The Housing Bubble

A report from MarketWatch. “Ever since the shock of the financial crisis ebbed and buyers began to return to the housing market, one truth has dominated: mortgage lending is tight. But is it? So much lending to people with higher credit scores and so little to those on the lower end of the spectrum has shifted the average FICO score up about 40 points since before the bubble burst. But measured in another way, lending is shockingly loose. And, according to one economist, that tells us a lot not just about the housing market, but about the economy as a whole.”

“The 20% down payment may linger in Americans’ imagination, but it’s even less real today than Jimmy Stewart’s small-town banker from 1946. American homeowners, particularly those at the lower end of the market, are increasingly leveraged to pay for their houses, says Sam Khater, deputy chief economist at data provider CoreLogic. In fact, owners of entry-level homes, those in the $150,000 to $300,000 range — have more debt and less equity now than they did in 2005, at the height of mortgage mania.”

“For Khater, that says less about credit markets and more about another defining feature of the post-recession housing market — its lack of affordability. ‘We have our eye on the wrong ball,’ he told MarketWatch. ‘What I worry about is the leverage not from a default perspective but from an affordability perspective. Demand for credit has been weak. But the much bigger issue is the supply of housing, not supply of credit.’”

“Home builders are selling fewer and fewer homes in the lower-end categories as the recovery drags on. They built more than four times as many homes in the $750,000 and above price range in the first half of this year than those priced under $125,000.”

“While it’s impossible to say where we are in the housing market cycle, it’s certainly not the beginning, and prices in several metros have long since surpassed the highs they first set 10 years ago. ‘It’s one thing to be leveraged at the beginning of a run-up in home prices. It bears more risk when you’re at the top of pricing,’ he said. ‘I don’t know where we are but I do worry that if we have this much leverage at this part of the real estate cycle that we might be setting up for turbulence in the near future.’”

“Khater also thinks the affordability hump will serve as a speed bump for the entire housing market. ‘As home prices continue to move up, there are fewer and fewer borrowers who are able to participate in the market,’ he said. Sales have begun to falter – but price growth marches on. ‘At some level, we’re sort of running out of customers,’ Khater said.”

The Alaska Journal. “The 2016 Anchorage residential market could best be described as having had a minor fender bender, not the fatal crash so many naysayers predicted for the housing market. There are, however, some minor dents in the market. Homes that are 30 years old and in need of maintenance and remodeling are not appreciating and in some instances, depreciating in value from their original purchase price from five or 10 years ago.”

“Two of Anchorage’s most expensive areas, downtown Anchorage and DeArmoun/Potter Marsh, have seen a modest decline in average sales price while the rest of the market has remained flat with virtually no appreciation in the average sales price of $362,000 from a year ago. But, what has increased is inventory. Buyers have a much wider selection than they did at the beginning of the year. September had 999 active listings compared to 569 in January. More inventory doesn’t mean more buyers. Quite the contrary. There is definitely emerging a hesitancy in the market place.”

The Tampa Bay Times in Florida. “with 87 homes sold in a single three-month period this year, Waterset is the fastest-growing new-home community in Tampa Bay. When finished it could potentially have as many as 5,000 single-family homes. That’s in addition to the hundreds of houses going up in other parts of south Hillsborough. Is the area in danger of being overbuilt?”

“Ron Balseiro, a veteran appraiser familiar with SouthShore, sees a potential downside to buying a new home in one of the many new communities that are springing up. ‘If the builder is still building and if you need to sell in a year or two, what people don’t understand is that it’s hard to sell your house because you are competing with the builder,’ he said. ‘It’s okay now because values are still going up but if interest rates go up, builders will be forced to lower their prices.’”

The Atlanta Journal Constitution in Georgia. “Nearly a decade after buying her home, Jennifer Dewan feels trapped in it. The first-grade teacher paid about $175,000 for her Fairburn home during the housing boom and then, when the bubble burst, watched powerlessly as values plunged below what she owed on her mortgage. She stuck it out and kept up with her monthly payments, but the rebound in values since then has yet to undo the damage.”

“Dewan is one of the tens of thousands of metro Atlanta homeowners or families still ‘underwater,’ or owing more than their home is worth, in the wake of the housing bust that still scars the region. Dewan, 59, said she’d still have to bring a lot of cash to the closing to pay off her mortgage. ‘The homes in the area are selling for $145,000 to $150,000. Sure I’d sell and try to buy something else in a nicer neighborhood if I could. I feel very trapped.’”

“Dewan recently became one of more than 5,000 people who have applied so far to a program offering one-time cash boosts to get underwater homeowners closer to the surface. Phyllis Atchison, 63, will likely not qualify. Neither will her mother, 85. Both own underwater homes in Southwest Atlanta. Each of the women owns an investment property in the area as well, and they too are underwater, Atchison said.”

“‘They tell me my house is worth only about $75,000. The balance on the mortgage is $100,000,’ Atchison said. ‘I refinanced in 2007 and took cash out to buy the rental property.’ She figured she would make a lot of money selling it in a few years, but her timing was unlucky. ‘I tried to sell right before the market fell and I had an offer for $320,000 but it fell through,’ she said.”

“Jacqueline Atterberry, 51, had her townhouse built in 2007 in the Cascade area of south Atlanta and moved in the following spring. ‘I was so excited, the first in my family to be a homeowner,’ she said. ‘And of course, everything went bust a month or two later.’”

“With prices dropping, homes around her falling to foreclosures and her interest rate climbing, Atterberry negotiated a loan modification to cut her payments. Despite losing a job, she kept making those payments. But she still owes $110,000 — about twice the current home value. The state’s new program holds out hope, she said. ‘I really like my home. I can’t imagine walking away.’”

A report from Domain News in Australia. “Sydney’s hot property prices and tight rental market have been described as a tenant’s nightmare. But in some suburbs, landlords are reducing their rents to secure a tenant. Sixty kilometres south-west of Sydney CBD, one landlord recently dropped the advertised rent on a three-bedroom house in Narellan. Rented out in 2013 for $430 a week, 22 Mowatt Street was re-advertised last month for $420 a week, Inglis Property Macarthur senior property manager Fia Foglia said. ‘We had no inquiry, no one at the open homes, where six months ago we usually had people queuing up … for a nice, clean rental like this,’ Ms Foglia said. It finally rented after just one person applied.’”

“‘We’ve got another [rental] that has been vacant for six weeks in Oran Park at $550 a week,’ she said. ‘It’s a hard pill for landlords to swallow that they have to drop their rent from $550 to $500.’”

“The weakening of the rental market wasn’t isolated to the south-west, with the outer ring suburbs more broadly seeing rental declines, statistics from the Real Estate Institute of Australia show. It could be a result of high levels of investor activity, which typically occurs in the cheaper outer rings where rental yields are more attractive. The ‘new completions bought in the investor rush of last year’” were starting to hit the market and could be skewing the rental market very quickly, said Real Estate Institute of NSW president John Cunningham.”

The Australian. “Melbourne developer Golden Age will put a 20 per cent cap on the ratio of overseas buyers — mostly Chinese — in its latest Sydney apartment project in a bid to lessen the risk of buyers not ­settling. The company, founded by Chinese born Jeff Xu, released the first stage of its Park One apartments at Macquarie Park in Sydney’s northwest over the weekend and the project’s 230 apartments sold out on the first day.”

“Although the company has only seen a default rate below two per cent in its Melbourne projects, settlement risk is mounting in some pockets of the market, Mr Xu said. ‘Since the banks shut lending to overseas buyers, the apartment market has receded indeed,’ Mr Xu said. ‘Particularly in areas such as Melbourne’s Southbank and Docklands, Sydney’s west, settlement risk will be probably much higher than other areas.’”

“With settlement default potentially transferring risk to ­developers, it would be a very challenging time for those companies to cope if they hadn’t controlled risk in the first place, Mr Xu said. ‘That’s why you will see many companies just sitting there and doing nothing. The market is very different now from a couple of years ago,’ he said. ‘It’s not that easy to launch a new project now. You will have to prepare your display suite quite well now, while for the past few years you might not need it at all to sell apartments.’”

The Gold Coast Bulletin. “A group that was one of the earlier major Chinese investors in the Gold Coast property market has taken a lakeside bath. Huidong appears to have lost $5 million or more on a 2010 investment in a parcel of land within the Hope Island Resort. As is often the case, where there’s a loser there’s a winner and in this case it’s another Chinese group — the owner of the resort’s golf club, Golden Horse. It’s picked up Huidong’s site, which can provide 46 housing lots, but is in no rush to come out of the development starting gates.”

“If the Hope Island buy was merely an Australian entree, it eventually didn’t suit Huidong’s investment tastebuds. It stopped civil works after around $3 million had been spent in an exercise that included moving 36,000 cubic metres of pre-load material on to the site. Later Chinese property agents from Melbourne started quietly touting the land around the market.”

“Golden Horse cantered in with a $10.12 million offer, Huidong accepted it, and the money’s been paid. The restaurateur’s losses include $880,000 on the land, $3 million on earthworks on its raw site, and probably well north of $1 million on body corporate fees and other holding costs.”

From Smart Property Investment. “After experiencing phenomenal price growth of 97 per cent at the height of the mining boom, the fortunes of one formerly popular investment region have well and truly turned. The Isaac LGA in Queensland, including the smaller towns of Dysart and Moranbah, had a 97 per cent rise in median house prices between December 2007 and March 2012 – but this has since declined by 83 per cent, according to QBE’s recently released Housing Outlook 2016-19 report.”

“At the start of the upturn in December 2007, the median price in the Isaac LGA was $335,000, with 451 sales over the previous year. By the cycle’s peak in March 2012, prices were up to $660,000 with 658 sales. Prices now sit well below even their starting point, at just $110,000 with 93 sales over the year to June 2016, the report said.”

“The contrast between boom and bust has been stark. ‘Median house prices climbed rapidly through the early boom period as the influence of mining investment led to job creation, population growth and demand for housing. As the mining investment wound down, median house prices fell sharply while unemployment rates grew rapidly and population left,’ the report said.”

“The report noted sales volumes in all mining centres fell significantly in 2015/16. ‘It is likely that many owners would rather hold onto their property than sell at a loss, with a large proportion of sales likely to be forced sales, thereby placing further downward pressure on the median price.’”