May 19, 2015

A Boom Built On False Equity

A report from the McClatchy Washington Bureau. “Real-estate valuation firm Smithfield & Wainwright warns that at least 14 states and the District of Columbia may be experiencing inflated prices like those that preceded the U.S. financial crisis. ‘You’re starting to get a disconnect,’ David Macpherson, the company’s chief economist, said of rapidly rising prices in some markets. His company compares home sales price data from the Federal Housing Finance Agency to the cost of renting a home or replacing one in areas across the country. When the sales price exceeds by 10 percent or more either the cost of renting or replacing a home, the valuation firm argues, it signals a potential price bubble that could burst.”

“‘The banks are exposed and the homeowners are exposed because they both have a false feeling that the house is worth that amount of money. And that’s false equity,’ warned Hogan E. Copeland II, Smithfield & Wainwright’s chairman. The equity they think they’ve built up in their home may prove ephemeral.”

“‘It’s getting pricier,’ said Robert Shiller, the Yale University economist who created the Case/Shiller Home Price Index. While nowhere near the boom that preceded the bust in 2008, the price increases seem incongruent, Shiller suggested. ‘We do see nationwide an increase in home prices and I don’t know if things are better. This boom has negative color to it,’ said Shiller.”

The New York Times. “Through a federal visa program known as EB-5, foreigners, more than 80 percent of them from China, are investing billions of dollars in hotels, condominiums, office towers and public/private works in the hope it will result in green cards. In the last four years, the program’s popularity has surged. In fiscal year 2010, 1,885 visas were issued. But by fiscal year 2013 that figure jumped 354 percent to 8,564, according to government data. Last year, the entire annual allotment of 10,000 visas had been claimed by August — before the end of the fiscal year in October.”

“In 2009, Yi Lin was working as a media executive in Shanghai when he began thinking of applying for a green card through the program. He spent two years researching developments before he settled on investing $500,000 in a mixed-use project in Miami. ‘You have to be very clear about the process and the project and how it is financed,’ Mr. Lin said. ‘Unfortunately, many Chinese are clear about the immigration process, but are not familiar with the project they are investing in.’ It is important, he said, because if a project fails, foreigners can lose both their investment and the opportunity to secure a green card.”

The Miami Herald in Florida. “The Miami Herald and partner Bendixen & Amandi International posed questions to 105 top real estate professionals in a telephone survey. With more supply on the market — mainly luxury condo units — the insatiable demand of the last few years is now being met. ‘The buildings aren’t selling out in five minutes anymore because there’s the same number of buyers for more projects,’ said Gil Dezer, president of Dezer Development. ‘It’s not a normal or stable market when the units are going that fast.’”

“Some of those polled worried that the new real estate boom is leaving locals behind. ‘There is very little new construction being built at price points that South Floridians could afford,’ said one respondent. ‘The price points are out of reach for 90% of South Floridians. The target is foreign and out-of-town buyers.’”

“And a whopping 97 percent of those surveyed answered ‘Yes’ to the question: ‘Is the political and financial instability around the world in places like Latin America and Europe having a significant impact on the Miami-Dade residential market?’ Russian buyers, for one, have disappeared from the scene almost completely.”

The Coloradoan. “Rapid housing price hikes in Fort Collins are sounding alarms for economists, housing advocates, city officials, Realtors and hopeful home buyers. Nearly a third of Fort Collins residents earn less than $49,999 and about half earn less than $74,999, according to the American Community Survey’s five-year estimates. The average sale price for a single-family detached home in Fort Collins last year was $325,044, up 8.6 percent from 2013 and up 15.3 percent from 2012, a Coloradoan analysis of single-family home sales shows. The median, or midpoint, last year was $285,450.”

“‘I don’t see any way we’re going to have any homes in Fort Collins ever again under $300,000,’ said Dave Pettigrew, a broker/partner with Ascent Real Estate Professionals, who tracks sales data. While 2014 sales prices astounded Pettigrew, the 15 percent increases trending this year are even more worrisome. ‘Personally, I don’t think 15 percent is a sustainable number,’ Pettigrew said.”

The Boston Globe in Massachusetts. “Buyers may be packing open houses and battling it out in bidding wars, but the number of homeowners in the Boston area is headed down, not up. Homeownership rates have fallen across all income ranges in Boston and suburbs since peaking back in the 2006 at the height of last real estate boom. The biggest decline has been among middle-income earners. Zillow reports homeownership ranks have also thinned out at the bottom and the top of the wage scales.”

“The drop mirrors a national trend as well, with the homeownership rate across the country sinking to 63.8 percent, the lowest since at least 1995. ‘There are plenty of people looking at the market and seeing these rapidly appreciating prices and saying ‘maybe it’s a good time to hold off and save up,’ notes Alex Coon, market manager for brokerage firm Redfin’s Boston-area office.”

The Press of Atlantic City in New Jersey. “At 28, Andrew Imperiale could afford to buy a house. And lots of people have told him what a smart move it would be. He just doesn’t want to. Imperiale, a lawyer who just rented a new three-bedroom place in Ventnor, likes the flexibility that comes with not owning a home or owing a mortgage. He doesn’t know how long he’ll want to stay in his new house, and he doesn’t have to know now. ‘Maybe in the next two or three years,’ he said, adding that he mainly likes the fact that he’s ‘not stuck in one place. And No. 2, there’s the amount of money it takes’ to buy, even with a first-time homebuyers’ program designed to attract young buyers.”

“‘You can put down 5 percent, but then you’re paying a mortgage you can’t afford,’ he said. As a renter, ‘You don’t have to worry if the place leaks. You don’t have to fix the roof. I just thought it was a dumb move for me. … It’s too big a commitment when you don’t know where you’re going to be in five years.’”

“Renters have been making up a growing part of the nation’s population. That growing demand for rentals has major effects on the housing market. For one, rents are now ‘artificially high,’ as a national housing economist told the Atlantic Builders Convention in Atlantic City this year. Reis Inc., a commercial property-tracking firm, found the average rent across the country has increased 14 percent since 2010 — considerably more than the inflation rate, the Associated Press reports.”

“At her Number One Realty office in Atlantic City, Carol Moscony said rents have stayed fairly stable in the city in the past few years — at the same time buying a place has become a huge bargain for some people. ‘Now is definitely the time to buy,’ said Moscony, giving as an example a condo with ‘properties I used to sell for $180,000. Last year, I sold one for $33,000. … Or in 2008, (a condo) that you would pay $120,000 for, now it’s going for $33,000 to $35,000.’”

Bits Bucket for May 19, 2015

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