October 31, 2014

The Risks You Think You Have Seen Before

It’s Friday desk clearing time for this blogger. “Changing market dynamics put more power in the hands of buyers than sellers, says Stan Humphries, Zillow’s chief economist. At the end of September, there were almost 19 percent more homes on the market than last year. Nearly 37 percent of listed homes on Zillow had at least one price cut in the past month, up from 33.6 percent in September 2013. ‘Sellers have had their day in the sun for several years in a row now. It’s time to get back to a balanced market and for buyers to have their day,’ Humphries says.”

“Brian Walters, a Redfin real estate agent who works in Alexandria, Virginia, has seen changing dynamics among his clients, too. ‘It seems like buyers have definitely picked up on what’s going on in the marketplace a little bit faster than sellers,’ Walters says. ‘They’re willing to go in and offer significantly lower than what would be expected to be successful offers that seem to pan out. They’re being a lot more aggressive during the home inspection period and asking for things to be repaired.’”

“August home sales data confirms what brokers say they are seeing: A cooling trend that, in some areas, is beginning to favor buyers. ‘We’ve turned the corner a little bit toward a buyer’s market,’ said Leslie Like, a broker with John L. Scott Real Estate. ‘The multiple offers have slowed down. Offers are a little more demanding on buyer’s part. In Hillsboro, Forest Grove, Cornelius, it’s quite a bit slower,’ she said. ‘You can feel the difference.’”

“Of about 5.43 million owner-occupied homes that were foreclosed on after 2007, only 2.1 percent of the borrowers – or 114,100 – had purchased a primary home by the end of 2013, according to Experian’s research. Of nearly 809,000 short sales on owner-occupied homes after 2007, about 44,300 – or nearly 5.5 percent – of owners have repurchased another home by the end of 2013. ‘I see a lot of people coming back into it with eyes wide open,’ Angel Johnson, a real estate professional with Redfin in Phoenix, told The New York Times. ‘They can get a loan, but they are still spooked.’”

“U.S. homeownership dropped to the lowest rate in two decades, with declines across the country and income spectrum, according to government data. The U.S. Census Bureau reported that the homeownership rate, which shows the share of occupied homes in which owners live, fell to 64.4% in the third quarter — the leanest result since 1994 — down almost a full percentage point from a year earlier. The homeownership rate in the third quarter fell in all four U.S. regions from a year earlier. Also over the past year, the rate fell among all age groups but one: those who are 55- to 64-years old. Meanwhile, the rate also fell over the past year for households with family income below the median, as well as households with income above the median.”

“The news from China’s property sector continues to be grim. Things could yet turn around. In late September, the central bank eased mortgage lending standards to shore up the housing market. The problem lies in why people would want to buy a second (or third) home in the first place. But that makes China’s housing market more like a stock market in terms of motivation to buy. A study by Southwestern University of Finance and Economics shows that China’s urban home ownership rate is already 87%, notes Kent Troutman, an economist at Peterson Institute for International Economics.”

“Meanwhile, the urban vacancy rate is around 22%. China’s leaders are counting on rural migration to cities to boost housing demand over the next decade or so—a process called ‘urbanization.’ As Troutman points out, though, rural home ownership is already at 97%.”

“New Census data ranking home ownership rates throughout the country reveal Auckland’s house prices are so high people are still left with debt when they reach retirement. Real Estate Institute of New Zealand CEO Helen O’Sullivan agreed Auckland’s low rate of outright home ownership reflected price growth. ‘It takes longer to pay off a house in Auckland,’ Mrs O’Sullivan said. ‘But it’s only been the last two years that we’ve seen Auckland’s price growth outstrip the rest of the country.’”

“Sharp spikes in house prices across Australia’s major cities in recent years have fuelled the passion for property. But it is not easy working out who or what is to blame. But real estate agents do see the potential for trouble ahead because of reckless lending to some buyers. ‘The flow of credit for first-time home-buyers is far too easy,’ says Mark Wizel, a director of real estate firm CBRE in Melbourne. ‘I think that it is a market that is fraught with a bit of danger because if there is a correction in the housing market buyers that have over-extended themselves to take up the opportunity of the great Australian dream may be left exposed.’”

“Moves to boost the U.S. housing market could fuel the next credit bubble, warned Alan Schwartz, the former head of Bear Stearns, which collapsed during the 2008 subprime mortgage crisis. Earlier this month, the U.S. Federal Housing Finance Agency announced plans to return to allowing Americans to buy homes with deposits as low as 3 percent in order to help boost the faltering housing market. ‘When you give credit to people with very low down payments, and they can walk away from their mortgage, that is sowing the seeds of the next cycle,’ Schwartz told CNBC.

“Last week, the U.S. Mortgage Bankers Association forecast there would be $1.19 trillion in mortgage origination during 2015, a 7 percent increase from 2014. ‘What I learned from the crisis is that as you get older, you get more used to the risks you have seen before-or think you have seen before,’ Schwartz told CNBC. ‘We saw another cycle coming and we assumed we would be able to handle it, and sometimes what you assume from the past is very different from the future. So it teaches you not to get complacent about the risks you think you have already seen.’”

“Say we didn’t hear that. Say we didn’t hear that rules for mortgages guaranteed by the taxpayers are going lax once again. Oh, but we did. Taxpayers, you are being handed the bag once again. What makes you particularly vulnerable are the potent political forces determined to keep the game going — an odd alliance of Wall Street financiers and advocates for low-income Americans. Powerful banking interests have fought every move to transfer risks from the taxpayers’ shoulders to their own. In response to an angry public, they said, ‘Rather than end the guarantees, let’s add safeguards to better protect taxpayers.’ Some new rules were made. Now they’re being unmade.”

“So-called advocates joined the push for easier mortgage terms – and they should be ashamed, by the way. ‘Easy money’ has been no friend of the poor’s. In most of the Free World, governments do not guarantee mortgages. Nonetheless, their people own homes. In this country, bankers and allied interests extract both lax rules and taxpayer guarantees. And to think, Fannie and Freddie aren’t even out of conservatorship yet.”

“Former Federal Reserve Chairman Alan Greenspan said that the Fed’s bond-buying program, which aimed to lower unemployment and spur stronger economic growth, fell short of its goals. He said that the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs. But it didn’t do much for the real economy. ‘Effective demand is dead in the water’ and the effort to boost it via bond buying ‘has not worked,’ said Mr. Greenspan. Boosting asset prices, however, has been ‘a terrific success.’”

Bits Bucket for October 31, 2014

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October 30, 2014

When Appreciation Slows, There’s No Call To Action

The Merced Sun Star reports from California. “Merced County’s property value increase of 9.3 percent to $19.5 billion ranked as the second highest increase in California from the same time last year. Stanislaus County property values had the highest year-over-year increase, rising 11.4 percent to $39.7 billion for the 2014-15 tax year, and San Joaquin County’s 8.8 percent increase to $61 billion was the fourth highest percentage gain among California’s 58 counties. Terry Ruscoe, owner of Merced Yosemite Realty in Merced, said Merced’s property values are being pushed up by continued interest from Bay Area investors and having many more homes in escrow compared to a year ago. ‘The market’s moving and the market’s pushing prices up,’ he said.”

“Merced County’s values reached $20.5 billion during the 2007-08 tax year. Values then plunged down to $16.6 billion through 2011-12. ‘The housing market has recovered, though it’s a little softer than it was even six or eight months ago,’ Merced County Assessor Barbara Levey said.”

The Union Tribune. “The slowdown in the pace of appreciation in San Diego County’s housing market continued in August, concluding a markedly tame summer peak buying season. ‘When prices are going up every month, there’s a hard motivation to get in right now and get the deal closed,’ said Mark Goldman, a loan officer and real-estate lecturer at San Diego State University. ‘When price appreciation slows down there’s no call to action, meaning if I wait until next month, it takes away that urgency from the buyer.’”

The Los Angeles Daily News. “The San Fernando Valley’s housing market continued sputtering in September, with sales falling from a year ago amid modest price increases, according to two reports. The Southland Regional Association noted that the median resale home price rose 3 percent from a year ago, to $535,000, but fell $8,000 from August. The group’s report also showed that the inventory of houses and condos increased 11 percent from a year ago. ‘Prices rose too high too fast, increasing 37 percent over two years,’ said Jim Link, the association’s CEO. ‘In addition to tight lending rules, affordability is the culprit for this slower market. Two years ago, first-time and median income buyers were being outbid for the ‘bargain’ distressed properties by cash-paying investors.’”

“Now buyers, and especially first-time buyers, simply cannot qualify for the higher prices, he said.”

The San Fernando Valley Business Journal. “In the Santa Clarita Valley, prices have risen substantially over the past year. Median home prices jumped more than 9 percent from last September to $490,000. That price was flat from August. Realtors in that area say inventory rose nearly 38 percent from the same month last year. ‘The market is much more balanced now that investors have largely retreated, with foreclosure-related sales hitting a record low,’ said Nancy Starczyk, president of the Santa Clarita Valley division of the association. ‘Prices are still rising, but sellers realize that buyers can go only so high.’”

The Los Angeles Register. “The piercing alarm of a stun gun shattered the quiet in a Laguna Niguel neighborhood one morning last week as a real estate broker let it rip. When Janet DePerry bought the stun gun from a vendor at a Realtors convention in Anaheim a few weeks ago, there was a long line of real estate professionals with the same idea, she said. Lately, brokers have been reminded that their routine – often working alone with strangers, and sometimes in empty or remote homes – exposes them to unusual risks.”

“Last Saturday, a transient put a real estate agent in Laguna Niguel into a chokehold, punching her in the face and almost knocking her unconscious, according to sheriff’s deputies. The agent was securing a lockbox at a home that was for sale for more than $1.5 million. ‘I feel more secure,’ said DePerry.”

The Inland Valley Daily Bulletin. “Thousands of homeowners in need of lowering their house payments have been coming to the Ontario Convention Center since Friday to seek assistance from the Neighborhood Assistance Corporation of America. The organization has come every year to the Ontario Convention Center since the height of the Great Recession to serve residents in the Inland Empire, which several years ago, was ‘ground zero’ for foreclosures.”

“Among the many seeking assistance was Hilda Lazaro Lopez, who continues to have difficulties with mortgage payments on her home in Los Angeles. Lopez attended a NACA mortgage relief event two years ago, which resulted in a $2,000 monthly savings on her mortgage payment. ‘I’m looking for help to pay less and try to sleep more,’ Lopez said. ‘I did this two years ago and it was a huge help. I almost lost my house. I need to get better interest.’”

“Maria Gamez, of Riverside, is also looking to lower mortgage payments. ‘Right now it’s $2,100 a month and we want it down to at least a thousand-something,’ Gamez said. ‘They keep refusing my (loan) modification, and so I’m here personally to see if they can help me.’”

“In September, the number of properties that received a foreclosure filing in San Bernardino County, was 11 percent higher than the previous month.”

The Orange County Register. “Mel Watt, currently head of the Federal Housing Finance Authority, recently announced plans – in a speech at a Las Vegas casino, of all places – to allow mortgage giants Fannie Mae and Freddie Mac, which he regulates, to purchase loans with down payments as low as 3 percent. With only a 3 percent down payment, and poor credit to begin with, these subprime borrowers will have virtually no ability to weather dips in the market. They will be trapped in homes with underwater values, denied the mobility that is key to pursuing job prospects in a changing labor market.”

“Good jobs and rising incomes are the only fundamentally stable way to expand access to housing. Policies enabling unsupportable consumption to stimulate certain sectors while trying to socially engineer the nation are doomed to failure, and those pushing them are simply proving they will pursue ideological goals no matter what havoc was wreaked just a few years ago.”

“If lenders want to lend to borrowers at high risk of default, nothing is preventing them from doing so, but they must be allowed to suffer if those practices get them in financial trouble.”

Bits Bucket for October 30, 2014

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October 29, 2014

Many Homeowners Expect Values To Keep Soaring

The Orlando Sentinel reports from Florida. “Orlando’s housing market ranked fifth for year-over-year improvement among top U.S. metro areas but the shorter-term picture for the region showed softening, according to a new report by Freddie Mac. ‘The Orlando housing market is weak and declining,’ stated a report on Freddie Mac’s Multi-Index Market Indicator. Orlando continues to lag far behind nationally in terms of homeowners paying their mortgage on time. Of the mortgaged homes within the Orlando area, only 30 percent had been paid on time by homeowners. Nationally, homeowners’ rate of keeping current on mortgage payment was more than double Orlando’s rate.”

The Boston Globe in Massachusetts. “The median selling price of a Massachusetts single-family home fell last month on a year-to-year comparison basis for the first time since September 2012, the Warren Group reported. ‘Massachusetts is a high cost housing market, and the trend throughout the year has been increasing prices, so seeing prices stabilize is good for the market and good for buyers,’ Massachusetts Association of Realtors president Peter Ruffini said in a statement.”

The Dallas Morning News in Texas. “Dallas-area prices are now about 30 percent ahead of where they were at the worst of the housing bust in early 2009. But the rate of increase is slowing. Dallas’ August price rise was the smallest annual gain since March 2013. ‘As long as home inventory remains tight and job growth remains strong, prices should trend higher,’ said Ted Wilson, principal at Residential Strategies. ‘However, as housing affordability becomes an increasingly significant issue for many households in the D-FW area, we are unlikely to return to the double-digit gains we were experiencing this past year. The year-over-year gains have moderated, and this is reflective of the anecdotal reports we hear from builders and Realtors who share stories of ‘buyer pushback’ and ‘lack of urgency’ on some of the higher-priced offerings.’”

The Las Vegas Sun in Nevada. “Throughout the valley, listings of previously owned homes increasingly are being ignored, sales volume is dropping and prices aren’t climbing nearly as fast as a year ago, all while the share of cash buyers has plunged. Investors still comprise a sizeable share of local buyers, but faced with rising prices they helped create, their spending has ‘fallen off a cliff,’ Universal Realty owner Scott Beaudry said.”

“Despite the slower growth, many homeowners expect values to keep soaring at an eye-popping pace, and they want to sell for much more than their homes are worth. ‘There are a lot of unrealistic sellers,’ Realty One Group agent Jim Brooks said.”

CNBC on California. “Los Angeles may be filled with stars, but right now its housing market isn’t one of them. After benefiting from robust investor interest for the past few years, home sales are beginning to deflate. It is now taking significantly longer for sellers to get a contract. ‘The real estate market in Los Angeles is going back to a time where properties sit on the market possibly for four to six months, instead of flying out the door within 10 days and being sold,’ said Greg Bender, a local Realtor with Berkshire Hathaway HomeServices. ‘Buyers don’t have the same sense of urgency as they did before. They can be a little bit more discerning.’”

The New York Times. “William Ackman is a wildly successful hedge fund manager. Mr. Ackman told The Times that he is the buyer of the 13,500-square-foot condo with an estimated price of $90 million. What is more shocking is what he plans to do with it. Apparently content living with his family on the Upper West Side, he told The Times he was purchasing one of the most expensive properties in New York because ‘I thought it would be fun’ and he and some close friends ‘bought into this idea that someday, someone will really want it and they’ll let me know.’ Bill Ackman is a condo flipper!”

“Mr. Ackman is making a bet that the high-end real estate market in New York, for whatever reason, currently misprices the penthouse, and that in a few years this mispricing will be corrected. In the meantime, a 13,500-square-foot apartment with magnificent views of Central Park and, on a clear day, the entirety of New York, will sit empty the great majority of the time waiting for that day.”

“It may be the most expensive attempted condo flip in history, but in substance it isn’t much different from the middle-class dreamers who bought a preconstruction condo in Florida in the mid-2000s in hopes of selling it a couple of years later at a great profit.”

Bits Bucket for October 29, 2014

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October 28, 2014

The One-Time Money Machines Aren’t Selling

A report from the New Zealand Herald. “A do-up North Shore property with basic facilities, exposed plywood floor panels and an overgrown yard strewn with junk is for sale for $629,000 - $269,000 above its capital valuation. The 70sq m three-bedroom, two-bathroom fibre-cement unit in Milford sits on a small, 140sq m section. It’s shown in photos with bare and grimy plywood floors, dirty wallpaper and a weathered exterior including makeshift-looking PVC roofing. Current owner Bill Chamberlain, 50, said he bought the family house in 1984 and was selling up to take advantage of Auckland’s booming property market.”

“‘It’s not a case of what it’s worth. If people don’t want to buy this they need to spend $1 million on something else because there is nothing else out there, he said.”

The Sydney Morning Herald in Australia. “For Goldman Sachs, the worst is ahead for Australia and housing-bubble concerns will fade as the focus shifts to slowing jobs growth and inflation. The only hurdle keeping the Reserve Bank of Australia from adopting an ‘easing bias’ is a property boom, as mining investment is set to drop further along with raw material export prices and government revenue, said Tim Toohey, Goldman’s head of economics, commodities and strategy for Australia. A drop-off in mining investment is still to come and will probably have a greater negative economic impact than currently assumed, Toohey said.”

“Sydney home values jumped 14 per cent in the 12 months through September to a median $655,000, according to researcher RP Data. The average dwelling price across Australia’s major cities rose 9.3 per cent. ‘There’s really only one hurdle standing in front of the RBA in terms of adopting back an easing bias and it is pure and simply house prices,’ said Toohey.”

From Macleans in Canada. “Back in the 1980s, Ron Carey was sitting in a Calgary bar with a fellow oilman, reflecting on the great oil bust that had levelled Alberta’s economy, when he came up with the idea for a bumper sticker that would capture the grim mood in the province: ‘Please God, let there be another oil boom. I promise not to piss it all away next time.’ Three decades later, Carey, now 75, has watched another boom grip the province and is ready to print another run of those stickers if need be.”

“That’s because he sees worrying signs of another bust on the horizon: soaring wages, ‘ridiculous’ house prices and people living ‘high on the hog’ because they assume the good times will go on forever. ‘There’s not many people out there today who even remember,’ he says. ‘It’s 34 years ago. Most of the people who went through that mess are either retired or close to retiring. So you have a younger generation that doesn’t even know what a real recession is.’”

Reuters on China. “China’s largest residential property developer, China Vanke Co Ltd, said its gross margin fell 1.1 percentage points to 23.8 percent from a year earlier, squeezed by sliding home prices and expensive land costs. ‘Oversupply of properties will remain in the market in the short term and the inventory of new properties in the market will further increase,’ the company said in a statement.”

“Developers are also turning to new marketing techniques to lure buyers without sacrificing margins. Discounts can still run into the hundreds of thousands of dollars but increasingly property marketing looks to simply to create a buzz around new projects, analysts said. China Vanke plans to offer free accommodation for a year in some of its new apartments, as long as its guests share their experiences on social media. ‘Consumers are too used to price cuts and promotions like ‘buy one get one free’, so they want new gimmicks,’ real estate consultancy Knight Frank senior director Thomas Lam said.”

Today Online in Singapore. “Prices of Housing and Development Board resale flats fell by 1.7 per cent in the third quarter of the year, the steepest decline since 2005. PropNex Realty chief executive officer Mohamed Ismail expects prices to soften 6 to 7 per cent for this full year. Mr Ismail does not expect a turnaround in resale prices this year, given a ‘looming flood’ of new homes and the continued impact of property measures. Resale prices could fall 5 to 6 per cent more next year, mainly due to more second timers collecting their keys to their Build-to-Order flats, he said.”

The Star Online in Malaysia. “A finding by US-based urban development researcher Demographia reveals Malaysia’s residential housing market is ’severely unaffordable,’ even more out of reach than residents in Singapore, Japan and the United States. National House Buyers Association honorary secretary-general Chang Kim Loong points out the risks posed by ‘Investors’ Clubs’ or ‘Millionaires Clubs’ which are basically syndicated speculators incorporated by some ingenious individuals.”

“‘They work in cahoot with developers, valuers and banks. Speculative buyers may be caught by the latest round of cooling measures. How the situation will pan out will depend on the holding capability of these speculators of which most of them may not have. Come hand-over time when it is time for these ‘investors’ to flip their purchases, there may be a shortage of buyers for these properties, most of which were transacted at inflated and not real market value prices,’ he warns.”

The Financial Times in the UK. “I have a friend who has been trying to sell a central London flat for eight months. Another has had a large house on the market for six months. They can’t understand why these one-time money machines aren’t selling. Prices aren’t rising as they were either; they are, says Strutt & Parker ‘being adjusted down by about five to 10%.’ Anecdotal evidence suggests prices are down rather more than that.”

“Why now? Politics. Last week brought us news that the UK public sector deficit is not falling, but rising. It leaves property taxes as pretty much the only way of paying for political promises. Property taxes aren’t just about the deficit. They’re also a symptom of a horribly distorted market. Successive governments have done everything they can to push house prices up – with super-low interest rates, tax breaks for buy-to-let, Help to Buy and so on.”

“That’s why, measured by interest burden, UK houses prices have rarely been more affordable. But on measures of earnings they have rarely been so high. The state can’t let this huge market distortion go too far, particularly in London. So, in the absence of the courage required to normalise interest rates, the government is forced to put bad policy on bad policy to dampen prices. Hence, new affordability tests on mortgages – and another reason why rising property taxes are inevitable.”

Bits Bucket for October 28, 2014

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October 27, 2014

Tipping The Market In Favor Of Buyers

The Almanac reports from California. “In the first half of 2014, the median price for a single-family home in every city in the Midpeninsula was above $1 million, with the exception of East Palo Alto, where the median value was $492,000. Keri Nicholas, an Atherton native and sales associate at Coldwell Banker Residential Brokerage in Menlo Park, said homes in the $4 million-plus price range in West Menlo Park and the Lindenwood neighborhood in Atherton are capturing six to eight offers and selling well over the asking price. Nicholas said a recent home in West Menlo Park ended up with two counter offers and sold for $700,000 over the $2.9 million asking price. Another in Lindenwood sold for $1 million over the $3.9 million asking price. ‘People want the schools, and they only want certain spots,’ she said.”

“Hugh Cornish, a sales agent at Coldwell Banker, said downtown Atherton and Menlo Park are also seeing more foreign investors. ‘Definitely, 2014 has been a year where we’ve seen a tremendous amount of money from the overseas market come in and purchase real estate not just to create a home but actually as a long-term investment,’ he said.”

The Times Free Press in Tennessee. “Becky Musgrave and her husband are empty nesters since their daughter went off to college, so they figured it was time to downsize from their Mountain Shadows home in East Brainerd. Their choice was Cameron Harbor. The single-family cottage homes will range from $319,500 to $550,000, depending on size and location, according to the developers. The townhomes, which are slated to come before the condos, will have price points from $1 million to $1.25 million. Musgrave said they hope to move in March or April. The couple debated about taking an apartment, but they like having their own house. ‘Later we could resell,’ Musgrave said.”

The Miami Herald in Florida. “Sales of existing single-family homes in Miami-Dade County rose 5 percent in September from a year earlier, with 1,166 closings; existing condo sales also increased 5 percent year over year, totaling 1,425 closings, according to Miami Association of Realtors. ‘For Sale’ signs are becoming more plentiful across the region. On the heels of three years of strong price increases for both single-family homes and condos, more homeowners have equity in their properties and are opting to list them for sale.”

“In September, Miami-Dade’s inventory of single-family homes rose 20 percent to 6,347 units while the inventory of existing condos swelled 24 percent to 11,133. For existing Miami-Dade condominiums, that amounted to 8.1 months of supply — tipping the market in favor of buyers. ‘Summer production was good,’ said Jaime V. Rodriguez, a loan originator with Universal Mortgage and Finance in Miami Lakes. Some lenders, he said, are providing more mortgage options that make home-buying more accessible.”

The Record in New Jersey. “With three kids born in four years, Amanda and Ryan Marshall were ready to trade up from their Hawthorne bilevel — but they had bought the property in 2007, when housing values were high, and there was no way they could sell it for anything close to the $520,000 they had paid. They ended up selling their first home for $427,500, a loss of more than $125,000, when you count the $40,000 they spent on improvements.”

“The only comfort was that they knew if the value of their starter home was down, the same was true for trade-up homes. ‘I still think about how much we lost in the house,’ Ryan said. ‘I try not to anymore,’ said his wife.”

“Deborah Innocenti, a Coldwell Banker agent in Ridgewood, said that in the most sought-after towns, home values have rebounded more than in other areas, and many boom-era buyers in those towns can now break even, or come close, when they sell. But in other towns, she said, values are still well below their peaks. ‘Those people are suffering,’ she said. Especially hard hit are the people who never had much equity in their homes — buyers who made small or no down payments in a time of looser lending standards.”

“‘I sold a ton of apartments in 2008 and 2009, and these people come to me and say, ‘What do I do now?’ said Linda Stamker, an agent with Prominent Properties Sotheby’s International Realty in Fort Lee. Homeowners stuck in these situations are often disheartened, even angry. ‘I would say they’re bitter; some blame their real estate agent: ‘How could you have sold me this house?’ Stamker said.”

Bits Bucket for October 27, 2014

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October 26, 2014

For Every Reckless Borrower There Is A Greedy Investor

It’s Friday desk clearing time for this blogger. “Markets that were hottest during the recovery saw the largest slowdown in home-value growth in the third quarter, Zillow said. The Bay Area definitely makes that list. The news gets even worse for Bay Area homeowners. Zillow expects year-ahead home-value appreciation in the Bay Area to grow just 2.9 percent, not even meeting the company’s national projection of 3 percent. Third-quarter inventory of Bay Area homes on the market jumped 20.2 percent from a year ago. Homeowners are likely to feel the chill as more people decide to sell before the slowdown turns into price cuts. It’s too late, Zillow says, noting that 37 percent of listings on its site nationally had at least one price cut in the past month.”

“In good news for housing, Fannie Mae and Freddie Mac reached an agreement with mortgage lenders to make it harder for the mortgage giants to force the banks to buy back loans that go bad. San Francisco’s top banker touted the importance of home loans. ‘Every home that gets sold — that satisfies a customer’s need — not only fulfills a dream, but a dollar spent on a home multiplies through the economy like no other thing we do,’ said Wells Fargo CEO John Stumpf . ‘A loan to a homeowner is magical in that respect.’”

“Home prices softened in September across Palm Beach and Broward counties. Douglas Rill, broker at Century 21 America’s Choice in West Palm Beach, said some sellers still think the market is surging and price their homes accordingly. ‘You have a certain percentage of sellers pushing the envelope to above market numbers,’ Rill said. ‘Those homes are taking longer to sell.’ Marisa DiLenge, a Broward agent for Better Homes & Gardens, said she has a three-bedroom Plantation listing that shows well because it’s professionally staged, but a buyer has yet to step forward. On Monday, the seller cut the price a second time, to $282,499. ‘When I put my listings on the MLS, I usually have them under contract within a week or so,’ DiLenge said. ‘I’m not seeing that the last four or five weeks.’”

“While prices have slowed this year after a stellar 2013, industry observers insist this isn’t the start of a new meltdown. ‘I have no fear that there will be another bubble,’ said Ken Johnson, a real estate economist at Florida Atlantic University. ‘I don’t see any irritational exuberance in the housing market right now. We might go flat, we might go down a little bit, then back up. But we’re not going to lose 50 percent of value. That’s just not going to happen.’”

“The NAR’s chief economist, Lawrence Yun, said sentiment among real estate agents was at its lowest level of the year, suggesting that sales may be weaker going forward. ‘It’s turned into what I think is really a classic buyers’ market,’ said Sherry Spinelli, a real estate agent with Long and Foster in Northern Virginia. ‘More days on market, prices are coming down, the offers are even lower and there are just a lot of houses out there, so it’s a challenge for sellers. I think you have to lower the price in order to sell it.’”

“‘Buyers don’t have the same sense of urgency as they did before. They can be a little bit more discerning,’ said Greg Bender, a Los Angeles-area Realtor with Berkshire Hathaway HomeServices. Bender is seeing homes sit on the market far longer than they did just six months ago. It is no longer a seller’s market. In Phoenix the price deflation is even more dramatic. Last year, prices were up 18 percent annually at this time. Today they are up barely 1 percent. ‘Most of the median-price increase over the last 12 months is because a greater percentage of the homes being sold are in the luxury market, not because home values overall are increasing,’ Arizona State University’s Mike Orr wrote in a recent report.”

“Prices soared again between 2011 and 2013 due to the Federal Reserve’s intervention. Some argue that as that demand goes away, housing will pay a price again. ‘If stimulus ‘hangovers’ are proportional to the amount of stimulus that preceded them, then this one could be a doozy,’ wrote Mark Hanson, a housing analyst in California.”

“There are more homes for sale in Moose Jaw than there are buyers which has led to a three per cent decrease in housing prices. Moose Jaw isn’t the only city experiencing a growing home inventory during this year. According to the Royal LePage housing price survey, in Regina, the average prices for single family homes have dropped seven to eight per cent during the past year. ‘There’s a lot more product on the market now than normal,’ said Jim Millar, executive officer with the Moose Jaw Real Estate Board, who says this is why housing prices have dropped.”

“Dubai house prices and rents weakened in the third quarter, according to a report from Asteco. According to rival broker Care, 19,000 more new homes were expected to be handed over in Dubai next year, hampering landlords’ efforts to further raise rents and prices. ‘For the first time since 2012 we have seen both residential rental rates and sales prices decline as a result of a natural adjustment to continuing new supply entering the market,’ said John Stevens, the Asteco managing director. ‘We believe that sales prices may soften further with more new supply on the way.’”

“It’s more bust than boom for the Gladstone property market, with a property analyst saying it is the same old story for the central Queensland region. The figures represent a 13.1% and 24.9% decrease in house and unit prices, respectively, compared with the corresponding period last year. Senior economist Dr Andrew Wilson said the economic influences would continue to affect the Gladstone market for years to come. ‘Same old, same old for Gladstone … when is it going to end?’ he said. ‘There was a lot of investment money pumped into the market three years ago with the mining boom. But unfortunately mining is no longer booming.’”

“The effects of the slowdown are evident throughout China. Factories are churning out steel, concrete and other commodities well beyond local demand and are kept alive by local governments arranging emergency loans. Debt levels are rising at a clip that rivals the US, Japan and South Korea before they tumbled into recession. About 20 per cent of apartments are vacant, according to a Goldman Sachs report, and Chinese cities are chockablock with empty apartment towers. Much of Chinese consumer wealth is tied up in housing.”

“Zhang Shuangyang, who runs a cake shop and two online sock stores, said she has delayed major purchases and is increasingly worried about the future. ‘We can feel that the economy is getting worse.’”

“Unfortunately for China, Ernest Hemingway might see his words about bankruptcy ring true again. In ‘The Sun Also Rises,’ someone asks: ‘How did you go bankrupt?’ To which the other person replies: ‘Two ways. Gradually, then suddenly.’”

“For a decade, until mid-2012, Josef Ackermann was the CEO at Deutsche Bank. It was a position that earned him the nickname ’shadow chancellor’ of Germany and allowed him to play a decisive role during the European banking crisis and then in the eurozone’s debt crisis. Q: ‘The Greek state had been borrowing recklessly in the 30 years before the crisis broke, and especially after 2000. But wherever there is a reckless borrower there must be also an equally reckless creditor. Shouldn’t both sides in a loan agreement – the creditor and the borrower – share responsibility for it? Shouldn’t banks pay the price for reckless lending?’”

“A: ‘You’re right: for every reckless borrower there is a stupid or greedy investor. To this day I keep wondering how investors came to collectively bid down Greek bond prices to a few basis-points over German Bunds to end up owning 350 billion euros of Greek debt? The search for yield and wrong regulatory incentives, such as the zero risk weighting, can explain only part of it.’”

“The Federal Housing Finance Agency this week polished off a new set of guidelines that will allow government backing of loans that it had shunned since the mortgage crisis. And in a surprise move, the guidelines include a provision to consider some mortgages without down payments. There are instances where loans should be available to borrowers without the means to place a down payment. It’s just that I can’t think of any.”

“It’s important to recognize that borrowers can no longer depend on banks and regulators to measure creditworthiness. A series of government programs, low interest rates and tax breaks along with loosening standards at banks eroded this institutional test. So today it’s incumbent on the borrower to ask himself if he can afford the American Dream.”

“For many, the answer is probably ‘no.’ The U.S. median household income is $51,900. The median home price is $188,000. So, yes, it’s possible. But the current home-buying market is full of cash buyers and speculators, many of them hedge funds. That means in many markets, there’s competition for properties from buyers who will outgun regular folks.”

“The FHFA will, in the end, encourage more lending. And this will translate into more credit for people who have been denied. But that policy isn’t the one that matters. It’s my policy, your policy, based on what we truly can afford that does.”

Bits Bucket for October 26, 2014

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