The Housing Bubble

It’s Friday desk clearing time for this blogger. “Increasing danger lurks in the mortgage market, and economists say it could put the financial system at ‘even greater risk’ when the next recession strikes or too many borrowers fall behind on their mortgage payments. A growing segment of the mortgage market is being financed by so-called non-bank lenders. Borrowers with poor credit have increasingly turned to these alternative lenders instead of traditional banks. The alternative lenders are subject to far less regulation and have fewer safeguards when borrower defaults start to pile up. ‘A collapse of the non-bank mortgage sector has the potential to result in substantial costs and harm to consumers and the US government,’ economists at the Federal Reserve and the University of California, Berkeley, write in a paper.”

“As of 2016, non-bank financial institutions originated close to half of all mortgages. They originated three-quarters of mortgages with explicit government backing, underscoring the risk to taxpayers. The danger is that non-banks may have fewer resources to weather economic shocks to the mortgage market, like a rise in interest rates or a decline in house prices.”

“‘What happens if interest rates rise and non-bank revenue drops? What happens if commercial banks or other financial institutions lose their taste for extending credit to non-banks? What happens if delinquency rates rise and servicers have to advance payments to investors?’ the authors write. ‘We cannot provide reassuring answers to any of these questions.’”

“Property investors were bullish on the U.S. housing market in 2017, flipping more homes than in any year since 2006, when the real estate bubble that helped upend the global economy was still inflating. ‘The long up-cycle that we’re in is giving more and more people confidence to try their hand at home-flipping,’ said Daren Blomquist, senior vice president at Attom. Rising home prices are ‘pulling more people onto the bandwagon.’”

“Still, red flags show up in local markets. Flippers in Austin, Texas; Santa Barbara, California; and Boulder, Colorado, earned gross returns of less than 25 percent (which don’t include the cost of renovating the homes), suggesting that investors in some markets are depending on slim margins. Flips represented almost 13 percent of home sales in Memphis, Tennessee, in 2017, more than twice the national average, a sign that some flippers are becoming overconfident, Blomquist said.”

“More than 10 years after a former Denver man was charged with securities fraud for his role in an $8.3 million real estate scam, he continues to make monthly restitution payments to his victims. But Jason Sharkey’s criminal background hasn’t stopped him from becoming a key player in an $80 million to $100 million riverfront redevelopment project in Wausau, Wis., that’s funded in part by city money, according to records from the U.S. and Canada.”

“‘That’s insane. That’s just crazy, that’s what that is,’ said Broomfield resident Thomas Severino Jr., one of many investors lured into the Colorado scam by Sharkey. He and his wife invested $40,000 with Sharkey, who still sends them about $15 per month in restitution.”

“As the Bay Area exodus continues, U-Haul is watching its trucks drive out of the region and not return — leaving the company with a shortage in the area, Mark Perry, a finance and economics professor at the University of Michigan wrote in a blog post. So the company is raising and lowering its prices accordingly. ‘They’re almost paying people to get the trucks back into San Jose,’ he said. That suggests ‘there’s a huge outflow, and a lot of outbound moves leaving the area, and very few moves coming in.’”

“A marble-filled duplex apartment in Midtown Manhattan’s Olympic Tower returned to the market Tuesday with a new reduced $25 million price tag after spending more than a year in hiatus. The ask is $8 million less than the $33 million that the home was asking when it was last on the market in November 2016, listing records show. ‘Today they are realistic sellers and they are basing the price on market conditions,’ said listing broker Leonard Steinberg of the discount. ‘At a little bit over $3,000 per square foot, it is a remarkably good buy.’”

“The unit isn’t the only big-ticket Manhattan property to get a fresh price tag this week. On Monday, a co-op on Gracie Square received a discount of $7 million to $11.5 million, also presumably a response to difficult market conditions at the highest end of the market.”

“While housing prices in Okotoks fell slightly last year, local realtors say the outlook for 2018 is a more steady market. The current inventory in Okotoks of more than 200 active listings is more than average, said Jacky van der Ven of CIR Realty Okotoks. ‘It’s more inventory than we should have,’ she said.”

“Zurich’s housing market boom is starting to fizzle out. Home values in the canton fell in the fourth quarter, the first decline in almost two years, according to Zuercher Kantonalbank. Demand is unlikely to pick up in 2018, the Swiss lender says, in part because fewer people are moving to the country’s largest city. The decline comes after a decade in which home values jumped more than 50 percent to an average of about 1.3 million Swiss francs ($1.4 million), helped by years of negative interest rates.”

“After seemingly unstoppable growth, Kenya’s real-estate sector is showing signs of oversaturation, while affordable housing remains in woefully short supply. But now, questions are being asked about whether it’s all been too much, too quickly. Empty housing blocks and office spaces are a common sight. According to property services company Broll Kenya, there are occupancy rates as low as 60% in some buildings in Upper Hill and Westlands.”

“David Nahinga, CEO of housing company Ujenzibora, tells The Africa Report: ‘Our market activity is too little, and there is no single player shouldering widespread risk.’ Nahinga says it is the banks who are likely to be the most exposed: ‘The only player in the sector who should talk about a bubble should be the financier or the bank,’ he says. ‘But even for them, funding the built environment can crank up the loan book through revaluation to show the property is worth more than the liability.’”

“Chie Nozawa, a professor of the Faculty of Science and Engineering at Toyo University, spoke with The Yomiuri Shimbun. What problems have there been with Japan’s housing policies? Chie Nozawa: Japan already has more homes [buildings] than households [people to live in them], yet more and more new housing continues to be built, leading to a ’society with excessive residential supply.’ At this rate, future generations will be saddled with the burden of worthless inheritances. We need to find solutions soon.”

“Some major developers have started selling land in non-prime locations over past few months, while some are exiting local markets amidst Malaysia’s soft property sector and the uncertainty caused by the upcoming general election this year, reported The Malaysian Reserve. The central region is also suffering from an oversupply of properties, and it’s uncertain if the existing un-occupied units can be absorbed by the market.”

“Property consultancy MacReal International’s Principal Partner Michael Kong noted that it’s a strategy of developers to focus their resources on sought-after locations at the expense of far-flung areas. Developers are now trying to minimise their losses after ‘getting hints from the media and statistics announced by Bank Negara Malaysia (BNM) and the National Property Information Centre (NAPIC) on the present glut,’ he explained.”