May 6, 2016

An Upside To The Speculative Nightmare

It’s Friday desk clearing time for this blogger. “Home buyers and sellers took off their gloves and went at it in April, with an unusually large share of contracts — as many as 23 percent — falling through, according to a report from the Denver Metro Association of Realtors. ‘It is unbelievably brutal out there. Tempers are flaring. A lot of buyers are giving up and renting,’ said Richard Kelley, who oversees 117 brokers as owner and president of Metro Brokers DTC.”

“Buyers, once more willing to accept whatever sellers asked, are getting frustrated with requests to waive inspections or appraisal contingencies, long considered standard protections. Count John Forrest among the frustrated buyers. The writer/consultant and his wife decided at the start of the year to trade their Boulder condo for a larger property in the metro area. ‘There is a sense that the market just isn’t right, and something is waiting to adjust,’ he said. ‘We will cool our heels.’”

“The average price of a new home in the Houston area fell during the first three months of the year, the first such dip here since 2009 during the last national recession. Builders who had been dashing to put up as many new homes as possible are now facing weaker demand as upstream energy companies continue to slash jobs and cut spending. Chris Simmons started looking for a new house last year when he felt the market was beginning to slow.

“In March, Simmons closed on a two-story, 4,000-square-foot home in Woodtrace, a community north of Tomball. His builder ponied up $61,400 in incentives on the house, which was in the high $400,000s. ‘I knew I’d be able to negotiate some discounts,’ he said.”

“With much of the talk surrounding the housing market centered on ‘normalization’ or returning to its pre-crisis state, one metric which the market is watching is the distressed sales share—the share of REO and short sales that comprise total residential home sales. For February 2016, the distressed sales share declined by 2.9 percentage points over-the-year to 11 percent, according to data released by CoreLogic. The five metros with the highest distressed sales share in February were Baltimore (19.8), Chicago (19.4), Tampa (19.1), Orlando (19.1) and Las Vegas (14.1).”

“‘Prior to the housing crash, the distressed share of total sales averaged about 2 percent,’ CoreLogic Chief Economist Frank Nothaft said.”

“During the boom years, the moving trucks brought over the Altamont Pass families that were priced out of increasingly expensive communities around the Bay. Martin Saltzman, 64, bought his modest one-bedroom home in 2006, near the worst possible moment, with no money down. Then, shortly after he moved here, the economy collapsed, and he couldn’t find work. He took up substitute teaching, and when he was home he watched one cable news show after another in his living room.”

“‘I was watching them continuously to figure out why I was in the situation that I was,’ he says, ‘to try to get some sense it wasn’t necessarily my fault - I just made a good decision at a bad time, or a good decision at a good time that turned bad.’ His home now is worth about half the $126,000 he paid for it. Visionary Home Builders helped him refinance the property last year for a lower mortgage payment, which helped. But Saltzman wants to get out of homeowning entirely as soon as he can.”

“‘I have no idea how long that would be,’ he says. ‘Are we looking at another 10 years?’”

“Some mortgage banks in Sweden are turning away up to a quarter of customers trying to get home loans amid signs that private debt burdens are becoming unsustainable. ‘Our responsibility is also not to lend,’ Danielsson said Klas Danielsson, its chief executive officer. ‘Saying ‘no’ when circumstances are as they are today’ may be the more prudent response, he said. ‘I’m telling my kids ‘you’re not going to buy any flats in Stockholm’ in the next few years,’ he said. It’s ‘also fundamentally wrong for young people to buy,’ because ‘when you’re young you should be mobile and flexible before you settle down. You shouldn’t live in a market where you’re forced to buy to have somewhere to live, it’s just crazy.’”

“Sweden’s central bank resorted to negative interest rates a little over a year ago following a prolonged period of consumer price deflation. Policy makers at the bank have urged the government and regulator to step up efforts to ensure the lax monetary environment doesn’t fan a credit-driven housing bubble. Given the risks, banks are increasingly taking their own steps to cool the market.”

“Buyers in London have become more ‘hesitant’ and desperate sellers are now dropping asking prices by more than 10 per cent, estate agent Knight Frank warned. And price drops have spread across the country, with most regions feeling the squeeze, separate data showed. In exclusive Knightsbridge home values have dropped by seven per cent in the year to April, from 6.8 per cent March, Knight Frank found. Prices in Chelsea in the capital are now down three per cent year-on-year, while South Kensington has seen falls of 4.9 per cent.”

“Overall prices for ‘prime’ central London homes increased by just 0.5 per cent in the year to April from 0.8 per cent, according to Knight Frank. This is the lowest rate in six and a half years and means annual growth has been below five per cent for 16 consecutive months. Tom Bill, head of London residential research at the agent, said: ‘To put that into perspective, annual growth did not exceed five per cent for 17 months in the period preceding and following the collapse of Lehman Brothers.’”

“Unoccupied dwellings – those held as second homes or kept empty as a speculative investment – accounted for 14 per cent of inner-Melbourne’s total apartment stock. A study of water usage by think tank Prosper Australia also estimated one-fifth of all investor-owned properties was lying empty. Domain Group chief economist Andrew Wilson says despite increased building approvals, there has been no real surplus of rental stock, suggesting many of the units had not made it to the rental market. ‘I think the prospect that a number of these apartments are sitting empty is quite real,’ Dr Wilson says.”

“But while excessive targeting of investors is one reason for a looming market failure, another is the stock itself – the contentious issue of appropriate apartment size. Victorian planning minister Richard Wynne has been under pressure to introduce minimum apartment sizes, while developers maintain that such restrictions would bump up prices for entry-level buyers. ‘It’s a speculative nightmare and more akin to a gold rush, where people are buying land, but to gain a return, they are having to build higher and higher,’ Professor Buxton says. ‘That’s not really catering to needs of the emerging market in Melbourne, but it’s suiting developers very well, they are laughing all the way to the bank.’”

“Foreigners who had been banking on their investments in a biomedical research facility and a hotel and rental cottage project in Vermont to get green cards are scrambling to find a backup now that the project’s developers are accused of misusing hundreds of millions of dollars in what investigators called a ‘massive eight-year fraud scheme.’ ‘We were doing our business plans for the restaurant when this came up, so we have to change everything,’ said Wei Wang and his wife, who are from Beijing and living in Houston after graduate school. ‘It’s hard to accept that we may lose all of our almost 600K.’”

“Felipe Vieira, of Brazil, said he decided to invest in Jay Peak to create a more secure life for his small family. He sold a small farm about two hours outside of Rio de Janeiro and an apartment in the city and moved with his family to Stowe. Now he worries they may not be able to stay. Vieira, who works as a business analyst, said he can’t because of expenses for lawyers, moving, housing, and next year, his daughter is going to college. ‘To tell the truth, I don’t have money,’ he said.”

“A softening rental market means that for the first time in several years, the city’s largest emergency family shelter has enough space for clients. University of Calgary economist Ron Kneebone said shelters in Calgary typically record decreased use during economic downturns because the city is a magnet for job seekers during boom times. For Inn From the Cold, a lot has changed in just 18 months. While shelter clients searching for a rental home had to plead their case with landlords in 2014 and were typically turned away, that’s not the case today.”

“‘A year and a half ago, a client would go out to look at a rental and there would be 50 people there to see it, so a landlord was able to be exceptionally choosy and require greater levels of commitment, longer leases, bigger down payments,’ said Inn From the Cold executive director Linda McLean. ‘We’re actually seeing the reverse (now). A lot of landlords are offering incentives. They’re offering the first month free or throwing in free cable or whatever the case may be.’”

“There’s an upside to the downturn. A softening rental market means that for the first time in several years, the city’s largest emergency family shelter has enough space for clients. ‘It’s the first time since I’ve been with the organization that we’ve not been overcapacity,’ said McLean. ‘The rents have really, really come down, which makes all the difference for a lot of our families.’”