The Housing Bubble

It’s Friday desk clearing time for this blogger. “Hanoi’s real estate market is heating up day by day with the prices of apartments in luxury areas like Ciputra, The Manor, and Trung Hoa-Nhan Chinh up by nearly 100%. Mrs Hoa, who owns a villa and an apartment at Ciputra, said that she had decided not to sell the apartment at this moment as she thought the price would rise further.”

“Mr Duc from Bitexco said said that unlike previous years, when prices increased when speculators pushed the prices up, the market is now really hot due to the high demand. Mr Duc said that the supply shortage would make the ‘price fever’ last for a long time.”

“According to former banker and property consultant Carlos Moedas, the banking system in Portugal is just too well run and cautious in its lending policies for a run on the banks caused by the sub prime housing market crisis in the United States. In fact, there’s every sign that the commercial property and housing markets could continue to grow well into 2008 if this year is anything to go by.”

“There have been consistent booms and busts in the property markets on the Iberian Peninsula: 1976, 1985, 1993, and perhaps, 2008-9.”

“‘I can tell people that a good opportunity to buy will come quite soon, within the next two years. This means that people with money to invest in property and buy then, will be laughing all the way to the banks in 10 years time,’ he said.”

“At St Lucia’s Jalousie Plantation, a beachfront resort nestled in a cove at the foot of the Caribbean island, a new development is rolling out about 50 single, one-bedroom (a single with a living room) and double villas ranging from $580,000 to $1.2 million.”

“‘It’s a chance to get in before prices go up,’ says DCG marketing director Suzanne Gryspeerdt. ”It’s about to take off.”

“First-time buyers are purchasing properties with people they have known for less than a year in their rush to get on to the housing ladder, a survey has shown. One in five people who bought their first home with someone other than their spouse admitted they had known the person for less than 12 months, according to the UK’s Skipton Building Society.”

“Jennifer Holloway, head of media relations at Skipton Building Society, said: ‘We can all understand the panic that potential homebuyers must feel at the news that house prices are still rising. So it’s not surprising that they’re resorting to desperate measures to try and put an end to their misery. But desperation shouldn’t mean that caution is entirely thrown to the wind.’”

“Now is the time to buy a house in Wanganui. House sales were at a six-year low last month, according to Ross Watson of the Manawatu-Wanganui Real Estate Institute.”

“Mr Watson said now was the time to buy, particularly for those on the hunt for their first house. ‘There’s a lot of property for sale, so lots of choice for buyers. Property prices really will not be any more affordable than what they are currently,’ he said.”

“Only four houses over $300,000 were sold in September, and Mr Watson said buyers were being cautious. He said the slow sales weren’t confined to Wanganui. ”People aren’t prepared to take the risk of a high mortgage. It’s happening right across New Zealand.’”

“A decade-long boom for the property market in Spain has ended, with prices falling for the first time in many parts of the country, new figures show. The Spanish Government yesterday played down fears of a crash. Rafael Pacheco, the Housing Director, said the figures showed that Spain was experiencing a ‘gradual and gentle landing for house prices. You cannot speak of a crisis,’ he said.”

“If 2007 was the year of ramped-up rents, increasing government regulation and a closer focus on the information homebuyers need before purchasing a property, many experts are predicting the Gulf real estate market in 2008 will forever be remembered as the year when saturation came to town.”

“A quartet of expert studies over the course of the past few weeks have suggested that the real estate market in the Gulf, in particular the UAE, is in danger of seeing residential supply outpace demand by close to 40,000 units and customers finding it increasingly difficult to differentiate between the hundreds of developers touting their business on billboards, print pages, radio, TV and the internet.”

“‘A situation of oversupply is unavoidable by 2009, which will put downward pressure on prices. The extent of the oversupply situation will depend on the timeliness of deliveries,’ Property management specialist Asteco predicted.”

“Yang Ping hasn’t slept well since September 27, when the central bank raised the down payment for mortgages to 40 percent for second apartments. It also lifted the interest rate on mortgages for second-apartment buyers.”

“‘I will go bankrupt,’ said Yang. ‘I need at least another 180,500 yuan for the bigger down payment,’ she said. ‘And my mortgage payment is an extra 780 yuan a month.’”

“Before the new policy was announced, it was a different story. Yang’s new apartment jumped in value from 11,000 yuan per sq m in mid-June to over 15,000 yuan per sq m now. A reporter mainly covering the property sector, Yang believes Beijing’s real estate market still has large growth potential compared with international cities like Hong Kong.”

“When New Jiangnan Construction, a block close to the capital’s CBD, went on sale, Yang decided to snap up an apartment, even though she had only 180,000 yuan to spare, barely enough for the 20 percent deposit.”

“‘I was lucky to even get the apartment,’ said Yang, adding that she was vying with over 6,000 people for the 350 units on offer. ‘I didn’t even have time to discuss it with my husband because he was on a business trip.’”

“In September 2005, an 84-page study was released in response to concerns of a housing bubble. And, just who sponsored this rosy look at the mortgage market on the eve of its collapse: the Mortgage Bankers Association. Look at what happened since.”

“The MBA wasn’t the only organization to paint a too-bright picture. Then Federal Reserve Board Chairman Alan Greenspan, in Feb. 2004, famously touted adjustable rate mortgages for home buyers (while at the same time not pressing Federal Reserve oversight of lenders).”

“The National Association of Home Builders (NAHB) also boasted of an economy ‘on a strong growth path’ and noted ‘house price continued to advance rapidly…bestowing more wealth on American homeowners.’”

“But, while Greenspan tempered his endorsement of ARMs by later saying they were not good for all home buyers and the NAHB forecast that housing would slow and drag the economy, the MBA stuck steadfastly to its optimism. The study, in fact, remains prominent on the Association’s website.”

“The lesson: don’t only look at what the words mean, look at who wrote them.”

“The number of foreclosures in the nation has been on the increase. According to the Silver State’s own Sen. Harry Reid, foreclosures in Washoe, Douglas, Elko and Nye counties over the past two years are up by some 300 percent.”

“‘We can’t afford to wait until the next legislative session in February 2009,’ or so sayeth Assemblywoman Sheila Leslie about a special legislative committee that is scheduled to meet Oct. 22 to address the problem. ‘The problem has reached a crisis level in our state, with Nevada having the highest rate of foreclosures in the nation.’”

“Neither of these two rocket scientists—both in office for the past two years—had a thing to say when banks were making all those ‘high risk’ loans to people. (Why is it politicians are always fixing problems after they’ve become a crisis and never before?)”

“Of course, when times were good, banks were lending money like there was no tomorrow.”

“It is difficult to feel sorry for anyone here. I mean, should you feel sorry for banks who loaned money to people that wouldn’t (or couldn’t) eventually repay said loans? Or should you feel sorry for grown adults who bought more house than they could afford or got into a loan that they didn’t understand?”

“The point here is that perhaps the politicians will leave the private transactions between private parties, namely homebuyers and lenders, alone? Banks will eventually learn not to over-lend and buyers not to over-borrow. Both will learn their lessons, albeit painfully, and neither requires government intervention.”

“Citigroup, J.P. Morgan and Bank of America have proposed the establishment of a new $80 billion superfund to buy underperforming loans from troubled real estate lenders like Countrywide. Beyond the dubious and transparent psychological boost to the market, there is no economic or financial benefit to be derived from this effort.”

“The simple fact is that many customers of Countrywide and other big real estate lenders cannot pay their high priced mortgages and cannot sell their homes for the high prices they paid.”

“The blame belongs squarely on the government’s expansion of the money supply that encouraged what we now see as a bubble housing market. There is no going back and undoing this error.”

“Like all government economic interventions, it can only help some at the expense of others, and whatever action it takes now will have no effect on curing previous malinvestment except to delay its redeployment and exacerbate the problem.”

“The nation should learn from this crisis that government cannot make us rich; it can only make some rich at the expense of everyone else.”