The Housing Bubble

It’s Friday desk clearing time for this blogger. “The Las Vegas real estate market is as hot as the desert heat. ‘There’s a lot of investors buying these properties, so the competition is becoming fiercer and more difficult for the average home buyer,’ said Avi Dan-Goor a real estate agent in the region. ‘I’m not concerned about a bubble, not concerned about a burst, I think a correction will come, and I think it’s already slowly starting. The median home price right now is about $290,000, so it went up for a long time, it continued to go up. I think last month was the first time that it dropped, around $5,000. I don’t think that’s indicative of anything bigger coming.’”

“After a long run of positive numbers, home sales in the St. Louis area have declined slightly through the first 7 1/2 months of the year. Coldwell Banker Gundaker President Jim Dohr says demand is there, but many homeowners, especially those who bought or refinanced when interest rates were especially low, don’t want to sell and buy a new home at a higher rate.”

“‘That’s a big difference is somebody goes out and finds a home and gives up an interests rate below 3 percent and then acquires a new mortgage at over 4 percent, so a lot of people are just sitting still, staying put, if you will,’ he says. Dohr says the lowest inventory is for homes under a half-million dollars, while there are plenty of homes on the market for over a million.”

“Austin, it looks looks like we might have a foreclosure problem. This summer, the Austin area posted alarming year-over-year jumps in the number of homes starting to go through foreclosure, according to ATTOM Data Solutions. The Austin area saw a 65 percent increase in what’s known as foreclosure starts in May 2018 compared with May 2017; that was followed by year-over-year increases of 44 percent and 29 percent in June 2018 and July 2018, respectively.”

“‘The widespread upward trend in foreclosure starts across a geographically diverse set of markets this summer indicates there is more to this trend than just natural disasters driving increased distress,’ said Daren Blomquist, senior vice president of ATTOM. In total, 96 of the 219 metro areas analyzed in the ATTOM report, or 44 percent, posted year-over-year hikes in foreclosure starts in July. Twenty-one states saw increases, including Texas (7 percent).”

“Houston was the only other Texas market listed in the report as having notched three months in a row of significant year-over-year increases in foreclosure starts. The Houston area saw a 76 percent spike July compared with last July, the ATTOM report says. This followed two months of double-digit increases in the Houston area compared with last year: 62 percent in June and 153 percent in May.”

“Curious about what seemed to be a trend of vacant properties for sale, Realosophy president John Pasalis ran the numbers and discovered that 28 per cent of properties listed for sale in the Greater Toronto Area are advertised as being vacant, up 17 per cent year-over-year. ‘I’m finding that there are a fair number of stubborn sellers holding out for an unrealistic price for their home, though they’ve already moved on to another home or downsized (which reflects some financial security/stability because most people can’t afford to have a house sitting on the market empty for 6-12 months),’ he writes, in a recent report.”

“According to Pasalis, the regions showing the largest increase in vacant home listings also experienced the biggest price decline in the spring of 2017. And there are also newly built properties to take into account, which he says may explain some of the increase. ‘For many of these home ‘flippers’, selling at today’s prices would mean incurring a significant financial loss after factoring in their construction costs and the peak price they paid for the houses when they purchased them in late 2016 or early 2017,’ he writes.”

“Battered hard during the eight-year debt crisis, Greece’s construction and real estate face a long way to revival in the post-bailout era, according to official figures and experts. Greece has one of the highest home ownership rates in Europe at more than 80 percent and purchase of a home was regarded as a good investment. In 2016, investments in the housing market was just 0.7 percent of GDP and had cumulatively declined by over 23 billion euros (26.6 billion U.S. dollars) in nine years.”

“‘Real estate properties in Greece were not opportunities anymore. To a large extent they were overpriced and in addition one had to pay significant sums in taxes,’ explained Lefteris Potamianos, President of the Real Estate Association of Athens — Attica. Within less than a decade, according to the official figures, private building activity dropped by 90 percent, and the number of employees in the sector by 83 percent. Residential property prices also took a dive by more than 40 percent nationwide.”

“Over a nine year span, the cost per square metre of apartments in central Beirut rose from $1,200 in 2004 to up to $4,700 in 2013, a 400% increase based on research by Global Property Guide, owing partly to an influx of investors from the GCC post 2008. Real estate prices average $3,693 per square metre. It takes an average of 22 years of rental income to make up for the cost of investing an apartment.”

‘Meanwhile, construction activity since the period has been weak and prices have since stagnated, even declining marginally. There also remains a large pool of unsold property. Research by real estate consultancy RAMCO indicates that there were roughly 3,600 unsold apartments in Beirut as of November 2017, outnumbering buyers and forcing developers to offer significant discounts to facilitate sales.”

“A recent survey revealed that the value of the new home launches in northern Taiwan has exceeded NT$750 billion in the first eight months this year, sending a disquieting signal to experts that the housing market would crash in a near future. The total value of newly-built and pre-selling residences has reached NT$752.3 billion in Jan.-Aug., 2018, and is set to reach NT$1.15 trillion the whole year, up 34 percent from last year’s NT$837.3 billion, according to a report released by My Housing.”

“While the supply surged in the first half of the year, the new home sales remained weak; if the property oversupply couldn’t be digested, the housing market would resemble a fast moving train about to derail, said My Housing Market Research Manager Ho Shih-chan.”

“Malaysian Prime Minister Mahathir Mohamad on Monday declared that foreigners will not be granted visas to live in the giant Forest City real estate project on the country’s southern tip, a major threat to the marketing strategy for the development. It is not his first broadside against the plan by Chinese developer Country Garden Holdings Co to create a new city that was envisaged to eventually house 700,000 people on reclaimed land near Singapore, but it could be his most damaging.”

“The once sleepy town of Gelang Patah known for its mangroves and fishing villages now has a skyline of skyscrapers. Work to build more high rise residential towers, town houses and commercial buildings is continuing full steam, with dozens of heavy duty trucks carrying sand and materials while cranes dot a skyline that is growing taller and denser as high-rise apartments rapidly approach completion. Forest City is barely inhabited, with only a handful of staff living at its service apartments and guests at its hotel.”

“It’s being described as a ‘mortgage mirage.’ It’s an offer from the bank that looks too good to be true and, as it turns out, for many it is. ‘About 40 per cent of people who tried to refinance were unable to do so,’ Digital Finance Analytics principal Martin North said. ‘If you go back a year it was 5 per cent.’”

“‘When people took out the loans there was a lot of widespread fudging of the numbers,’ chief investment officer with funds management firm, Forager Funds, Steve Johnson said. ‘People were getting loans on the basis of a four person family having $30,000 a year of living costs living in Sydney. And it’s quite clearly impossible to live in Sydney on that much money a year. The biggest issue is that people have borrowed too much money relative to their income and that is a very difficult problem to unwind.’”

“But, Mr Johnson said, it is not just the banks that have messed up. ‘I think the banks have done a lot of unconscionable things, and I think credit has been far too easy to come by, but there is also an element of personal responsibility here in terms of people saying, ‘well, the bank offered to lend me $1.5 million but I don’t really think that is a sensible amount of money for me to borrow.’”

“Mr North has calculated there are now close to 1 million Australians on the edge of mortgage stress — defined by Digital Finance Analytics as borrowers who are going further into debt or eating into savings because their expenses are greater than their income. Given that, it’s understandable that when the big four banks advertise discounted mortgage rates, financially stressed-out households flock to the banks to bag a better deal.”

“‘And then they’re stuck, because suddenly they find that that wonderfully alluring low rate that’s being hung out to them is inaccessible,’ Mr North said. He calls these borrowers ‘mortgage prisoners’ because they go home empty-handed, trapped in a financial squeeze.”

A report from Curbed Los Angeles in California. “For the first time since January, home prices in Los Angeles County fell month-to-month in July, according to CoreLogic. The median sale price for the month was $607,500, down 1.2 percent since June, when home prices soared to a record-high $615,000. LA’s all-time price record had been shattered in each month leading up to July. But real estate experts have predicted that Southern California’s hot real estate market could be cooling off. A recent analysis from Zillow found that the number of homes on the market with price cuts is up since the beginning of the year, suggesting that buyer interest may be waning.”

“Rising mortgage interest rates are making even small jumps in sale prices significantly more difficult for buyers to cover. Factoring in interest rate growth, median mortgage payments were around 13 percent higher in July than a year ago, according to CoreLogic analyst Andrew LePage. That may also be contributing to an drop in the overall number of home sales. In LA County, 6,971 homes sold in July—down from 7,607 a month earlier. LePage says declining sales can’t be explained by the number of houses on the market.”

“‘The overall trend in recent months, has been toward more listings,’ he says. Instead, it’s possible that many home shoppers are simply ‘unable or unwilling to buy.’”

The Orange County Register. “Todd and Jennifer Martindale wanted to sell their starter home in Whittier and buy a home with a bigger kitchen closer to family and their son’s school in Placentia. After eight months, they abandoned their search. Rising prices and higher interest rates made it impossible to afford a new home in that area — even with the added cash they’d get from the sale of their old house.”

“‘Our mortgage payments would go up $400 or $500 a month, which we just couldn’t swing,’ said Todd Martindale, 43, a software developer. ‘We saw the grass was not greener on the other side.’”

“Discouraged home buyers may be behind the current market slowdown that’s transforming Southern California from a clear seller’s market into one where homes sit longer and owners are dropping their asking prices, market watchers said. After three years of smoking-hot sales and soaring home prices, Southern California has seen year-over-year sales drops in eight of the past 12 months, according to CoreLogic. The California Association of Realtors, which tracks sales of single-family homes, reported year-over-year declines in 10 of the past 12 months.”

“As a result, the number of homes on the market mushroomed. Southern California listings increased to nearly 46,000 homes by Aug. 23, up by nearly 7,100 — or 18 percent — from the same period last year, according to Steve Thomas’ Reports On Housing. ‘For years, sellers have been in control of the housing market. Multiple offers were generated almost instantaneously after hammering in the for sale sign,’ Thomas said in his latest report. Today’s market, Thomas wrote, ‘does not favor sellers or buyers.’”

“So, where have all the buyers gone? Market analysts say many are being priced out. ‘High home prices and rising interest rates combined to crimp housing affordability, which in turn is subduing home sales,’ California Realtor President Steve White said. ‘Some of the reluctance by buyers appears to be driven by fears that the market may be peaking.’”

A report from CNBC. “The most expensive real-estate in America just became a little less expensive — with $1 billion in price cuts among America’s top listings over the past few months, according to a CNBC analysis. The high-end real-estate market has seen steep price cuts in recent months as foreign buyers dry up, new tax laws bite the wealthiest states and sellers realize the market peak of 2014-2015 isn’t coming back anytime soon, luxury brokers say.”

“According to RedFin, the real-estate brokerage and research firm, fully 12 percent of homes listed for $10 million or more saw a price drop in 2018 — double the levels of 2016 and 2015. Just over 500 listings in the U.S. had a combined price cut of $1 billion in the second quarter, according to RedFin.”

“Some of the price cuts have reached tens of millions of dollars, according to the listing. The Ziff family estate in Manalapan Florida cut its price in May by $27 million, from $165 million to $138 million. That follows a previous price cut, from $195 million last year — so it’s price has dropped by $57 million over the past year.”

“A 10-bedroom mansion on Miami Beach’s posh Star Island cut its price by $17 million in May, from $65 million to $48 million. A giant apartment at New York’s Sherry Netherland had its price cut by $18 million, falling from $86 million to $68 million.”

The cuts follow a spate of even bigger cuts earlier this year. The $250 million mansion in Bel Air California known as ‘The Billionaire’ became America’s most expensive listing when it came onto the market for $250 million in 2017. In April, the price was cut by a massive $62 million, to $188 million. A spec home in Beverly Hills, called Opus, was listed in August of 2017 for $100 million, but the price was cut to $85 million a month later. The late Johnny Carson’s estate in Malibu, Ca. saw its price drop by $16 million, to $65 million from $81 million.”

“Even homes that see big price cuts are selling for less than their discounted prices. A 20,000 square-foot mansion in the Hamptons, once owned by fashion mogul Vince Camuto, was first listed in 2008 for $100 million. Its price got chopped to $72 million, and it sold this spring for around $50 million – half of its original listing price.”

“The reasons for the price drops are many. In some cases, the prices for the homes were fantasies. Sellers had irrational expectations or they were using the sky-high prices to attract attention to their properties. The luxury real-estate market has fallen since its peak in 2014 and 2015, and many sellers are finally adjusting to a different market.”

“Supply of homes at the high end is also high, especially for newer condos and spec homes in New York, Los Angeles and major metro areas. ‘There could be an over-supply of these high-end homes,’ said Taylor Marr, a senior economist at RedFin.”