December 27, 2015

The Last Time Values Went Up This Far, Prices Crashed

It’s Friday desk clearing time for this blogger, “A recent report postulates that the Denver housing market is experiencing ‘bubble’ conditions. It is easy for one to look back and say, ‘Hey, the last time we had values go up this far in such a short time frame, prices crashed a few years later. Therefore, we must be in a bubble again.’ Well, it is easy to see now that the conditions supporting the last bubble were built out of straw. Today’s market has been based on the age old laws of supply and demand. I do not believe we are in a housing bubble here in Denver at this time. We just do not have the catalysts in place to create a rush for the exits.”

“November was a volatile, if mixed, bag for Bay Area home sales. ‘You’ve got a region that’s one of the most expensive in the country, with prices that a lot of people would consider stratospheric,’ observed Andrew LePage, research analyst for CoreLogic. ‘And yet you’re still posting some surprising year-over-year gains.’ Richard Yau, who works in IT in San Francisco, sold his three-bedroom ranch house in Dublin last month. Watching values appreciate, he had considered waiting another year to sell, but decided to jump now: ‘Because I feel things are about to downturn. We may be in a mini-bubble.’”

“A new real estate study shows it’s more affordable to rent a 3-bedroom home in the Sacramento area than to buy one. Daren Blomquist with RealtyTrac says in Placer County, average wage earners would need to spend nearly 60 percent of their income to buy a home, in El Dorado County it’s 67 percent and in Yolo County it’s 54 percent. ‘We’re starting to see numbers in some of these counties that are some red flags,’ says Blomquist, ‘that we have another bit of a…I’m hesitant to use the word ‘bubble,’ but a bit of a bubble forming when you start to see affordability become that high.’”

“The unemployment rate is not nearly as low as normal for this point in the cycle in Arizona and the number of jobs being created is not nearly as rapid. Thus, Economist Elliott Pollack said in his most recent report, there is less need for people who are looking for a job to move here. According to R.L. Brown, November saw 1,076 new housing permits in Greater Phoenix. This is a gain of almost 76 percent over a year ago. For the first 11 months of the year, permits are up 48.3 percent. Brown said ‘Metro Phoenix appears to be on a roll and the housing industry is feeling almost euphoric.’”

“Prices for luxury homes are moving in the opposite direction from the broader Manhattan market. New York’s high-end inventory has ballooned in recent years as developers focused on building large and lavish units in an appeal to wealthy investors, who now appear to be more hesitant to buy. ‘We have a lot of overpriced apartments on the market and that’s the reason for a slowdown,’ said Donna Olshan, author of a weekly newsletter on the New York luxury market. She believes the market has plateaued rather than peaked. ‘Tremendous overpricing means that marketing periods are longer, and the people who are overpriced are going to have to correct.’”

“This week, oil prices in Texas were just under $35 a barrel. Realtors warn a steady decrease in gas prices could lead to a standstill in the housing market. ‘If gas prices continue to just plummet and we see it get down to $1.25, we’ll begin to see more panic,’ Wolf says. Wolf says currently the housing market in West Texas is at a standstill. But fortunately, East Texas isn’t just dependent on oil. ‘If there was a housing crash we could definitely see values begin to trickle down, eight months out because of this.’”

“President and CEO of Fair Oil Company, Bob Garrett, says in Texas there have already been thousands of jobs lost. And if this downward trend continues, it won’t just be those who work in the oil industry feeling the impact. ‘People depend on the oil industry for their livelihood. They tend to be higher-paying jobs and with that many people losing their jobs it’s going to trickle down into housing, car sales, entertainment,’ Garrett says.”

“As crude prices have plummeted over the past 18 months amid a global surplus, new struggles engulfed the city, with thousands of jobs disappearing overnight and large swaths of workers up and leaving Williston — and North Dakota in general. Perhaps the hardest-hit sector was real estate. Much of the residential construction was planned with the assumption that people would keep moving to town. City officials estimated hotels and apartments, many of which were built during the boom, were at about 50-60 percent occupancy in November.”

“‘The market’s obviously slowed way down across the board,’ said Ryan Visser, an agent at Fredricksen Real Estate in Williston. Visser said there were more than 400 properties listed for sale, the most in nearly four decades. ‘So goes oil, so goes the real estate market.’”

“Crime is rising, home prices are falling and food banks are overwhelmed in Calgary as job losses spread. And the worst isn’t yet over in the heart of Canada’s oil patch. Some of the city’s largest employers are poised to cut more jobs in 2016. Jillian Berling-MacKenzie, 25, was one of the lucky few of her graduating geology class to secure full-time work this year, at oil company ConocoPhillips. She bought a house with her boyfriend, also a newly graduated geologist with a job, before they both became victims of the cuts. A friend’s company has provided some contract work paying slightly more than employment insurance as Berling-MacKenzie tries to land positions just about anywhere, seeing no postings she qualifies for in her field.”

“‘We all know someone who has lost a job,’ Naheed Nenshi, the city’s mayor, said in a speech this month, lamenting the ‘funeral’-like atmosphere in the business community.”

“The Big Short, the movie about the people who successfully bet that the housing bubble would pop, has been reigniting outrage over the shady, unethical, and downright illegal activities of America’s most notorious street in lower Manhattan. You might start to wonder: Is all the risky Wall Street behavior that led to the crisis still going on? Susan Wachter, a real estate and finance professor at the Wharton School who foresaw and warned about the looming disaster well before the collapse happened, is now concerned that the solution to the crisis generated the seeds of another.”

“Essentially, she argues, the government nationalized the entire residential mortgage market, handing the reins to Fannie Mae, Freddie Mac, and the Federal Housing Authority. Although these entities don’t make dangerous CDOs, and you can’t buy credit default swaps from them, our reliance on them leaves the economy vulnerable. ‘We’ve nationalized a system that isn’t supposed to be nationalized and that is not sustainable,’ Wachter says. ‘Next time it’s gonna be a different story: It’s not gonna be CDSs and CDOs which take us down. It’s what we put in their place that exposes us.’”

“This year, make your own ‘Miracle on 34th Street’ on a West Valley street, avenue or boulevard. Remember what a new home meant to the cherubic, Santa-doubting Natalie Wood in the 1947 holiday film classic? That made the childhood star happy, and could you and your family, too. The drop in demand can be frustrating for sellers and their agents, but the attitude of prospective buyers can reduce this. ‘Sellers are most anxious during the holidays, and the spirit of excitement can gain buyers a successful buy,’ said Frank Aazami, at Russ Lyons Sotheby’s, Scottsdale.”

“As a prepared buyer, look at your options, both resale and new. ‘On several occasions I have taken clients to a new home development, and they have found a house to buy,’ said Liz Recchia, a Realtor for Phoenix-based We Sell Real Estate. ‘Some homebuilders are offering great incentives, everything from loan terms to landscaping to pre-paid HOA dues to upgraded interiors, making new homes sometimes more affordable than resale homes.’”

Bits Bucket for December 27, 2015

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