September 12, 2014

The Coyote Has Left The Cliff

It’s Friday desk clearing time for this blogger. “The median price paid for a Bay Area home that closed in August was $607,000. That was down 1.6 percent from July, according to CoreLogic DataQuick. In San Francisco alone, the median price paid for a home continued dropping from its all-time high of $1 million set in June. It was $991,000 in July and $940,000 in August. The number of homes sold slid again last month ‘as potential buyers continued to struggle with constrained supply, tricky mortgage availability and affordability issues,’ DataQuick reported.”

“The theme of this year’s George Mason University summit was ‘Housing Hangover: Recession Ripple Persists in 2014: Jobs, Confidence, Mortgages (+ Aspirin) Fuel Recovery.’ David Versal, senior research associate at the George Mason University Center for Regional Analysis, echoed his callout from last year, that since 2010 government spending cuts have decimated the Washington D.C. metro area. ‘We lost over $11 billion in federal procurement,’ he said, ‘This is on top of the 20,000 jobs we’ve removed.’ One true gainer in jobs over the same period, he said, has been hospitality — specifically restaurant jobs.”

“‘Ask yourselves as Realtors: Are people buying $6-7-800,000 houses in this region people who work in restaurants? Unless they own the restaurant probably not,’ said Versal.”

“Chinese investors’ global hunt for prime real estate is helping drive Vancouver home prices to record highs. The latest wave of Chinese money, linked in part to Beijing’s anti-graft crackdown, is flowing into luxury hot spots. ‘In the last year there’s been the corruption crackdown in China and a lot of people have seen their wealth evaporate over there because of that,’ said Dan Scarrow, a VP at MacDonald Realty. ‘So they want to put it somewhere they perceive as safe.’”

“London property is hotter than ever, with Asian investors - especially those from Singapore and Hong Kong - and increasingly confident British buyers snapping up units, consultants say. ‘It’s almost like a commodity that people buy and sell… Investors here like London as it’s a tested and proven market,’ said Ms Doris Tan, head of international residential properties at JLL.”

“Most Malaysian property developers are claiming a slowdown in sales after Putrajaya introduced cooling measures to rein in spiralling house prices, with pessimism expected to continue to next year. 85 per cent of 152 developers admitted to experiencing a drop in sales. According to Rehda president Datuk Seri Fateh Iskandar Mohamed Mansor, consumer financing is a ‘major obstacle’ for the developers as 53 per cent of developers complained of problems with their buyers getting their loans approved. ‘Realistically, prices of houses cannot go down,’ said Fateh.”

“Some local governments in China have included many areas that should not be part of the shantytown refurbishment projects and blindly proceeded with construction in their cities. Data showed that 4.25 million units of housing have been reported nationwide with regards to the refurbishment projects in 2014 so far, which is 2.7 times higher than the number planned by the central government. Developers have benefited from such projects, as they think the local governments are saving the housing market.”

“‘The local governments and developers are being very aggressive as they think of it is an opportunity to stimulate the real estate market,’ said Wang Yi, an economist in Hunan.”

“The foreclosure process started on nearly 4,500 homes in New Jersey last month, an increase of 115 percent from August 2013. Scheduled foreclosure auctions saw a 71 percent increase during the same time frame, to the highest level since July 2010. Daniel Boddy, a real estate agent at Century 21 Frick Realtors in Galloway, said he’s noticed a jump in foreclosure activity throughout the area recently. ‘Not necessarily just in Atlantic City, but in our area in general they are up a lot higher than they were last year,’ he said.”

“Boddy also attributed the increase in foreclosures to an easing of a logjam of cases, in part caused by a freeze on foreclosures by major mortgage firms, and the state’s lengthy foreclosure process. ‘It’s not something that is just starting to happen because of casino closings,’ Boddy said. But, he said, ‘those aren’t going to help.’”

“Marion County saw its share of the August wave of new foreclosures to hit Florida. Florida’s August pre-foreclosures jumped 74 percent jump compared with July 2014. About 80 percent of Florida’s foreclosures today are due to mortgages established before the housing crisis, said Daren Blomquist, VP at RealtyTrac. ‘That tells me this (pre foreclosure wave) is from the last housing crisis and not a new housing crisis,’ he told the Star-Banner.”

“The big question for the Santa Fe residential real estate market is not how many homes are on the market now, but how many will be on the market in the future? It’s known as shadow inventory. By some estimates, values in New Mexico are still 20 percent below pre-bubble levels. ‘Recently some industry analysts have expressed concern about the size of the shadow inventory that remains,’ writes Alan Ball, an associate broker at Keller Williams Realty Santa Fe. ‘Shadow inventory is not a small humorous anecdote or analogy. It is a huge weight on our shoulders, on our market health.’”

“Speaking after iron ore plunged to a five-year low, the federal government’s former top resources forecaster, Quentin Grafton, said the Chinese economy looked like it was ‘unravelling.’ He said falling prices for coal and iron ore, a slump in business investment, an overpriced housing market and high dollar had placed the Reserve Bank of Australia ‘between a rock and a hard place.’ ‘Put all those things together and it could be a difficult ride for us,’ he said. ‘This isn’t about doom and gloom – it’s about looking at the risks and numbers. There’s a clear and present danger.’”

“Researchers at Texas A&M University estimate China has a residential vacancy rate approaching 20 per cent and there could be as many as 48 million empty apartments across the country after years of over-building. Independent senator Nick Xenophon urged MPs to educate themselves about the national income story. ‘We are in denial and we’ve become a sideshow,’ he said. ‘I don’t want ­Australia to be the Argentina of the 21st Century.’”

“House prices are soaring, real incomes are sliding and property has become our fastest growing industry. Can anyone spot a problem? The typical Sydney house price climbed from $666,900 to $740,000. You don’t have to be particularly bright to work out what’s going to happen next. But it doesn’t happen straight away. when we see house prices rising we act as if we have seen a sign that they are going to keep rising. Even as the drivers turn against house prices (real incomes are falling) we keep buying because others are buying in the expectation they will keep climbing.”

“It can keep happening for quite a while, all the more so if interest rates are at long-term lows and look like they will stay there. Like Wile E. Coyote, the cartoon character who chases Road Runner and runs off the edge of a cliff, our legs keep moving suspended in mid air until we look down, realise there’s nothing there and fall. The main sphere in which we are taking on risk is the one in which we should not. We’re betting on ‘already inflated’ house prices rising further. As long as others keep piling on it’ll keep happening. But the coyote has left the cliff.”

Bits Bucket for September 12, 2014

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