March 27, 2015

A Consequence Of The Euphoric Years

It’s Friday desk clearing time for this blogger. “My scientific data gathering techniques have produced evidence of a housing glut in Washington — a saturation of one- and two-bedroom apartments for rent that is having a negative effect on existing condo sales both on Capitol Hill and elsewhere in the city. The vast majority of Hill listings in MRIS, the realtor listing service, are sales, not rentals. Even Craigslist beats MRIS for rentals postings in my opinion, but it does provide a glimpse of what’s happening. Time and how much sun is being blocked out by construction cranes will tell if this is a rude awakening or a small bump in the road, but the advice remains the same as last year’s: Sellers, don’t take anything for granted. Buyers, don’t give up hope, there could be opportunities out there. There may even be a bargain in your future.”

“Dave Evans is president-elect of the Fayetteville Regional Association of Realtors. ‘If you don’t have to sell right now, you shouldn’t.’ Conversely, however, ‘The most exciting thing to be in Fayetteville is a buyer.’ According to Evans, Fayetteville has 1,200 excess houses on the market. He says a six-month supply is considered an even market. Fayetteville is well beyond a six-month supply and, at some price points, is at a 12- or 18-month oversupply.”

“But here’s the catch - Zillow senior economist Skylar Olsen’s numbers show a high number of foreclosures hitting the Fayetteville and Jacksonville markets. ‘I’m noticing by looking through the data though, right now there’s an uptick in the foreclosure resale. So enough homes have now made it through the foreclosure process.’ She calls that hidden inventory - homes owned by banks that don’t show up in the current for-sale supply because they are still making their way through the foreclosure process. Olsen says we just don’t know how much of that inventory is waiting to hit the market.”

“Coldwell Banker Owner and Real Estate Broker Kathy Vejtasa talked her perspective on Kern County’s proposed Land Use Management Plan. She said there are more rentals currently because ‘people working for the government cannot have a negative impact on their credit, they cannot have a short sale or a foreclosure, therefore they rent their house at a loss in order to protect their credit rating. That’s why the number of our rentals increased dramatically.’”

“Heather McAnerney of Peoria is one of many underwater homeowners in Arizona, who would love to sell their house, but can’t afford to do it. ‘We want to move because our kids are in a special program outside our boundary, but we can’t because we don’t have enough equity in the house to sell it,’ said McAnerney. ‘Our whole thing is that we need that equity so we can put equity towards a new house. The home values would have to skyrocket in the next 12 months for us to be able to put our house up for sale,’ said McAnerney. ‘All you can do is plug along and pay your monthly mortgage payment.’”

“Residential property prices fell across the country for the second straight month in February. In Dublin the decrease was 0.7% – and 2.4% since the start of December. Davy chief economist Conal Mac Coille said the slowdown was ‘not surprising or undesirable’ given that house prices no longer looked cheap by international standards. Savills research director John McCartney said it was hard for prices in Dublin to sustain the double-digit percentage rises that started in mid-2013 without peoples’ earnings also increasing enough to pay for them.”

“‘Agents are now reporting that buyers are no longer in a frenzy to buy for fear that prices will run beyond their means,’ he said.”

“So it’s time to buy! That’s the enthusiastic motto for Montreal’s 19th edition of Open House Weekends. Asked why developers keep going even as building exceeds demand, Jonathan Sigler, co-president of Prével, compared real estate to a cruise ship, in that it is slow moving, and takes time to get plans and permits in place, and then actually build. ‘A lot of the projects you see started way back when, in early 2010-11-12, when the condo market was very hot. We were selling out even before construction. What you are seeing is a consequence of the euphoric years.’”

“Offshore developers are outpricing locals as demand to build high-rises on Whitehorse Rd grows to ‘fever pitch.’ Allens Blackburn, director Grant Lynch, said the Federal Government’s proposed changes to foreign investment rules would have a mixed impact on buyers in the area. The Government is considering charging fees for foreign buyers for each attempt at buying a property; a fee of $5000 for property of less than $1 million and $10,000 for every extra $1 million in the purchase price.”

“‘I absolutely think there will be an impact on investors from Singapore, Malaysia and Hong Kong who have been investing in apartments in Australia for years,’ Mr Lynch said. ‘The market for investing in apartments in those countries is already a bit shaky because people haven’t been getting returns on their investment. However I don’t think there will be any impact on the multi-million dollar buyers from mainland China, whose main focus is on getting their capital out of China.’”

“Since the Interim Regulation on Real Estate Registration came into force in China on March 1, anxious cascade selling has emerged in the country’s housing market. Because the law requires full disclosure of property ownership, corrupt government officials who had bought multiple homes with illegal gains are worried that their irregularities would be uncovered. Many ’secret sellers’ have thus emerged in the used home market.”

“A real estate broker identified as Miss Huang said business was especially good last year, when the government began to push for the real estate registration system. Huang said she brokered more than 20 transactions in 2014. Many of the sellers had contacted her via telephone and did not show up until the transactions were about to be sealed, she said. Also, the sellers had lowered their prices in the hope that their homes would be sold quickly, Huang said.”

“A developer identified as Mr Zhao said the most anxious sellers now are government officials who had accepted real estate gifts from developers. In China, it is very common for developers to bribe government officials with gifts of real estate in order to obtain construction licenses, according to Zhao.”

“Las Vegas homebuilders are seeing more signs of a turnaround, but with borrowing costs poised to rise, sales could fall again, according to a new report. It’s ‘not a matter of ‘if’ but ‘when’ the Federal Reserve raises rates, according to Home Builders Research President Dennis Smith, who said he doesn’t believe that Las Vegas’ housing market — for new and used homes — is strong enough for buyers to withstand a jump in monthly payments.”

“There will be a brief burst in sales to people who jump in before rates go up, he said, ‘but that euphoria will likely be short-lived.’ ‘Some of the lenders we have spoken to recently are still very positive when they are in front of housing industry groups or individuals who only like to hear only the ‘good news,’ he wrote. ‘However, when we speak to them one-on-one, many are worried about what any rising mortgage rates could do to housing sales velocities.’”

“It is now clear that the shale boom was an illusion of prosperity. The same is true about improvements in housing. Following the financial crisis of 2008, real estate prices should have dropped, much, much more than they did relative to other prices. Today, housing is back, with price increases at bubble-era levels and construction activity is picking up. Yet, the overhang from the previous boom has not disappeared. It has just been left in limbo, because of the ‘extend and pretend’ strategy of banks made possible by the central bank’s massive printing over the last 6 years. The number of vacant units in the U.S. still stands at over 18 million units- a level reached back in 2008-2009. The number of units held off the market is still at a record level of over 7 million units.”

“Don’t be fooled by the euphoria of a boom built on a mountain of malinvestments. The problem in 2008 was too much debt, so the solution according to the geniuses in the Eccles Building is to lower interest rates to boost demand to induce households and governments to borrow even more.”

“Printing money cannot correct a misalignment created by government’s incessant interference with the workings of the price system. This printing however will actually make things worse since it alters relative and absolute prices, causing a greater divergence between what society wants to be produced and what is produced. Interfering with interest rates is by far the most damaging policy imaginable since interest rates are the price of time preferences and play a crucial role in aligning output with demand across time. The greater the misalignment across time, the greater the adjustment.”

Bits Bucket for March 27, 2015

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