The Housing Bubble

It’s Friday desl clearing time for this blogger. “Huang Qifan, mayor of Chongqing, recently told the Wall Street Journal that the government has a ’sacred responsibility’to cap home prices at a ratio of 6-7 times household income. Huang illustrated his point with data on Chongqing in response to a question asking if he intended to ‘crash’ the property market.”

“In September of this year, the average property price here in Chongqing was 6,300 yuan per square meter (about $985). I think if a three-person family, for them to buy a 60-square-meter condominium, according to this average price it will cost them 500,000 yuan. In the major urban area, the average annual income per person is 20,000 yuan so a three-person family earns about 70,000 yuan per year.”

“So if you do some math here you will find it will cause them really seven years to buy a condo priced at 500,000 yuan. Of course in the years ahead there will be increases of GDP, increases of family income and the price of property will also go up.”

“Single family homeowners in West Vancouver’s British Properties neighbourhood are in for the biggest surprise as the value of a typical home there rose more than 45 per cent from $1.53 million in 2011 to $2.22 million in 2012. Shirley Clarke is the director of sales for the British Properties and she told The Outlook in an email Tuesday that the majority of homes in the tony neighbourhood are bought up by offshore buyers. ‘Most of the buyers are Asian that have bought our real estate,’ Clarke wrote.”

“Area real-estate experts say that the housing market is recovering and that the Chandler numbers aren’t as bad as they appear. Many of today’s buyers are investors and winter visitors, said Chandler real-estate agent Pam Bernard. ‘I have a steady stream of buyers from Canada looking for amazing deals,’ she said.”

“Absentee buyers remain a big part of the housing market, purchasing a record 28.9 percent of Southern California homes in November. The high numbers of available foreclosures can make life hard for builders selling new homes, but that doesn’t mean builders shied away from the market in 2011. At College Park, as well as the Rosena Ranch neighborhood near northern San Bernardino, Lennar altered its strategies by introducing ‘NextGen’ homes, designed to house two generations of the same family.”

“The NextGen homes are designed for seniors moving in with their children or young adults unable to afford to live away from their parents.”

“The median Solano County home price in December, 2001 was $355,000, but had fallen to $185,000 by last month, former Solano Association of Realtors president Todd Willis said. The damage was not as bad, although it was still significant, in Napa County, where the median house sold last month for $335,425 compared to $569,450 in December, 2007, Willis said.”

“‘Consumer spending is going to be lower going forward for two reasons,’ said Jon Havemen, chief economist with the Bay Area Council’s Economic Institute. ‘Consumers have waked up to the fact that ‘Wow, I need to save for retirement, and not only do I need to save, but I don’t have all this money in my house.’”

“Rutherford County Register of Deeds Heather Dawbarn recorded 953 foreclosures in 2011 and encountered many people upset about losing their homes. She encountered a few people who thought they could challenge a foreclosure because the bank that wrote the loan sold the mortgage through an electronic recording system. ‘If you read your deed of trust and you have signed it, it does say your mortgage company has the right to sell that deed of trust,’ said Dawbarn, noting that some people attempted to assign themselves as the trustee. ‘I’ve yet to see one avoid foreclosure.’”

“‘You have to make your payments, that’s the thing,’ Dawbarn said. ‘If you make your payments, then you are not going to have a problem.’”

“‘We can see a spike (in bankruptcy activity) depending on what the mortgage companies are doing,’ said J. Todd Malaise, a San Antonio bankruptcy lawyer. ‘It seems like they go through their waves where they will aggressively foreclose one month and then the next they won’t. So you can always tell when they’re being aggressive.’”

“Malaise added that about 90 percent of the debtors he’s met bought their homes between 2005 and 2008, when the credit markets were especially loose. Bankruptcy lawyer Rick Flume sees debtors who are struggling not only with debt but with a loss of pay, so they’re in a house they can no longer afford. In those circumstances, he said, bankruptcy isn’t going to help them because they have to continue making house payments.”

“‘They don’t have enough for their housing,’ Flume said. ‘They need the money for those more basic living expenses, such as gas for the car, insurance for the car, food. If you want to keep your stuff, you have to keep paying for your stuff,’ he added.”

“After losing their jobs (or their homes to foreclosure), millions of people doubled up with friends or relatives. At the same time, young adults stayed in their parents’ homes longer while they searched for good jobs. But sooner or later, most of these people will create their own households, ratcheting up demand for apartments and homes. ‘Kids can choose to stay in their parents’ houses longer, or young adults can live with roommates longer, but at some point, something’s got to give,’ said Robert Denk, an economist with the National Association of Home Builders. ‘To be in your 30s or 40s and still living in your parents’ basement, that’s just not going to work.’”

“Many buyers have held back because they think that home prices will keep dropping. ‘Most people don’t want to buy in a market where prices are falling, because you lose your equity right off the bat,’ said Patrick Newport, an economist with IHS Global Insight.”

“A report released earlier this month by the U.S. Bureau of Economic Analysis shows wages across Northwest Georgia down from 2007. Many of those wage losses come from the region’s manufacturing sector, which once was a mainstay of local economies across the region. The true key to a restoration of Northwest Georgia’s manufacturing sector is closely tied to a rebound in the nation’s housing sector. Until housing rebounds, key Northwest Georgia industries cannot begin to return to pre-recession production levels. And the housing news is not good.”

“Mark Vitner, a senior economist with Wells Fargo Securities, told the AP there were roughly 2 million homes in foreclosure nationwide, 2 million homes with delinquent mortgage payments and 2 million bank-owned homes that weren’t even on the market. It all puts downward pressure on prices and makes gauging the true supply of homes difficult. ‘Because of that unknown supply and pressure on home prices, a lot of potential sellers are not putting their homes on the market,’ Vintner told the AP. In addition, ‘builders are holding on to cash’ and staying on the sidelines until a clearer housing recovery takes hold.”

“The dismantling of the Department of Community Affairs by Gov. Rick Scott and the Florida Legislature has put more power into the hands of local governments — a good thing, argues the governor, for development and growth. But just how much growth is too much?”

“Lesley Blacker has teamed up with friend Janet Stanko to launch The Price of Sprawl, a website detailing the consequences of sprawl in counties across the state. Stanko says that Northeast Florida’s St. Johns County is a poster child for over-development — with many large-scale communities sitting empty, and others approved but not yet built. According to Stanko, recent build-out projects in St. Johns contain enough properties to house 182 percent of the current population. Eight percent of homes in the area sit empty; property values have declined 31 percent since 2006.”

“Even Stanko, who obtained her information from a variety of sources, finds the statistics to be almost unbelievable. But, she says, other estimates fall in line with hers. ‘Other information sources show the overall picture is the same: too much development approved and built, too much cost to the taxpayers and not enough water,’ says Stanko.”

“Developers are selling more than their large-scale communities filled with homes, manicured lawns and dozens of amenities. They are selling the idea of a healthy economy. Blackner, for one, isn’t buying it. ‘Development in Florida is a Ponzi scheme,’ she says. ‘Local governments are constantly pushing new developments, saying it will generate great tax money and jobs. But the jobs are construction jobs — they are temporary. They can’t be the main driver of your economy. And the costs to these proposals are to the taxpayers, to the voters.’”