The Housing Bubble

A report from MarketWatch. “The number of investors who flipped a house in the first nine months of 2016 reached the highest level since 2007. About one-third of the deals were financed with debt, a percentage not seen in eight years. Now Wall Street, which was nearly felled by real-estate forays almost a decade ago, is getting back into the action. A number of banks are arranging financing vehicles for house-flippers, who buy and sell homes in a matter of months. ‘The floodgates have opened,’ says Eduardo Axtle, a 35-year-old former telecom entrepreneur in Oakland, Calif., who has taken out about 50 home loans over the past five years. These days, he is bombarded with unsolicited emails from brokers offering him access to financing, and fellow flippers invite him to get-togethers.”

“Some borrowers say they have been offered debt in excess of the value of the home, also known as the loan-to-value ratio. Others say some lenders are requiring bank statements to get a loan, but not standard documentation such as a W-2 tax earnings statement. George Geronsin, 36, a Southern California real-estate agent and house-flipper who has been in the business since 2008, said he recently sold the majority of the homes he was working on and is sitting on cash ‘until the next big correction’ in the housing market. ‘Anybody and everybody is getting into the business of house-flipping — that’s when you know it’s the end of the rope,’ said Mr. Geronsin.”

The Citizen Times in North Carolina. “Local renters weary from hunting for an apartment they can afford may now get some relief. Asheville and Buncombe County have eased out of a housing crisis, according to a newly released report commissioned by the city. The main change has come in market-rate apartments. While the area had a severe shortage on its hands in 2014, there are now 4,722 units proposed or under construction in the county. That could actually tip the scales to the point the vacancy rate exceeds 10 percent, said Patrick Bowen, whose Ohio-based company Bowen National Research recently updated its 2014 apartment report for the city.”

“If that happens, rents will go down, but apartment complexes may start failing. ‘Wouldn’t a renter like to see rents go down? Yeah, they would,’ Bowen said, but failing apartment buildings could cause a spiral of bad things, including loss of home values.”

From Bloomberg on New York. “The luxury Manhattan co-op, a longtime sign of real estate prestige and exclusivity in New York, may be losing its appeal. Blame a glut of newly built high-end condos. Contracts for co-op apartments priced at $4 million or more fell 25 percent this year from 2015, as buyers with means opted for newer homes with more amenities and fewer restrictive rules, according to a report published by luxury brokerage Olshan Realty Inc. It was the biggest annual decline since the firm started tracking luxury co-op contracts a decade ago.”

“‘The data right now has a big, red circle on it that says this sector is in trouble,’ Donna Olshan, president of the firm that bears her name, said in an interview. Next week, Jacky Teplitzky, a luxury broker with Douglas Elliman Real Estate, plans to list an Upper East Side co-op with an asking price that’s slightly below its market value — a way to stand out in a sea of other co-op apartments competing against the wave of shiny new condos. ‘The good news,’ Teplitzky said, ‘is that you can get a very good deal in a co-op now.’”

From The Rapidian in Michigan. “‘I’m watching strangers go in and out of my home,’ said Yvonne Johnson, looking out the window. While we talked at a neighbor’s house, Johnson’s home was filled with realtors and prospective buyers, there for a typical Sunday open house. It’s been a common sight on her block in the last ten months. The home, located near the newly desirable Wealthy Street corridor, is being sold to avoid foreclosure. Yet Johnson thought she was part of a protected low-income housing program.”

“‘I was under the impression that I was part of a home ownership program,’ Johnson said. ‘The house that I live in was built in 1998 by a grant through HUD. The city of Grand Rapids built homes in certain areas to raise the property values. At that time I understood that I would pay my part of it in ten years, because of the HUD grant involved.’ When the ten years passed, she didn’t receive notice, and so she kept paying. She’s been paying for 18 years total.”

“A look at Johnson’s documents reveals that the Grand Rapids Housing Commission (GRHC) applied a $19,000 down payment for the $65,000 home, contingent upon Johnson living in the home for a number of years. What wasn’t clear to Johnson was that the rest of the loan would be a typical mortgage with Mercantile Bank at the current interest rate, around eight percent in the late 1990s.”

“Most of all, though Johnson had been paying for years and hoped that would ensure her home ownership, that wasn’t to be the case. The bank said her home’s entire loan was over $150,000, and she still owed almost $30,000. Johnson said she was never told that the loan was going to amount to that much. Though she used to pay ahead on her mortgage, now that she’s struggling with a recent job loss and less reliable transportation, her options are running out.”

“She would like to move on her terms, and to a comparable place. ‘Now I’ve had such a bad experience, I just want to move. If all this hadn’t happened, I would have liked to stay. I raised my kids here. But after two years of trying to get answers, I’m just so drained and tired.’”