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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