April 10, 2015

A High-Risk Money-Go-Round

It’s Friday desk clearing time for this blogger. “Several houses with former celebrity owners have lingered on the market for months — or, in the case of Bob and Dolores Hope’s Palm Springs estate, several years. The Hope mansion was originally offered privately for $50 million in March 2013. It dropped to $34 million in January 2014. Now, its listing price has fallen to just under $25 million — half the initial ask. The 73-acre Palm Springs estate of actress Suzanne Somers and her husband, Alan Hamel, has been waiting for a buyer on and off since 2008. It was originally listed for $27.5 million. The asking price dropped to $12.9 million in 2009, then rose to $14.5 million, where it remains today.”

“A 6,700-square-foot house that once belonged to Bing Crosby has been listed for $5 million since November. The house has been shown to several people, listing agent Marc Lang told The Desert Sun. The house sold to its current owner in 2005 for $2.625 million, according to the county assessor’s records. ‘It is still available, but we’re hoping to be able to put it into contract shortly,’ Lang said.”

“Throughout New York, foreclosures pending in court fell by only 1.1 percent to 83,236 over the one-year period ending Oct. 31. Disposing of that backlog could take until December 2017, according to a report by the nonprofit Empire Justice Center. But the problem doesn’t end there. Court clerks in many counties outside New York City have been unable to identify older court filings, which means the actual number of pending cases is higher.”

“One problem is that owners of underlying mortgages often don’t move quickly to complete foreclosure and sell the property. More than 75 percent of vacant houses awaiting foreclosure in the city are investor-owned properties that often are problematic to deal with.. Rochester is typical of many economically distressed areas where inner-city home values have not recovered and the value of vacant homes continues to decline, according to Sarah Edelman, a housing finance policy analyst at the Center for American Progress. ‘There as so many cities like Rochester that are still in need of relief and stabilization,’ Edelman said. ‘The conversation in Washington has moved passed the foreclosure crisis in some respects.’”

“All the talk about the real estate market these days seems to center around how hard it is for people to buy a new home in the Puget Sound area. It’s a seller’s market to be sure. But not all sellers are celebrating. That includes sellers like me. I bought my one bedroom, 800-square-foot townhome — what the market calls a condo – in a nice community in Kent in May 2008. The housing market had already fallen quite a bit due to the recession. I thought I was getting in on the ground floor.”

“Now, 5 ½ years later, we’re married and ready to start a family. That means we’re looking to sell. Looking at similar one-bedroom units in our area up for sale, we saw a huge hill ahead of us. They were on the market for less than half of what I paid. We’re not looking to make a profit. We just want to break even or take a small loss. But after checking in with our realtor a month ago, my wife and I discovered that we’re still $24,000 underwater including closing costs. So while many buyers are getting frustrated over the lack of places to buy, there are some of us who are frustrated over lack of ability to sell.”

“According to the Canadian Home Builders’ Association Alberta economic analysis, the total number of housing starts in Grande Prairie in the first two months of 2015 dropped 34.5% from the first two months in 2014. ‘Right now, most of the home builders in town are being a little bit cautious with their starts due to what’s going on with the economy,’ said Chris Newbury, president of the Canadian Home Builders’ Association’s local branch. House prices, he added, have to increase before home builders will take on more home building projects. ‘The price needs to go up… to offset our costs, our rising costs,’ he said.”

“The last time there was a similar shift in the economy, Newbury said some home builders were caught with several units of inventory, making the situation a bit more of a struggle. ‘A lot of home builders are just being responsible with the amount of product that they have, and (trying) not to flood the market to keep the prices where they need to be,’ he said.”

“Taking a stroll down The Beach mall or The Walk in Jumeirah Beach Residence, it is common to look up and admire the skyscrapers stacked against each other, a la Manhattan. However, more often than not, a majority of towers seem dark, with no inhabitants in sight. Yes, this is a trend common across the world’s property hotspots such as Dubai, New York, London, Hong Kong, Paris and Singapore where affluent out-of-towners are buying up prime properties in urban centres.”

“Despite having significant amounts of money at their disposal, absentee homeowners are price-sensitive, say Dubai-based real estate brokerages. ‘Most buyers are aggressive to get the best possible price, especially in the current market conditions,’ said Gregory Lewis, senior negotiator, Knight Frank.”

“Property agents in Shanghai have reported their ‘busiest weekend’ in a quarter, over the three-day Qingming Festival. However, some also detected a ‘wait-and-see’ attitude among some potential buyers. Gu Hanchun, a 57-year-old potential homebuyer, told China Daily: ‘I have visited seven apartments during the three-day holiday and two of them look good to me. But I think I will wait for another month to see if more discounts can be offered on mortgage rates, and if more homeowners will decide to let pro-owned apartments, pushing up supplies and lowering prices.’”

“Jeya ‘Ganes Kisnan, 27, took a RM20,000 personal loan to settle the legal fees for his RM720,000 condominium as he could only afford to pay the down payment, even after getting a 7 per cent discount. The young entrepreneur, who makes about RM10,000 a month, will be facing a monthly installment of RM3,500 for his 25-year home loan when construction is completed by the end of the year, about the same time he would have finished paying off his personal loan. ‘Even now, I’m feeling the heat. Once it’s done, how am I going to pay?’ Jeya ‘Ganes told Malay Mail Online.”

“Skyrocketing property prices over the past few years have also prompted unmarried couples to buy real estate together in a desperate bid to get a foot on the property ladder, despite the potential risks should their relationship sour. Michelle Lee (not her real name), a 27-year-old consultant for one of the Big Four auditing firms, said she and her 26-year-old boyfriend bought a new 798 sq ft condominium unit in Puchong in 2011 for RM270,000, splitting the cost equally. Their joint monthly earnings were RM7,000 at the time. ‘Took the dive early before marriage because with the property market at the insane rate, it was hiked up year-on-year,’ Lee told Malay Mail Online. ‘If you waited for anything, you still wouldn’t be able to afford it. Inflation on property was moving much faster than anyone’s salary could grow.’”

“A home loan agent noted the softening of the real estate market, saying that a developer had paid the legal fees for her client’s housing loan, not just for the sale and purchase agreement, six months ago. ‘I thought that was quite unusual,’ the home loan agent, who declined to be identified, told Malay Mail Online.”

“Auckland’s housing market has become a giant Ponzi scheme, one economist says, as residents pay each other to get in and drive prices up and up. Shamubeel Eaqub, NZIER principal economist, said this decade’s housing market was like last decade’s finance companies, being run as a high-risk money-go-round which could eventually end in misery.”

“‘Essentially it’s a Ponzi scheme because you need more and more new entrants to keep prices rising and that’s exactly what’s happening in the housing market. We’ve seen this in all kinds of businesses, for example finance companies were a classic. Who are the people buying the houses? We’re paying higher and higher prices to each other,’ he said.”

“There was a nice contrast in the Financial Review on Wednesday. On the front page was property investor Paul Cleary, looking to offload his terrace in Rozelle, Sydney. Had the RBA reduced rates on Tuesday as was widely anticipated, Cleary had plans to increase his reserve price by $50,000. But the fact that rates stayed put wasn’t a disaster. Cleary was ’still looking at great capital growth.’”

“The copy subtly hints at the bigger, unasked question: If Cleary could make an extra $50,000 just from a 0.25% fall in rates, imagine what he’s making all up? It’s unsaid, it may even be unintentional, but it’s there alright. This story is all about the fear of missing out, about what the Cleary family is about to make and what we’re not. A Paddington agent is wheeled out to nail home the point: ‘Everything is going crazy,’ she says.”

“On page 7, Christopher Joye’s opinion piece compared the last property boom over a decade ago with the current situation, using a chart from UBS labelled ‘Biggest housing bubble ever’. Here’s the key paragraph: ‘While there were serious concerns in 2002-03 about mounting indebtedness, all the key measures the RBA publishes on this subject are far worse today. The household debt-to-disposable income ratio hit a new peak of 153.8 per cent in March (the previous ceiling was 152.7 per cent in September 2006). Australia’s household debt-to-income ratio is now 19 per cent above the 129 per cent level that raised eyebrows in 2003.’”

“Most readers wouldn’t make it to Joye’s piece - they’d already be on the blower in search of an unrenovated inner west terrace. But even if they did, they probably wouldn’t make it all the way through. This is a dull, data-driven story with a chart, not a happy family about to make a few hundred grand. Newspaper editors know what many investors don’t; that emotion – in this case greed - beats facts every time.”

Bits Bucket for April 10, 2015

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