November 23, 2014

Six Months Ago Buyers Were Being Unrealistic

It’s Friday desk clearing time for this blogger. “Through the first 10 months of the year, sales in the Triangle are up 2 percent compared with the same period in 2013. While prices have inched up over the past year, the increases haven’t been substantial enough to entice a larger number of sellers to put their homes up for sale. The average sales price of the homes that sold in October was about $250,000, up 1 percent from a year ago. ‘There’s been a lot of people staying in houses because their values haven’t recovered from 2008 enough,’ said Ed Willer, an agent with Berkshire Hathaway HomeServices York Simpson Underwood Realty in Raleigh. ‘The economy overall is just not back yet.’”

“Many would-be buyers in the Triangle also continue to assume that it is a buyer’s market, and are demanding concessions from sellers that many are no longer willing to provide. ‘I think we’ve still got some buyers that are struggling to understand that they’re not 100 percent in control of what goes on, what a seller’s going to do for them,’ said John Wood, a Re/Max United agent in Cary. ‘They just get cast aside,’ Willer said of those folks.”

“On Saturday, during a luxury real-estate auction in Park City, a rich buyer from Texas got a steal — paying $7.7 million for a home that was previously listed for $13.25 million. The couple attended the auction but declined to be interviewed except to say, ‘We still love Park City, but it’s time to move on.’”

“Their home had been on the market for about 18 months and the couple decided that an absolute auction — where the highest bidder wins and there is no minimum price that must be paid — was a way to sell the property quickly. Daniel DeCaro said his company is planning a fourth auction in about three weeks for a newly constructed home in St. George. ‘These homes have been on the market and the owners want them sold and are willing to give a discount,’ he said.”

“Michael Ripson wants to pay your mortgage for a year. You just have to buy a new home at the Scottsdale home builder’s new subdivision in Surprise before Christmas. Ripson and is offering mortgage payments for a year to as many as 19 home buyers at his Sonoran Acres development. Homes there start at $265,000 and can run up to $400,000 with add-ons. Ripson said the hope is to get hesitant home buyers off the fence about purchases. He said home builders are wrestling being able to convert prospective home buyers into customers.”

“‘Those conversion rates are at historically low levels,’ Ripson said.”

“Whatever you say about the property market I’m glad I’m not selling. There wasn’t even a bid at two recent home auctions that I know of even though clearance rates are supposed to be high. Dump or not, that’s not like any property boom I can remember. Mind you, it was different six months ago when the heat was on and buyers were being, er, unrealistic.”

“The annual growth in home values in October was 13.1 per cent in Sydney and 8.9 per cent in Melbourne, according to RP Data. What am I saying, isn’t that pretty strong? Oh wait, six months ago it was 17.3 per cent for Sydney and 14.6 per cent for Melbourne. Everywhere else prices fell last month, except in Brisbane where they were virtually stagnant. So while mortgage rates are at an all time low, high property prices and falling real incomes are beginning to bite. In fact the Reserve Bank points out that ‘an increasing share of owner occupiers is opting for interest – only loans to increase repayment flexibility.’”

“It’s just as well it’s been keeping that to itself because they’ll be struggling once rates start rising and they won’t have paid off any of the mortgage.”

“Home prices in most Chinese cities continued to drop in October despite easing restrictions, official data showed. Chief analyst at real estate agent Centaline Property, Zhang Dawei, said the price decline resulted in losses for home buyers, especially those who purchased houses in 2013. ‘The Chinese property market has bid farewell to the past golden decade,’ he said. ‘Home prices are unlikely to rebound due to huge inventories and new projects.’”

“Billions of dollars from opaque sources in China may be flowing into Myanmar each year, causing excessive volatility in areas such as the local real estate market, according to experts. Flows have increased recently as Chinese political and business leaders respond to efforts to curb corruption, causing many to look abroad to store their ill-gotten money. These capital flows are distorting markets through the region, and, to some extent, the world, said Sean Turnell, associate professor of economics at Australia’s Macquarie University.”

“One manifestation of this is felt in the rising Myanmar real estate market, but this experience is mirrored in many countries, including Australia – where hot Chinese money is creating a very serious real estate ‘bubble’ in Sydney, he said. ‘The volumes are so large, the problem so acute. In all of it we have to ascribe blame too where it is primarily due – China,’ he said. ‘China is exporting its instability, its corruption, its lack of faith in its own institutions,’ he added.”

“Canada ended its millionaire migrant programme in June. The Federal Investor Immigrant Programme was designed to attract high net-worth migrants to settle in Canada, and opened the doors for thousands of wealthy Chinese investors over the past two decades. David Lesperance, a barrister and solicitor at Lesperance Associates, has been working with international investors from China for many years. He said that immigration authorities are reviewing applications retrospectively and have already cancelled approximately 2,000 citizenships. Lesperance also warns that the Canadian Revenue Agency is aggressively reviewing the tax status of foreign nationals, and is looking to freeze and repossess locally held assets.”

“‘I am already receiving calls from people who are not only having their citizenship challenged but are also getting audit notices from CRA. It is easy to see this trend accelerating as all the incentives are there for the government to ramp it up. Once news of this becomes more commonplace, you will see a mad rush to the exits to dump those easily collected Canadian assets,’ he said. ‘Given the time it takes for the market to fully realise that this crackdown has already begun and is accelerating, I would anticipate the fire sale to take place within the next few years.’”

“Professor Arturo Bris, who heads the World Competitiveness Centre at Swiss business school IMD, told a Singapore forum the world had become so flush with money that people were paying ‘crazy’ prices for real estate and stocks. He highlighted five ‘risk factors’: access to cheaper oil and gas; the real estate bubble; a parallel stock exchange bubble; Chinese lending; and a tendency for leading corporations to accrue huge sums on their balance sheets.”

“Professor Bris said the amount of money on some companies’ balance sheets was comparable to the value of entire countries, calculated by applying a typical sales multiple to the country’s GDP and subtracting national debt. By that measure, Citigroup had enough ready cash to acquire 51 per cent of Italy, which Professor Bris valued at $US840 billion ($977bn). Apple could buy a maj­ority stake in Israel and Cisco could purchase Portugal, he said. ‘A bank that employs maybe 30,000 people could buy a country with 50 million — it shows the magnitude of the problem.’”

“These levels of cash would send economies into meltdown if they were suddenly released into the markets. Similarly, China could destroy the American economy by suddenly selling off US bonds. Professor Bris said Chinese lending was the biggest risk factor of all, with ‘humungous’ sums concentrated in a few poorly governed banks. ‘The next Lehman Brother will be Lim Ma Brothers.’”

“This fall, federal regulators made a controversial decision to back down from tough new underwriting standards for mortgages. Some affordable-housing advocates, allied with parts of the corporate housing industry, had successfully argued that the proposed standards would make it too hard for people to qualify, thereby reducing homeownership and hurting the housing market.”

“All of this ignores a crucial fact: Much, and at times most, of what happens in the mortgage market doesn’t have anything to do with homeownership. A sizable percentage of mortgages — including most of the risky ones that were made in the run-up to the financial crisis — are not used to buy a home. They’re used to refinance an existing mortgage. One of the most abjectly false narratives about the financial crisis is that risky mortgages proliferated so that people who couldn’t afford homes could nonetheless buy them.”

“According to a joint HUD-Treasury report published in 2000, by 1999, a staggering 82 percent of subprime mortgages were refinancings, and in nearly 60 percent of those cases, the borrower pulled out cash, adding to his debt burden. The report noted that ‘relatively few subprime mortgages are used to purchase a house.’”

“The problem, of course, is that the conflation of homeownership and consumer credit is so convenient for the powers that be. It allows lenders to cloak themselves in the American-as-apple-pie mantle of homeownership, thereby making it less likely that anyone will crack down on their practices. It allows members of Congress, many of whom depend on the financial industry for campaign contributions, to pretend that something that’s bad for us is actually a good thing for which we should be grateful.”

Bits Bucket for November 23, 2014

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