The Housing Bubble

It’s Friday desk clearing time for this blogger. “The fevered pace of building in Toronto, Vancouver and Montreal is fuelling fears that the condo market is dangerously close to overheating. Joe Vaccaro, president of Toronto’s Building Industry and Land Development Association, said the high construction rate simply reflects the breaking of ground on properties that were sold in 2010 and 2011. ‘You’ve got baby boomers downsizing, born-again singles, young couples who want an affordable first home, and 100,000 new people coming into the [Greater Toronto Area] every year,’ he said.”

“Nancy Taza, a sales representative at a brokerage office in one of the CityPlace condo complexes in downtown Toronto, who has a direct stake in the market, also isn’t worried. ‘Are there a lot of buildings going up? Yes. But, I really don’t worry about the market and my investments [three condos], because I see the demand every day and it’s so strong.’”

“Royal Bank of Canada CEO Gordon Nixon told a financial conference in Toronto that he’d ‘like to see the rhetoric [about a housing bubble] come down a little bit.’”

“Jing Lin recently bought two studios at One48, a 55-unit glass-clad condo in the Gramercy area that is 96 percent sold. She lives on the top floor, with her investment unit right below hers. She is so confident of the building’s success that she persuaded a cousin from Beijing to buy an apartment on a lower floor and has brought in two other investors from China. ‘If you compared the price and the quality of these apartments with properties in Beijing,’ she said, ‘you would think it’s crazy to buy in Beijing — and I hate to say anything bad about my country.’”

“Many developers are cutting prices on new projects to spur sales and raise cash, especially in big cities such as Beijing and Shanghai. In Shanghai, for example, some developers have offered discounts of up to 40 percent, even for prestigious waterfront and central business district locations, according to an online house-trading site.”

“‘This is the hardest time for the industry since I entered this sector five years ago, because we hardly saw any sales in the past three months,’ said Lin Jiantao, a property agent in Changning district, Shanghai.”

“More homeowners in East China’s Zhejiang province are protesting, as developers slash home prices without compensating earlier buyers. The Beijing Times said the three developers slashed their prices from 2,000 yuan to 4,000 yuan ($320 to $640) a square meter. ‘I bought my apartment for 12,600 yuan per square meter in August, but it is 8,800 yuan per square meter now. I lost more than 200,000 yuan in less than half a year. How can I accept that?’ a homeowner named Liu said at a protest last week in Hangzhou, according to the newspaper.”

“Last week in the Zhenhai district of Ningbo, also in Zhejiang, about 400 home-owners broke into the sales office of a property company named Baoyi Real Assets and smashed it up. ‘It is a mega trend that the housing price is going down. No one guarantees that the property will appreciate. It’s so normal the price goes down, like stocks,’ said a worker from Baoyi’s sales office who declined to give her name.”

“‘You are an adult, and you should be responsible for your own decision. Why didn’t you stand up when housing prices went up?’ a netizen named Xiao Bai said.”

“Société Générale strategist Albert Edwards has warned investors who own Australian government debt they face the ‘mother of all hard landings’ if China’s economy slows down as they expect. He said the Australian economic ‘miracle’ is ‘dependent on the wheels not coming off China.’ ‘All we have in Australia, at its simplest, is a credit bubble built upon a commodity boom dependent for its sustenance on an even greater credit bubble in China,’ he said. ‘Of all the bubbles I have seen over the last 30 years in this industry, this one is even more obvious than the rather prominent nose on my increasingly haggard face.’”

“Consultancy PrimeView said prices across France have jumped 160pc since 1998, though houshold incomes are up just 35pc. Paris has overtaken New York to become the world’s third costliest city at €18,000 (£14,600) per square metre. ‘It is a gigantic bubble, all the more dangerous as it is spread across France,’ said Pierre Sabatier, from PrimeView.”

“A housing slump would hammer the economy just as long-delayed austerity begins in earnest. Property makes up 65pc of French household wealth, compared with 57pc in Germany, 39pc in Japan and 27pc in the US. ‘Starting this year, the demographic structure will have a profound deflationary impact on property, reversing the last 40 years. We could see a vicious circle of falling prices,’ said Mr Sabatier. ‘Ageing means the end of property’s golden age. It may be less rapid than in the US because French households have less solvency problems, but we think a 40pc fall may be inevitable over five or 10 years.’”

“‘There are bidding wars going on. People are paying over asking price,’ said Joe Sorrentino, an M.J. Peterson Corp. real estate agent who had 48 people look at a house two weeks ago, with eight offers for more than $400,000 each. ‘People are still bugging me,’ he said. ‘We still got people calling and wanting to know if they can outbid what we accepted.’”

“Some buyers, particularly from out of town, have approached sellers with offers far below the asking price because they’ve read about the massive price declines elsewhere and assume that applies in Western New York. ‘The out-of-town buyers sometimes think that they can drive a tougher bargain,’ said Susan Lenahan, a broker at M.J. Peterson’s downtown office. ‘All real estate is not national. It’s local. These buyers are still reading a lot of negative press about various off markets, and [think] you should be able to offer 50 percent to 60 percent off the asking price. Well, you may still be able to do that in California, Florida, Nevada, Arizona or Michigan but not in Buffalo.’”

“When Park City Board of Realtors statistician Mark Seltenrich described the housing market trends in the area, he imagined a line that took a sharp dive, hit the bottom and slopes gradually into an incline. Barring another significant hit in the economy, he’s expecting to see the real estate market rebound and home values rise. ‘People ask me, ‘Do you think we’ll ever get back to the prices a few years ago?’ I tell them ‘Yes, but not very soon,’ he said.”

“From West Hartford to Florida to California, multiple offers and bidding wars have returned to some housing markets indicating that in many areas we have either hit bottom or are close to it. While bidding wars are pushing home prices higher, most of the sellers are taking a loss, especially if they bought their home in 2005 to 2007, at the height of the market. In South Florida, for instance, homes that sold five years ago for $2 million can now be had for less than half that price.”

“‘People have been waiting for the market to bottom out and how do you know when the market bottoms?’ asked real estate agent Mollie Abend, who specializes in selling homes in West Hartford. ‘You know when prices start rising.’”

“The big issue, said Abend, is whether appraisers, who were blamed for much of the excesses, are willing to raise their estimates of what a home is worth. Without that, many of the sales will not go through as much higher down payments will be required.”

“Folks who have always wanted a condo, but couldn’t afford it, are now hitting the marketing, according to David Swiger of Swiger & Company Realtors in Gulf Shores. ‘They think we’re reached the bottom of the market. They can remember that condo they were looking at was $600,000 and now it’s $299,000.’”

“Sales are back to the levels of six or seven years ago, according to Chuck Norwood of REMAX of Gulf Shores. ‘We’ve seen an uptick in prices. We’re still not seeing a lot of appreciation, but I feel like we’ve hit bottom. The units are selling for more than the last one sold for. And half the deals we’re doing are running into appraisal issues,’ due to the price increases.”

“Prince George’s County sheriff’s deputies have evicted a Fort Washington couple who spent years fighting the foreclosure of their million-dollar house. Keith and Janet Ritter did not make a single mortgage payment on the showcase home along the Potomac River after buying it at the end of 2006. During the real estate boom, the Ritters earned six-figure incomes by flipping houses — buying and reselling rapidly.”

“Most of their activity was in the Fort Washington area. The Ritters ran into financial trouble once the housing bubble burst. They had said previously that they did not make payments because they were scrambling to save other investment properties from foreclosure. Neighbors in the small development of custom-built, high-end homes were reluctant to talk to a reporter about the eviction. One man, who did not give his name, said, ‘This is reality.’”