July 11, 2016

A Potentially Fast Way To Get Poor

A report from the Arizona Daily Star. “Low interest rates and higher home values have more Tucsonans taking out loans against their houses — a move mortgage lenders and financial planners warn can be risky. Paul Volpe, senior vice president of Tucson-based Nova Home Loans, said the last two months have been the busiest for refinancing in almost 10 years. Debt consolidation and home improvement are the biggest reasons cited for the refinancing, Volpe said, but several customers are looking for cash to buy new cars. ‘People are calling to take cash out,’ he said. ‘Values have appreciated enough.”

“JKR Investment Group Inc. reports a 68 percent increase in cash-out refinancing in the second quarter of 2016 compared to last year. One financial planner’s advise to homeowners considering cash-out refinancing? ‘Be very, very, very careful and thoughtful,’ said Linda Stratton, of Oro Valley. ‘It’s, I think, a potentially fast way to get poor. People used to say, ‘You never lose money on real estate’ and 2008 showed us otherwise.’”

“Stratton strongly discourages using a home to finance luxuries. ‘If people cash out on home equity to spend on vacation or other wishes, it means they don’t have money elsewhere,’ she said. If a client insists on using their equity in a manner Stratton advises against, ‘I’d pull some newspaper articles from 2008 and make them read it,’ she said. ‘We really don’t have long-term memory … it’s human behavior.’”

The Daily Journal of Commerce in Oregon. “After a scorching run of apartment construction, exploding rents and nearly nonexistent vacancies, the multifamily market is beginning to show signs of calming. Incentives are coming back as building owners face more competition to lease up their properties. ‘People are shopping around, which is not unusual when there’s a lot to choose from,’ said Tom DiChiara, principal at Slabtown developer Cairn Pacific. ‘They have some options now. I think that’s going to become more of the norm in the next six months to a year.’”

“Multifamily units permitted by the city of Portland more than quadrupled between 2011 and 2014. There are also some signs that tenants are beginning to balk at rent increases. ‘What I have heard is that for the first time, owners are getting a little pushback,’ said Gary Winkler, a Portland-based multifamily broker. Also, filling apartment vacancies is taking longer, Winkler said. ‘Where we used to be able to get someone in the door within a couple of days, it’s taking a little longer than that,’ he said.”

The San Mateo Daily Journal in California. “A historically tight rental market along the Peninsula may be loosening some, causing prices to drop slightly in the process and perhaps establishing a trend which some real estate experts believe will continue. Ron Morley, of Nest Property in Burlingame, said he believes San Mateo County is on the path to becoming less expensive too, as development continues and more apartment buildings are erected in communities such as San Mateo and Redwood City. The increased availability of apartments has driven down the asking price of some rooms, said Morley, and those listed above the market rate tend to linger until the owner is forced to drop the cost. ‘All sorts of new apartment buildings are coming on the market, and they are filling the lower and middle markets, so that part of the demand is starting to be satisfied,’ he said.”

“A similar trend is taking hold in San Francisco as well, according to Adam Szilagyi, a property manager and Realtor with Property Management SF. A study from ApartmentList.com shows rental prices in San Francisco have started to dip since last year. Szilagyi was quick to note though that he did not believe the minimal downtick was indicative of anything larger than slowing from what had been racing at an unsustainable pace. ‘The city has slowed down from the craziness of the past couple years. I don’t think that the housing prices and rental market was sustainable,’ he said. ‘But it’s not a recession. I think it is more of a market correction.’”

Bloomberg on New York. “Manhattan renters left their apartments in search of better deals last month, pushing back against landlord price increases and taking advantage of a flood of new choices on the market. Apartment dwellers are being helped by a surge of new listings, which is giving tenants the ability to bargain in a month when landlords typically don’t. The number of apartments marketed for rent at the end of June jumped 27 percent from last year to 7,442, according to the report by appraiser Miller Samuel Inc. and broker Douglas Elliman Real Estate.”

“‘If you’re an owner, this is prime time — May, June, July, August — so they feel emboldened to push prices,’ said Gary Malin, president of Citi Habitats, which released its own report on the Manhattan rental market. Apartment seekers are ‘just not willing to bite at certain prices at this moment because they feel it’s a little bit out of reach for them. If they can’t find what they want, they’ll either wait a little longer or they’ll move to a different borough.’”

The Sun Sentinel in Florida. “More than a decade ago, when Alan Hess was looking to buy a home, The Estates of Boynton Waters caught his eye. Today, Hess said he’s still living in a construction zone. Of the more than 100 homes in the community, two dozen remain unfinished, with some only concrete shells. He and some of his neighbors are also upset that Palm Beach County in May gave Kennelly two more years to finish 11 of the homes that were deemed structurally unsafe. ‘When they say two years, that, to us, is a lifetime,’ homeowner Claudia Langieri said.”

“Lisa Glennon lives across from one of the shell homes, and a construction crane has been parked in the vacant lot next to her for weeks, she said. Like the other residents, she’s fed up living in a partially built community. Glennon said she’s leery of entertaining guests because she’s out of excuses for why the community looks the way it does. ‘It’s embarrassing,’ she said.”

“Residents say they’re concerned about sagging property values. Langieri paid $837,448 in 2006, but the county assessed the home in 2015 at $398,847, property records show. Glennon’s home was assessed last year at $437,671, after she paid $790,492 in 2006. Hess’ home is appraised at about half of his $670,000 purchase price. Brenda Fennell bought in the development in 2012. She said her mistake was not talking to existing residents beforehand. ‘If I had known about any of this,’ she said, ‘I never would have bought this house. Never.’”

From Forbes. “After Friday’s market close, people remarked that both the bond market and the stock market were at all time highs. It’s not supposed to work that way. Now, it is a common misconception that bonds always are negatively correlated with stocks. Actually, over the long term, they have a correlation of zero with stocks. But they spend most of their time in one of two regimes, either strongly positively correlated or strongly negatively correlated. Over time it works out to be zero. Yet here we are, with stocks and bonds on the highs.”

“David Zervos, market strategist at Jefferies, commented that ‘Central banks may finally be taking this too far.’”

“We’ve been having a lot of bubbles in recent years (a feature of a world populated with central banks), from the dot-com bubble in 2000 to the housing bubble in 2007 to what people are calling the ‘central bank bubble’ or ‘the everything bubble’ now. Chances are, this could be the biggest bubble of all, and perhaps the most dangerous.”

“I don’t think that stocks are in bubble territory, but bonds certainly are, and if we had a genuine bond market meltdown, a rapid backup in rates of 200 basis points, the losses inflicted on investors worldwide would be more severe than any crash we’ve had to date. Remember, when interest rates are negative, the duration of the bond is actually longer than the maturity. A Swiss 50-year bond trading at negative yields will lose more than 50 percent of its value if interest rates go up just one percent. Think about that.”