The Housing Bubble

A report from the San Francisco Chronicle in California. “Unless you’re a millionaire, it’s difficult to fathom San Francisco’s insanely high home prices. The median sale price of a single-family home in the city soared to $1.6 million in the first quarter, nearly a 24 percent jump from a year ago, according to the Paragon Real Estate Group. That’s a $110,000 gain in the past three months running January through March. Reporter Mike Rosenberg at the Seattle Times expressed the increase in home prices, saying they’ve gone up $1,200 per day over the last quarter.”

From LA Curbed in California. “The cost of buying a home in the San Fernando Valley hit a new record-high in February, according to the Southland Regional Association of Realtors. A typical Valley residence now runs buyers $700,000—well above the previous median price record of $675,000 set in November 2017. That price is also 16.7 percent higher than a year earlier. Both homeowners and buyers, says real estate agent Mark Alan Bua, are treating purchases as longterm investments, rather than opportunities for a relatively quick profit.”

“‘If it’s a nice property in a good school district, buyers don’t think twice about overpaying,’ he says. ‘They’re in it for the long haul.’”

From Boise Weekly in Idaho. “The continued appearance of Boise on “‘Top 10 Places to Live’ lists has sent the local real estate market into a tailspin. The median price of homes for sale in Boise has also been steadily increasing over the past year, and is now up 12.75 percent to just over $250,000, according to RE/MAX.”

” ‘A lot of news articles that you’re seeing say there’s no inventory out there,’ said Boise RE/MAX broker Darrin Jaszkowiak. ‘But that’s a little bit of [a] misnomer, because there are actually a lot of transactions happening. The overall inventory just isn’t staying put. Homes come on the market and they come off the market pretty rapidly. So, it’s important for homebuyers to make informed, but quick, decisions.’”

From KMMS AM in Montana. “It’s no secret that Bozeman, Montana is an expensive place to live. A vacant lot within the city limits can command a price of $115,000 to $300,00 or more. According to the Gallatin Association of Realtors in February of 2017 the average price for a single detached home in Bozeman sold for $425,216 in February 2018 that increased 15.4 percent to $490,714. Average lots in Bozeman sell for around $100,000. If you use the rule of thumb that the cost of the lot should be about twenty-five percent of the total cost of the project, then you’re looking at a $400,000 home in Bozeman.”

“Outside the city limits is even more pricey. The average price of a home in February 2017 outside Bozeman was $479,089. In February of 2018 that increased 26.7 percent to $606,771.”

From USA Today on Nevada. “This spring home-buying season should be a coming-out party for Millennials, many of whom are finally ready to make a purchase after hunkering down for years in their parents’ basements or expensive apartments. The only problem: Much of the food at the party is gone, and what’s left is priced like caviar. In the Las Vegas area, the median home price has jumped about 12% over the last year and doubled the past five years, Attom figures show. Homes priced below $200,000 typically draw 15 to 20 offers, says Chris Bishop, managing broker of Coldwell Banker Premier Realty. To stand out, some bidders are writing letters to sellers, detailing what they like about the house, says Rob Pistone, a broker at Keller Willians Realty.”

“Maria Maneva, 37, a Las Vegas escrow officer, is looking to move to a larger house now that she and her boyfriend have a 3-month-old daughter. They’ve seen little of interest in their price range of $300,000 to $400,000 and anything appealing sells within a day or even hours, Maneva says. So when she saw a four-bedroom house she liked, she made an instant offer at the asking price of $405,900. And when the seller began leaning toward a rival all-cash offer, she upped her bid by $600 and her agent — Jason Mattson of Orange Realty — agreed to lend her the entire amount in cash. She still didn’t get the house.”

“Now, she says, ‘I will make an offer without even looking at’ a house, she says. ‘I’m even more scared.’”

The Las Vegas Sun in Nevada. “In a recent look at Southern Nevadans’ finances, Las Vegas Valley residents have some of the worst credit scores, debt ratios and money management habits in the United States. ‘These low ratings are highly influenced by each city’s debt levels, which are higher than average,’ WalletHub analyst Jill Gonzalez said. ‘The mortgage debt-to-income ratio in both cities is especially high in both North Las Vegas and Las Vegas.’”

“Both Las Vegas and North Las Vegas ranked in the bottom 30th percentile for credit scores and money management in the 2016 and 2017 editions. Gonzalez said carryover from the housing bubble is a driving factor in the valley’s massive mortgage debt-to-income ratio. At 448 percent and 437 percent, North Las Vegas and Las Vegas are over 100 percentage points higher in their mortgage debt-to-income ratios than the average U.S. city.”

From American Banker. “The Federal Reserve Bank of Minneapolis this winter finalized its ‘Minneapolis Plan to End Too Big to Fail’ — that is, a plan intended to end the problem of ‘too big to fail’ financial institutions, including both banks and nonbank financial companies. But here is something remarkable: Fannie Mae and Freddie Mac, among the most egregious cases of ‘too big to fail,’ appear nowhere at all in the plan.”

“Have the Federal Reserve Bank of Minneapolis authors forgotten how Fannie and Freddie blew masses of hot air into the housing bubble, then crashed, then got a $187 billion bailout from the U.S. Treasury? Have they not noticed that Fannie and Freddie remain utterly dependent on the credit guaranty of the Treasury, remaining TBTF to the core?”

“Since the plan focuses on excessive leverage as the fundamental cause of ‘too big to fail’ risk, have they not considered that Fannie and Freddie each had capital of less than zero at the end of last year, so they had infinite leverage along with their $5.4 trillion in liabilities?”

“What should be done about the TBTF nonbank companies? According to the Minneapolis Fed, the answer is for the Congress to impose a ‘tax on leverage’ that offsets the advantages of running at high leverage and low capital. Among the types of firms that the plan would consider for the leverage tax are ‘funding corporations, real estate investment trusts, trust companies, money market mutual funds, finance companies, structured finance vehicles, broker/dealers, investment funds, and hedge funds.’ Again, and amazingly, Fannie and Freddie are not on the list.”

“We’ve calculated how much the proposed Minneapolis tax on leverage would cost these financial behemoths. For Fannie, total liabilities are $ 3.35 trillion, so the annual tax would be 2.2% times that, or $74 billion. Fannie’s profit before tax for the year 2017 was $18.4 billion, so the tax in the size proposed by the Minneapolis Plan would be four times Fannie’s total pre-tax profit. For Freddie, the corresponding numbers are liabilities of $2.05 trillion and a leverage tax of $45 billion, which would be 2.7 times its 2017 pre-tax profit.”

“In short, instead of paying about 100% of their profits to the Treasury, Fannie and Freddie together would pay Treasury well over 300% of their profits. This would obviously cause them to operate at a huge pro-forma loss.”

The Courier Post in New Jersey. “Two Burlington County residents and a Sicklerville woman are among a dozen people charged in connection with an ‘elaborate’ housing scam in Mercer County. Authorities allege ring members broke into homes left vacant by foreclosure, then changed the locks, illegally turned on utilities and created false documents to rent the properties to unwitting tenants. In some cases, ring members lived in the vacant homes themselves.”

“‘When property managers or bank inspectors would stop by the houses to examine or show them, they would find occupants in what should have been vacant homes,’ the Mercer County Prosecutor’s Office said in announcing the arrests. It said property owners sometimes would pay illegal occupants to leave a property, rather than go through the eviction process. ‘Such payments could be anywhere from a few hundred to a few thousand dollars, but ultimately cost the bank or real estate agency less than hiring attorneys to handle the matter in court, which could take as long as three months,’ the statement said.”