September 4, 2015

Many People Can’t Afford To Price Aggressively

It’s Friday desk clearing time for this blogger. “Almost half of single-family houses in the New York and Washington metropolitan areas are losing value, a sign that buyers’ tolerance for high prices in many large U.S. cities may be reaching a limit, according to a new index created by Allan Weiss, co-founder of the Case-Shiller home price indexes. More properties also were in decline in Los Angeles, Chicago, Phoenix and Miami. A steady rise in U.S. home prices since the bottom of the market combined with weak income growth has made housing less affordable, especially in big cities. ‘What happens in any bull asset bubble such as what we’ve seen is you run out of buyers,’ said Chris Whalen, senior managing director at Kroll Bond Rating Agency Inc. and an advisor to Weiss. ‘It’s hard to get deals done if the bottom third can’t get a mortgage.’”

“New home starts and sales in the Houston area are falling and the supply of new homes that have been completed but remain unsold is up dramatically, a new report from Metrostudy shows. The inventory of competed homes is the most concerning aspect of the market right now, said Scott Davis, Houston regional director for Metrostudy. ‘We’ve been in an extremely abnormal market from 2012 to 2014 when we had constrained lot supply and exceptional job growth,’ Davis said.”

“On the north side, there are too many houses being at the high-end of the market, Davis said. Many buyers can’t afford the higher prices. ‘For someone looking at a $600,000 to $800,000 home, there are over 300 locations in Houston where they can buy a new home in that price range,’ Davis said. ‘Buyers have a lot of options.’”

“Over the last three years, more than 3,800 rooms have been made available for U of A students who want to live off campus, doubling the number previously available, and more are on the way. There are concerns from private homeowners who lease their buildings to students. ‘It’s just the over saturation, fortunately for the students they have a lot to chose from but unfortunately for the properties there is so much competition which then trickles down to those individual homeowners,’ said Teresa Klinger, Senior Program Coordinator for Off-Campus Housing.”

“City officials say they aren’t able to physically keep count of Indianapolis’ climbing number of abandoned homes. ‘We recently had our quality of life team go out into the city and one of the biggest, single things we saw were vacant and abandoned homes,’ said Julie Fidler, housing and services specialist for the Indianapolis Department of Public Safety. ‘It’s not only a quality of life issue, it’s an attraction of nuisance because people who commit crimes may use those abandoned homes as the bases of their operation.’”

“Throughout the 10 months Mireille Blanchard’s Moncton home was for sale, only few potential buyers came to view the house. She’s noticed that there are a lot of For Sale signs in her downtown neighbourhood. Blanchard pulled her house off the market this earlier this week. ‘There’s one house that I noticed, they dropped their price by $40,000, and it’s still not sold. And we’re not prepared to lower our price so no, we’re not going to sell.’”

“Realtor Kari McBride, president of the New Brunswick Real Estate Association, says Blanchard’s plight is common. McBride says the reason behind the slow sales is ‘the housing market is in a state of oversupply.’ She finds many people, especially those who have only owned their home for three to five years, either aren’t able to sell their home, or are having to come down in price, sometimes losing money on their investment. ‘If you are in that bracket of home sellers, which many many people are, that they can’t afford to price aggressively or they don’t have the money to put in the updates the buyer’s looking for, then those are the houses that we’re seeing on the market for six, eight, 10, 12 months at a time,’ she said.”

“An estimated 362,000 homes in Baja California have been abandoned by their owners and another 60,000 are at risk of abandonment, according to the national director of El Barzón, a Mexico nonprofit founded to assist consumers in economic trouble. Thousands of abandoned homes dot sprawling, high-density developments in the eastern reaches of Tijuana and elsewhere in Baja, creating insecurity among the homeowners who have managed to hold on to their property. ‘A home that once put a roof over the heads of a family today provides shelter to kidnappers, drug dealers, and robbers,’ noted Martha Rueda, state coordinator for El Barzón in Baja California, in an El Sol interview.”

“The value of unsold apartments across the top seven cities of the country at the end of June has been estimated at a whopping Rs 4 lakh crore, with few signs the inventory will be cleared anytime in the next four years. At 7.5 lakh, the number of flats in the mid-priced range is virtually the same as it was at the end of March, this year, which means sales have come to a standstill. In addition, there are 50,000 luxury apartments, priced at an estimated Rs 1 lakh crore, lying unsold in Mumbai alone.”

“Despite the large number of flats going abegging, however, some 37,000 flats in the mid-priced segment were launched in the three months to June, roughly half the number opened up for buyers in the March quarter, data from PropEquity shows. Mudassir Zaidi, national director, Knight Frank, says builders have realised there is little point in launching new properties since that would only pressure prices further. ‘The pace of recovery in housing sales is far slower than earlier anticipated and the high inventory is not coming down in a hurry,’ Zaidi observed.”

“In a critique published in April, the global body that monitors the proceeds of crime, the Financial Action Task Force, said Australian real estate was an attractive destination for dirty money. In its April report, FATF said ‘large amounts are suspected to be laundered out of China into the Australian real estate market … Of great concern is that Australia has not brought real estate agents within the AML/CTF [counter-terrorism finance] regime.’”

“The Australian Federal Police restrained just $13 million in residential property in the 2013 financial year. But as concerns over some eye-popping property sales mount, more action may be looming. The AFP is investigating $80 million in property transactions from one group of Malaysians with links to a government investment body, including the sale of a student accommodation block in Melbourne for $22 million — almost $5 million more than its estimated market value.”

“Real estate agents are worried they will face an onerous compliance burden if they are brought within the anti-money laundering regime. But Malcolm Shackell, a partner in PwC’s forensic services division, said it might also cause headaches for the Australian money laundering regulator, Austrac, which already has 14,000 businesses to monitor. ‘You bring in the real estate industry and all of a sudden that doubles, triples,’ he said.”

“Spare a thought, if you will, for a Mr Qi, of China. He invested some £100,000 in shares in May, just before the stock-market bubble burst. He has lost £40,000, at least on paper. His dreams of making enough on the stock market are, for now, dashed, and he will have to postpone his plan to buy his own home. I do not know what the Mandarin for ‘negative equity’ is, but Mr Qi is feeling the effects of it, as are many more Chinese private investors. Reports tell us that the only way Mr Qi can find some relief from the stress is to have a good old-fashioned foot massage. There will be a good deal of foot-rubbing going on in China right now.”

Bits Bucket for September 4, 2015

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