The Housing Bubble

It’s Friday desk clearing time for this blogger. “In the Crans-Montana resort, also in the Valais canton, chalet blocks five to ten storeys high extend for as far as the eye can see. Come spring and their shutters remain closed barring a few exceptions. A March 11 initiative saw the Swiss narrowly back a cap on second homes in every community. For Angela Turnbull from the real estate agency Angela Immobilier, acquiring a property in Crans-Montana ‘has never been so attractive.’ The new law ‘will certainly mean that few or even no new-builds whatsoever will see the light of day in the years to come,’ she says.”

“And by logic of supply and demand, this will likely lead to an jump in value of second homes. ‘Switzerland is becoming the hottest property owners’ club in the world,’ said Turnbull, who recommends that investors, and wealthy foreigners in particular, should act fast.”

“Norway’s central bank has emphasized that it is reluctant to widen the interest rate gap to Europe even as house prices have reached records while acknowledging last week that housing market developments and household debt may become a source of ‘instability in the Norwegian economy in the longer term.’ Norway isn’t in the grip of a housing bubble and a shortage of supply in the property market will prevent prices from falling, said Erna Solberg, the leader of the Conservative Party and the front-runner to take over as prime minister in next year’s election.”

“‘I argue against a housing bubble because a housing bubble is an influx of prices without demand; in Norway it’s demand that’s the biggest reason,’ Solber said. ‘I don’t think house prices will fall.’”

“Most economists and real estate insiders do agree that real estate values in Toronto will almost certainly be higher in 20 years. So for a young couple looking to invest for the long-term, there’s really no bad time to buy. That is, if there’s something they can afford. Amy and Chris Poole have lost out on four offers and backed out of three others. They say competition at open houses is so intense they’ve seen things get physical. Chris described a recent open house they attended. ‘The listing agent is backed into the corner by the fireplace, and somebody is standing there being quite loud saying, ‘I’m going to work with you, I’m going to make sure we get this property, whatever it takes, 120, 130 percent over asking, I’ll do it,’ just to try and intimidate everyone else,’ he recalled.”

‘Amy said that was the last open house they’ve been to. ‘You just walk through and everyone is sizing each other up, giving each other bad looks,’ she said.”

“Chris has heard the warnings that Toronto is building too much too fast. ‘Standing from our balcony there, we can see 14 cranes,’ Chris said. But he said he knows the other side of the argument. ‘Maybe we are behind what London, New York, what San Francisco is all about. Maybe this is sustainable, maybe this is the way things are going to be for a while,’ he said. ‘It’s hard to tell.’”

“Some people are hunting for high-rise apartments in Central Jakarta, others for sprawling housing estates in Bekasi, Tangerang and Bogor, but either way, demand for property is growing fast, and many of the largest developers are responding with a building spree. Residential property prices have spiked along with the rising demand.”

“‘In Jakarta, prices have gone up by 30 to 40 percent cumulatively over the past three years,’ said Luke Rowe, a senior technical adviser at Jones Lang LaSalle, a real estate services firm. Indonesians have fueled much of the push for property, but Rowe said the market would fare much better if foreigners were allowed to participate, as they can in Malaysia, Singapore and Australia.”

“Judith, a native of Zhejiang in China who lives in London, said her father paid the deposit on six off-plan flats in Colindale, north London, at a Shanghai exhibition a year ago despite the fact she warned him about its remote location. ‘The moment my father sat down, the agent wanted him to pay a reservation fee. Once he showed that he liked them, they said he had to pay the fee or someone else would snap them up,’ she said.”

“His experience shows the potential pitfalls facing a growing number of Far Eastern people buying British homes unseen as developers target places such as Hong Kong, Shanghai and Singapore because British buyers are struggling to get mortgages. Estate agents said overseas buyers of property as an investment were at risk of getting lower-than-expected returns as the mass marketing of the homes at events meant many landlords would likely have to vie for tenants all at once, pushing rents down, said Camilla Dell, managing partner at Black Brick Property Solutions, which helps overseas buyers find London homes.”

“‘I have yet to see a development where the rents have exceeded the advertised rent,’ said Ashley Jones, managing director at London-based estate agent Barclay Residential. ‘I cannot see all of this having a happy ending.’”

“Macau, where casinos raked in $33 billion last year, is expected to make around $40 billion in 2012, with a growth rate estimated at 18 to 25 percent, down from 42 percent in 2011. High-spending Chinese gamblers account for around 70 percent of revenues, but their spending is dropping, analysts say. ‘To assume that Macau gaming revenues will continue to grow at a double-digit pace, is to assume that the epic pace of property appreciation in China continues,’ said Mike Turner, analyst at Washington-based brokerage Compass Point.”

“Macau’s boom in the past two years has been due in large part to the assets of many VIP customers in China appreciating sharply. Those big spenders are also given credit by junket operators based on the value of their property or stocks. So with property prices easing and stock markets weak in China, Turner expects this to be mirrored in gambling revenues.”

“Adelaide University director of housing Professor Andrew Beer said the market was the ’slowest it had been since the year 2000.’ ‘The market is adjusting to slower economic conditions and a fall in access to credit for some people in the community,’ he said. ‘But there are no grounds to panic.’”

“Real Estate Institute of SA president Greg Moulton said variations in suburb price performance showed the market was ‘very, very patchy.’ ‘Pricing has to be spot on and if it is a little bit above the mark, buyers will make cheaper offers,’ he said. Mr Moulton said many vendors were deciding to rent their home rather than sell if they did not achieve their target sale price.”

“About 15% of total houses in Gujarat are empty. Leading the pack of cities with the most number of vacant houses are Ahmedabad and Surat with about three lakh units each - of the total Rs 1.75 crore houses across the state, over 24 lakh are lying unoccupied, according to census 2011. A large number of these units belong to investors, who buy houses and exit after booking profits.”

“State urban development minister Nitin Patel said, ‘These houses were vacant because of the investors . Large number of houses are vacant because there was no demand in the market and these houses were technically with the builders. Also a large number of people invest in real investors to get good benefits.’”

“Industry sources say this is mainly due to the fact that Gujarat has been an investor-driven market. Many investors prefer paying the builders but not getting their properties registered to avoid registration charges. ‘The figure also reflects such homes,’ says a developer.”

“Nearly 1 in 3 homeowners with a mortgage in Los Angeles County owes more on the loan than the property is worth, according to Zillow. In the hard-hit Inland Empire, that climbs to more than half of borrowers. Underwater homeowners in Los Angeles, Orange, Riverside, San Bernardino, Ventura and San Diego counties were a staggering $138.9 billion deep in negative equity at the end of the first quarter, Zillow reported. Nationally, underwater borrowers owe about $1.2 trillion more than what those properties are worth, Zillow estimates.”

“Richard Green, director of the USC Lusk Center for Real Estate, has studied the issue and found that borrowers who had put higher down payments on their properties were less likely to abandon their homes even if they couldn’t sell their homes for enough to pay off their mortgages. ‘People don’t like to walk away from something they have put money into,’ Green said. ‘People seem to hate realizing losses.’”

“Q: We own a home in Georgia. Due to a job change, my husband moved out of state and took a large pay cut. I stayed in the home for a year after he moved and we depleted our savings during that time. We were finally able to rent the home out, but the rent does not cover our expenses. Now the mortgage company will not accept our request for a loan modification. We are in the arrears since January of this year. I am truly perplexed why the mortgage company will not work with us.”

“A: You stopped making payments to your lender in January and now the lender has the right to foreclose on the home, sell it and use those proceeds to pay whatever is owed on the debt. In your situation, you can wait for the lender to foreclose or you can try to sell the home. As for your tenant, you are now well into positive balance on your home budget. You’ve stopped paying the lender and you’re collecting rent on the home.”

“About two dozen people picketed the Wells Fargo Home Mortgage office in downtown Plainfield to publicize a Joliet woman’s foreclosure troubles. Tom Goyda, a spokesman for Wells Fargo, said the company had been working with Barrow-Leggett for two years in an effort to help her remain in her home. The latest review a month ago did not identify ‘an option that works,’ he said in an email.”

“During Monday’s protest, some drivers passing by beeped their horns in support. Other drivers frowned in disapproval. ‘My husband has been out of work for three years,’ yelled one woman driving by. ‘We still pay our mortgage.’”