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

Post off-topic ideas, links, and Craigslist finds here.