July 3, 2015

Setting The Market Up For Disaster

It’s Friday desk clearing time for this blogger. “Zhou Liangjun was pumped. For nearly a year, he watched as the Shanghai Stock Index soared. The government seemed to encourage investment in equities, particularly as the country’s housing slump intensified. So early last month, he took half of his savings and plunked it into stocks on the Shanghai exchange. His timing couldn’t have been worse. In 10 trading days ending on June 26, the market lost a fifth of its value. Two years ago, Zhou bought a flat and has seen its value decline modestly. Now the equity market is further eating into his net worth, leaving him shell-shocked and wondering what to do with what’s left of his savings. ‘Maybe I should invest abroad,’ he says. ‘Maybe I can buy a house in the U.S. Maybe I should buy stocks there, too. I don’t know.’”

“Wealthy buyers from Brazil, Venezuela and Argentina have fueled a real-estate frenzy in Miami in recent years, sending luxury-condo prices soaring. Now, Miami developers and real-estate agents are setting their sights on a more distant part of the world: China. Part of the reason: South American buyers, who comprise the largest foreign buying group in Miami, aren’t buying as rapidly anymore. Karen Xu, a Shanghai resident, is looking at one-bedroom condos in the U.S. as an investment. She says she didn’t consider Miami until she saw a marketing table in Shanghai in May for Brickell Flatiron, a downtown Miami development where one-bedroom condos cost $500,000 to $750,000.”

“The deputy director of a boutique investment firm, Ms. Xu, age 35, was initially interested in a Manhattan home, but said she’s priced out. ‘Two to three years ago, prices were OK,’ she said. ‘Now people are saying, ‘Buy in Brooklyn.’ I don’t want Brooklyn.’”

“It’s been yet another record-breaking three months for Manhattan’s real-estate market, according to brokerage reports. But behind all the headline-grabbing numbers is a developing stalemate between buyers and sellers that’s hampering the market. ‘Sellers have these unrealistic expectations. They refuse to reduce their prices and they won’t negotiate and buyers are unwilling to pay these really expensive prices and … they’re frustrated and are opting out of the market sometimes,’ says Bess Freedman, managing director of sales at Brown Harris Stevens.”

“While Austin-area home prices continue to soar, local sales for one type of home are taking a dive. According to the 2015 Texas Condominium Mid-Year Sales Report, only 1,178 condos and townhomes were sold in Austin between January and May 2015. That’s a 12 percent decrease from the same time period in 2014. ‘The land and development costs for condominiums in Texas’ metro areas are so high that new condos being built today are priced outside of an affordable price range,’ said Dr. Jim Gaines, an economist with the Real Estate Center at Texas A&M University.”

‘As is the story with the Austin real estate market in general, affordability is a growing concern for condos. Higher prices ‘could be impacting some Texas homebuyers’ ability to afford condos, especially in our state’s metro areas,’ said Scott Kesner of the Texas Association of Realtors.”

“Real estate bidding wars have become the scourge of property buying in Vancouver. The biggest challenge for buyers is, unlike at an auction, they are left to bid without knowing the value of competing bids. This means winning bidders could pay more than necessary to win a property. Even the spectre of a bidding war can skew bidding, prompting buyers to overbid when the other bids possibly are not real. Another problem with bidding wars, warns Toronto realtor Andrew Harrild, is that it ’sets our housing market up for disaster.’ ‘If people continue to pay … thousands of dollars over listing prices, the value of our real estate could eventually reach an unsustainable level, and then decline.’”

“Prices of both private and public Singapore housing continued their slide in the second quarter of this year. This marked a seventh straight quarter of decline for private homes and an eighth for HDB resale flats. ‘Psychologically, buyers might be reluctant to make a purchase now, given that the going price for a newly acquired property could be lower in six to 12 months’ time,’ said Chia Siew Chuin, Colliers International director of research and advisory.”

“With the large number of unsold units in launched and unlaunched projects, buyers being highly selective and developers pacing out their launches, there will be more downward pressures in prices and transactions, she added.”

“Hedge funds that once dominated the South Florida housing landcape are pulling back on purchases, the RealtyTrac data show. With investor demand waning, home price increases have slowed across the region. The transition back to mortgage financing comes as lenders loosen underwriting standards. While requirements are still strict, particularly on mortgages backed by government-run companies Fannie Mae and Freddie Mac, more small banks and private lenders are entering the picture to give buyers options, mortgage brokers and real estate agents say.”

“‘Slowly but surely, creativity is coming back into the market,’ said Jim Flood, regional manager of Supreme Lending in Plantation.”

“Boston’s housing market may be red hot, but other parts of the state are wrestling anew with an old problem: foreclosures. The number of foreclosures initiated by lenders in Massachusetts climbed nearly 60 percent in the first five months of 2015 compared with a year earlier, according to the Warren Group. The after-effects of bad lending practices from the bubble years are still distorting the housing market, said Grace Ross, coordinator of the Massachusetts Alliance Against Predatory Lending, especially in outer cities where home prices have not recovered.”

“‘It’s not like there aren’t still problems,’ said Ross, who was on Beacon Hill to testify on behalf of a slate of bills she hopes will help ease ongoing foreclosure woes and prevent new bad loans. ‘We’re not seeing a bounce back in the hardest-hit communities. We’re not seeing a bounce back in employment either.’”

“Is homeownership going out of fashion? A quick glance at the most recent batch of data, contained in a report published late last month by the Joint Center for Housing Studies at Harvard University, certainly seems to suggest as much. And we can blame it all on the excesses of the mortgage bubble, and the financial crisis that followed the discovery of the fraud and excesses in the real estate lending market, beginning in late 2006. ‘That era ushered in a new set of rules and regulations about who qualified for a mortgage,’ says Mark Vitner, senior economist at Wells Fargo.”

“But this enforced postponement of homeownership puts a giant question mark over the heads of those Americans who, given their druthers, would prefer to be buying rather than renting right now. We don’t need another housing bubble. But a little more air in the balloon wouldn’t hurt, if only to reduce the pressure on those struggling under the burden of soaring rents, and to give a helping hand to those for whom their houses will end up being – alas and alack – the only asset in their retirement portfolio. A little bit of exuberance, without tipping over into irrationality, perhaps.”

“There’s been an awful lot of noise lately about Australia’s housing market. Opinion pieces, market analyses, discussion panels; anywhere you care to look you’ll see people throwing around terms like ‘housing bubble’ and ‘unsustainable’ in regard to Australia’s rapidly rising house prices. But what leaves a worse taste is the fact that, by and large, investors don’t see the housing bubble as a problem. They welcome it with open arms, offering to take its jacket at the door, asking if perhaps Mr H Bubble would fancy a glass of champagne or a cigar.”

“What about the more financially disadvantaged people my age? I’m lucky to be from a relatively upper-middle class socio-economic background and I’m extremely concerned about my future in regards to housing. So, how must they feel? As a gainfully employed student in the early years of my study, it’s hard to know whether to be worried or not. This is an issue that won’t affect me directly for some time, but I can’t help but fear that this bubble won’t have burst by the time I set my sights on property ownership.”

“It’s a uniquely frustrating situation to be part of a generation typecast as lazy, selfish and naive while bigwigs from the generations that came before us (who typecast us as above) ruin our chances of owning homes on a healthy planet. At the end of the day, I’m generally not in the habit of begrudging someone their ability to make more money, but my generosity doesn’t extend to an informal conglomerate of hundreds of thousands who are striving to turn the basic human need for shelter into a luxury item.”

Bits Bucket for July 3, 2015

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