The Housing Bubble

It’s Friday desk clearing time for this blogger. “Spring is bringing the usual hope for the housing market in Greater Hartford. But the hope is tinged with worry. Federal programs, not just an improving economy, have helped the area’s housing market regain its footing. And those are ending soon. The allure of the tax credit is playing out for Chris Bertola and his girlfriend, Amy Albert, both from Plainville, just as lawmakers intended. When a deal for a house in Bristol fell through in February, it was the credit that got the couple searching again for their first house. Two weeks ago, they were lucky enough to find another house in Bristo. The owner was willing to negotiate the $310,000 asking price. ‘The date the credit would expire was always in our minds,’ said Bertola, a 24-year-old insurance underwriter.”

“A $14 billion effort announced by the Obama administration to fight another wave of foreclosures nationwide may do little to help people in southeastern Connecticut, according to local housing advocates. Barbara Crouch, who regularly counsels local people in crisis through her work at the only federally approved housing-counseling agency in the area, said she has seen projections that the new federal effort will help only 20,000 to 30,000 people in the United States - or less than half a percent of those teetering on the edge of foreclosure. As for those on unemployment who hope to take advantage of the new federal program, Crouch had her doubts.”

“For one thing, she said, it will likely take months or years before those who lost their jobs can find employment at the same level as whatever position they lost. For another, she added, ‘How long can you make a payment on anything on unemployment?’”

“Despite a good job with steady income, the lure of a first time homebuyer tax credit and even an offer from her parents to help with a down payment, Aprill Turner is staying a renter by choice. During the housing boom, she and her friends talked a lot about buying their first home, but falling prices and a weak economy changed the conversation. Turner: ‘I think our outings now are more of a few personal stories and gripe sessions about what’s going on with their homes and it just doesn’t seem attractive.’”

“Jon Wolford, Realtor, Long & Foster: ‘An individual has to determine whether it’s the best time for them to buy. Do they have the savings set aside? Are they capable of budgeting and making those payments? Because the last thing that any of us need in America need are more people buying homes that can’t afford to make the payments in the future.’”

“Louis Spagnuolo of WCS Lending in Boca Raton answers questions from readers. Q: My family of five is squeezing into a two-bedroom, one-bath home. It’s worth less than we paid. We thought of everything, from selling to foreclosing, but because we have a private lender and not a bank, our options are limited. I came up with the idea of adding on to make the home more livable, but we’d be looking at a $50,000 job. Because I have no equity, I can’t get a line of credit and don’t have that kind of cash sitting around. We don’t want to foreclose. We’re trapped in a tiny home with good credit, but no one will lend us money for renovations. Is there any help out there? — Mike.”

“A: Mike, I feel your pain. Many homeowners in South Florida are in similar situations. I suggest opening the lines of communication with the holder of your note. Private lenders are not regulated and have greater freedoms to make adjustments or modifications to your loan. I would definitely not add on to the home. That would be throwing good money after bad.”

“The average per-unit sales price for apartment complexes in Central Florida has fallen from a five-year peak of $90,308 just four years ago to a current average of $39,653, according to a report by Charles Wayne Consulting Inc. Looking back at the peak of the market in 2006, ‘prices in most cases greatly exceeded what could have been supported as an income property and based on the rents generated,’ according to the report.”

“‘Buyers are no longer paying for potential condo conversions; that’s all behind us,’ the report stated.”

“The manager of Gastonia’s Municipal Golf Course and the owner of Linwood Golf Course both said golfers aren’t spending as much time on the greens because they are cutting back on discretionary spending. ‘There’s no question its down,’ said Richard Duffie, who has a management contract with the city of Gastonia. ‘If you look at the stats regionally and nationally, it’s down 30-40 percent in some cases. The market is more competitive today. In the last 15 years, the market has been flooded with new facilities.’”

“But as the nation’s housing and economic crisis deepened, ‘more golf courses have gone into foreclosure in the last 12 months than any time in history,’ Duffie said.”

“Graham Bell, who founded Cramer Mountain Country Club in 1982, said he’s trying to protect his members, many of whom own high-priced homes in Cramer Mountain, the gated community surrounding the Country Club in Cramerton. ‘Anytime you make this type of business decision, it doesn’t come easy, but sticking your head in the sand and ignoring it is the worst thing you can do. Some private clubs aren’t facing reality,’ Bell said.”

“Two Omaha-area housing subdivisions have filed for bankruptcy, the first in a wave of what could be a dozen or more reorganizing their finances. Housing developers have thousands of vacant lots on their hands and some are defaulting on the bank loans that got their projects going. Banks are suing the developers personally to exact payment. Douglas and Sarpy Counties are stuck with nearly 14,000 empty housing lots, with another 6,800 lots in the pipeline, according to a market analysis by the regional research firm Landmarketing Inc.”

“A two-year supply is considered good. The current supply by different measures, five to eight year’s worth is a glut. Looking back, many in real estate and urban planning acknowledge they should have seen the excess building. ‘The housing market across the country was overdeveloped,’ said Steve Jensen, Omaha’s former planning director. ‘We’re no different from anybody else in that regard.’”

“The collapse in the republic’s property market and the inability of Irish banks to release loans to first-time buyers has resulted in a series of so-called ‘ghost estates’ springing up, not only in Greater Dublin but across many rural areas, particularly in Ireland’s Midlands. New housing developments built during the latter years of the boom stand empty. One or two families, if any, might reside in one of these monuments to the death of the Celtic Tiger.”

“Clongriffin was designed as a small new town in northern Dublin. The railway station remains closed and the main street resembles a ghost town, with hundreds upon hundreds of private homes and apartments lying empty. There are now estimated to be around a quarter of a million empty properties across the state which were built before the financial crisis and the chronic downturn, and which people can no longer afford to move into.”

“The fallout from the way the banks behaved has ended up with senior bank officials being arrested by the Garda Síochána, with several prosecutions being threatened down the line. While there is no guarantee that the Irish taxpayer will get back any of the billions that were used to prop up the struggling banks, they may be comforted by the sight of a string of former stars of the banking industry being taken in handcuffs to Irish courts.”

“A morale-boosting advertising campaign, backed by 18 large banks and companies, tells glum Spaniards that their problems can be fixed ‘between us all.’ The list of things that need repair is extensive. Spain’s structural faults were long hidden by a housing bubble and have been glaringly exposed now that it has burst. From unemployment and low productivity growth, and from troubled savings banks to creaky public finances, the problems are piling up.”

“With the government unwilling to apply radical surgery, there are fears that Spain will fall further behind its neighbours. ‘The risk is that we will have a lost decade, like Portugal or Japan,’ says Lorenzo Bernaldo de Quirós, an economist at Freemarket International Consulting in Madrid.”

“Kiinteistömaailma’s CEO Tommi Rytkönen played down suggestions of a housing price bubble. He argues that the price spike occurred last autumn, when demand for investment housing peaked. ‘The current discussion about a price bubble has come a bit late, since the figures for recent months don’t back it up,’ Rytkönen said.”

“According to Bo Salmén, head economist at the Confederation of Finnish Construction Industries, construction on as much as 28,000 new dwellings may begin this year, while last year new projects totalled only 23,000. Demand for more expensive homes is strengthening, and orders for smaller dwellings are also growing, he told STT. According to a market survey published at the beginning of March by industry magazine Rakennuslehti, new construction on higher cost bracket homes may return to boom year heights in 2010, at more than 10,000 dwellings.”

“Vancouver’s 61-storey Shangri-La looms so high over the city that everything around it appears like a miniature, people-less model. Vancouver’s tallest building is also a model for the subtleties of class distinction, and the class lines are drawn by its elevators. For some, the Estates elevators aren’t division enough. ‘I had a wealthy corporate citizen in Vancouver who wouldn’t buy in the Shangri-La because it didn’t have separate elevators for the staff,’ says Mr. Rennie, who was shocked. ‘In Los Angeles, it’s very common to have a centre corridor for maintenance and staff, but it’s not common here. It’s not a Vancouver statement.’”

“Richard Raisler owns a condo on the 19th floor of the Shangri-La, where he spends a few weeks of the year. ‘If they have it nicely furnished like I do, I couldn’t rent it to anybody that I trust enough,’ says Mr. Raisler, on the phone from his home in California. ‘People are also concerned about getting the tenant out when you want to use it.’”

“About a year ago, when the market was down, Italian businessman Cesare Gagliardoni paid $2.5 million for his condo in the Shangri-La, but he says it is already worth much more. ‘To me, [my condo here] is not an investment,’ says Mr. Gagliardoni. ‘I love Vancouver.’”

“Mr. Rennie insists it’s that kind of appreciation that makes the Shangri-La work as a development, even if the condos are often empty. ‘A vibrant community is built with filled homes, yes,’ he says. ‘But you have to look at the other side — they’re paying property taxes, living here six months a year, eating in our restaurants and shopping in our stores and causing employment. So they’re not taking from our community. And in this global society, what is a community today?’”

“Just how far behind I am in the race to get into the Chinese property market was made starkly clear to me recently. My cleaning lady – who earns about $90 a month for each of the handful of households she cleans (considered a high rate for Beijing) – recently beamed proudly to me about becoming a homeowner.”

“Granted, it was a small apartment in a somewhat remote area way out by the outermost highway circling the Chinese capital, but there was no getting away from the fact she owned her own home while I’m still doling out monthly rent that some people here liken to ‘money down the drain.’”

“Vicky Tang, an English-language teacher from Hebei had stood on the property sidelines for years, said that the interest rates were so low it seemed silly not to dip her toes into the property market. ‘It was time to buy,’ she said.”

“Lately, however, observers worry that the easy credit may have been too much of a good thing, with economists wondering if China’s property bubble has become too frothy. ‘At least seven cities saw land prices triple in 2009,’ wrote Stephen Green, head of the Greater China research division at Standard Chartered Bank. ‘This is clearly bubble territory for the land markets in many cities.’”

“The study from University of Southern California professor Dowell Myers finds that the number of foreign-born people living in California peaked in 2007 and is now slowly declining. Less than 27 percent of the state’s population was born outside the United States. That number is about 21 percent for San Diego County. Myers says migration from other states is also down. He says in San Diego the high cost of living is a big factor.”

“‘Again, because of your high housing prices,’ he says. ‘How can people afford to move in from Texas or Florida? So the only people who are there are people who’ve been there a long time or people who grew up there.’”

“Just this week, three employees here at the Turlock Journal have made the leap into home ownership. All three are under the age of 26. All three are unmarried. These three individuals had stared at spiraling home prices over the past decade, wondering not when but if they’d ever be able to afford a house. The odds of ever moving away from rental housing — or the spare room at mom and dad’s house — seemed slim at best.”

“Sure, real estate here in Turlock has never broached the prices seen in the Bay Area or Southern California. But the pay is less here too. I had hoped that I, myself, would be able to afford a home perhaps by age 35, thanks to my frugal nature. Assuming prices didn’t continue to skyrocket too much, of course. But cratering home prices have given people like me — the woefully underpaid — a chance we thought we’d never have. Now, us Gen-Y’ers have a chance to achieve the American Dream, white picket fence and all.”

“When house shopping earlier this month, I felt my heart well up as my realtor guided me through otherwise nice homes up for short sales. The current owners were often milling about the houses they were trying to sell for less than they owed, just trying to get out from an oppressive mortgage.”

“It’s easy to blame mortgage brokers for what happened to our nation’s economy. To point the finger at banks who made risky loans to people who shouldn’t have borrowed money. But who knew, back then? It was just the way things were, a heady world of gap loans, inverse-adjustable rates, and real estate prices that, like the Tower of Babel, would reach to the heavens before their inevitable fall.”

“In that way, my jobless, asset-less colleagues of the Millennial Generation were almost better off. We had nearly nothing to lose, and post collapse we at least had something. It’s the eternal cycle, growth and decay, life and death. Where a tree falls in the forest — even if no one is around to hear it — new plants will sprout up in the spot of light that drifts through the canopy. Just as I’m sad for the hard-working folks caught out by this economic collapse, I’m happy for the younger generation. It’s their chance to shine in the light now; a light some thought may never filter down.”

“I close escrow on my own home — a modest little two-bedroom townhouse — in just about two weeks. It’s not too big, not too small, just the perfect size for a 20-something bachelor to spread his wings. And it’s entirely within my price range, especially thanks to the $8,000 federal home buying tax credit. I hope the economic storm clears soon, for the sake of our entire country. But I’m glad that when the clouds blow away, I — and others of my generation — will be a part of the landscape.”

“Is it even worth swatting down the silly idea that the way to revive California’s economy is to revive its housing industry? Unfortunately, the job needs doing. The state’s construction lobby is not only arguing that home building could open a door out of our deep recession, but is also pushing for new state tax credits to kick potential buyers off the fence.”

“Surely we’ve learned by now that this is building the roof before the concrete crews have finished the foundation, right? A recent report claims that the pace of home building in 2009 was less than 20 percent of the long-term demand of 220,000 units a year - and that 407,000 more Californians should have been employed on those job sites. But families lay down the money to buy homes, shouldering the burden of mortgages, when they have jobs and trust that the near future looks stable. In brief, when our economy thrives, the home building trades will follow.”

“What happens when we reverse the process, when real estate drives the economy? Well, you get the bubble of the past decade. Over the past two years, both the state and federal governments have offered a variety of tax credits in an attempt to at least buffer the damage of the collapsing real estate market. As temporary, emergency measures, they were justifiable. At some point, though, we have to say, ‘enough.’”

“When our economy finds its footing again, families will be as eager as ever to buy new homes. Until then, trying to artificially breathe new life into housing construction is just blowing smoke-filled bubbles.”

“The country is in such grave danger because few people understand the real causes of our troubles. Overwhelmingly, politicians, opinion leaders, and academicians have pinned the blame for the current crisis on capitalism. They maintain that we can regain prosperity only if the federal government spends money like never before, bails out failing companies, and exerts far more regulatory control over what’s left of free enterprise.”

“Most have been taught to accept the pro-state version of events – that the free market has failed and we must turn to governmental power for salvation. Writer Thomas E. Woods…explains the truth: government blundering got us into the current recession and if we allow the politicians to exploit it to increase their power, we will have made a gigantic, perhaps fatal mistake. Fearing that they would be blamed for the economic turmoil, leading politicians (including both the Democratic and the Republican presidential candidates in 2008) proclaimed that it was not due to government meddling, but instead had been caused by ‘laissez-faire philosophy’ and greed.”

“And intellectuals, eager to protect their stake in the alleged benevolence and wisdom of federal economic regulation – people such as Paul Krugman – leaped up to say that the crisis couldn’t be blamed on the government. Woods clears away the fog of self-serving falsehoods, showing that the collapse of the housing market was the entirely predictable result of federal policies for which the politicians and intellectuals were happy to take credit as long as they seemed to be ‘working.’”

“Woods makes it clear that the government’s desperate moves to shore up unsound investments through bailouts are exactly the wrong policy. All the politicians are doing is taking resources from the healthy sectors of the economy to prop up the unhealthy, thus obstructing the efficient use of resources and rapid recovery from its cheap credit binge. He writes, ‘Following a familiar pattern, government failure has been blamed on anyone and everyone but the government itself. And of course, the same government failure is being used to justify further increases in government power.’”

“We are at what educators call a ‘teachable moment.’ The advocates of omnipotent government are trying to capitalize on the economic crisis they have caused to further expand their power. Advocates of liberty must work harder than ever to convince people that inappropriate government power is not the solution to our economic troubles, but their very cause.”