a measure of liquidity in the economy, fell 86% in July to Rmb273bn from Rmb1.97trn in June, the People’s Bank of China reported last week. It is the lowest level since 2008. In addition, new renminbi loans last month totalled Rmb385bn, down from Rmb1.08trn.”

Want China Times. “An increasing number of Chinese real estate investors have become unable to pay their mortgages and are facing legal action from banks, writes our sister paper Want Daily. The situation has emerged in China’s first-tier cities, with fears that it might develop into a full-blown version of the US subprime mortgage crisis that sparked the global financial status in 2008. Several real estate projects in second-tier cities which were very popular when launched have run into dificulties and developers have been forced to shift their inventory at lower prices.”

“The situation has been brought about in part by speculators from Hong Kong, Macau and Taiwan who became pessimistic about the future of real estate in China, Want Daily said. A document from a Jiangsu court reveals that the number of mortgage disputes this year has doubled from last year. Among 367 legal cases involving real estate disputes, there were 98 cases in which investors were unable to pay their loan back.”

“The document also suggested that over half of the defendants were from Fujian province. Several other cases involved groups of friends and family members who banded together to buy up real estate but when their banks called in their loans simply allowed the banks to repossess the properties without showing up in court.”

The People’s Daily. “An international manhunt is underway for a Chinese businessman who fled the country following allegations of fraud, authorities said. The International Criminal Police Organization (Interpol) has issued a red notice for Liao Rongna of the Zhengling Group, a private conglomerate based in Liuzhou City, south China’s Guangxi Zhuang Autonomous Region. Liao is said to have cheated his way into several billion yuan of loans by promising investors high returns, then failed to repay the debt. Being found guilty of this kind of crime in China can result in a death sentence.”

“According to Li, another local entrepreneur, people all over Guangxi mortgaged their houses and companies to local banks to raise funds for Liao, only to find the billionaire suddenly incommunicado. Police found more than 1,500 loan contracts worth 3.2 billion yuan in Zhengling files during their investigation. ‘I lent him 20 million yuan (3.25 million U.S. dollars) only this March, because he assured me that I could get a rate of 0.3 percent per day,’ said Li, who had previously splashed out 37 million yuan on a deal he thought was too good to be true. He was right. Liao has not paid back the money.”

“In recent years, any number of millionaire businessmen like Liao, accused of fraud or simply out of their financial depth, have fled the country. Life abroad with large with large sums of other people’s money is far preferable to dealing with bankruptcy or feeling the wrath of the domestic law. In a national teleconference in July, officials with the Ministry of Public Security called on police authorities to urge suspects to give themselves up and to offer rewards for information from the public that leads to arrests.”

“‘Even if they are in the farthest corners of the world, we will find them, seize them and bring them to justice,’ said Liu.”

From MarketWatch. “China’s corruption crackdown is now starting to make waves in another corner of the economy, as officials afraid of government scrutiny are dumping apartments. In one case late last year, an Inner Mongolia political leader named Wu Zhizhong was convicted of corruption, accepting bribes and embezzling public funds. Investigators said Mr. Wu owned 33 properties in China and one house in Canada. Xinhua, China’s official news agency, said the keys to all of his homes could fill up an entire handbag.”

“According to roughly a dozen property agents interviewed by The Wall Street Journal, officials are now afraid to buy luxury pads, and several are trying to offload properties that might raise red flags. According to real-estate agents, government officials make up as much as 20% of owners in the luxury housing market, and the agents say they simply aren’t buying much anymore. ‘A major way to corrupt an official is to give him a house as a gift,’ says Yan Jirong, a professor at the Peking University School of Government. ‘The anticorruption campaign is sending a signal’ that such tactics should be stopped, he said.”

“In June, one government official offered a two million yuan ($325,000) discount on his apartment in Beijing’s downtown Chaoyang district, originally priced at 22.5 million yuan, according to the real-estate agent selling the home. An advertisement for the four-bedroom home was titled ‘Distressed sale!!!’”

“Many officials mask their homeownership by using the IDs of their chauffeurs, relatives or surrogate buyers, according to real-estate agents. One agent in Beijing said a client was in the process of unloading a home when the client was arrested last year. ‘I didn’t realize he was an official until I saw his picture online when he was arrested,’ the agent said.”

The News Press reports from Florida. “The rebound in building permit activity is a positive indicator of stabilization. Single-family and multi-family permit activity in Lee, Collier and Charlotte counties — which we expect to end up at around 8,500 permits pulled by year-end — hasn’t reached year 2000 levels when around 10,000 permits were issued. This suggests the current level of permit activity is sustainable. However, sustainability of our current momentum will be affected by home price increases, interest rate increases, and the cost of land, materials and labor, along with initial signs of a potential oversupply in some market areas.”

“New home sales remain steady, but the large annual percentage increases may have come to an end. For example, a potential oversupply may spur on builder competition for buyers in the form of discounts and other incentives. New home prices have escalated so rapidly that the industry could be shutting out the primary middle-America homebuyers.”

The Orlando Sentinel. “Home prices in the core Orlando market continued a 37-month upward trend in July, but the number of sales dropped sharply from a year earlier and the previous month, a new report shows. Tom O’Brien, broker associate for Watson Realty in Lake Mary, said the slowdown in the market is evident. ‘I have four houses listed, and I’m struggling to get anyone to look at them,’ O’Brien said. ‘This time last year I would have had people clamoring to see them.’”

The Sun Sentinel. “Mom-and-pop landlords are making robust returns in South Florida, a new report says. Zillow ranks the region as the country’s second-best market for residential landlords who aren’t professional investors. But some landlords who bought at the pricing peak are still struggling. Mike Ablack, who rents the Coral Springs townhome he bought in 2005, falls just short of breaking even each month, in part because he doesn’t want to raise the rent and risk losing a good tenant. ‘I’m sure there are people out there making a killing,’ Ablack said. ‘But to me, it doesn’t make sense to raise the rent $50 and create animosity.’”

From WFLA. “Perry Garcia was thrilled to be able to buy his first house at the age of 21. He saved and started his home search for his growing family of four, including an 18-month old baby. He found a listing for a townhouse in Summerfield in Riverview. He purchased the foreclosed home from Fannie Mae and began renovations. But one day into remodeling his kitchen, he found toxic Chinese-made drywall, known to off-gas sulphuric gas that destroys appliances and could make people sick. The drywall in the kitchen is stamped, ‘Made in China.’ Then he removed electrical outlet covers, exposing corroded wires.”

“Fannie Mae spokeswoman Keosha Burns said Fannie Mae would never knowingly sell a home with toxic drywall. She said every home taken back in foreclosure is inspected. If an inspection showed this problem, the home would not have been sold, she said. Fannie Mae’s inspection missed the bad drywall, and so did Garcia’s. So what now? ‘We can’t disclose something we don’t know,’ Burns said. ‘It’s not our property anymore.’”

The Ocala Star Banner. “The Ocala metropolitan area had the dubious distinction during July of registering the highest foreclosure rate in the country — four times the national average. In recent months, 20 percent to 25 percent of all single-family home sales handled by Realtors have been foreclosures. Before the housing market collapse in mid-2008, such foreclosure sales were rare in Marion County.”

“Randy Alvord, president of the Ocala/Marion County Association of Realtors, said many of the foreclosures are a result of the struggling local job market, too many people not qualifying for government foreclosure help, and some people just walking away from their homes to find something cheaper to buy. Alvord worries that much of the local unemployment improvement is really because of low-paying jobs or part-time work.”

“Wayne Archer, executive director of the Kelley A. Bergstrom Center for Real Estate Studies at the University of Florida, said it is difficult to say why Ocala stands out. One reason is almost certainly the legal system, he said. In Florida, it takes an average of 1,000 days for a home to pass through the foreclosure process. That means it takes longer for foreclosures in Florida to be off the books — and off RealtyTrac’s lists. ‘So the sins of 2011 are still with us,’ Archer said. ‘It’s going to take several years.’”

The Destin Log. “Some reports show single family home sales were down nearly 17 percent in May. Condominium sales have been up one month and down the next. In contrast, luxury homes are seeing increased activity, while it appears that short sales and foreclosures are decreasing. The key word is ‘appears.’ Everything is not as it seems. In Florida it is estimated that there are still nearly 160,000 foreclosed properties. These are properties that are not on the market and not obtainable for purchase. Lenders have become strategic in the release of REO properties to the public.”

“Many of the largest lenders have created ’servicing companies’ to facilitate in removing the negative performing assets off their books. These companies are often actually owned by the lenders. This allows the banks to ‘appear,’ there’s that word again, to have stronger balance sheets than actually exist. This method gives the ‘appearance’ that the lenders quarterly performance is stronger than they really are.”

“To me, it is just a façade, a huge shell game. This deluge of foreclosed property is called ’shadow inventory.’ Because these large number of properties are not actively marketed for sale or a part of the multiple listing system which is used to calculate the number of months of inventory available in a specific market. The results published may not really be accurate.”

“A new term is Zombie foreclosure or Zombie Houses. According to RealtyTrac, ‘a zombie foreclosure exists when a homeowner abandons a house that is facing a pending foreclosure action. There are approximately 55,000 of these Zombie properties right here in Florida, more than triple the nearest state of Illinois, according to RealtyTrac.”

“When combined with bank-owned homes, the number is estimated to exceed 200,000 in Florida in either zombie or REO mode. Zombie homes in Florida have been in foreclosure process an average of 1,095 days, according to RealtyTrac. That is three years.”

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