May 31, 2015

From White To Merely Red Hot

A weekend topic on commodities and the housing bubble. The Williston Herald in North Dakota. “An onslaught of housing is set to hit the booming Williston housing market with more than 2,126 units coming online this year. Amid that crush, the principal investors behind Eagle Crest Apartments are hoping to make not just an entrance, but a grand one. For their opening ceremonies, a professional jazz ensemble being flown in from Seattle performs, and organizers are bringing in vintage automobiles and tractors from a couple of car clubs in Canada. They’re also offering free burgers to what they hope will be 2,000 participants each day. John Sessions, one of the Eagle Crest principals, said the housing market has continued to be strong for multi-family dwellings and single-family homes, despite the downturn in oil prices.”

“‘We get calls all the time about how things are going,’ he said. ‘If this is a bust, I’m not sure we could survive a boom. I’m exhausted as it is.’ While acknowledging the pain for oil-related workers who have been laid off, Sessions said the downturn has allowed some catchup work for others. ‘We’ve gone from white to merely red hot,’ he said.”

The Oklahoman. “We’re No. 15! We’re No. 15! Not No. 1. But coming in 15th among the states when it comes to house price appreciation is nothing to sneeze at. That’s where Oklahoma ended the first quarter, according to the Federal Housing Finance Agency, when considering home purchases only, not mortgage refinancings. The houses tracked by FHFA increased 5.81 percent from March 31 last year to March 31 this year. Those houses are bought with conventional mortgages sold to or backed by Fannie Mae and Freddie Mac, therefore conforming to Fannie’s and Freddie’s underwriting guidelines. That means a loan limit of $417,000 in most of the country, including here.”

“Oklahoma’s appreciation, generally, is tied to two main things: the energy business and a relative shortage of homes on the market: a 3.55-month supply in the Oklahoma City area, according to the Metro Association of Realtors. Housing ramifications of the oil price slide — pretty much nil in Oklahoma City, but felt in some smaller cities in the state — probably hadn’t yet fully materialized. Low inventory is sure to persist as long as oil doesn’t bust and homebuilding continues its slowdown.”

The Calgary Sun in Canada. “The Canada Mortgage and Housing Corp.’s (CMHC) Spring 2015 Calgary Housing Market Outlook forecast says the market is not as bad as some believe. Expect 13,200 new home starts this year, including 5,700 single-family and 7,500 multi-family homes, says Richard Cho, CMHC’s principal, market analyst for Calgary. Last year, builders nailed together a record 10,637 multi-family homes, but the forecasted reduction in the sector his year will be followed by another in 2016.”

“At the end of April, there were 14,614 homes of all kinds under construction in the Calgary census metropolitan area (CMA), including 12,546 inside Calgary city limits. ‘The number of units under construction remains elevated, which will result in upward pressure on inventory levels once they reach completion,’ says Cho. ‘Combined with moderating demand and increased selection in the existing home market, this will reduce multi-family starts to 6,000 in 2016.’”

“Despite a high number of listings, CMHC predicts the average MLS residential price to decline only 2.7% to $448,000 in 2015. The number of new listings is expected to erode in 2016, says Cho. ‘Active listings will follow suit, which will allow a marginal rate of price growth in 2016 as sales are expected to experience a slight uptick,’ he says. ‘In 2016, the average MLS price will increase to $453,000.’”

From Bloomberg. “Teck Resources Ltd., the world’s second-largest exporter of coal used in steelmaking, plans to idle six Canadian operations in response to a four-year slide in prices and demand. The move will cut metallurgical coal production by about 1.5 million metric tons, or 22 percent, in the period. Teck is considering more production cuts for later in the year. ‘The cut in and of itself is still only a drop in the bucket — more cuts are needed,’ Greg Barnes, a Toronto-based analyst at TD Securities, said in a note.”

“Metallurgical coal prices could plunge beneath a seven-year low amid global oversupply and slowing demand from China, the world’s largest consumer of the commodity. The third-quarter benchmark could tumble to $90 to $95 a metric ton, according to Barnes. The $109.50 benchmark is down from a 2011 high of $330.”

“With the temporary shutdowns, Teck joins Glencore Plc as an industry heavyweight proactively curbing production while some competitors struggle to survive. Glencore, the world’s largest exporter of coal for power plants, said in February it’s trimming its Australian output of the fuel by 15 million tons this year.”

“Earlier this month, Patriot Coal Corp. filed for bankruptcy for the second time in three years. This week, U.S. companies Alpha Natural Resources Inc., Arch Coal Inc. and Peabody Energy Corp., which all produce thermal and metallurgical coal, traded at all-time lows.”

ABC on Australia. “Three or four years ago, the influx of miners capitalising on the coal boom caused a real estate bonanza in Moranbah. But now the real estate bubble has burst and people relying on housing and rental returns have been hit hard. Former head of the Moranbah Traders Association, Peter Finlay, says he has been contacted by many people caught out. ‘Some of those people have just been devastated,’ he says. ‘I know of at least one suicide. Last year, house prices fell by almost 40 per cent, trapping investors.’”

“The 100 per cent fly-in, fly-out operations at the two mines owned by BMA were approved by Queensland’s Bligh Labor government in 2011. Diane is an investor from Melbourne, and says she’s angry about what has happened in Moranbah. ‘I have five properties, four in Moranbah and one in Dysart, which are worth probably, I don’t know, 40 per cent of what they were when I bought them,’ she says. ‘Now the mortgage is a lot more than the value of the properties, every single one of them. They’re what they call underwater. The rents are nowhere near covering the mortgage. So I’m working seven days a week in my consultancy business just to pay the interest on those mortgages. I’m not paying the principal, just the interest, to stop the bank coming after me. It’s a pretty awful situation to be in.’”

Bits Bucket for May 31, 2015

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May 30, 2015

Bits Bucket for May 30, 2015

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May 29, 2015

A Recipe For Asset-Price Bubbles

It’s Friday desk clearing time for this blogger. “Is another housing price bubble looming? The question is being asked with increasing frequency and also with great anxiety. Many of those commenting on the question, however, don’t understand what a price bubble is. It is not a marked rise in prices. Sharp price increases are common, and pose no threat to the stability of the economy. If a rise in price immediately stimulates an increase in supply, any bubble will quickly disappear. Housing meets that condition because the stock of houses is large relative to new construction.”

“My view is that we are a long way from another house price bubble. Home buyers, lenders, investors and regulators now understand that a nationwide decline in house prices is possible. It will probably take another generation to forget what we learned. Furthermore, even if the lesson was forgotten tomorrow, changes that have occurred in the housing finance system would make it very difficult if not impossible for the system to support a bubble. I don’t expect to see another one in my lifetime.”

“Real estate agent Barry Sulpor said he’s seeing increased demand in the beach cities of the South Bay — an area that never really saw a slowdown like other Southern California communities. A three-bedroom town home in El Segundo recently had 14 offers, he said. It’s about to close escrow for $810,000 — $41,000 over the asking price, Sulpor said. The ‘open house was standing room only,’ he said.”

“Agent Carey Chenoski said her client recently sold a three-bedroom house in San Bernardino to a couple for $15,000 over asking price. That, she said, probably wouldn’t have happened last year. ‘It’s actually pretty strong,’ the Beaumont resident said. ‘On my street, three houses closed in the last week or so.’”

“Something spurred a surge in home buying in Lawrence, according to the latest figures from the Lawrence Board of Realtors. The median selling price of newly constructed homes is up significantly. It checks in at $337,495, which is a 10 percent increase from a year ago. At the end of 2011, the median selling price for a newly built home was $245,000. We’ve seen an increase of 37 percent in median price in less than four years. Back in 2011, the gap between the median selling price of an existing home and a new home was about 45 percent. Thus far in 2015, the gap is about 110 percent. As I’ve been known to say when my key no longer works in my home lock: I don’t know exactly what this means, but it seems significant.”

“Single-family and condominium sales are up across a broad swath of Connecticut, particularly among first-time buyers, lenders and Realtors say. Michael Sheahan, retail lending manager for Chelsea Groton, said its first-quarter volume of purchase and refinance mortgages is running ahead of the comparable period in 2014. ‘We are excited about the level of purchase transactions transpiring to date, including first-time homebuyer and home construction projects,’ Sheahan said.”

“The mortgage industry, too, is showing sensitivity to the plight of Millennials and other potential homebuyers saddled with student-loan debt. According to Sheahan, at least one private mortgage insurer is offering to medical- and dental-school graduates a mortgage insurance product that enables them to qualify for a mortgage despite their student debt. Lenders typically require private mortgage insurance on loans with less than a 20 percent downpayment.”

“Mortgage broker David Ford thinks he has found the right way to describe the Lower Mainland’s market for single-family homes. ‘Detached housing is BANANAS. It’s real estate pandemonium,’ he writes in his latest newsletter. The default rate for mortgages in Canada is less than one per cent, Ford says, noting that buyers are being assisted by revenue from basement suites and laneway unit rentals, which can increase monthly income by $1,800 or more.”

“He is looking to purchase a one-bedroom condo in downtown Vancouver, with a budget of $450,000. He has no qualms about taking on a $400,000 mortgage to do it. As long as people hang on to their investment for a while, he says, they will be fine because land in Vancouver has always appreciated.”

“With the latest effort by Sweden to cool its housing market postponed by a court, concerns are escalating that political stagnation, a faulty institutional set-up and high household debt risks sending the triple A economy into a tailspin. A move to force homeowners to pay down the principal of their mortgages — what many economists say is the very least needed to avoid a housing bubble — was postponed after a court in April said the Swedish Financial Supervisory Authority lacked a legal mandate.”

“The market is so frenzied that buyers in Stockholm often bid by text messages to brokers before they even inspect homes. There are fears households have grown accustomed to ultra-low interest rates. In a recent survey more than half of the respondents said it would be a big or fairly big problem if housing costs in Sweden rose by 50 percent. ‘The housing market in this country is dysfunctional and households are borrowing more and more and more,’ Stefan Ingves, the Governor of Sweden’s central bank. ‘This is one of those places in the world where the indecision bias has figured prominently and we are still seriously heading in the wrong direction.’”

“Frenzied construction by developers hoping to tap the real estate potential of the Iskandar region is ironically leading to a glut that is depressing property value in the southern economic development corridor. Worryingly for the primarily China-based developers is that most of these projects are already in progress even as demand is tapering off. One such developer, Country Garden, has 45 condominium towers with a combined total of 9,500 units set to come online in 2017, but has received bookings for less than a third some two years after construction began in 2013.”

“Aside from the obvious glut, other factors depressing sales in the region are the prices that have ballooned to levels comparable to the national capital of Kuala Lumpur and property controls that limit foreigners to buying property priced at no less than RM1 million. According to data by Asean Confidential, the effects on property value growth in Iskandar is already palpable. Going into 2012, it began climbing steadily to eventually outstrip the national average, before peaking at 25 per cent in annual appreciation. But it began falling almost immediately, plunging to 10 per cent last year, less than a percentage point over the rest of the country.”

“Some mining workers have gone from the high life to homelessness, from six-figure salaries to sleeping in cars, as the state’s resources industry is savaged by job cuts. OzHelp, a not-for-profit group specialising in suicide prevention and wellbeing in the mining industry, said the ‘wholesale slaughter’ of mining jobs had left some sacked workers unable to afford a roof over their head.”

“Nicole Ashby, head of the support and training service FIFO Families, said many axed workers were struggling to find new jobs and those who were still employed feared the next round of cuts. ‘One family was made redundant at Christmas, the husband still can’t get work,’ she said. ‘He’s defaulted on his mortgage, he’s been out of work for four to five months and they’re stressed out of their brains.’”

“Federal Reserve Bank of St. Louis President James Bullard warned that keeping interest rates near zero risks inflating asset-price bubbles, saying officials should raise borrowing costs this year as the economy improves. A prolonged accommodative stance is a ‘recipe for asset-price bubbles and a lot of mischief to happen,’ Bullard said in a Bloomberg Radio interview. ‘Asset price bubbles have been a devastating feature for the U.S. economy in the last 15 years.’”

“‘We need to get going once we have the opportunity to get going,’ Bullard said. ‘The economy is getting back to normal, but policy is still on an emergency setting.’”

“Books on the crisis typically fall into two categories. The first off the presses were the journalistic accounts. Later came the more thought-through academic analyses. Easy Money falls somewhere between these two categories. As the title suggests, Vivek Kaul zeroes in on the all-too-familiar culprit of the crisis - the access to easy money - and lays the blame for it firmly at the door of the central banks. He repeats the accusation that the United States Federal Reserve under Alan Greenspan left interest rates too low for too long after the dotcom bubble burst at the start of this century, which, inevitably perhaps, created a bubble in the real estate sector.”

“The chapter ‘Print Money, Buy Tomato Ketchup’ highlights the inherent contradiction of the current policy stance. As astute observers have also pointed out, policymakers are essentially trying to engineer a consumption boom to get economies out of the current problem, believing it’s a problem of aggregate demand, while it was excess debt-laden consumption that landed them there in the first place.”

“Professor Rajan and Luigi Zingales succinctly sum it up: ‘The way out of the crisis cannot be still more borrowing and spending, especially if the spending does not build lasting assets that will help future generations pay off the debts they will be saddled with.’”

Bits Bucket for May 29, 2015

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May 28, 2015

An Artificial Price Pressure

A report from the Wall Street Journal. “It has always taken some financial wherewithal to purchase a newly built home. But never like now. The Commerce Department reported that the pace of new home sales in April reached an annualized 517,000, adjusting for seasonal swings. Still, while April counted as one of the strongest new-home sales reports since 2008, taking a longer view it was still very weak. Price has a lot to do that. Over the past year, the median price for a new home has averaged $289,750. That is 37% more than the $211,300 price tag an existing home has carried. While the two measures aren’t completely comparable, in 1999 the difference was half that.”

“What’s more, the median price for a new home in 2013 reached 4.2 times the median family’s income, equaling where it was during the peak of the bubble. Given that new home prices have risen more than income since then, that mark has probably been eclipsed.”

From Bloomberg. “Merion Homes bought two dozen rambler-style houses in Northern Virginia’s Pimmit Hills community for about $450,000 each, just to knock them down. Now it’s selling customized residences three times larger at prices topping $1 million. Knockdowns across the country are increasing, said Robert Dietz, an economist with the National Association of Home Builders. The trade group estimates that builders tore down and reconstructed about 32,000 homes last year, representing 5 percent of all single-family housing starts. Beyond the nation’s capital, the trend can be found in suburbs of cities from Boston to Minneapolis and Los Angeles.”

“Ning Yim, an accountant who lives in Pimmit Hills, said new construction is changing the dynamics of the neighborhood, established in the early 1950s for returning veterans of World War II. ‘We like it when we see more new houses,’ said Quy Phung, Yim’s husband. ‘It brings up the property values.’”

The Dallas Morning News in Texas. “Dallas-area home prices are at a record high and about 15 percent ahead of where they were at the peak of the market before the recession, Case-Shiller says. Home prices are expected to rise at close to a 10 percent annual rate through the rest of this year and into 2016 in the Dallas-Fort Worth area. ‘The industry is concerned that incomes aren’t rising as fast as home prices,’ said David Brown of housing analyst Metrostudy Inc. ‘Right now, builders are more about getting houses started and completed,’ Brown said. ‘But everybody is wondering what happens when interest rates go to 6 percent.’”

“Unlike in some markets where speculation drove home prices higher than many consumers can afford, the rise in values in North Texas is driven by economic growth. ‘Demand simply exceeds supply,’ said Randall S. Guttery, real estate programs director at University of Texas at Dallas. ‘To me, a bubble is an artificial price pressure on housing,’ he said. ‘I see nothing artificial about our market locally.’”

The Sun Sentinel in Florida. “Last week, Realtor boards in Palm Beach and Broward counties released April figures showing steady price increases amid a busy spring selling season. The median price for existing homes in Palm Beach County was $300,000, 10 percent higher than a year ago. Broward’s median was $287,500, up 5 percent.”

‘Sellers are seeing good returns, but there is a limit, said Cathy Prenner, a real estate agent for Campbell & Rosemurgy in Broward and Palm Beach counties. ‘Right now, family houses are selling well,’ she said. ‘Homes will sell very quickly if there’s good value. But if sellers keep going up and up on the price, it doesn’t work.’”

CNN on Colorado. “The living quarters are also getting tight for Brandon Hess, his wife and 9-month old son in their studio loft in downtown Denver. The first-time buyers started searching for a bigger home before Christmas last year. The couple originally wanted to stay near downtown, but quickly realized that wasn’t in the budget and expanded their search. They toured more than 30 houses, but found list prices can be deceiving and bidding wars are common. ‘It’s sort of a demoralizing process, you would see a house you think is in your range, but the new tactic is to list at $270,000, but they really want $380,000.’”

“Rapidly rising home prices have made it hard for the family to save. ‘We aren’t putting any money away. We are breaking even right now.’ They’ve tabled their plans to become homeowners for now, and at this point, Hess is worried they may get priced out of the rental market. ‘We are starting to feel like we can’t afford Denver anymore.’”

CBS San Francisco in California. “After years of techies and start ups flocking to Silicon Valley, now they are flocking away, for better pay and more affordable places to live. According to a study at Redfin, the exodus from Silicon Valley is real. The real estate brokerage analyzed searches on its database and found a dramatic increase in the number of Bay Area people searching for homes in Seattle, Portland, Boston, Austin, and Chicago.”

“Doug Wilson works in tech. He said he loves the Bay Area and is sticking around, but has colleagues who have taken the leap. ‘They realized they’re being priced out of the housing market. Other places such as Texas provide opportunities to make six figures and the money goes a lot further.’ Wilson confirms companies are leaving, too. He knows of two that are in the process of moving, right now. ‘They’ve just had it with California,’ he said.”

NBC News on New York. “A sum of $21.5 million might seem like a lot of money but, in the outrageous world of New York real estate, you might be surprised by how little it will actually buy. This 12,000-square-foot townhouse is now back on the market reduced from its original $27 million 2011 listing. Ukrainian-born billionaire Alexander Rovt bought the townhouse in 2008 for $6.96 million and began a five-year gut renovation that cost a whopping $18 million. Shockingly though, he has never spent a night there. In fact, no one has. The townhouse has not been lived in since Rovt purchased it. There is a full-time housekeeper who cleans the massive space daily, but she doesn’t reside there.”

“Of all the shocking features this residence has, perhaps the most startling is that the property’s broker calls it a bargain at $21.5 million. Warburg Realty’s Jason Haber insists: ‘This is the best townhouse on the market right now. Asking less than $1,800 a square foot quite frankly makes this house a steal.’”

Bits Bucket for May 28, 2015

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May 27, 2015

This Run-Up Has Been Historically Exceptional

A report from McClatchy DC. “Two new measures released Tuesday show home prices continued their upward climb earlier this year, even as sales remain lukewarm. U.S. house prices rose 1.3 percent from January through March, according to the Federal Housing Finance Agency House Price Index. It marked the 15th straight quarter in which prices rose on the index, compiled from information about mortgages sold to or guaranteed by Fannie Mae and Freddie Mac.”

“‘Home prices are now, on average, roughly 20 percent above where they were three years ago,’ said Andrew Leventis, the principal economist for FHFA. ‘This run-up has been historically exceptional and is particularly notable in light of the limited household income growth and modest rate of inflation observed during that same period.’”

“Translation: People aren’t earning much more, yet home prices are rising faster than the rate of inflation in much of the country. San Francisco and Denver saw the biggest jump in home prices on the Case-Shiller index, jumping by 10.3 percent and 10 percent respectively. Dallas prices rose 9.3 percent over March 2014. A McClatchy article earlier this month raised concerns that some parts of the nation might be seeing housing bubbles, a concern both recognized and dismissed by David Blitzer, chairman of the Index Committee for S&P Dow Jones Indices.”

“‘The only way you can be sure of a bubble is looking back after it’s over. The average 12 month rise in inflation adjusted home prices since 1975 is about 1.0 percent per year compared to the current 4.1 percent pace, arguing for a bubble,’ he acknowledged in Tuesday’s report. ‘Home prices are currently rising more quickly than either per capita personal income (3.1 percent) or wages (2.2 percent), narrowing the pool of future home-buyers. All of this suggests that some future moderation in home prices gains is likely.’”

The Wall Street Journal. “The S&P/Case-Shiller Home Price Index released on Tuesday was the latest report to show a relentless rise in housing prices, causing some economists to ask: Is another bubble forming? ‘There is no bubble to be anxious about,’ said David Blitzer, managing director and chairman of the Index Committee for S&P Dow Jones Indices. Price growth in most markets is ‘a lot softer’ than it was a year ago, he noted.”

“To be sure, some markets, such as San Francisco and Denver have seen staggering gains. Denver has surpassed its peak home prices in 2006 by nearly 17%. Lawrence Yun, chief economist for the National Association of Realtors, has been among the loudest sounding the alarm that prices are too high. But he said that he isn’t worried about a bubble, just that the lack of affordability may cause demand to evaporate. ‘In a sense it is demoralizing for people who want to save up for a down payment,’ he said.”

“Another concern is a possible jump in interest rates. John Burns, chief executive of John Burns Real Estate Consulting Inc., said that would put homes out-of-reach for many at current price levels in many major cities. If rates rose to 6%, homes in more than half of those markets, including Los Angeles, San Francisco, Miami, and Denver, would be overvalued. ‘We are in a pretty precarious environment,’ Mr. Burns said.”

“Economists also aren’t concerned about a price bubble because far fewer new homes are being built than a decade ago so there is little concern about oversupply.”

From Bloomberg “Purchases of new homes in the U.S. rose more than projected in April, a sign this part of the market is picking up steam during the busiest selling period of the year. Housing starts soared in April to a 1.14 million annualized rate, the most since November 2007, Commerce Department figures showed last week. More permits, a proxy for future construction, were issued than at any time since June 2008.”

“The median sales price increased 8.3 percent from April 2014 to $297,300, the report showed. Purchases rose in two of four U.S. regions, led by a 36.8 percent surge in the Midwest, the biggest jump since October 2012. Buyers are getting help from low borrowing costs during the housing market’s busiest time of the year. The average 30-year, fixed-rate mortgage fell to 3.84 percent in the week ended May 21, close to the level at the start of 2015 and well below last year’s high of 4.53 percent in early January 2014.”

The Press Enterprise in California. “Home sales picked up in April as builders sold 517,000 new single-family houses across America at a pace that is up 26 percent from April 2014, according to a new Census Bureau report. Builders in the West bested that home building rate with a 39.8 percent year-over-year gain. The report released Tuesday, May 26, 2015, put new single-family home sales at a seasonally adjusted annual rate of 130,000 in the West, nearly one-fourth of all homes sold in April. It was the fifth consecutive month showing sales of 130,000 or more.”

“At some point, said Dennis Handler, director of Metrostudy’s Southern California region, new home sales will rise. He’s pinning it on the moment resale home inventory wanes and a fresh supply of new homes come into the Inland market at the lower end of the price spectrum. Still, the Metrostudy report noted a $135,000 difference between new and resale median prices of Inland homes, with less than 30 percent of Inland homebuyers currently able to afford a new home. The median sales price of new houses sold in April in the U.S. was $297,300; the average sales price was $341,500. In the Inland area, Handler said most new home starts, 37 percent, were in the $300,000 to $400,000 price segments. Twenty-eight percent were $400,000 to $500,000 range.”

The Bay State Banner in Massachusetts. “Jill Edwards likes her three-bedroom apartment on Munroe Street well enough. But with real estate prices inching up in the Roxbury neighborhood she’s called home most of her life, she’s looking for something more permanent. She was among dozens of prospective buyers perusing condominiums in Roxbury and Dorchester, looking for the right mix of affordability and space. Priced at $293,500, the condo is one of several listed in Roxbury priced below $300,000. ‘I want to get in the market before it gets crazy,’ she says.”

WIVB in New York. “It is an eyesore in this neighborhood of well-maintained Colonial-style homes. The two-story house on Goundry Street in North Tonawanda has been vacant for years, and the owner, Donna Neal has even tried give it back to the bank for a dollar. ‘Hasn’t been my house, I haven’t lived in it. I haven’t wanted it, tried to give it to them,’ said Neal.”

“The owner can’t give the property away because the bank says more is owed on the mortgage–than the property is worth. Neighbors, like Stan Fularz are getting frustrated because the house is like a sore thumb. Fularz offered to buy the house, but Donna says the bank would not allow it, since Stan’s offer wasn’t enough to pay off the mortgage. ‘Yes, I wanted to tear it down, open up the yard, double the size of my lot.’”

“In the meantime, the bank is paying the taxes, the insurance, sewer and water, and the upkeep of the property, which is puzzling to Fularz who suspects the house is costing the bank–and the Federal Housing Administration which guaranteed the loan–more than the loss if they had accepted his original offer.”

“Donna has also learned there are liens on the property that have to be paid before the deed can change hands, and seems to be how Goundry St. ends up with this zombie property: Stan can’t buy it, Donna can’t give it away, and the bank won’t take the title. ‘They put a new roof on it. They cleaned out the backyard, and emptied out the house,’ Donna Neal asks herself, ‘who’s decision is it for the bank to keep losing money by the day? Bank statements indicated more than $50,000 is owed on a mortgage that started out at about $40,000. Shouldn’t the bank be looking to cut its losses?’”

Bits Bucket for May 27, 2015

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May 26, 2015

Because It Has Been Good, It Must Be Good Forever

The Torstar News Service reports from Canada. “A group of midtown Toronto residents has banded together to fight what it’s dubbed ‘density creep,’ amid a push for midrise development citywide that shows no signs of abating. The group of about 50 neighbours claims the project will ruin their stretch of million-dollar homes set on deep, private lots. ‘I’m really concerned about my property value going down,’ says Lisa Goodwin, 49, a stay-at-home mother of two who has lived in a four-bedroom dwelling for 19 years. ‘Right now all the houses are $1.1 to, say, $2.2 (million) but they’re looking at putting in places that are only $500,000.’”

The Guardian on New Zealand. “Economists in New Zealand have expressed alarm at a housing market boom which could soon see average prices of property in the country’s largest city pass the $1m mark. In Auckland, the cost of an average domestic property has risen from $550,000 during the last property boom in 2007 to nearly $810,000 now. Some houses are increasing in value by $1,000 every day while 36 suburbs in the city now have an average house value of $1m or more. And at current rates the whole city’s average will be $1m within a year-and-a-half.”

“Small, one–bedroom apartments are selling for $800,000 and delapidated wrecks in barely desirable suburbs are fetching more than $1m. ‘The narrative goes because it has been good in the last 10 or 15 years, it must be good forever,’ said Shamubeel Eaqub, principal economist at the Institute of Economic Research. But it is impossible for this to continue, he says. ‘Auckland is in a massive bubble.’”

From Arabian Business. “With rents now back soaring and tenants having to compete once again for units, we were surprised to find an interesting report that claims that as much as a fifth of Dubai’s prime properties lie empty for most of the year. This might sound high but it is actually in line with international statistics, which claim that one in four apartments in major cities across the world lie empty. ‘There are no recorded statistics for absentee owners, but in my opinion, I would safely say it is currently in the region of 20 percent of properties, of which buyers mainly come from Europe, Russia, the GCC and to a lesser degree the Indian sub-continent,’ Andrew Cleator, luxury sales director, LuxHabitat, told the Khaleej Times newspaper.”

“Is it time for Dubai to follow suit and implement some form of penalty, such as a tax, on absentee landlords and reduce the number of units lying empty across the city? ‘No we don’t need a tax on undeveloped property as that would most likely lead to an oversupply of property across the market. The ecosystem’s success is the result of a mixture of foreigners permitted to own property, commercial enterprise, the tax status and the overall lifestyle. As a result, Dubai has a huge amount of property under development (visible all around the emirate), and rather than the market at risk of not keeping pace with demand, there is more likely a risk of oversupply,’ said Ryan Mahoney, CEO, Better Homes Real Estate.”

Invest Asian on Singapore. “Real estate prices in Singapore have plummeted since the beginning of 2015, and analysts are worried that the city-states’ property bubble could burst soon. The government of Singapore has tried to cool its property market since 2009. The implementation of the Additional Buyer’s Stamp Duty in late 2011 imposed an additional 10% tax on foreigners buying property, and was then increased to 15% in 2013 resulting in a reduced transaction volume. Since then, prices have suffered a massive decline and many real estate developers are saying the measures have gone too far, destroying Singapore’s luxury property market.”

“‘Average residential rents across all market segments, particularly the high-end, are on the decline, coupled with a weak secondary market,’ warned Kwek Leng Beng, executive chairman of City Developments Ltd. ‘If this trend continues, with prices dipping more, some mortgage borrowers affected by lower rentals may have difficulty servicing their loans, possibly leading to forced fire sales,’ said Kwek.”

The Hindustan Times in India. “If you own a house and it is unoccupied, you may soon have to pay a new tax—the vacant apartment tax— which will be double the amount levied on the property at present. This move will open up approximately 4.79 lakh houses in Mumbai in the rental market. The draft document states, ‘In order that the vacant flats and plots are put to use, there should be double taxation… This will deter the tendency to maintain the plot and the flat vacant for speculative gains.’”

“Real estate experts welcomed the move. ‘We talk of housing shortage, but the number of vacant houses are increasing by the day. The move is necessary,’ said Pankaj Kapoor, CEO, Liases Foras, a real estate research firm. ‘With an increase in number of houses in the market, the high rentals will be moderated.’ Yeshwant Dalal, president, Estate Agents Association of India, said, ‘Most of the vacant houses are owned by investors who have purchased for speculative gains.’”

Bloomberg on China. “China’s Ordos city, where towers that sprang from Inner Mongolian farmland now sit empty, is showing the hangover has just begun from a decade-long building boom. The city whose fortunes reversed as a coal boom turned to bust is grappling with China’s slumping property market that researcher SouFun Holdings Ltd. said led to more than 10 ‘ghost towns.’”

“Five years after the first building was finished in the eastern city of Tianjin’s replica of Manhattan, the district remains almost deserted. Locals in the city of Handan, where a burst property bubble left half-constructed high-rises, have blocked streets to protest soured investments. ‘Many small-city developers are running into financial trouble,’ said Liu Yuan, a Shanghai-based research director for Centaline Group, China’s biggest property agency. ‘It’s the problem Ordos faces after its property bubble burst.’”

Bits Bucket for May 26, 2015

Post off-topic ideas, links, and Craigslist finds here.

May 25, 2015

Buying At The Top Of What They Can Afford

The Mercury News reports from California. “How high does this ladder stretch? With spring buyers vying for a limited number of properties, the median price for Santa Clara County homes reached yet another all-time high in April. Sticker shock spread throughout the region, with prices for single-family homes jumping from a year ago in all nine counties, according to CoreLogic. ‘Prices are jumping,’ said Kristine Kim-Suh, a Palo Alto-based agen. ‘Some properties are selling for $30,000, $40,000 or $50,000 beyond last month’s comparables, and it’s making buyers that much more aggressive. For example, they know that the comparable is $825,000 and they’re bidding $885,000, they’re so anxious. It’s even surprising the listing agents.’”

“On the Peninsula, ‘nothing has slowed down,’ said Alain Pinel agent Nick Granoski, who recently worked with first-time homebuyers Becky and Brandon Stroy, who had been outbid and worn out since their house-hunting began in December. But by throwing an extra $400,000 on top of the $1,350,000 list price on a Mountain View ranch-style home in the Varsity Park neighborhood, the Stroys were finally winners. ‘There were 17 other offers and ours was sort of just barely high enough to win,’ said Brandon, an attorney. He received news of the successful bid while on his way to work, taking it in with ‘a mixture of joy and relief and surprise — and then terror, I guess.’”

The Denver Post in Colorado. “Southwest Denver has long served as a refuge for those seeking urban affordability. But one of Denver’s last remaining low-cost havens isn’t escaping the huge jump in rents and home values seen across the metro area. In Valverde, the prices of homes sold have gone up from $111,221 to $195,858 the past two years, a 76.1 percent increase. In Ruby Hill, sales prices have gone from an average of $136,036 to $216,112, a 58.9 percent jump. Juanita Chacon, an associate broker with Re/Max Alliance in Denver, describes selling a 3,125-square-foot lot at 31st and Wyandot Street for $400,000 — sight unseen.”

“Heather Heuer, a managing broker with PorchLight Real Estate Group in Denver, raises a concern. Investors were previously the most active buyers in southwest Denver, fixing up distressed bargains and putting them back on the market, until owner-occupants started outbidding them. Essentially, they are buying the flip without the fix, bypassing an important step in the life cycle of neighborhood revitalization. ‘Most people are buying at the top of the value of what they can afford,’ Heuer said. ‘People are paying more for a lesser product.’”

BostInno reports from Massachusetts. “Though Boston is currently in the midst of a development boom, its luxury housing market is beginning to wane. A substantial amount of the cranes dotting the skyline are erecting high-end residential complexes, but if the rate for which these homes are purchased continues on its current pace, they may end up vacant. New data compiled by RedFin indicates Boston has the highest year-over-year decrease in luxury home buying out of 600 cities analyzed.”

“To determine this, RedFin examined the most expensive 5 percent of homes sold in each city and compared them to the bottom 95 percent of homes in those market. Cities with 25 or more luxury home sales in the quarter are the only metro areas included in the report. For Boston, the average luxury home sale was for $3,590,000, constituting a decrease of 18.7 percent. Alexandria, VA, with $1,512,000 and -12.4 percent respectively, was the only other city to have a double-digit decrease.”

“Still, that’s not to say the luxury market in Boston is truly suffering or will continue to do so. ‘While there have been fewer sales at the ultra high end of $5 million plus, the $1 million to $2 million range is as strong as ever,’ said RedFin Boston agent Peter Phinney.”

Bloomberg on New York. “Here is good news for the plutocrat who wants to try out Manhattan’s ritziest neighborhoods before taking the multimillion-dollar plunge. The market for super-high-end rentals is booming, with plenty of enticing options for tenants of every taste. The financial considerations are different at the upper end of the rental market. A two-bedroom apartment at One57, the posh tower south of Central Park, that’s listed for $13.5 million is also available for rent at $32,500 a month. With a 20 percent down payment and a 30-year mortgage at prevailing rates, the monthly carrying costs for a purchase come in at more than $50,000.”

“Renting, meanwhile, frees up the down payment for investing, an option that’s particularly enticing if you think condo prices have gotten too high to keep climbing. ‘If you feel like things have gotten frothy, you might decide to rent now and buy when the market takes a dip,’ says Thorne Perkin, president of Papamarkou Wellner Asset Management, which manages money for about 150 family offices.”

From Delaware Public Media. “Home sales are leaping with spring energy, although prices still have a long way to go to reach the levels before the housing downturn. The typical home in the region has recouped only 5 percent of the 23 percent it lost in value during the housing bust in 2007, according to a Berkshire survey by Kevin Gillen, chief economist of Meyers Research. While more homes are changing hands, prices are still getting dinged in foreclosure hot spots such as Middletown. In the first quarter of 2015, sales of properties in the 19709 zip code increased a robust 44 percent. But prices declined 10.7 percent year over year.”

“After years of sitting on the sidelines, more prospective buyers are feeling confident about making a move, says Andrew Bryan, who leads a statewide REMAX agency based in Dover. ‘Activity is brisk, a lot of properties are moving, although prices aren’t going up at the same rate,’ he says. That is especially true in New Castle and Kent counties, where short sales and bank-owned properties continue to impact prices. ‘When you are looking at price reductions of tens of thousands of dollars, it is very difficult to complete with those houses,’ he says.”

The News Tribune in Washington. “Next door to my home there’s a big, vacant house. The doors and windows have been boarded up with plywood since October 2013. By the city’s standards, the house is derelict. And it’s one of roughly 300 properties just like it across Tacoma. Walk down just about any block in my neighborhood and you’ll find one in a similar state of despair and disrepair. The same goes for most neighborhoods, or at least the poorer ones. According to city of Tacoma code inspection supervisor Dan McConaughy, the inspectors he oversees board up two or three houses a week.”

“These days, however, McConaughy is more frustrated than usual. And it’s the banks that raise his ire. He describes an all-too-common scenario in which homeowners get a foreclosure notice and leave, thinking they’re relinquishing the property back to the bank. But the bank, for financial reasons, drags its feet on finalizing the foreclosure, presumably waiting for just the right time unload the property, when a buyer will materialize and there’s not a risk of it becoming a ‘real-estate-owned property’ that they’ll be financially on the hook for.”

“What McConaughy says is different now is the length of time homes stew in what he calls the ‘black hole’ of foreclosure. Of the 300 or so derelict properties in Tacoma, he estimates that about 60 percent are wallowing there. A house we visit on East G Street has been sitting empty since December 2011; not far from it, on McKinley Avenue, another has been boarded up since August 2012. ‘We’re dealing with, like three or four major banks,’ he says. As we pull up to the next empty house on his list, McConaughy says, ‘I can almost assure you that some of those people behind those big desks aren’t living next to something like this.’”