October 31, 2015

Bits Bucket for October 31, 2015

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October 30, 2015

The Market Also Depends On Ability To Pay

It’s Friday desk clearing time for this blogger. “There were 4,603 new housing permits issued in Connecticut last year, the highest level since 2008. Donald Klepper-Smith, chief economist for DataCore Partners in New Haven said one of the factors holding back the new housing market in the state from posting more robust gains is a surplus of existing homes for sale. ‘There still is a lot of inventory to be worked off,’ he said. More than half of the housing permit activity last month came from development of five units or more, according to the DECD data. ‘People are looking for more flexible housing options in this economy, like apartments,’ Klepper-Smith said.”

“The U.S. home rental market cooled in September. The slowdown hit major hubs of the energy industry such as Dallas, Houston and Tulsa, while moderating the boom coming in tech centers such as San Francisco, San Jose and Denver. Real estate data firm Zillow said Tuesday that median rents rose a seasonally adjusted 3.7 percent from a year ago, down from the annual pace of 4.1 percent in August. The slowdown likely reflects the 14.8 percent surge in apartment construction during the first nine months of 2015, as increasing supplies have tempered price appreciation.”

“Research by the CoStar Group, a real estate marketer, found that 158,000 apartment units are being built this year, the highest level in more than three decades.”

“Sonoma County’s future could involve fewer surges in new home construction. California Association of Realtors chief economist Leslie Appleton-Young called it a seller’s market in housing today. But she noted that prices flattened this summer, homes are staying on the market longer and, looking ahead, ‘there’s going to be a little more power on the buyers’ side.’ Real estate experts historically have said Californians typically own a home for seven years before selling. But the association’s annual survey this year found agents reporting that sellers had owned the average home for 10 years. ‘That’s the highest we’ve recorded in 35 years,’ Appleton-Young said.”

“Nothing says retired and in debt as much as when 60-year-old Jerry Newbery and Lesley Bates, 51, moved in with her 87-year-old father for three months to save cash until they can downscale into a new townhouse. After working all their lives – Mr. Newbery has already retired once – they are in the midst of a severe financial overhaul to cut their debt load of $240,000. Mr. Newbery and Ms. Bates have had to sell their $300,000 home in Courtney, B.C., on Vancouver Island for cheaper digs and solvency.”

“Part of the problem was that they came out of previous marriages with half of the assets they should have had at this point in life. Mr. Newbery walked away with only $30,000 when the sale of his previous family home netted slightly less than $300,000, as a series of expensive vehicles were paid for from the home equity. Postdivorce, he bought a condo but it was later sold at a $54,000 loss. His $20,000 in RRSPs have diminished to $5,000 as funds were withdrawn to service his $18,000 line of credit and used to purchase his new home.”

“Stories like this are now woven through our retirement dreams and our bank accounts. A recent HSBC survey said 41 per cent of working Canadians believe they can’t adequately prepare for retirement because of debt. ‘I’d like to be debt free,’ said Mr. Newbery. ‘I don’t know if that’s a reality.’”

“Swiss apartment prices will decline for the first time in 15 years in 2016 as purchases by investors fail to offset a broader weakening of demand and rising supply, according to Wueest & Partner AG. The average house price in the Lake Geneva region was 1.4 million francs ($1.41 million) in the second quarter, while in Zurich it was 1.18 million francs, Wueest data show. ‘Demand is coming from people investing, but it’s not compensating for a widening gap with supply,’ Wueest partner Herve Froidevaux said in an interview. ‘Price corrections in the Lake Geneva region are linked to people having less money to spend.’”

“Ray White City Apartments sold six out of eight under the hammer at this week’s apartment auction, with two units passed in. The properties that sold ranged from a two bedroom apartment in the Metropolis tower that sold for $680,000 to a leasehold apartment in the Hudson Brown building near Vector Arena, which sold for $225,000. That would have been an ‘ouch’ moment for the vendor of the Hudson Brown apartment, who according to QV.co.nz had paid $469,000 for the property in 2005 before the bottom dropped out of the leasehold market.”

“To boost sluggish sales, realty firm Raheja Developers today said it has launched a housing project in Sohna, Gurgaon, at a price of Rs 2,500 per sq ft, about 30-35 per cent lower than the existing rate in the location. ‘Actual market depends on demand-supply and also customers’ ability to pay. Lately, the prices have gone up so much that it has affected the customers’ affordability. So, we have decided to bring down the prices to move the market,’ Raheja Developers Chairman Navin Raheja told PTI. He said the prices would be around Rs 2,900 per sq ft under the construction-linked payment plan. ‘At present, the prices in this location is about Rs 4,000 per sq ft,’ Raheja said.”

“While many people flock to make a fortune from the local property market, Oknha Yum Sui Sang, chairman of Union Commercial Bank PLC (UCB), chooses not to invest in this sector until Cambodia’s mortgage law system is better developed. ‘Whether the property market is blooming or not depends on how you see it,’ said Yum, a Hong Kong native. ‘Both investors and buyers in the local property market are mainly from overseas. Local people have a weak consuming power in terms of buying property, and many of them can only afford apartments priced at the range of several tens of thousands.’”

“However, the good news is that no matter how unpredictable the overseas business environment is, Chinese investors are still eager to ‘go out’. ‘China’s economy is very bad now. There is a Chinese saying that it is doomed if staying in China, but it could delay the doom if going out,’ said Yum.”

“Even the Chinese government encourages enterprises to ‘go out’ with the ‘one belt, one road’ initiative. In reality, as many Chinese investors told Yum, it is not that easy for them to liquefy their assets in China for overseas investment. ‘The problem of China’s economy is that the government only helps state-owned enterprises,’ said Yum. ‘Other small enterprises cannot get loans and are left on their own.’”

“Corporate investigator Violet Ho never put a lot of faith in the bad loan numbers reported by China’s banks. Crisscrossing provinces from Shandong to Xinjiang, she’s seen too much — from the shell game of moving assets between affiliated companies to disguise the true state of their finances to cover-ups by bankers loath to admit that loans they made won’t be recovered. ‘If I have one piece of advice for people worrying about the financial status of Chinese companies, it’s this: it’s right to be worried,’ said Ho, senior managing director in Hong Kong for Kroll Inc., a U.S. risk consultancy. ‘Often a credit report for a Chinese company is not worth the paper it’s written on.’”

“While corporate investigator Ho relies on her observations from hitting the road, Charlene Chu and her colleagues at Autonomous Research in Hong Kong take a top-down approach. They estimate how much money is being wasted after the nation began getting smaller and smaller economic returns on its credit from 2008. Their assessment is informed by data from economies such as Japan that have gone though similar debt explosions. While traditional bank loans are not Chu’s prime focus — she looks at the wider picture, including shadow banking — she says her work suggests that nonperforming loans may be at 20 percent to 21 percent, or even higher.”

“The amount of bad debt piling up in China is at the center of a debate about whether the country will continue as a locomotive of global growth or sink into decades of stagnation like Japan after its credit bubble burst. ‘A financial crisis is by no means preordained, but if losses don’t manifest in financial sector losses, they will do so via slowing growth and deflation, as they did in Japan,’ said Chu. ‘China is confronting a massive debt problem, the scale of which the world has never seen.’”

Bits Bucket for October 30, 2015

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October 29, 2015

Sellers Were Getting Overconfident On Pricing

The Denver Post reports from Colorado. “It has been a long, hard slog, but Colorado’s economy finally has reached unemployment rates last seen during the dot-com and housing booms. But for a variety of reasons, full employment this time around just doesn’t seem to feel quite so full. Rising real wages and stock values in the late 1990s and rising homeownership and home equity a decade ago contributed to a sense of upward mobility now lacking for many. Opportunities drew more people into the job market. This time around, workers continue to disengage, pushing down the unemployment rate and denting household incomes. ‘There are a substantial number of people who are voluntarily unemployed,’ said Tucker Hart Adams, an economist with Summit Economics in Colorado Springs. ‘At the same time, there are help-wanted signs up everywhere.’”

“Living costs along the Front Range, especially for housing, have far outstripped pay increases, contributing to a sense among low- and middle-wage workers that they are losing ground. Wage growth has averaged around 3 percent a year, but housing costs have been rising closer to 10 percent in metro Denver, said Patricia Silverstein, chief economist with Development Research Partners in Jefferson County. For some workers, it can make more financial sense to drop out of the workforce than foot the day care bill for multiple children.”

“After getting laid off from a good-paying job in hospitality management in 2013, Tameaka Johnston, 35, a Denver mother of three, dipped into retirement savings to make ends meet. ‘Most everything I was able to get was a server or restaurant manager, but I didn’t want to go back to the service industry,’ Johnston said. ‘Having three kids and a mortgage, I can’t live on ‘Maybe today’s going to be a good day.’”

This Garden Island in Hawaii. “Movement in the Kauai housing market in general is fairly static right now, said Realtor Tom Austin. ‘If you look at Kauai market statistics, the number of opened escrows and the number of closings in the last two or three months has leveled off,’ Austin said. Last year, the most expensive single-family homes were selling for an average of $940,000 in Hanalei, while the cheapest houses were still in Waimea. Austin said what happened to the market in Hanalei, and throughout the island, was that sellers were getting overconfident on pricing.”

“‘Sellers got very optimistic and they started pricing properties higher and higher,’ he said. When those properties didn’t sell, Austin explained, homeowners would lower the price. ‘Then buyers see that it’s been on the market for a long time and the price went down and they’re wondering what’s wrong with it,’ Austin said. ‘You price yourself out.’”

The Midland Reporter Telegram in Texas. “A drop in the average sales price of houses sold continued in September, but according to the director of the multiple listings service (MLS), that drop is bringing the market where it needs to be. Instead, Carroll Nall told the Reporter-Telegram that the Midland housing market ‘remains strong and consistent’ while providing more choices for potential buyers. ‘There are 250 more houses to choose from (compared to September 2014),’ Nall said. ‘The days of having four or five contracts on a house are over. People have more choices and are taking a little more time (when selecting a house).’”

WTNH on Connecticut. “While Alison Schneider is still trying to figure out what all of the keys go to in her new West Hartford home, it didn’t take her long to figure out that Connecticut is a buyers market. ‘I guess I was surprised there were so many out there and the pricing didn’t seem all that bad truly,’ she said.”

“Matt Miale, a realtor at Keller Williams, says the latest census numbers show that about 15,000 more people are leaving the state then moving in. That has been continuing for the past five years. ‘And that’s noticeable to. You do see him a lot more relocation opportunities in our business on people leaving the state than coming in, and that’s the first time we really started to feel that.’ said Miale.”

From Lillie News in Minnesota. “In its third attempt at shedding vacant lots from its inventory, St. Paul’s Housing and Redevelopment Authority have listed 27 vacant parcels around the city for sale. Most parcels are single-family residential lots, and priced under $10,000 — they’ve all been reduced in price by 20 percent, after they didn’t sell the first two times around, as per city policy. These 27 lots represent the majority of buildable vacant lots the HRA still owns, aside from some commercial parcels and some plots currently housing community gardens. Most of the lots for sale are residential, but a few are zoned for commercial uses.”

“Though the first rounds of vacant lot sales saw some decent response from buyers, this one has not yielded any applications as of yet — applications will be accepted through Friday, Nov. 6. Any individual can buy a lot; it’s not limited to developers.”

The Buffalo News in New York. “Larry Lamb, an East Side real estate investor, got into the business on the cheap – via the Buffalo and Erie County foreclosure auctions. Since 1995, he has amassed 12 homes, some for as little as $1,500. More than 2,100 Buffalo properties will be auctioned off this week, after their owners failed to pay city taxes, water bills or user fees. But you won’t see Lamb with a bidder’s paddle at the annual three-day auction.”

“A Buffalo News survey found that winning bids have skyrocketed by as much as tenfold in some city neighborhoods. In 2009, nine properties on Fillmore Avenue sold for an average price of $4,300. Four years later, the average spiked to $11,575 for eight properties on the same street. ‘The prices have become outrageous, outrageous, outrageous,’ he said. ‘I’ll be there just to see how high the bids will go, but I won’t be paying $20,000 for a house at the auction. It doesn’t make sense to pay $20,000 for a house that’s really worth $10,000.’”

The Patterson Press in New Jersey. “John Gomez, an emigrant from Colombia, said he works about 75 hours a week at three different jobs but can’t keep up with the mortgage on his Wabash Avenue home. Jose Duarte, meanwhile, has received an eviction notice because he is way behind on the payments on the Putnam Avenue house he owns. Another city resident, who only gave her name as Lydia, said she had just a decade left on her mortgage when she lost her job five years ago. ‘Don’t ask me how much I owe, because I don’t know,’ said Lydia.”

“They were among 30 people who attended a forum organized by the mayor last week to help Patersonians facing foreclosure. Gomez said he has paid $6,000 in legal fees trying to resolve his mortgage problems. ‘But nothing happened,’ he said. ‘I found out today that the advice is free. I regret paying for this. I filled out the form today. I’m going to set up an appointment to see if I can get a loan modification for my house.’”

“But Lydia said she has already sought help to no avail. ‘I have talked to the banks many times,’ she said. ‘Whenever I talk to someone, they take my name and hear my situation. I received a 28-page packet of forms in the mail that I filled out. I sent them back, but whoever I talk to they tell me to wait. When I hear back it is always another representative, so I have to start all over again. I really think they purposely let time go by so you get more in debt,’ she said. ‘I stopped making payments five years ago. I’ve told them my problems but they keep on giving me different reps.’”

Bits Bucket for October 29, 2015

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October 28, 2015

From Euphoria to Revulsion

News Letter reports from Northern Ireland. “A growing number of towns in Britain now have average property prices in excess of £1m. According to Lloyds Bank, there are now a number of locations outside London with such a high typical home price. It will be many years indeed before any town in Northern Ireland has a seven-figure average price, although there are already streets such as Malone Park in Belfast that probably do, as well as one or two areas such as Cultra in north Down. But the last boom on both sides of the Irish border dramatically illustrated the downside of a housing bubble. It became akin to a ponzi scheme in which people at the bottom (ie first time buyers) pay more and more and those at the top (ie older people who own their home outright) become rich.”

“It has been good to see a return to activity in the NI housing market and to see relief for those worst hit by negative equity. But if people are becoming millionaires in their homes, it is often a sign of something unhealthy in the housing market.”

The Globe and Mail in Canada. “Toronto’s condo sector has seen rising numbers of newly built, but unsold condos this year, raising red flags among some industry watchers. But Canadian Imperial Bank of Commerce economist Benjamin Tal insists those who see the trend as a sign of a condo bubble about to pop ‘are barking up the wrong tree.’ While he dismisses the idea that Toronto’s condo market is facing ‘increased vulnerability,’ he does see stiff headwinds ahead for the sector. ‘To be sure, the GTA’s condo market will be tested as interest rates start rising in the coming years, and increased resale activity from domestic condo investors will result in excess supply and some downward pressure on prices,’ he writes.”

Bloomberg on China. “China’s moves to ease mortgage restrictions and cut interest rates are bearing fruit in the nation’s smaller cities, where home prices have staged a recovery. Now comes the bigger challenge: Clearing a supply glut to spur investment by developers. China’s urban dwellers already own about 24 square meters of housing per capita, and the stockpile of new homes being built suggests that another 7 square meters could be added, bringing the average home ownership to 31 square meters, according to Nomura’s chief China economist Zhao Yang. That’s ‘very high’ given China’s current level of economic development, and compares with 35 square meters per capita in Japan and 54 in the U.S., he said.”

“‘What the government can do is try to prevent too sharp a decline in property investment,’ Zhao said. ‘That’s the pragmatic target.’ Stimulating the property market to revive economic growth, ‘frankly speaking, won’t be a big help.’”

From Fairfax Media. “Jone Wang is just one among a thronging Chinese crowd at an international property expo being held at one of the main exhibition centres in central Beijing, where Australian and other overseas property developers come in increasing numbers to hawk their wares. Competition is intensifying as developers double-down on their marketing push into China, hoping to capitalise on the trend of mainland buyers taking flight over concerns of an acutely slowing domestic economy, accentuated by a volatile stockmarket and a real estate price bubble.”

“‘I don’t know much about Australian property,’ Wang said, clutching a fistful of showbags and brochures. ‘But property prices in China are far too high. And you invest millions of yuan in one property but only get a few thousand in rental income.’”

“A quick glance around the typical dwellings for sale in major cities like Beijing or Shanghai make it obvious why Chinese buyers, in stark contrast to locals, consider both Sydney and Melbourne real estate a bargain. And it is evident too in the widening gap between rich and poor. Homebuyers armed with a A$700,000 budget ($748,000) in central Beijing can at best afford a modest two-bedroom apartment, in a densely-populated, ageing residential compound built in the 1980s. Among the apartments at this price point shown to Fairfax Media by local real estate agents for this story include a 65-square metre three-bedroom apartment with no living room and a tiny kitchenette, shared by six construction site supervisors.”

“Another was a similarly-sized, well-worn two-bedroom apartment used by a restaurant as a make-shift workers’ dormitory, with 14 waiters and kitchen-hands sleeping on austere steel bunk-beds. Newer luxury apartments can easily go for triple or more the price per square metre. Wang said she was lucky to get out before the worst of the stockmarket crash, but said it only reinforced her opinion that there were no truly safe investments at home. ‘Now, China’s domestic economy is not good and I’m concerned my assets here will depreciate,’ she said.”

Domain in Australia. “Chinese investors being offered zero-deposit home loans over Australian apartments will be charged credit card interest rates, raising fears of increased offshore speculation in the already heady property market. The privately owned Ping An Insurance, which is offering the zero-deposit home loans, will charge clients an annual interest rate of 14 per cent. Eddie Yuen, the Shanghai-based manager of property agency Austpac, which is promoting the scheme to clients, said the loan had a two-year term and was to fund the initial 10 per cent down payment for an off the plan apartment.”

“‘You can walk into one of our seminars without a dollar in your pocket and still buy an Australian property,’ he said via phone. ‘We would never promote the loan for speculation as this is not smart for Australian property, where costs like stamp duty are high,’ Mr Yuen he said. He also denied it was a high-risk option as the down payment needed to be secured against an unencumbered property in China.”

ABC.AZ on Azerbaijan. “The Baku real estate market amid falling oil prices and reduction of population’s income is going through a very difficult period. Nusret Ibrahimov, CEO of MBA Consulting Group, says that the Baku real estate prices have fallen by 50% since the beginning of the year. ‘However, even this cost is high in the current situation: the price of a square metre in oil equivalent is now 33-34 barrels, and in order to provide at least minor activity it should be in the range of 20-24 barrels. Housing prices are still high, and there are almost no buyers,’ Ibrahimov said.”

The Hankyoreh. “The idea that the rise of emerging economies like China and India in the early twenty-first century would usher in a boom for the global economy was nothing more than ‘euphoria,’ a noted scholar claims. Jayati Ghosh, a professor at India‘s Jawaharlal Nehru University, is a world-renowned development economist who has focused mainly on the economies of emerging and developing countries.”

“The emerging markets are currently stumbling, as various indicators show. The emerging economies are also losing funds. As recently as last year, there was a net influx of capital accounts, but most analysts predict outflows will exceed inflows this year. ‘This would be the first time in the last twenty years that there has been a net outflow of emerging economy capital accounts,’ Ghosh said.”

“Instead of being used for direct investment in factory building, the funds that have poured into emerging markets since the 2000s have stayed chiefly in the financial sector, where they have been used to generate profits from the rate of return differences between different assets and countries, Ghosh says. Much of the money that has gone into emerging economies has indeed been invested in the real economy. But even there, the goal has been to produce financial profits rather than to reflect the daily needs (effective demand) of people.”

“It is no coincidence that the emerging economies have all recently been going through bubble-dependent booms in their real estate, asset, and/or securities markets, albeit at different times. The asset bubble in emerging economies was also an important factor shoring up the global economy amid the downtown for the advanced economies after the 2008 crisis.”

“In the words of Hyman Minsky, the economist who explained economic cycles in terms of the expansion and contraction of credit supplies, the emerging economies have slipped rapidly from ‘euphoria’ to ‘revulsion.’ The interesting question is how economies with such a relative lack of experience with capitalism became so quickly exposed to financial risks and instability.”

Bits Bucket for October 28, 2015

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October 27, 2015

Bits Bucket for October 27, 2015

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October 26, 2015

The Kind Of Increases We Saw Before The Bubble Burst

The Toledo Blade reports from Ohio. “Home building in Perrysburg is in a resurgence. The city has home builder plats awaiting final approval, with just shy of 1,000 lots, said Brody Walters, Perrysburg’s zoning and planning administrator. During 2008 and 2009, the number of new homes built fell into the low 40s a year. Pent-up demand led to a brief surge to 62 starts in 2010, but that quickly subsided. In 2012, it slumped to 46 starts with an average new-home price of $205,000. In 2013, new homes jumped to 54, with an average price of $282,000. Last year, there were 59 housing starts, with an average price of $265,000. So far this year, there have been 46 housing starts, with an average price of $334,000.”

“Jon Modene, a real estate broker at Re/​Max Masters in Perrysburg, said most first-time buyers are excluded from the home starts. ‘Now, the average start price is close to $400,000, which is unheard of in this market,’ he said. ‘Before you could do a cheap ranch home for $75 a square foot. You can’t build anything under $130 per square foot now.’”

KPAX in Montana. “The Flathead Valley is known for some high quality real estate. Chuck Olson Real Estate Supervising Broker Wendy Brown says 2015 is not over and yet their gross volume is already up over 40%. She says Baby Boomers are back into investing into secondary and retirement homes, especially those migrating from Minnesota and North Dakota. But, is it too aggressive? ‘So, what it’s saying is that we are probably even growing a little too fast and we need to steady out, but it’s great news - especially for sellers,’ Brown said.”

“Remax of Whitefish co-owner Monte Gilman says in the downturn it was the Canadians that took up to 50% of the buyer’s market in Whitefish, but now make up just 5% of clientele. He says growth is currently at 15% year over year, adding it’s a seller’s market, but coming in from the Canadian side of it. ‘In Whitefish, sale prices are about $350k and the trends are that the developers are starting to develop again.’”

From Florida Today. “Homes sales — and prices — continue to climb in Brevard County. In September, the median sales price of a single-family home jumped 32 percent from a year ago, from $129,900 to $172,250, according to Florida Realtors. Mike Slotkin, an economics professor at Florida Institute of Technology, said he’s concerned about the steep year-over-year home price increase. ‘That’s such a strong price increase that I’d start to worry the market is overheating…. This is something to look at seriously because those kinds of increases are the kinds of increases we saw years ago before the bubble burst, and that was not sustainable, he said.”

“Lynn Whelpley, president of the Space Coast Association of Realtors, said that the association is glad to see rising home prices, but added that there is some concern in the association that the prices might be rising too quickly. ‘We want to be cautious that the prices don’t go too high… The rise in prices is good as long as it’s slow and steady, and the prices don’t get falsely inflated,’ she said.”

The Victoria Advocate in Texas. “The rental market is seeing the effects of the downturn in the oil industry. Rent prices are far below the statewide average and there are more rental properties on the market than there have been since the oil boom, according to area realtors. According to Lee Swearingen in his monthly report, approximately 1,800 new apartments have come on the market or are scheduled to in 2015. The apartments that have recently gone online and are offering specials to entice renters to sign a lease, said Dennis Caka, broker wit DC Realty Rentals. To compete with lowering rent prices and a surge in units on the market, they have had to lower the prices on some of their rental properties as well, Caka said.”

“With the addition of the apartments to the market, there is a flood of more units and properties for rent. ‘There’s much more rent property now than there was in the past,’ said Diane Jernigan, president of the Victoria Area Association of Realtors. ‘There’s more supply available.’”

The Greeley Tribune in Colorado. “In Greeley, we’ve seen the market go from something that was 2⁄3 single family and 1⁄3 multifamily to … closer to 50-50 right now. According to city planning documents, there are six multifamily housing projects under construction right now, totaling more than 560 new units that will hit the market once construction is done (probably in 12-24 months). To compare, only 357 single-family lots are under construction in Greeley.”

“But the question everyone is asking is this: Can Greeley absorb the huge amount of multifamily units under construction? A landlord recently told me she went to rent out a townhome in west Greeley earlier this year, but she wasn’t finding renters. She said she had to lower the monthly rent to compete with the new Owl Ridge apartments nearby.”

“Upstate Colorado Economic Development CEO Rich Werner said the market could use some loosening to keep Greeley a competitive business market. ‘We’re at the top of the food chain,’ he said. ‘You look at places like Austin, Dallas, Phoenix, Portland and Salt Lake — our competition — we’re seeing the highest median prices.’”

The New Haven Independent in Connecticut. “Esra Tara Naamani had to enlist people in high places to get Bank of America to take $215,000—and then to get inside a ‘zombie’ mansion the bank was allowing to rot. It might not sound hard to get a bank to accept $215,000. Especially when the bank agreed to take the money in a property sale. Nor might it sound hard to get a bank to unload a money-hemorrhaging architectural marvel that sat vacant for years.”

“But logic, rationality, and self-interest haven’t always factored into how BOA has handled the continued fallout of the mortgage crisis eight years after the bill started coming due for the bank’s shady and shaky subprime lending spree. The lender would start the proceedings. But it wouldn’t want to take title, because then it would be responsible for upkeep or liens.”

“In fact, Bank of America would extend the closing seven times. And still Naamani couldn’t figure out why. ‘Why is it so hard,’ she wondered, ‘to give this bank $200,000?’”

“Evan Trachten at LCI—who has a knack for spotting clues to real-estate mysteries (like this one)—figured out why BOA was moving so slowly. In addition to the basic bureaucracy problem (knowing that a closing was scheduled), the bank had accumulated close to $100,000 in liens on 500 Central. It didn’t want to swallow that loss.”

The Asian Journal on California. “Two different clients both landlords because they both own rental properties came to see me last week with different problems. My first landlord client sold her residence about 8 years ago, just before the burst of the housing bubble. She made a net of $300K from the sale of her residence. She then put $100K down on a new residence, $100K on a rental with 4 units, and the last $100K on another rental with 4 units. At that time all real estate prices were sky high. So, although she made $300K on the sale of her old residence because the price was sky high, she also bought her new residence, and the two rentals also sky high.”

“The first problem with the rentals is that they are negative every month because she has many rental expenses. She’s negative almost $2K a month for 8 units. The second problem is that after 7 years, the properties have no equity. Therefore, after 7 years she lost $168K to pay for the monthly loss of $2K, and she also lost her $200K downpayment, making a grand total loss of $368K for 7 years! Now, she wants to retire and be rid of the rental properties because as she said ‘I already lost all of my $120K savings, and the $200K downpayment, I have to keep on borrowing money to cover the loss, I just want to retire now without this problem. I want to get rid of the two rental properties, but I want to keep my residence, this is what I want to do.’”

“In the other case, client sold her house five years ago and used her net proceeds of $100K to buy a 4-unit apartment. She rents out 3 units and lives in one unit. She breaks even monthly. The problem is she’s having a really hard time paying the first mortgage because husband retired last year. The bank modified her mortgage after her husband retired but the modified amount is still a burden for her. Now she wants to make one last attempt to further modify the mortgage payment. The problem is the bank has set a foreclosure sale for the property in 10 days. She has not paid the mortgage for 12 months and now has a large default of $100K. However, she wants to stop the foreclosure because she believes that she will be able to get a reasonable modification shortly. Certainly, the only way to stop the foreclosure on its tracks is with a Chapter 13 petition.”

Bits Bucket for October 26, 2015

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October 25, 2015

What’s The Alternative?

A weekend topic on a pair of articles related to the housing bubble. MarketWatch, “President Barack Obama was in Phoenix earlier this year to talk up something as hot as the desert sun—housing. In a January speech, he announced a new Federal Housing Administration policy to lower the mortgage insurance premium enough to save the typical borrower $900 a year, assuming a $180,000 mortgage. That FHA fee drop was aimed at helping middle-class families. ‘Over the next three years, these lower premiums will give hundreds of thousands more families the chance to own their own home, and it will help make owning a home more affordable for millions more households overall in the coming years,’ Obama said.”

“In fact, what’s happened—for those on the outside, trying to get in—is that owning a home has become less affordable, directly as a result of the FHA move. CoreLogic tracks house prices nationally. What Sam Khater, deputy chief economist of CoreLogic has found, is that prices on lower-end homes immediately vaulted in price. First, a quick explanation of what is a lower-end home—for purposes of the data presented here, it’s one that 75%, or less, of the median transaction price. For the chart above, the median price of a low-end home was just over $140,000 in August.”

“Khater says that lower-end prices, which had been growing at an 8% year-over-year clip, accelerated after the FHA move. In August, the most recent month for which data is available, prices in this segment have grown 11%, faster than the 7% growth for all segments. That extra 3%-per-year in home price growth, on a $180,000 home, amounts to $5,400, or basically, six years of insurance-premium savings. On a $140,000 home, that extra premium amounts to $4,200.”

“The FHA move certainly has helped stimulate demand. Year-to-date, FHA single-family endorsements for purchase have boomed by 24%. But CoreLogic’s Khater says that is not what the housing market needs at this point. ‘In today’s market where supply is so tight, it’s not helping the cause to artificially stimulate demand,’ he said.”

“The White House referred questions to a spokesman for the Department of Housing and Urban Development, who defended the program and said the market, not the government, sets prices for homes. ‘After months of declining home prices, we are seeing markets recover and families seeing equity build in their homes. The MIP reduction makes refinancing and purchasing more in reach for families across the nation,’ he added.”

“That point about refinancing is worth emphasizing—FHA refis have doubled this year. The move was a benefit to those already in their home who then refinanced under the FHA program.”

From Business Insider. “Former Federal Reserve chair Ben Bernanke has no patience for the idea that Fed is creating inequality and hurting savers. In an interview with the Financial Times published Friday, Bernanke takes to task the idea that the Fed’s policy of cutting rates to 0% and keeping them there to support a slow, plodding post-financial-crisis economic recovery has helped enrich the already-wealthy and punished ‘Mom and Pop’ savers who just want a safe return on their money.”

“‘It’s ironic that the same people who criticise the Fed for helping the rich also criticise the Fed for hurting savers,’ Bernanke told the FT’s Martin Wolf. ‘And those two things are inconsistent. But what’s the alternative? Should the Fed not try to support a recovery?’”

“Bernanke told Wolf, ‘If people are unhappy with the effects of low interest rates, they should pressure Congress to do more on the fiscal side, and so have a less unbalanced monetary-fiscal policy mix.’ And in this Bernanke is telling Wolf that Congress approving additional government spending is the thing you’re really looking for if you want additional economic stimulus.”

“The Federal Reserve, in Bernanke’s view, did its part and avoided a Great Depression. ‘A Great Depression is not going to promote innovation, growth, and prosperity,’ Bernanke told Wolf.”

Bits Bucket for October 25, 2015

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