The Housing Bubble

It’s Friday desk clearing time for this blogger. “A Roncesvalles realtor has the dubious distinction of having the cheapest detached property for sale in Toronto right now — a dilapidated garage that comes with 16 by 12 feet of land. Laugh if you will that it’s an eyesore and listed for $99,999. Nick Kourakos has already had one offer — for $50,000. ‘I said No. I’d let it go for $80,000, but that’s my bottom line.’ Kourakos, a veteran realtor, is hoping to cash in on a housing market that remains so unrelentingly hot, the average detached house in Toronto sold for $819,169 in March. ‘There’s no place else in the city where you can get almost 200 square feet of land for $100,000. I bought it because I couldn’t find anything else around for that little money anywhere in Toronto. It was just for a little investment. But I’m already regretting putting it on the market.’”

“The Bank of Canada sounded the alarm on growing household debt Wednesday, taking aim in particular at the growing tendency of Canadians to take out lines of credit using home equity. Bank governor Mark Carney pointed to concerns raised by the country’s banking regulator that said earlier this year that the standard of some home equity loans was slipping. A quarterly economic overview compiled by the central bank highlights the explosive growth of HELOCs and mortgage refinancings in the past decade, which have surged to $64-billion as of 2010 from $8-billion in 2001.”

“‘Like any financial innovation, home equity lines of credit have both positives and negatives associated with them,’ Carney said. ‘The issue, as with any debt, is if these innovations or this access to debt is taken too far.’”

“Australia’s Crown Group is now offering Singapore investors an opportunity to purchase two of its residential developments, Top Ryde City Living and V by Crown at Parramatta, in Sydney. At a press launch last week, Iwan Sunito, CEO for Crown Group, gave a briefing on Sydney’s property market outlook and said capital appreciation in Sydney is promising. Data showed a 52.2 per cent increase in new home loans in the last four months of 2011 compared to the same period in 2010. ‘50 to 60 per cent of the market is dominated by Asians,’ said Sunito.”

“Diana Beaumont of 3CR community radio in Melbourne interviewed Vincent Kolo, senior editor of Chinaworker, on his recent visit to Australia. Diana: You explained at a meeting in Melbourne that previously the local governments were not allowed by the central government to go into debt. Is that true? Vincent: Yes. By law they are not allowed to incur debt and they’d been kept on a tight rein previously. But the government hit the panic button in 2008.”

“They allowed the local governments to spend, but the way they’ve done it is they’ve actually copied a lot of the Wall Street ‘witch doctory’. They’ve set up local government finance vehicles (LGFVs) using land as collateral and borrowed heavily from the banks, which of course are also government-owned in China. And this has resulted in a collective debt – the government says that the local government debt, from almost nothing four years ago, is now 10.7 trillion RMB, which in Australian dollars is around A$1.65 trillion, which is significantly more than entire GDP of Australia. So, there is a major local government debt problem. One Chinese professor said, ‘Every province of China is Greece.’”

“When he was boss of Centro, Glenn Rufrano learned a lot about debt refinancing as he had to refinance more than $5 billion of bank debt within weeks. Private equity turned out to be a godsend. It replaced an Australian syndicate of 23 banks and life companies. It is a similar story in the United States, where debt of hundreds of billions of dollars is due to mature this year. Eight of the top 20 most active investors were Asian and four were American.”

“His company forecasts investment sales in the US will increase by about 25 per cent this year. The reason is simple: improving fundamentals and a rebound in confidence will increase the appetite for risk, which will filter down into the property markets. But it was too much debt that got the global economy into the GFC mess and, while private equity, hedge funds, banks and governments are playing a key role passing the parcels of debt around, there is still a long way to go until the music stops. When it does, the hope is that the parcel of debt has shrunk to a size where the holder isn’t a loser.”

“The latest figures from March released by the Northeast Florida Realtors Association show pending sales up 17% over a year ago, and list prices are rising. Dane Leslie, NEFRA President, says ‘Anyone who is waiting around for the absolute best deal for a new home or investment should take a closer look at what is happening and make their move soon.’”

“Foreclosure activity plummeted in March across the Coachella Valley, continuing a nearly year-long trend and raising hopes about the trajectory of the local housing market. In some valley communities, the demand for bargain distressed properties has exceeded supply, Cohn said. ‘Nearly every home sold has multiple offers, and the values are going up as quickly as appraisals will allow,’ said Bret Cohn, a mortgage consultant. ‘I have had several deals, particularly flip properties, where the accepted offer is higher than the list price and the appraisal will come in a little low.’”

“Cohn also expects a steady stream of foreclosures and short sales to continue for the next couple of years. ‘The (foreclosure) numbers do look down, but there is still a tremendous amount of shadow inventory out there.’”

“In the first quarter of 2012, there were 37 foreclosures in Ravalli County, based on foreclosure auctions at the Ravalli County Courthouse, down from 49 in the first quarter of 2011. According to local real estate agent and appraiser Darwin Ernst, who compiled the statistics, said that he only has data from trustee deeds at the Ravalli County Courthouse because Montana has no public data for real estate sales. ‘The Realtors have their database, you have to subscribe to that data, so it’s really hard to get the data,’ he explained.’The legislators have decided that the right to keep this sale information private outweighs the public’s right to know. I think it’s our right to know if we are paying the taxes, but the Realtors own that database and they will lobby against making it public.’”

“‘We still have shadow inventory from last year, the properties were foreclosed on in 2011 but they haven’t been flushed out of the system because they haven’t been listed or repaired yet,’ he explained. ‘ The shadow inventory is key to understanding the market. We haven‘t been able to sell the properties that have been foreclosed.’”

“Jake Zaagman said his Wyoming home was invaded by cockroaches coming from the house next door and he put rodent traps in his own garage because there were so many mice. Since January 2011, the house has been owned by US Bank, which took it over in a foreclosure. The family renting the property suddenly moved out last week. Target 8 investigators obtained inspection reports on the house. In the past couple of years, they ordered the outdoor cleanup of debris including litter, garbarge, couches and a rug. One time they responded to a complaint about the tenant operaging a second-hand business from the house, and another time over the house being used as storage for a flea market.”

“‘It’s terrible,’ he told Target 8 investigators. ‘They got garbage piled all over.’ His daughter, Marybeth Knapp, said, ‘There was a rat in the driveway, and 212 mice in the traps. All coming from this house.’”

“For recent newlyweds Dee-Jay and Chris Cobbe, it seemed almost too good to be true. The couple was renting an apartment in Woodlands and really wanted to buy a home, but just couldn’t save for the down payment. And then, as fate would have it, one cold day in October 2011, Dee-Jay’s car broke down and she ended up taking the bus to work. ‘I looked up and in front of me was a billboard for the PEAK program,” says the 27-year-old, who works as a generalist.”

“The PEAK Home Ownership Program - which stands for Public, Essential and Key workers, is a joint initiative with Habitat for Humanity, the Government of Alberta and the Trico Charitable Foundation. It provides qualified applicants a hand up into affordable home ownership by providing a repayable down payment and a mortgage subsidy. She came home that evening and told her husband, Chris, who works as a bartender, about the program. The couple filled out an application online and were approved within a few days.”

“The Cobbes were able to purchase a two-bedroom, double master plan in the project for $260,000. ‘The issue isn’t being approved for a mortgage, it is coming up with the down payment,’ says 29-year-old Chris. ‘We are so excited,’ says Dee-Jay. ‘When we tell people about this, they say: ‘What is the catch?’”