September 7, 2014

Buying Too High And Not Being Able To Sell High Enough

It’s Friday desk clearing time for this blogger. “Across the Dallas-Fort Worth area, it is not an easy time to be in the buying market. Brooke Beavers is looking for a condo in the Oak Lawn/Uptown area of Dallas. She recently sold her current home to a developer who was interested in buying the entire block. Her agent, Joe Atkins of Joe Atkins Realty, said he’s very clear with his clients. ‘I tell everybody, ‘you’ve got to be able to jump when I say jump,’ because coming in a day late, you could miss out on a home. Homes are selling, in some neighborhoods, in a matter of hours.’”

“Having found a condo in her same neighborhood, Beavers does not plan to wait on the market. She plans to make an offer now, and hope the investment pays off in the long run. ‘Never stop looking. If there’s something out there you would want – get it,’ she said.”

“A China-based multi-billion dollar residential developer is entering the U.S. market with three projects in major markets on the East and West Coasts, including a 109-townhome community in Dublin. ‘The numbers are staggering,’ said Paul Zeger, a principal with Polaris Pacific who advises clients on the residential development market and is working with several deep-pocketed Chinese investors. ‘They’re bringing capital and it’s getting a lot of these projects off the ground,’ he said, in some cases faster than they would with local investors and based on their anticipated future value rather than their near-term cash flow.”

“We thought we’d never see the likes again — queuing for days to buy a house. A number of eager property-hunters have been camped outside the Millers Glen developmen in North Dublin since Tuesday lunchtime, despite the fact that the 60 newly built homes will not go on sale until Saturday. The houses range in price from €239,950 to €425,000. ‘I don’t know if there is a bubble at the moment, but in Dublin there are worrying signs,’ said Property expert Frank Quinn.”

“Like a die-hard fan who just couldn’t possibly miss out, Sabir Hasbani recently spent three days in front of a Sydney real estate agency to get a slice of the property market. But it was worth the long wait, as Hasbani secured 480 square metres of land, worth $AUS515,000 ($NZ579,000), to build a house for his family of five. The 29-year-old aged care worker said it was the only way he could secure a property as Sydney house prices continued their inexorable rise. Hasbani said he would now be happy to see prices continue to rise now that he had secured his family’s future on some sought-after real estate. ‘It was really hard work and it’s not going to get any cheaper,’ he said.”

“Fully aware of how fast prices continue to rise, Nick Dodd wasted no time getting into the Sydney housing market. The 31-year-old IT consultant snapped up a two-bedroom terrace in Newtown. He hopes prices keep rising so it justifies his investment. ‘It would be shit if they went down,’ Dodd said.”

“The average house flipper in South Carolina made less than $2,000 per house in the last quarter, according to RealtyTrac. Daren Blomquist, RealtyTrac’s vice president, said that based on 167 flips in South Carolina during the second quarter, flippers paid an average of $163,186 for the homes and sold them for an average of $165,091. ‘We saw a few other examples of this (low margin) across the nation,’ Blomquist said, ‘and it is evidence that flippers are making poor decisions: buying too high and then not being able to sell high enough.’”

“Spokane County, like much of the nation, saw a decline in ‘flipped’ home sales in the second quarter of this year. Spokane’s share of homes being sold by flippers will not likely shrink a great deal over the next year, said Marianne Guenther Bornhoft, a Realtor with Windermere Manito. Most flipping occurs after sales of homes that are in foreclosure or repossessed by banks, she said. ‘We still have a large number (of such properties) that haven’t been placed on the market yet,’ she said.”

“The woman whose property is at the center of a small-town firestorm over single-family home rentals is speaking out, saying she’s done nothing wrong — and never would have even bought the Mallard Island home in the first place had rental restrictions been in place. Lisa A. Gorman purchased the home with an investment loan for $577,000 and put forward a down payment of $350,000. Now, she’s renting it weekly for $1,800 to $5,550. ‘If we were in a crazy market and everybody was buying everything, maybe I would list it,’ she added. ‘If I could sell that house and not even make a dime, I would. … At this point, we all have to get along. I’m there.’”

“Federal Reserve Chair Janet Yellen speaks out of both sides of her mouth as she states that we are still in a ’sluggish economy … job growth, etc. … ‘ so as to avoid rate hikes. If the economy is strong, then we can expect rates to go up. (See market correction) If the economy is not yet strong enough to hold its own, then we should expect the markets to fall because of the end of stimulus. Well Janet … what’s it going to be? Because, again, you can’t have it both ways … you just can’t!”

“The very same can be said of real estate, especially in the overheated, mostly over priced local market here in ‘paradise.’ Suffice to say anyone buying homes locally in the current environment is likely paying a premium, which is code for paying too much. The price run-up has been very reminiscent of the last boom/bust. The real estate community (See ‘cool aide drinkers’) are so busy telling us how wonderful everything is, that they are completely blind to what is actually happening … yet again! Does anybody, I mean anybody remember 2006 … well?”

“It is really quite a comical replay of both types of investors, both stock and real estate, conducting themselves with such hubris, that nothing short of yet another ‘whip saw’ can snap them out of it! The big difference is that when the housing cools off at the same time the stock market cools off; stock investors can sell and take their losses. The real estate becomes illiquid and drowns the participants.”

“Reserve Bank of Australia chief Glenn Stevens has acknowledged the ‘elevated level of housing prices,’ as record low interest rates continue for another month. Stevens noted the prospect of fostering excessive risk-taking behaviour in the financial sector, warning that if people over-commit themselves financially, the economy could be vulnerable to ‘nasty shocks.’ ‘It is stating the obvious that at present, while we may desire to see a faster reduction in the rate of unemployment, further inflating an already elevated level of housing prices seems an unwise route to try to achieve that,’ said Stevens.”

“A team of Wharton economists dissected more than 23 million observations about home sales to find an explanatory factor for how behavioral, psychological or other unknown forces might have accounted for how housing price trends jumped from market to market before and after the foreclosure crisis. They observed that ‘irrational exuberance’ could be found as early as 1997-1999 when housing prices first began to rise on the West Coast and mid-New England region. Pricing trends that started in coastal California flowed inland and to neighboring states to the north and east. On the East Coast, prices swelled in other New England markets and caused spillover effects in Florida markets.”

“If irrational forces or mistaken expectations are still leading to speculation, the authors write that, ‘the relevance of our results for policy makers is increased, as they well may want to reevaluate their past practice of not intervening in response to asset booms in housing markets.’ One of the authors, Joseph Gyourko, says that the current government policy ‘is not to try to prick bubbles.’ But if contagion continues to play as much a role in housing booms, over economic fundamentals, ‘that could change the calculus about whether it is appropriate to intervene.’”

“Kevin Gillen, a Fels Institute of Government research consultant adds, ‘The reason the government should be reluctant to prick bubbles is because you can’t protect people from themselves. People have to learn that if you’re bad at guessing about the future, and [taxpayers] bail you out for your bad guesses, therefore you only get rewarded for your good guesses, you might become sloppy in your analysis and your guesses about the reality of the future. If bubbles happen for emotional reasons and people being irrational, then there might be the suggestion for cause for action, because it’s not just the case of incorrect analysis; there’s now human emotion involved.’”

Bits Bucket for September 7, 2014

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