The Housing Bubble

A report from the Kansas City Business Journal. “On Wednesday morning, Katie Yeager, owner/broker of Your Future Address LLC in Overland Park, tried to show a couple three different area homes that had just hit the market. The prospective homebuyers weren’t allowed to tour any of them, however, because the sellers of all three had already accepted offers, Yeager said. ‘There’s hardly any inventory,’ said Jeff Hill, president-elect of the Kansas City Regional Association of Realtors. ‘So a house that looks good and is priced reasonably is going to have a ton of activity and multiple offers on the first day it’s on the market. That’s true for homes up to $300,000, and there’s even $400,000 and $500,000 houses in the right areas that are selling the first day with multiple offers.’”

WMDT in Maryland. “Local realtors say millennials in Salisbury and Wicomico County are making a decision that makes more sense now than it did for the same generation in previous years. Realtors we spoke to also said there are a variety of programs at both the national and state level that make it easier to become a home owner. Realtor Zach Bankert said his clients have used a U.S. Department of Agriculture program that helps with mortgages in rural areas like Salisbury.”

“‘They’ve used USDA financing, which is zero percent down, they got the Maryland mortgage program, $5000 interest free loan to help towards closing costs, and with a little bit of seller contribution, you know, they’ve gotten into a house for basically nothing,’ Bankert said.”

The Contra Costa Times in California. “The conversation that is going around the real estate industry water cooler is, ‘Are we in the bubble in the Bay Area and when is it going to burst?’ ‘This is not a bubble,’ says Chris Thornberg, an economist in Los Angeles. ‘The money flooding the Bay Area isn’t built on speculation like the last boom. These are people with real money, with real incomes. They have enough money to live in whatever cities and neighborhoods they want, so if there’s not enough high-end housing, they’ll just gentrify lower-income neighborhoods.’”

“Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at UC Berkeley, said, ‘The high-tech boom we have is unsustainable. Job growth is unsustainable. There will be, in the next three years, a correction. These unicorns (private companies valued at more than $1 billion) will have to cut jobs. That will have by far the most important impact’ on the housing market. The only question, he said, ‘is whether it’s a minor decline or something more substantial.’”

“At this point, with sky-high home prices, house lusting families are willing to do anything to buy even if this means they are setting themselves up for the next wave of foreclosures. Quicken Loan is pushing the rocket mortgage which you can ‘Push Button, Get Stuff’ — sounds about right for a marketing slogan for a Twitter addicted audience that probably has totally forgotten the sins caused by the first Great Recession. Now you can get a mortgage while sitting on the can or going zero down up to $2 million. What can possibly go wrong? So feel free to buy that $1.2 million shack in San Francisco with a 30-year $1 million mortgage. I’m sure that startup will be around in 30 years.”

The Denver Post in Colorado. “Denver’s single-family housing market, with some of the strongest home price appreciation and fastest turnover times in the country, often gets pegged as a bubble in the making. Zillow research director Krishna Rao argues that those looking for a bubble should instead focus on metro Denver’s multi-family rental market. More than 31,000 multi-family permits have been pulled the past four years, a record-setting pace. And new units are expected to keep hitting the market even though more supply means landlords are being forced to dial back on rent increases and provide heftier concessions.”

“He said oversupply will only get worse, given the long times needed to plan and complete apartments. ‘Taken together, all of this suggests that while demand so far has been sufficient to absorb those units that have already come online, it may be stretched to accommodate the tens of thousands of units builders are planning to deliver over the coming years,’ Rao said.”

The Bay State Banner in Massachusetts. “Real estate broker Delince Louis is bullish on Roxbury’s real estate market. A three-bedroom Dorr Street condo his firm sold last year for $550,000 is now back on the market for $618,000. One single family at 10 Elmore Street sold recently for $550,000 in cash to a Chinese graduate student. Another single family at 45 Elmore Street sold for $590,000. Those prices are still far below the $799,000-$879,000 asking prices for condos on Wyman Street in neighboring Jamaica Plain.”

“The gulf between the higher values in abutting neighborhoods and lower values in Roxbury hasn’t stopped sellers from reaching. There’s the nine-room puddingstone house in the Highland Park section of Roxbury that was last year listed at $829,000. It didn’t sell and is now on the market for $750,000. Then there’s a rather battered looking triple decker near Dudley Square. ‘Great opportunity for developers! Major rehab in the heart of Roxbury,’ reads the $659,900 listing on Trulia. That property hasn’t sold in the 56 days it has been on the real estate website Trulia, despite a price reduction from its original $699,000 asking price.”

“The undisputed king of the high asking prices is 27 Howland Street, where a developer carved out a 4,500 square foot unit and a 3,500 square foot unit from a three-story home and listed listed them for $1.39 million and $1.34 million, respectively. Those prices are down from $1.5 and 1.4 million when the property debuted on Trulia 83 days ago. Will the developer get those prices? ‘I don’t think so,’ says broker Kobe Evans. ‘I don’t see it happening. There are some smooth-talking agents who get owners thinking about prices they wouldn’t ask for.’”

The Wall Street Journal on Florida. “Miami is facing a condo bust—again. Developers have started canceling projects, slashing prices and offering incentives such as private-jet access to spur sales, an ominous echo of the housing crash that pounded South Florida especially hard. In the fourth quarter of 2015, the number of Miami Beach condo transactions declined nearly 20% from a year earlier, while inventory jumped by nearly a third, according to a report from appraisal firm Miller Samuel Inc. The median sales price slipped 6.6%, according to the report.”

“Many of the forces buffeting the Miami market are also hitting luxury markets in New York, Southern California, Australia and London. A strong U.S. dollar and weakening local currencies, dropping oil prices and global economic turbulence have crimped the buying power of foreign investors. ‘The condo market has peaked,’ said Neisen Kasdin, a real-estate development lawyer at Akerman LLP in Miami. ‘Sales velocity has slowed down considerably.’”

The Globe and Mail reports from Canada. “After riding the oil boom for more than a decade, Newfoundland and Labrador is facing a dire economy and a return to the days when it was the archetypal ‘have-not’ province. To accommodate the hundreds of additional labourers, engineers and executives moving to St. John’s to work on these projects, new offices, housing and restaurants popped up, including upscale restaurants and luxury condos with a view of the harbour. The average house price increased to $284,000 from $104,000 over the oil bull market, according to Canadian Real Estate Association data. ‘There would be bidding wars. Here. I mean I had never heard of that,’ said Elizabeth Lawrence, director of strategy with the City of St. John’s.”

“Condos used to get snapped up as soon as they went up for sale, but many have been sitting on the market for months. Throughout the city there are indications that construction has slowed: An empty hole that was destined to be a condo; a person taking down a sign for a gleaming building that was never built. ‘People are holding off right now because of potential layoffs with the government,’ said Larry Hann, a real estate agent with Hann Group, which specializes in condos and houses. Mr. Hann is optimistic for the future because of the huge offshore oil finds, but said: ‘In a couple of years time, unless we get another major oil project, there is going to be a lot of inventory sitting around empty.’”

The Rio Times on Brazil. “As Brazil is rocked by political uncertainty and alarmed by a shrinking economy, canny investors are turning to the country’s real-estate market in search of a bargain. Companies are keen to identify ’stranded’ properties from a surplus of stock and secure large discounts on them. Exxpon, a Brazilian real-estate growth company that specializes in high-risk investments, is looking at discounts on houses of up to sixty percent.”

“‘The greatest opportunities today are in the residential segment, with the high number of cancellations (returns),’ says founder Jonathan Franklin. According to the Fitch credit-rating agency, dissolutions in construction between January and September 2015 were 41 percent.”

From Emirates 247 on the UAE. “Sixty investors from the UAE have paid money for dream homes that are yet to be delivered by Indian builder. A group of non-resident Indian investors in the UAE and other Gulf countries said they have lost hope in a residential apartment project in their home country bearing the name Esperanza (Spanish word for Hope) because even six years after making the payment, they are yet to get possession of their dream homes.”

“Now the Dubai office of the company is non functional and the aggrieved investors said there is no response from the builders office in Kerala too. When Emirates 24|7 contacted the Dubai office phone number provided in the Mather project official website, the respondent said the office is currently used by an ambulance company. According to them about 60 investors from the UAE alone have paid 90 per cent of the price already, taking bank loans and savings. In many cases, banks have already handed over the loan amount to the builder, but no one got possession of the residential units.”

“‘About four years ago, the Chairman of the company himself came to Dubai promising to speed up the project delivery. He had told us to give some more time and we were counting on his promise,’ the aggrieved investors said.”

Domain News on Australia. “An industry report recently predicted Victoria would be the most oversupplied market in the country by 2017, led by high-density apartment development in the inner and middle ring. Buyers’ advocate Cate Bakos had to gradually drop the rent of her ’60s St Kilda apartment with each tenant term over the past three years – from $290 a week to $240. When her last tenant vacated, and the property manager recommended lowering the rent even further, Ms Bakos realised there was a problem. ‘It’s been very difficult with the oversupply that we’ve got, and in particular the new glossy apartments with reasonably low rental yields because you’ve got landlords competing with each other,’ she said.”

“With a large volume of new apartments being built in Prahran, Biggin and Scott’s Suzie Farrell said a purchaser might make a loss if they sold the property within the first year. One of her clients paid $389,000 for an off-the-plan apartment in Prahran about a year ago and tried to sell it at that price six months later with another agency. The property sat on the market for six months before it was relisted with Ms Farrell, who has the lowered the asking price to $369,000. The last sale in the block was $365,000.”

From Bloomberg on the UK. “Lenders are charging higher interest rates for development loans for London luxury homes as slumping commodity prices and increased taxes deter overseas buyers, fueling concern the market is oversupplied. Developers are constructing or plan to build about 54,000 homes in central London, according to data compiled by researcher Lonres last year, just as demand and values fall. Home prices in the U.K. capital’s best districts fell the most since June 2009 in the six months through February, according to broker Knight Frank LLP.”

“‘Everyone is freaking out,’ Randeesh Sandhu, whose firm has loaned close to 1 billion pounds ($1.4 billion) to developers, said in an interview. ‘There has been nervousness for a while in the super prime market and there is also now nervousness in prime.’”

The Los Angeles Times reports from California. “Packed open houses. Bidding wars. Rising prices. That’s the landscape for much of the Southern California housing market as the spring selling season gets underway. ‘Be ready to write the offer on the Realtor’s car,’ mortgage broker Jeff Lazerson said.”

“Sameena Shaikh, a medical researcher, and her husband, Muddassar, who works as a software engineer in Santa Monica, have been searching for a home for about a year but haven’t pulled the trigger. As they surveyed the packed open house they vowed to be less picky. Muddassar explained their new tactic: ‘Let’s just buy something.’”

“Not everywhere in Southern California is red hot, however. Pegi DiRienzo, a Teles Properties agent, said the market has slowed in the corner of Irvine in which she specializes. There are fewer buyers from China than last year, given troubles in that country’s economy, DiRienzo said. ‘It’s going to take a little longer this year to sell properties,’ DiRienzo said. The ultra-luxury market — $10 million and above — has also floundered as international buyers pull back while the economies in their home countries weaken and the U.S. dollar strengthens, said Nick Segal, chief executive of the Partners Trust brokerage in Beverly Hills.”

“‘A fair number of these purchases 12 months ago were aspirational luxury purchases: ‘I now own a home in Los Angeles and it’s my fourth residence,’ he said. ‘Those buyers have dried up.’”

From Hawaii News Now. “Howard Hughes Corporation will begin accepting applications for buyers in a new Kakaako high-rise that’s mostly moderately priced Saturday, sparking an important question: Is the luxury condo market softening? In January, the luxury condo Vida at 888 Ala Moana, planned by a different developer, announced it was scrapping the project because of a lack of sales and increased construction costs. In a letter to shareholders on Wednesday, Howard Hughes CEO David Weinreb said ‘Demand for luxury condominiums in Honolulu, like any market, has limits.’”

The Institutional Investor on Florida. “The South Florida real estate market, which includes Miami-Dade, Broward and Palm Beach counties, has enjoyed a strong rebound over the past six years from the meltdown of 2007–’09. But some analysts say a bubble may be percolating in the condominium market, especially in Miami, which has seen a huge influx of foreign buying.”

“‘South Florida is in a big bubble for high-end condos,’ says Jack McCabe, an independent residential real estate analyst in Deerfield Beach, Florida, who correctly forecast the rout in the 2000s. The bubble is different this time around, he says. ‘Last decade it was U.S. real estate causing a U.S. recession, causing a global recession. This decade it’s a global recession that will end up causing a U.S. recession, causing a decline in the U.S. housing market.’”

From CNBC. “CNBC Contributor Ron Insana thinks high-end housing is headed to crash, particularly in New York where he’s seen a dangerous oversupply, citing slowing demand, especially from foreign buyers. ‘Anything under $3 million, we’re seeing go right off the market,’ Austin Hoffman, real estate agent with Douglas Elliman told CNBC. ‘We’re seeing a lot of price reductions in those higher end properties as listings are not moving as fast.’”

The Oklahoman. “Houses sold faster this winter than last, but for a little less on average, according to the Oklahoma City Metro Association of Realtors. After a bottleneck dating to the Great Recession, new neighborhoods with ready-to-build lots are coming available, said developer-builder Jack Evans, owner of TimberCraft Homes. Houses priced much over $275,000 to $300,000, he said, ‘are a little sticky,’ but he’s not aiming for the upscale market.”

“For all the worry about depressed crude oil prices, job losses and the effect on the economy, Evans said, housing not connected directly to the high-income unemployed isn’t feeling it. ‘That’s part of our strategy. We don’t sell a lot of houses to people who work at Chesapeake,’ he said, but so far this year, ‘I’ve sold three houses to people who work at P.F. Chang’s.’”

KTRH in Texas. “Home ownership is becoming increasingly more difficult for Americans. The average price of a single-family home in Houston in February was just under $261,000. ‘People are not able to afford a home because prices are higher than their actual wages and what they could qualify for,’ says Michael Weaster of Berkshire Hathaway HomeServices Anderson Properties.”

“Weaster says Houston remains relatively affordable compared to other major U.S. markets, and should become a buyer’s market in the coming months. ‘Its all shaking out with oil and the layoffs that have been happening in the last 12 months, I’m starting to see more and more defaults happening within the energy corridors,’ he says.”

The Tribune Live reports from Pennsylvania. “Lawrenceville has become something of a ground zero for house flipping in Pittsburgh, which was cited by real estate data tracker Realty Trac as among the most profitable markets for property investors. These arms-length sales are now more common in Pittsburgh than during the peak of the nationwide housing bubble in 2005, according to Realty Trac, leading to concerns about whether a bubble is building. Josh Adamek buys, renovates and sells homes around the city through his real estate investment firm. Last year, Adamek sold a four-bedroom home for $399,000. He won’t say how much he paid for renovations, but said it was into six figures. Adamek had plenty of room to clear a decent profit. He paid just $110,000 for the property less than eight months before. There are plenty of people willing to pay up to half a million dollars to live in Lawrenceville, he said. ‘Definitely, prices are on the rise, but I don’t think there’s a bubble that’s going to burst,’ he said.”

“Josh Caldwell, president of the Pittsburgh Real Estate Investors Association, said he fields daily inquiries from people who want his advice on how to make easy money flipping homes. He tells them it’s not that easy. Pittsburgh’s housing stock is cheap for a reason, he said. Much of it is more than a century old and requires $100,000 in renovations just to address structural issues to make them safe. ‘We’re getting a heating up in inflation right now because of this national attention,’ he said. ‘A lot of uneducated people are jumping into rehabbing who should not be rehabbing. And they’re going to lose their (backsides).’”

The Real Deal on New York. “Sales of Manhattan development sites slowed significantly in the first months of 2016, adding to broader concerns over the health of the New York real estate market. Bob Knakal, who heads New York investment sales at Cushman & Wakefield, argues that the average market value of development sites has fallen by 25 to 30 percent over the past few months. That price drop isn’t reflected in sales data because most sellers have yet to accept the new market reality and adjust their expectations downward, he explained. Until they do, he said, few sites will trade.”

“A key culprit: weakness in the high-end condo market, which accounted for a large share of Manhattan’s new development activity over the past three years. ‘When you can buy and sell out a building as condos you can afford to pay more for the land and that kind of got into everybody’s mind,’ said Bob Faith, CEO of real estate fund manager Greystar. ‘Now you’re starting to see a pause.’”

The Desert Sun in California. “Canadians have all but stopped buying desert homes, local specialists say. Many are selling their homes instead. Canadians have made up as much as a third of the desert’s homebuyers in recent years and the market is missing them. ‘They’re not buying. Our Canadian buyers are not buying,’ said Kelly Trembley, a Realtor with Bennion Deville Homes who often represents Canadian buyers. ‘This was the perfect storm for the desert, and that’s why our real estate right now is in a bit of a slump.’”

“In the desert, home prices have fallen and the number of homes on the market has spiked. Coachella Valley homes sold for a median price of $283,000 in February — by far the lowest of the winter selling season, according to CoreLogic DataQuick. And inventory jumped by about 25 percent year-over-year, according to data from the California Desert Association of Realtors.”

The Houston Chronicle in Texas. “The hot rental market that enticed developers to launch projects has gone the way of $100-a-barrel crude oil, leaving multifamily property owners worrying about how they will fill their units. Energy companies are cutting the very employees the housing was being built for, and hawkers are now a common sight in front of new projects, spinning signs that advertise free initial rent and other concessions.”

“‘Unfortunately, we can’t turn off the switch and put our shovels down,’ said Philip Morgan, vice president of development for Morgan, a Houston-based multifamily developer that has projects underway near City Centre in west Houston, the Heights and Midtown. ‘There is an imbalance of supply and demand. It’s going to get worse before it gets better.’”

The Alaska Journal of Commerce. “Alaska housing prices peaked in 2015 – and according to statistics, so did homeowners’ willingness to pay them. With layoffs on the North Slope and a precarious fiscal situation for the state government, homeowners in Anchorage appear less willing to fund new residential construction projects than in 2015. An existing home in Anchorage cost $368,012 in 2015, while a new home cost $574,333 to build, according to municipal data.”

“Karen Kissik-Michelsohn, vice president of Michelsohn and Daughter Construction Inc., said her company is beginning to see a new reticence for home building projects. ‘Anybody in the oil industry…they’re all scared,’ Kissik-Michelsohn said. ‘The state of the Alaska economy in general has really had a big impact.’”

Inforum on North Dakota. “The developers of hotels, motels and apartments in North Dakota’s once-booming oil country find themselves in a free-market vice of their own making. Having determined they would invest millions in hotel rooms to accommodate the influx of Bakken oil workers, they now find their new buildings struggling to keep the doors open as occupancy rates plunge to unsustainable lows, sometimes as low as 40 percent – from highs that were routinely at 100 percent.”

“During that period, room rental rates at new (and old) hotels and apartments went sky high, fairly described as ‘gouging.’ Not so, said developers and owners. It was the market at work. The supply-and-demand equation was working in the free market; rates reflected that reality.”

“If it was true then, it’s true now. The ‘free market’ the hotel and apartment folks loved to use as the excuse for exorbitant prices is still at work. But now it’s reflecting a new and bleak reality for the hotel operators and landlords. If they worshiped the free market when times were good, they should not throw their religion under the bus when times are bad. But that’s what they are trying to do by getting government – in the most high-profile case, Williston city government – to force man camps to close in order to shore up sagging hotel, apartment and housing sectors.”

“Williston leaders might conclude man camps – which were enthusiastically invited to town when the boom was booming – should go in favor of ‘protecting’ the city’s hotels and apartments. But let’s not sugarcoat it: It would be a rescue mission that scuttles the free-market principles that conservative business people say they believe in. It would be a not-so-subtle exercise in hypocrisy.”

A Sunday topic on this Reuters column by Edward Chancellor. “This year marks the 300th anniversary of the start of an economic project in France which posterity knows as the Mississippi Bubble. The brainchild of an expatriate Scot, John Law, this scheme has been hailed as the most ambitious economic experiment prior to the establishment of the Soviet Union in 1917. Like Lenin’s creation, the short-lived Mississippi Bubble burst in spectacular fashion. Central bankers around the world are currently embarked on a mission not altogether different from Law’s, making lessons revealed by his failure particularly relevant today.”

“At the height of what he called his ‘System,’ Law was the richest and most powerful man in Europe. His Mississippi Company incorporated all of France’s overseas trading companies – one of which claimed title to half the landmass of what is now the United States, along with monopolies for tax collection, tobacco, and coinage.”

“To understand the origins of the bubble it’s critical to grasp the Scotsman’s original purpose. As an economist, Law was a monetarist, an early forerunner of the late Milton Friedman. He believed that France suffered from a dearth of money and that an increase in its supply would boost economic activity. At the time of Louis XIV’s death in 1715, Law saw that France had two pressing problems. First, the state had too much debt – many of the royal debts were trading well below par. Secondly, interest rates were too high – in his last years, Louis XIV paid above 8 percent for his loans.”

“Law, according to his biographer Antoin Murphy, was a ‘low-interest rate advocate.’ He recommended setting up a national bank, which could issue notes to buy up the government’s debt, and thus bring about a decline in the interest rate.”

“Law was effectively suggesting that the central bank should expand its balance sheet to lower interest rates, which in turn would help over-leveraged borrowers, boost economic growth and employment and stimulate inflation, while simultaneously reducing the cost of servicing government debt.”

“The scheme commenced in May 1716 with the foundation of the Banque Générale, the forerunner of France’s first central bank. Over the next four years, Law enjoyed remarkable success – the Mississippi stock soared, the entire French national debt was absorbed by the company and interest rates fell to 2 percent. Paris bustled with newly coined (or rather, printed) millionaires. Within four years, however, Law’s System had exploded – the stock-market bubble burst, confidence in bank notes evaporated and the French currency collapsed. In late 1720, Law was forced into exile. He died nine years later and was buried in a pauper’s tomb in Venice’s San Moise.”

“The best contemporary critique of the System is provided by the banker and economist Richard Cantillon, who was based in Paris during the bubble. First, Cantillon questioned Law’s basic economic premise. Money printing brought no lasting benefits, in his view: ‘An abundance of fictitious and imaginary money causes the same disadvantage as an increase of real money in circulation, by raising the price of land and labour, or by making works and manufactures more expensive at the risk of subsequent loss. But this furtive abundance vanishes at the first sign of discredit and precipitates disorder.’”

“Devaluations of money promoted inefficiency: ‘Undertakers and merchants find it easy to borrow money, which decides the least able and least accredited to increase their enterprise,’ wrote Cantillon. Operations to reduce rates with freshly printed money also provided an opportunity for corruption, as large fortunes could easily be made. Cantillon argued that Law’s monetary experiment might temporarily reduce interest rates and incite speculation but the newly printed notes didn’t actually enter into the real economy. Similar criticisms have been made about central banks’ recent attempts to boost economic activity with quantitative easing.”

“As the effectiveness of monetary policies has come into question, central bankers in Japan and Europe have acted with a Law-like vehemence. Above all, the collapse of the Mississippi scheme shows that when central banks inflate bubbles there is no painless ‘exit’ – Law’s Banque Royale had to continue printing money to sustain the bubble.”

A Saturday topic starting with this Bloomberg editorial by Noah Smith. “According to mainstream theory, bubbles are not driven by speculative mania, greed, stupidity, herd behavior or any other sort of psychological or irrational phenomenon. Inflating asset values are the normal, healthy functioning of an efficient market. Naturally, this view has convinced many people in finance that mainstream theorists are quite out of their minds.”

“The problem is, mainstream theory has proven devilishly hard to disprove. We can’t really observe how investors in the financial markets form their beliefs. So we can’t tell if their views are right or wrong, or whether they’re investing based on expectations or because of changing risk tolerance. Basically, because we can usually only look at the overall market, we can’t get into the nuts and bolts of how people decide what prices to pay.”

“But what about the housing market? Housing is different from stocks and bonds in at least two big ways. First, because house purchases are not anonymous, we can observe who buys what. Second, housing markets are local, so we can see what is happening around them, and thus have some sort of idea what information they are receiving.”

“In a new paper, economists Patrick Bayer, Kyle Mangum and James Roberts make great use of these features to study the mid-2000s U.S. housing boom. Their landmark results ought to have a major effect on the debate over asset bubbles. Bayer et al. find that as the market overheated, the frenzy spread like a virus from block to block. They look at the greater Los Angeles area — a hotbed of bubble activity — from 1989 through 2012. Since they want to focus on people buying houses as investments (rather than to live in), the authors looked only at people who bought multiple properties, and they tried to exclude primary residences from the sample.”

“They found, unsurprisingly, that the peak years of 2004-2006 saw a huge spike in the number of new investors entering the market. So what was making all these newbie investors start buying houses? The researchers found that one big factor was nearby investment activity. In other words, if lots of people were buying investment properties nearby, it made other people in the area much more likely to buy an investment property. When properties were flipped — bought and then resold quickly — it had an even bigger effect in terms of drawing nearby people into the housing market.”

“This is strong evidence that people were copying their neighbors’ behavior. When people saw other people buying and flipping houses, they started doing it themselves. That stands in stark contrast to the predictions of standard theories of investor behavior, which say that investors only care about the future income that they can earn from their investments.”

“Even more startlingly, Bayer et al. found that housing investors who mimicked their neighbors ended up performing worse than other investors. That is a good indicator that copycats weren’t learning any new information about the fundamental value of housing.”

“What were they doing? One possible answer is herd behavior. Economists have studied herding in financial markets, but their theories are generally unwieldy and their results — until now — have been inconclusive. Psychological effects, such as greed, or FOMO — fear of missing out — are other possibilities. These kinds of effects are regularly cited by financial market participants, but are rarely used in academic finance theory.”

“The Bayer et al. research may change that. The ability to look into local housing markets, and observe investors and transactions directly, is a bit like the introduction of the microscope in biology — it opens up a whole new world of evidence. In the past, finance theorists debated back and forth about market data, and what it implied about investor behavior. Now, thanks to the increasing availability of high-quality data, they can look at that behavior directly.”

“The lesson appears clear: Bubbles exist. Investors aren’t just rational, patient, well-informed, emotionless calculators of risk and return. Now the job is to figure out what really makes them tick.”

The Christian Science Monitor. “If you’re shopping for a house in one of the country’s hottest real estate markets, where the supply of houses is low and demand is high, you may find yourself in a bidding war, with multiple offers pushing prices ever higher. Add low mortgage rates into the mix, and buying a home can feel like you’re in the middle of ‘The Hunger Games,’ competing in a fierce battle to win the house you love.”

“The best move you can make before writing any offers is to hire an experienced, professional real estate agent. Having someone on your side who knows your local market thoroughly — and can guide you through these sometimes tough negotiations — means you’ve got heavy backup when you enter a bidding war. We talked to some real estate agents from around the country about strategies to help you come out on top.”

“Get a preapproval letter from your lender. That way you can pounce quickly when you find the home you want. Use an escalation clause. It’s essentially a contract addendum that states you’re willing to increase your offer incrementally up to a certain limit if other offers come in that match or top your initial bid. Limit the contingencies. Sellers have the upper hand in a multiple-bid situation, and they want offers that are clean and concise.”

“Write a ‘love letter’ to the seller. ‘I definitely ask my buyers to write a letter and explain how much it would mean to them to get the house,’ says real estate agent Eileen O’Reilly with Keller Williams Realty in Burlingame, California. ‘I even have them add a couple of photos of them and their kids or pets. I’ve had selling agents tell me that it was the letter and the complete offer packet that won my clients the listing.’”

“Other Realtors agree. ‘A love letter definitely helps,’ says Paige Martin, a Realtor with Keller Williams Realty in Houston. ‘Even more important is your online reputation as a buyer. Most good seller’s agents will google potential buyers to see if they’ve been in a lot of conflicts or if they have a stable job. While this won’t overcome a large difference (in your bidding price), it will definitely help at the margin.’”

The Associated Press. “The National Association of Real Estate Brokers, a historically black organization, was founded 69 years ago to promote equal access to housing. The organization has launched a five-year campaign to increase by 2 million the number of African-Americans who own homes nationwide. ‘The main thing is that black home ownership does matter,’ said association president Ron Cooper, a Los Angeles real estate broker.”

“Black Americans have the lowest home ownership rate of any ethnic group at 41.9 percent, according to a Census report issued in January. That’s down from 49.1 percent in 2004. ‘We lost quite a bit of equity wealth. We need to rebuild it,’ Cooper said of African-Americans. ‘The message is that the pursuit of home ownership of black Americans is still a noble pursuit. The American dream is within our reach; we just got to reach for it.’”

“The brokers last month held their first midwinter conference in Oakland, California, where skyrocketing home values are preventing renters with modest incomes from buying. ‘There’s a high rate of gentrification going on in the city of Oakland,’ Cooper said. ‘A 1,200-square-foot house is going for a half a million dollars. It’s really kind of pricing us out.’”

“The biggest barriers to home ownership in Memphis are the debt and credit problems of so many families. ‘We go through a lot of clients before we can get one that’s qualified to move on into home ownership,’ said First Tennessee Bank’s Community Reinvestment Act (CRA) officer, Keith Turbett. First Tennessee partners with the nonprofit Operation Hope to provide free financial literacy workshops in Memphis. The bank also offers its Hope Inside program, basing two financial counselors at branches to offer free, one-on-one financial counseling whether the recipients are customers or not.”

“‘African Americans are denied (loans) almost twice as much as whites,’ Turbett said. ‘We’ve seen average (credit) scores of almost 53 points less for African Americans than for whites. So we recognize we have a credit problem.’ Generally, credit scores range from 300 to 850. ‘We feel the 700s is an average, good credit score to shoot for that usually gets you in any loan,’ Turbett said.”

“For the average person, buying a home is the ‘first step to increasing wealth,’ said Regina Hubbard. She’s a broker with Fast Track Realty and was the 2013 president of the Memphis Area Association of Realtors. ‘If you were not born into it, then home ownership is the first step to get there,’ she said. ‘Renting will help the landlord get there, but it won’t help you.’”

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It’s Friday desk clearing time for this blogger. “While the nation is experiencing a housing shortage, local Realtors have a different take on the subject, especially when it comes to South Florida’s real estate. WPBF 25 News 9 a.m. anchor Stephanie Berzinski spoke to Realtor, Elizabeth Hoadley of Hoadley Donohue Real Estate to find out if that same housing shortage is happening in South Florida. ‘Personally I have not experienced a housing shortage,’ Hoadley said. ‘(Instead) it’s a pricing challenge. We have a lot of people who are desiring to cash out after the great fall,’ Hoadley said. ‘So they will put their house on the market but instead of truly wanting to sell it they want to list it and see what they can get out of it.’”

“The median price of a home in Massachusetts fell nearly 5 percent in February, pushing it to just below the $300,000 mark from $312,500 last year. Condo sales and prices followed the same pattern. While condo sales rose 26 percent during the year’s first two months, the median price fell 3.2 percent in the same period to $285,000. The biggest drop in home prices came on the Cape, with Barnstable County recording a 10 percent decline in its median price, to $315,000. On the South Shore, the median price in Plymouth County fell 3 percent, to $285,000. Condo prices fell 9 percent, to $225,000, according to The Warren Group.”

“‘With a mild winter behind us and the spring market beginning to heat up, the year is off to a very strong start,’ said Timothy M. Warren Jr., CEO of The Warren Group. ‘Though fairly moderate, the drops in median sale prices for both single-family homes and condos bring welcome relief as the state struggles with high housing costs.’”

“Despite significant declines in job creation, apartment developers have an estimated 30,000 units under construction in the Greater Houston area—including more than 1,300 in Conroe and Montgomery. There are not enough new jobs to sustain the apartment construction boom throughout the region, said Patrick Jankowski, senior VP of research for the Greater Houston Partnership. ‘We have—what looks like—a three-year supply [of apartments] without the job growth to sustain the [Greater Houston area] market,’ Jankowski said. ‘There are going to be too many units coming online.’”

“Gary Barnett, the developer who touched off a luxury-condo boom in Manhattan, will play host next month to a group of Israeli bond investors who are worried about dimming global interest in New York City’s costliest homes. Barnett’s Extell Development Co., which sold debt in Tel Aviv tied to the performance of some of its priciest condo developments in New York, saw his company’s bonds sink as low as 86 agorot on the shekel last week, with yields surging as high as 9.9 percent. It was the first sign of alarm by Israeli investors who since 2008 have financed a $2.4 billion borrowing spree by U.S. property builders.”

“‘Current Extell yields at 9 or 10 percent reflect a lot of fear and panic, but I think they better reflect the risk-return,’ said Lior Grinhouse, who manages 30 billion shekels at Psagot Investment House Ltd. in Tel Aviv. ‘It’s too early to tell if there is real damage.’”

“Apartments in more than 140 suburbs are on a confidential black list because of growing concerns about oversupply, off-the-plan sales, and, in some areas, falling prices, according to leaked documents. AMP Bank, the banking division of the largest financial services group that compiled the list, claims it is a ‘prudent’ response to managing risks of ‘over-supply,’ which could push down prices, rents and lead to defaults. Suburbs more than 10-kilometres from Sydney’s central business district, such as Homebush and Arncliffe, where there is a lot of apartment building underway, have recently been added to the list.”

“AMP is one of several big lenders circulating ‘black lists’ of suburbs where apartment buyers will face tougher terms and conditions, including increased scrutiny of their ability to pay. A recent survey by WBP Property revealed nearly half off-the-plan sales in the eight months to last August were in negative equity, which means worth less than the purchase price. Average losses were about $40,000, or about 10 per cent, between agreement to buy and pre-settlement valuation. Buyers have to bridge the gap between the purchase price and final valuation, which can result in contract breach, deposit loss and, potentially, legal action by vendors.”

“The skyrocketing Shenzhen housing market cooled off in March as transaction volumes saw a marked slowdown, signalling an abrupt turn in market sentiment. Total transactions by area in the nation’s most expensive city decreased 24 per cent to 89,400 square metres last week over the prior week, and fell 10 per cent year on year, according to China Index Academy. Over the weekend, mainland publication The Paper reported that second hand home prices were falling, citing the example of a flat that recently sold for a 2 million yuan (HK$2.4 million) discount, representing a 12 per cent cut in price, as the investor who bought the property wanted to cash out as soon as possible.”

“The Paper reported that a new project in Shenzhen’sLonghua district has set an initial selling price nearly 20 per cent cheaper than similar projects in the area. Carol Wu, China property analyst at DBS Vickers, said she expects price growth will ease in Shenzhen after pent-up demand was released over the past few months due to ‘panic buying.’ ‘Now prices have gone far beyond the level an average person can afford,’ said Wu.”

“Calgary homebuilders are reporting a slowdown - but definitely not a full-stop - in the wake of the downturn. Danelle Kaspers of Treehouse Developments – a housing contractor – is thankful the work has been continuing on. She thinks some of the work they’ve seen is speculative, but they also get people who want to take advantage of the slower market to build. ‘It was such a boom market before and prices were higher,’ she said. ‘There’s definitely been a price reduction – there definitely had been up to a 10 per cent drop in price on some of the inner city developments.’”

“Imagine your dreams of home ownership finally coming true. The bank qualifies you for a loan to buy a modest but perfect two bedroom craftsman on Beacon Hill. Then the economy tanks. You discover you owe much more in loans than your home is worth. The payments would eat up almost all of your now-reduced monthly income. You realize you’re on the verge of losing your home to foreclosure, with the thousands of dollars you’ve already made in payments vanishing into thin air. That’s what Pina Orsillo Belgrano says happened to her.”

“After eight years of struggling to keep her home, last week she received letter from the bank telling her she’d exhausted all other options, and that her home was being foreclosed. Belgrano said her experience as a homeowner was not the idea of the ‘American Dream’ she had in mind when she emigrated to the U.S. at age 16. ‘My thing was, ‘well, maybe I should explore the American Dream,’ she said, ‘which has now become a total American Nightmare.’”

“A longtime Nebraska lawyer who later served as the CEO of TierOne Bank when it became insolvent was sentenced Wednesday to an 11-year federal prison term. He was also ordered to pay a $1.2 million fine and undetermined restitution. Gilbert Lundstrom, 74, was accused by the government of causing more than $50 million in losses by concealing the dicey state of the bank’s assets as the housing bubble burst and TierOne became the biggest bank to fail in state history. He was found guilty by a jury last year of 12 of 13 counts in a bank-fraud case.”

“During his three-week trial, subordinates of Lundstrom said he created fake accounts to conceal bad loans made to real estate developers as the housing boom was about to become a housing bust. ‘Do not see me as an evil man. I never intended to hurt anyone,’ Lundstrom told the judge, explaining that he never expected the bank to become insolvent and put employees out of work. ‘I truly believed that the market would turn around and we’d get out of this together.’”

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The Orange County Register reports from California. “Orange County home prices continued to rise through February but at a slower pace than in recent years, new housing figures show. CoreLogic reported that last month’s median home price – or price at the midpoint of all sales – was $610,000, down $8,500 from January, but up by $20,000 from the previous February. That’s a year-over-year gain of 3.4 percent, the second-lowest price appreciation rate in almost a year. It’s also just the ninth time in the past 29 years the median home price dipped from January levels. Los Angeles housing economist G.U. Krueger and some local real estate agents also noted many buyers struggle with affordability.”

“Realty One broker-agent Sherry Bahrami said buyers are balking at high asking prices, and sellers are giving in. ‘Sellers … softened their response and negotiated an under-asking (price) contract,’ she said.”

The Desert Sun. “Home prices sank to their lowest levels of the winter season in February, hitting a median of $283,000, according to CoreLogic DataQuick. Resale home prices fell by 10.3 percent from February 2015, down to a median of $287,500, CoreLogic DataQuick’s records show. New homes sold for a median price of just $327,000, down 5.6 percent year-over-year and by far their lowest level of the winter homebuying season.”

“‘It helps to know that over 50 percent of homes in the Coachella Valley are owned by non-resident owners and more than 70 percent of money generated in real estate transactions comes from those buyers,’ said California Desert Association of Realtors president Judy Horn. ‘America’s current economic uncertainty, coupled with the decline of Canada’s currency as measured against the American dollar, has a negative impact on our second home market and out of area investment in Coachella Valley’s real estate market.’”

The Lake County News. “Home sale prices in February edged down, but the number of sales was up, according to the Lake County Association of Realtors. LCAOR reported that the February median sales price of single family residences in Lake County pulled back by 18.24 percent when compared to the January 2016 median sales price. Distressed property sales jumped to 18.5 percent of the sales after falling to 8 percent in January. A number of different types of sales make up distressed properties including auction sales, real estate owned (foreclosed properties) and short sales, LCAOR said.”

“‘Even though the month to month median price went down the real estate market has been very active especially for this time of year,’ said 2016 LCAOR President Erin Woodward. ‘As inventories tighten and prices increase in surrounding counties more buyers will consider opportunities in Lake County.’”

The Marin Independent Journal. “The median price of a Marin home fell 4 percent in February, to $925,000 compared with the previous February, and sales dropped 3 percent. The median price of a condominium also dropped, going from $505,000 in February 2015 to $448,800 in February 2016, according to CoreLogic. There has been a lot of talk lately about ‘unicorns,’ new technology companies, many of them social media, with valuations of a billion dollars or more. While there has been a lot of funding of such ventures, the view today is that there may be too many of them and valuations might be affected, Dreyer said. ‘Some experts are cautioning that we’re at the end of a hot cycle,’ Dreyer said.”

“As goes Silicon Valley, so goes the Bay Area, so the economy and the real estate market might see an effect if the cycle ends. David Swaim, owner of Tam Realty in San Anselmo, said, ‘It’s still a strong seller’s market, it’s just starting to show signs of coming back to earth. People are nervous that prices may come back to earth later this year.’”

The Mercury News. “Silicon Valley luxury home sales rose sharply in February from the month before, though they dropped 11 percent from the level set a year earlier, according to Coldwell Banker. The median sale price of a luxury property in February was $2,550,000 in Santa Clara County, up 6.5 percent from the January median of $2,395,000 — though down 4.2 percent from the median of $2,662,500 in February 2015.”

“Arthur Sharif, an agent with Sotheby’s International in Menlo Park, called this year’s market ‘topsy turvy,’ with buyers’ confidence swinging this way and that, at least partly because of recent stock market fluctuations. ‘The underlying theme, I think, is that the go-go days of 2014 and 2015 are behind us,’ he said. ‘I think we’re going to see a little bit of sober reality.’”

“He said that homes priced between $2.5 million and $5 million ‘are staying on the market for a little bit longer time. And we’re seeing fewer multiple offers and the prices are down a little from where they’d been. And that’s true in Los Gatos and Saratoga and even in the holy grail of the market, Palo Alto. After what we’ve experienced for the last two years, it’s been a little bit of an eye opener.’”

From KCBS All News. “Real estate firm Trulia finds that starter home inventory is down overall by more than 40 percent since 2012, and in the Bay Area, investors are holding onto a large percentage of those homes. In the Bay Area, the median price of the homes that normally attract first-time buyers is higher than anywhere in the nation.”

“‘The shocking number that came out of the report was actually the share of income the starter home buyer, even if they can put 20 percent down on a home, would have to spend to service the mortgage, is like 110 percent of their income. That’s unbelievable. That’s uncharacteristic of the rest of the country, but that really is a sign that home-seekers are starting to look down the housing ladder,’ Ralph McLaughlin, Chief Economist for Trulia told KCBS.”

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The Herald Tribune reports from Florida. “Home sales tumbled again in Southwest Florida last month, but prices continued to climb. For the fourth time in five months, sales of existing single-family homes and condominiums declined over the year in Sarasota, Manatee and Charlotte counties, according to the Florida Realtors trade group. Charryl Youman, a Realtor with Berkshire Hathaway HomeServices Florida Realty in Venice, said sales perked up this month after potential sellers saw the price increases and finally decided to list. ‘As we got into March, we have seen daily price reductions for sellers trying to hook a buyer before they all went home,’ she said. ‘The result was more inventory and lower prices — and so, the buyers are back.’”

“New homes also have helped slow sales at certain price points, Youman said. ‘The only listings that seem to still be in a trance are the $300,000 to $600,000 homes,’ she said. ‘I am hearing from colleagues that these listings are not getting many showings, and not seeing offers.’”

The Orlando Sentinel. “Orlando home-sale prices have grown in the last year but not as much as price growth across the state, according to Florida Realtors. One real-estate trend seen in neighborhoods throughout Orlando and the state — increased for-sale signs. ‘The trends we’re seeing in closed sales and new listings have led to two straight months of rising inventory levels (active listings),’ said Brad O’Connor, chief economist for Florida Realtors.”

The Sun Sentinel. “South Florida home prices continue to climb, even as the housing market loses some of its sizzle. February is the unofficial start of the traditional spring and summer buying season, but sales were mixed last month. ‘Buyers are not in a hurry to buy,’ said Jerry Kopensky, an agent for Century 21 City Real Estate Corp. in South Florida. ‘There’s just no frenzy out there like there was.’”

The Palm Beach Post. “In the Northeast, an important feeder market for Florida, existing-home sales plummeted 17.1 percent to an annual rate of 630,000. That’s bad news for Florida, which depends on people living outside the state to sell their homes and move to the subtropical climes of Palm Beach County and the Treasure Coast. Only 1,146 single-family homes closed in February, a 5.1 percent decrease from a year ago, when 1,208 homes closed.”

“The multifamily market showed a sales slowdown, too. In February, there were 913 closed sales of townhouses and condos, down from 801 in January, and 972 during February this past year — a 6.1 percent decline. The peak in sales appeared to be this past April, when 1,452 sales closed. Since then, it’s been a slow decline, with the lowest dip coming in January, when only 801 sales closed. ‘You need to put things in perspective and look how far we’ve come over the last seven years,’ said Daniel Markow, market executive for Merrill Lynch Wealth Management for the Palm Beach market.”

The Naples Daily News. “Single-family home sales dropped by a larger percentage in the Naples area than anywhere else in the state last month. Existing single-family home closed sales were down 16.8 percent in February from the same month a year earlier, Florida Realtors said. Closed sales for the Naples-Immokalee-Marco Island metro area dropped to 297 from 357 the year before. It was the largest drop out of 22 metro areas the trade group tracks.”

“Elizabeth Mancini, managing broker of Premier Sotheby International Realty in Bonita Springs, said Canadian buyers, which are the biggest group of buyers in Southwest Florida, ‘are not buying, just selling.’”

The News Press. “While Lee County real estate prices continued their upward trajectory in February, sales took a nosedive, according to a report. City for city, every Lee locality saw a drop in home and condo sales led by Sanibel/Captiva, and median prices increased in all markets except Sanibel. Many sellers anticipate the season by putting property on the market early in January and February, asking higher than market prices, observes Jeff Miloff, managing broker for Miloff Aubuchon Realty Group. As the season winds down, their prices come down, too. ‘Buyers are aware of that behavior, and act accordingly,’ he said.”

From Miami Today. “With more ultra-luxury condo units than ever before coming to Brickell all at the same time, brokers specializing in the market are seeing the first signs of rents trending down as supply starts exceeding demand. This cycle is looking at 14 new towers, four of which are already complete, according to Nayla Benitez, vice president and managing broker for EWM Realty International’s Brickell office. Judging from these four, she said a lot of the buyers in this cycle weren’t intending to live in the condos, given that almost a third of these units have come back on the market as rentals and about 10% as re-sales.”

“‘Most units were bought by investors so we are going to see more coming back as re-sales or rentals as sellers realize they will have to hold the units for a longer period than expected if the goal was to flip them when they initially purchased them,’ Ms. Benitez said.”

“Ten additional condo towers are expected in Brickell between 2016 and 2018. These new, ultra-luxury condo units are being built with a high level of construction, aesthetics and amenities that Brickell has never seen before, Ms. Benitez said. That’s certainly going to be popular and make home-life more interesting and special for Brickell residents, Ms. Benitez said. It’s probably not as good for the investors who bought the units for a quick flip and might not find the profits they anticipated, or, at least, not as soon as they’d planned.”

“No one expected so many condo units would come to the market all at once, Ms. Benitez said. ‘By 2018, there will be more than Brickell has ever seen, and we believe the rents will go down, maybe not as low as in 2013, but will drop when there’s more inventory than demand.’”