October 5, 2014

A Warning To Investors

It’s Friday desk clearing time for this blogger. “The real estate market in Downtown Sarasota is rising… literally, with 18-story high rises of luxury condos, affordable for the wealthy. Units run from $800,000 to $2 million on average, with the penthouse topping $3 million. So far, 43 of 141 residences have already sold. Seven of 20 planned projects, totaling $352 million are underway. ‘This year, as we move into 2015, will be the story of luxury. It’s luxury buyers driving the year to year growth,’ says Drayton Saunders, President of Michael Saunders & Company, a licensed real estate broker. ‘I don’t think we are overbuilding or building too fast. We’re catching up to the demand that’s very deep in Florida, particularly in Sarasota.’”

“The average sales price of a home in central Ohio for the first eight months of 2014 was $184,587 - the highest on record and almost three percent higher than at the peak of the housing boom in 2005. ‘Central Ohio is leading the way in home price recovery,’ Columbus REALTORS 2014 President Milt Lustnauer said. ‘In fact, average sale prices in the months of March, April, May, June, July as well as August of this year mark record highs for each of those months.’”

“With the 3,226 homes and condos listed for sale in August, inventory reached its highest level yet in 2014 (9,658). The 2,518 central Ohio homes and condos sold in August 2014 was 11.2 percent lower than the previous year. ‘Buyers should realize that this still an excellent time to purchase a home,’ Lustnauer said. “Prices are only going to rise and rates are still low.’”

“Boston-area home values declined 0.9 percent between June and July on a seasonally adjusted basis, according to the S&P/Case-Shiller Home Price Indices. The indices track repeat home sales around the United States, and for its July report, the indices found ‘a significant slowdown in price increases’ nationwide.”

“Leading local realtors and economists say despite lower mortgage rates and higher home values people are still living in fear that the housing crisis could happen again and destroy their finances. Recent Las Vegas transplant Cathleen Plonske found her dream home. ‘Beautifully decorated, the kitchen was just amazing, double ovens,’ Plonske said. However, she quickly realized her family couldn’t afford it. ‘The houses that we were looking at buying, it was just way too expensive,’ Plonske said.”

“As freshmen arrive at UC Santa Cruz for the fall, for some returning students excitement has turned to panic, unable to find a place to live before classes begin. That doesn’t surprise Bill Brooks, who hasn’t built any rentals since he opened the 54-unit Branciforte Commons apartments in 2005. ‘There is no new supply,’ he said. ‘You can’t get enough rent to cover the mortgage on new construction.’”

“Why are so many young people on the streets of Hong Kong, risking clashes with local police and a Chinese government that has a history of brutal crackdowns? Part of the answer lies with protesters such as Ka-Chai Kwok, 25. A recent college graduate, Kwok said she had few job prospects. Hong Kong rents are so high that she lives with her parents, sleeping on a couch. ‘The housing policy of Hong Kong needs to be changed,’ she said. ‘It’s crazy to live like this. You have no control over your life. You can’t even have sex.’”

“Taiwan activist held a press conference lashing out against real estate companies for reaping huge profits while paying low taxes, all the while blocking real estate tax reform. Huang Yi-chung, the president of Taiwan Adequate Housing Association, pointed out that housing is a necessity. While a price increase of NT$5 for coffee or instant noodles was sufficient to raise Fair Trade Commission’s concern, the commission appeared unmoved about local housing prices that have gone up by threefold. It shows that the government is more eager to protect the interests of large construction firms than the general public, Huang said.”

“When the real estate bubble busted in Japan, local housing prices were 400 times that of the rent. Today, housing prices in Taiwan are between 800 to 1,000 times the rent, pointing to an even greater bubble looming.”

“High house prices have prompted almost a quarter of first-home buyers to give up, a report has claimed. It comes as RP Data yesterday revealed that despite the value of a median-priced Melbourne house falling almost $6000 (1 per cent) to $590,000 in September, values were $35,000 (6 per cent) above their previous peak set in 2010. RP Data research head Tim Lawless said the market trend in Melbourne was still positive, but a surprise reduction in property values in September was a warning to investors.”

“‘The rate of growth is still very strong in trend terms, but has started to slow down,’ Mr Lawless said. ‘Absolutely it’s a little bit of a warning sign. For investors looking around the different markets the two most popular, Sydney and Melbourne, are the most mature in their cycle.’ His concerns follow a ­Reserve Bank warning that heightened investor activity could raise the risk of a price correction.”

“What is happening in Kfar Shmaryahu? Anyone passing through this exclusive town on the coast north of Tel Aviv will run into quite a number of ‘For Sale’ and ‘For Rent’ signs. The Yad2 Internet real estate listing site is also filled with properties for sale in Kfar Shmaryahu, while the number of deals closed there is continually falling. From the beginning of 2014 until just before Rosh Hashanah last week, not one single-family home was sold in the community.”

“‘Placing signs in front of the houses is the last thing homeowners are interested in, for social and business reasons,’ said an agent who works in the community. ‘The signs indicate that these properties have been on the market for at least a few months. At first they tried to sell them quietly, in other words by word of mouth. After that, they advertised on overseas websites and then they worked with [real estate] agents. Only afterwards, when everything else had failed, did they decide to put up the signs.’”

“The 16th Geneva Reports on the World Economy, released this week by the Centre for Economic Policy Research’s International Center for Monetary and Banking Studies, makes grim reading. The main takeaways are: firstly, we’ve not made progress in deleveraging despite all the happy talk to the contrary; secondly, high debt levels are constraining growth; and thirdly, the interaction of the first two is ‘poisonous.’ World total debt, not including financial companies, has risen since the crisis, from 176 percent of GDP in 2008 to 212 percent in 2013.”

“Up to the last crisis, in 2008, borrowing in developed markets was driving global leverage, and arguably global growth. The baton has been passed. ‘Since then emerging markets (especially China) have been the driving force of the process,’ according to the report. ‘This sets up the risk that they could be at the epicenter of the next crisis.’”

Bits Bucket for October 5, 2014

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