September 1, 2014

After Years Of Booms And Busts: Don’t Panic

The Los Angeles Times reports from California. “Interest rates on an average 30-year fixed-rate mortgage hit 4.1% this week, a low for the year, according to Freddie Mac. It’s helping to ease the pain of home prices that have climbed by one-third in Southern California over the last two years. When rates start to rise, there may well be a flurry of sales as buyers rush to lock in lower payments while they still can, said Mark Goldman, a mortgage broker who teaches real estate at San Diego State University. In the long run, Goldman and other market watchers say, higher rates may help to damp home sales, which are already running well below historical averages. But they’ll be balanced out by clearer lending guidelines and slightly looser credit requirements.”

“And mostly, Goldman said, they’ll be taking place in a market that — after years of booms and busts — appears to be behaving somewhat normally. ‘We’re in a period of extraordinary equilibrium right now,’ he said. ‘Don’t panic.’”

The Marin Independent Journal. “Flips have dropped significantly in Marin, from a high of 7.2 percent of all home sales in the last three months of 2012 to 4.8 percent of all sales in the second three months of 2014, according to RealtyTrac. ‘I’m cautious going into next year,’ said Brett Foley, who makes his living flipping. While Foley has prospered, leaving a job managing construction crews to flip full-time, this house and another he’s remodeling in Mill Valley could be his last hurrah.”

“‘We’ve had an incredible year and a half, almost two years. Nothing lasts forever, so is it going to level off? Absolutely,’ said Bob Ravasio of Coldwell Banker.”

The Independent. “Joe and Debbie have owned their Mission San Jose home for over 20 years. When a neighboring house similar to their 4-bedroom rancher sold recently for $1.4 million, the couple started thinking it might be time to cash in. They have long wanted to live in Livermore, and the sale of their home would make the move easy. But they won’t necessarily buy here. They may decide it’s time to rent.”

“Their daughter already rents here, paying $1,800 a month for a charming 2-bedroom bungalow in Old North Side. She would love to purchase her own home. Something similar to the house she currently lives in would likely sell for about $450,000.”

“‘Home ownership is still important for the country. It’s the most proven way to build equity and it gives families security,’ David Plouffe, former advisor to President Obama and incoming VP of Uber, said in a recent interview with Realtor Magazine. ‘It doesn’t mean it’s right for everybody. We live in an economy where people who are in their 20s are going to have eight or 10 jobs and will move around a lot. It’s different than it was a couple of generations ago, when you bought a home, planted roots, and you were going to be there forever,’ he added.”

From KUSI News. “The average price of a typical home in San Diego is $625,000 while the national average, according to the USD Burnham Moores Center for Real Estate, is $175,000. Many renters who want to take the leap to home-ownership are sitting on the fence right now because they are worried there will be no net to catch them when they make the leap to buy a home. Real estate agent Sean Hillier says it’s hard to find properties to show. ‘Right now market is kinda slow for summer, but a lot of home buyers are kinda hanging back saying I think things are kind of overpriced here,’ says Hillier.”

“Real estate experts say home prices are almost as high as they were at the peak of the market in late 2005. Norm Miller says, ‘There are about 8,000 listings, and less than 250 are in the affordable range.’ If interest rates are so low right now, why can’t people buy homes? With minimum desired credit score of 620 and a down payment of 20%, when wages have not gone up for many, it is just not feasible right now. ‘If you have aspirations for a high quality larger home, I don’t see it in San Diego county,’ says Miller.”

The Union Tribune. “Tens of thousands of San Diego County homeowners continue to owe more on their properties than they are worth. In the second quarter of this year, there were 46,585 county homeowners underwater on their homes, Zillow reported. Those with negative equity make up about 10 percent of property owners in the county who have a mortgage, down from 21 percent in the second quarter of last year. The homeowners were underwater despite an increase in the county’s median home price of more than $100,000 over the last two years.”

“‘There were a lot of people that got caught at the top (of the housing bubble),’ said Mark Goldman, a loan officer and real-estate lecturer at San Diego State University. ‘During the run-up, people were just out at a frenetic frenzy in 2006 and 2007. They didn’t care what price they paid for property.’”

The Record Bee. “The impact of Mortgage Electronic Registration Systems (MERS) on county records was a topic of interest during the Lake County Board of Supervisor meeting on Tuesday. District 3 Supervisor Denise Rushing requested the issue be placed on the agenda after hearing from several local residents during public comment at previous meetings regarding the unlawful foreclosures. According to Larry Anderson, 76, of Kelseyville, Bank of America has been using MERS to foreclose on his house, as well as the houses of his neighbors. ‘It affects a lot of seniors,’ Anderson said. ‘What MERS is doing is proven fraud.’”

The Press Enterprise. “Were it not for the catchy real estate listing, an apocalyptic bunker near Barstow that was built in the Cold War would continue to be relegated to a life of obscurity. Now, in the face of drought, raging fires, earthquakes, super flu and conflicts in Ukraine and the Middle East, Kevin Layne put out there: ‘Here’s that 8,100-square-foot underground bunker in the Mojave Desert … that you’ve always wanted,’ he wrote on Twitter, linking to a $750,000 listing for the 3-story underground abode.”

“Broker James Langley, a co-owner of Kursch Group in Victorville, said his client, Gil Stoffels, bought the desert bunker in 2006 as an investment and put it on the real estate market about a year ago. ‘He’s ready to sell,’ Langley said, and a recent $200,000 price reduction is meant to draw buyers in. Stoffels said he bought the communications center on a ‘total fluke’ when it seemed everyone was flipping homes for profit.”

“The self-described entrepreneur who got his start in the logging business and the ’school of hard knocks,’ and now invests in properties, was taken in by its originality. ‘I don’t need to sell the bunker, but I’d like to,’ Stoffels said. ‘I haven’t, so far, because I’ve gotten a boat-load of ridiculous offers.’”

When The Harmless ­Bubble Becomes A Malevolent Force

A holiday desk clearing post. “For a while in the wake of the housing crash, the answer was pretty clear: If you could swing it, buy now. But things have changed rapidly. Prices in Southern California have climbed by a third in two years. The post-crash bargain bin has been picked clean. Yet doubts linger about the health of the housing recovery, and the broader economy. Cedric Shen and his wife have been ‘aggressively looking’ for a house to buy for about three months, but they’ve yet to put in an offer. ‘We’re fully qualified for a loan. We’ve got good credit and no debt. You’d think it would be easy,’ he said. ‘But you’ve got inventory issues, and you’ve got prices that seem ridiculous.’”

“I’m just going to come right out and say what everything is thinking: What the @#$% is going on with home prices in Orleans Parish? It’s getting crazy out there. I’ve been seeing listings of renovated homes for over $300 per square foot on the edge of Central City. A ‘fixer-upper’ needing a ‘total renovation’ on the edge of City Park recently hit the market for $700,000. These prices can’t be sustainable in the long-term. As of 2012, the median household income for Orleans Parish was $34,361, compared to $44,379 for the metropolitan area and $51,371 for the U.S. as a whole. Those incomes can’t support this housing market.”

“Three years into South Florida’s impressive housing recovery, demand for existing condos is showing signs of sputtering. Michael V. Smith, an agent with Fortune International Realty, said the spate of new condo towers launching one after another has an unreal air, reminiscent of the last boom that turned bust. ‘It looks a lot like 2004 or 2005. I’m Miami’s biggest promoter, but you’ve got to step back and be realistic,’ said Smith, who estimates he attends a fancy condo launch party every couple weeks.”

“House prices have stagnated and sales are stalling as Britain’s residential property market shifts in favour of buyers rather sellers. ‘We’ve reached the usual point where buyers go no thanks,’ said Ed Mead, the managing director of estate agent, Douglas & Gordon. ‘Whenever this happens there’s a three-month hiatus whilst sellers readjust their sights. Asking prices had overshot and a plateau in selling prices to be expected.’”

“Richard Kurland, an immigration lawyer who works with wealthy investors from mainland China, has looked at July real estate figures and suggests they may offer a glimpse at an important shift in Vancouver’s housing market. He says listings are up in certain segments while sales are looking stagnant. The figures for single detached homes on Vancouver’s west side in the $3-million to $3.5-million price bracket show 106 active listings and just nine sales, compared with 73 listed homes and 7 sales during July, 2013. ‘Right now, these numbers are showing blood in the water – and the sharks haven’t sniffed yet,’ Mr. Kurland said.”

“At the same time, Mr. Kurland adds, there is a serious corruption crackdown in China, as well as signs that Canada and China may upgrade a tax treaty some time in the fall – which could lead to more information-sharing between Canadian and Chinese tax officials. ‘Those things taken together, I think, are forcing the rich to dispose of high end Canadian residential property,’ Mr. Kurland says.”

“Property launches China are set to surge in the latter half of the year with developers sticking to their schedules despite mounting inventories, spelling double trouble for a market hammered by months of falling prices. Among the four top-tier cities, the overhang for Beijing and Shenzhen stands at 19.8 months and 20.4 months, respectively, up 129 percent and 122 percent from a year earlier. ‘Our industry has been spoiled. Why does it expect inventory to appreciate after sitting there for one, two years? If it’s a piece of electronics it will become very cheap,’ said Yu Liang, president of China Vanke, the country’s largest residential developer.”

“Housing sales dropped by 37 per cent in Delhi-NCR during the first six months of this year, according to Knight Frank. Knight Frank said nearly 1.67 lakh units remained unsold in the NCR market in June and it would take more than two years to sell these unsold inventories. Executive Director Rajeev Bairathi said there is no effective increase in residential prices after taking into account the benefits offered to buyers under subvention scheme and freebies. ‘No developers want to reduce basic selling price (BSP). If they will do that, it will start downward spiral. Builders come up with interest subvention scheme and freebies to boost sales,’ Knight Frank India national director-residential Mudassir Zaidi said.”

“Lindsay David may sound crazy ­comparing Australia’s banks to Lehman Brothers and Bernie Madoff. But in his mind, it’s everyone else who is living in a ‘Disneyland’ delusion by failing to spot a bank-led property bubble that shows no sign of deflating. It’s ‘the sheer size of the loans relative to the incomes here’ that troubles Mr David. ‘No one in the Western world has ever done what we are doing.’”

“The median house price to income of Sydney is nine times, compared to 6.2 times in New York and 7.3 times in London. Even Adelaide is more expensive than New York on price-to-income basis. He is particularly troubled by the surge in asset values in his Sutherland Shire neighbourhood, where land is changing hands for more than $1 million. ‘I have never seen so many Range Rovers in the Shire. It’s a small world out there and you know they haven’t become millionaires overnight. It’s eerily similar to Miami [in 2005 before the sub-prime crisis]. It feels like Groundhog Day,’ he said.”

“Cash sales continue dominate the recovering Las Vegas housing market—but many realtors in Sin City say it’s a dwindling trend. ‘The time to buy was a year ago,’ Brent Dana, owner of Dana Realty Group said. ‘It’s gotten too expensive for investors; now they’ve moved on to New Mexico and Texas and they’re buying cheap there.’”

“Ask any parent: kids love bubbles. The heaven-sent air-filled soapy wonders provide hours of cheap entertainment and nobody ever gets hurt. Put the word ‘asset’ or ‘financial’ before it, however, and the harmless ­bubble becomes a malevolent force. And these ferocious froth balls appear to be everywhere. Years of cheap credit explain the latest bonanza, most agree, while the hunt for yield is pushing investors and asset prices into uncharted waters. But are these ­bubbles? And would you recognise a bubble if you were caught inside one?”

“‘Bubbles have their own momentum,’ Harry Dent, best-selling author says. ‘The more prices go up, the more people say: ‘Gosh, how am I going to miss out on this?’ Therein lies the conundrum. As millions of would-be property ­owners around the world can attest, the only thing worse than being trapped inside a bubble when it bursts is not being in it while it’s expanding. But be warned: bubbles are not kids’ play. ‘Every bubble bursts,’ Dent says. ‘There are no exceptions in history.’”

Bits Bucket for September 1, 2014

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