November 16, 2014

Some Buyers May Be Feeling Like Fools Now

It;s Friday desk clearing time for this blogger. “Watch out luxury homebuyers: Major cities across the globe are looking to wealthy real estate investors to boost their coffers. Lawmakers in Paris, London and New York City are mulling new taxes on high-end home purchases. Realtors say deals in Manhattan have slowed, despite the fact that the proposal is still in the very early stages. In Manhattan, the question of who is — or more importantly, who is not — living in multi-million-dollar highrises has been gaining attention recently as many units are sold, but remain unoccupied. New York State Senator Brad Hoylman said there are blocks in his district where 50% of the properties aren’t actively lived in.”

“‘For many, luxury homes are safety deposit boxes in the sky,’ said Jonathan Miller, president of residential real estate appraisal company Miller Samuel. ‘Any additional costs certainly reduces the attractiveness of the investment. Some [developers] will have to lower their prices, or the more likely option, offer significant concessions to remain competitive.’”

“Foriegn investors risk turning parts of Melbourne into a city of ‘ghost towers,’ a new report has found. The Prosper Australia study estimated that 64,386 or 4.4 per cent of Melbourne’s housing stock was potentially vacant. The tax reform group calculated the number of ‘overlooked’ vacancies in Melbourne based on a property’s annual water consumption. Docklands topped the list, with 17 per cent of properties not consuming any water over the year and 27 per cent using less than 50 litres per day. The growth suburbs of Cardinia, Clyde and Clyde North were next with a combined 46.7 per cent of properties considered vacant.”

“Industry expert Catherine Cashmore said cultural reasons might also be behind the empty apartments, particularly in the CBD. ‘There is a high proportion of foreign ownership within the city,’ Ms Cashmore said. ‘We do know from a cultural perspective that in Asia and China it is quite natural to leave properties empty. It is actually advantageous to leave it empty because it keeps that new appeal of the apartment. As soon as you have a tenant moving in it, there is damage that can be incurred and that can bring the property price down.’”

“Some home buyers apparently returned to property showrooms after Beijing announced a loosening of mortgage rules to support the country’s weakened housing market. Many analysts cite signs that property developers are still slashing prices to reduce inventories of unsold homes. During the Nov. 11 e-commerce sales push, online advertising banners showed that some developers are offering discounts of as much as 50%. ‘Some home buyers saw the recent loosening and thought that this would be a repeat of 2012 when prices surged after the policy loosening at that time,’ said Jinsong Du, an analyst at Credit Suisse. Citing signs that property companies are still cutting, he added, ‘they may be feeling like fools now.’”

“One industry player on the front lines has confirmed what one economist has said about worrisome Canadian markets. ‘The market in Regina has slowed down for sure,’ Jackson Middleton, The Kilted Broker, wrote on Mortgage Broker News. ‘There are builders with huge vacant inventory, from what I can tell they may have reached a little too far. In talking with local Realtors, the inventory on MLS is currently almost double what would be considered a balanced market.’”

“Home prices and sales dipped in September as the number of houses for sale across metro Phoenix continued to tick up. All are trends that have been playing out in the Valley’s housing market most of this year, according to Arizona State University’s W.P. Carey School of Business. Mike Orr, the school’s director of real estate theory and practice, said not to expect a big boost in the housing market until next year. ‘Demand has been much weaker since July 2013 and still shows little sign of recovery,’ Orr said. ‘We anticipate pricing will continue to move sideways over the next few months, and a significant increase in demand will be required to change things.’”

“Home sales in Inland Southern California were subpar, as escrow contracts were inked at the slowest pace for the month of October in three years. Gene Wunderlich, government affairs director for Southwest Riverside County Association of Realtors, said sales have been so sluggish that 2014 is shaping up to be one of the slowest years for sales since 2007 or 2008. ‘We’ve made back 50 to 60 percent of the prices we lost in most markets,’ he said. ‘It started out strong and then it wilted.’”

“More than five years after the foreclosure crisis began, the number of borrowers losing their homes is rising again. Most of the loans going through the foreclosure process now have been delinquent for several years, but a particularly troubling sign was the number of newly started foreclosures in October: 56,452 homes. That is a 12 percent jump from September. This was the largest monthly increase in foreclosure starts since August 2011. ‘Many of the mediation programs, loan modification programs and even short sale programs have run their course. Distressed properties that could not be saved by those programs are being placed back on the foreclosure track,’ noted RealtyTrac VP Daren Blomquist.”

“‘The backlog of delayed foreclosures continues to make its way through the pipeline, with many homeowners letting their homes fall into foreclosure when the Mortgage Forgiveness Debt Relief Act of 2007 expired at the end of 2013,’ said Mike Pappas, CEO of the Keyes Company representing Southern Florida.”

“In my first year of graduate school a professor offered my class a warning: ‘There is only one thing we know for certain in macroeconomics,’ he cautioned. ‘Bad monetary policy can do a lot of damage, but we don’t know what good policy can really achieve.’ Fourteen years and $4.4 trillion later, my professor’s warning may explain why central bankers are under fire today. This could foretell the end of the central banker power bubble.”

“Fed independence is now under more serious threat than ever. But an increased reliance on monetary policy, coupled with unrealistic expectations, undermines the Fed’s ability to stabilize the economy. If the Fed loses its credibility, its tools are less effective. Central bankers are among the most powerful people on the planet. But as Harvard economist Ken Rogoff points out, the only way they can maintain unchecked power is by setting humble and realistic expectations on what they can do. That may require popping their own power bubble.”

“Recessions have been made more rare because there has been an increasing expectation from voters that lawmakers and the Federal Reserve take steps to prevent an economic slowdown, said Polina Vlasenko, senior research fellow at the American Institute for Economic Research. This can be helpful in a simple recession, one based on fleeting factors, like a drop in demand for U.S. exports, she said. But when a downturn is caused by structural change in the economy, like the housing or dot-com bust, sometimes it can be better to let the adjustment happen and help the workforce adapt to the new reality, she said.”

“In a recession, companies are forced to think hard about how to change what they’re doing, she said. A company that can’t survive in a tough economic environment is probably not very efficient, she said. When times get tough, companies that are better organized, with better supply chains, tend to survive, she said. But if policymakers try to eliminate a recession, those improvements don’t happen as often, she said. With fewer recessions, mismatches in the economy have more time to grow, and when the correction finally does happen, it tends to be much more severe, she said.”

Bits Bucket for November 16, 2014

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