The Housing Bubble

It’s Friday desk clearing time for this blogger. “Baha Mar Ltd, which bills itself as the largest resort property in the Western Hemisphere, launched its first global roadshow in Beijing on Tuesday, aiming to attract China’s billionaires. Vancouver, Toronto, London and Singapore will be the most popular locations for real estate investors from the Chinese mainland in 2012, according to Colliers International. To date, 20 to 40 percent of foreign investors in these four cities are from the mainland, the report showed. David Wei, international business director of Beijing JiaHua Four Seasons International Exhibition Co Ltd, said immigration, investment and vacationing are the three major purposes for Chinese purchases of overseas property.”

“‘The proportion of the first two types has been climbing, with the immigration accounting for more than one-third,’ said Wei.”

“Real estate and stocks remain the two most popular investment choices for the wealthy, the report said. Since the central government moved to cool the domestic property market, a growing number of individual buyers from China have been snapping up properties overseas.”

“In China there is something deeply perplexing about this year’s housing figures. Compared to the first quarter of last year, China’s real estate investment has seen a 23.5 percent increase. Real estate sales have actually dropped by 14.6 percent when compared to the same quarter in the year prior. The Chinese housing bubble is quickly unraveling, and as developers partake in a frantic bid to cash out, everywhere are the marks of a race to completion.”

“When the Chinese government tracked home prices in April, it found strong price declines in 46 of the 70 cities targeted. Dariusz Kowalczyk, an economist at Credit Agricole-CIB in Hong Kong, suggested that the figures ‘increase[d] the pressure for policy stimulus, both fiscal and monetary.’ But the proponents of stimulus are not without their opposition. Many analysts believe policy stimulus will only add fuel to the fire. Patrick Chovanec, an associate professor at Tsinghua University’s School of Economics and Management in Beijing, argued, ‘if they lift the restrictions and the market keeps falling, which it will, they’ve lost the fig leaf that enables them to say they’ve got everything under control.’”

“Every metropolitan council has suffered falls in property values in the past year. Properties in the Adelaide City Council area performed best, losing just 0.04 per cent of their value. Holdfast Bay properties fared worst, now down 7.05 per cent. REISA beachside and western 2011 Salesperson of the Year Brad Allan, of Gary J Smith Glenelg, said said the market for family homes ‘in the $600,000 to $1 million’ segment was holding its value. ‘It’s the strongest it’s been,’ he said.”

“The past year has seen home sales slow down across the country. The slump in sales has been pronounced in Delhi-NCR and Mumbai, over 40% compared to the previous year. A combination of exorbitant property prices and high home loan rates made buyers balk. The north has also seen a rise in property prices because of the speculative nature of the market. It is also largely an investor-driven one. ‘In the north, a passion for real estate along with the need to park black money has pushed up property prices dramatically in recent times,’ says Anckur Srivasttava, chairman of GenReal Property Advisers.”

“Says Anshul Jain, CEO of DTZ India, a real estate consultancy: ‘Around 70% of the realty market in NCR-Delhi and Mumbai is investor-driven.’”

“With Europe teetering on the edge, the US economy still sluggish, and domestic manufacturing shrinking, Indian exports are not growing fast enough - some estimates say exports could be just half of what they were in 2011. The crisis in Europe has led to billions of dollars being taken out of emerging economies, and India is no exception. India’s chief economic advisor, Kaushik Basu, insists that the falling rupee is not an ‘Indian-specific problem’, and that currencies in all emerging economies are under pressure - citing the South African rand, Brazilian real, and Mexican peso as examples. ‘The exchange rate problem that you are seeing is probably a bit of a bubble,’ Basu told a business news channel. ‘I do think it’s a bubble but it’s not an India-specific bubble. There is something global going on.’”

“A new report suggests there are too many Arizonans chasing too few affordable homes in the state. The study by the Federal Housing Finance Agency finds the price of an average home in the state that sold in the first three months of the year up by nearly 2.5 percent in the last quarter. But when the report adds in appraisals done on homes for refinancing mortgages, a different picture emerges: Overall home values are still dropping.”

“Economist Michael Orr of the W.P. Carey School of Business at Arizona State University said one factor is simple supply and demand. ‘We’ve got only a tiny fraction of normal listings of what we would normally have at this time of year,’ he said. ‘At the same time, people who have relied on banks listing homes are realizing the banks haven’t got many homes because they’re not foreclosing on very many.’”

“Orr also said appraisers are being conservative in their reports. ‘All they need to do is come up with a number that justifies the loan,’ Orr continued.”

“About 40 percent of those who own a home in the Twin Cities owe more than their house is worth, but most are making their mortgage payments on time. High negative equity numbers are also why the inventory of homes for sale is low. Many who would like to sell simply can’t because they are underwater.”

“Chris Willette, a short-sale expert with Edina Realty, said he’s not surprised by the numbers. ‘I think a lot of homeowners are really waiting for the market to start appreciating; that’s why they have stayed current on their homes,’ he said. ‘However, with short sales and foreclosures taking over the traditional market, their hope deteriorates, they realize there’s no way to catch up and have their home be worth something again.’”

“Foreclosure activity grew last month locally and across Massachusetts. ‘A 47 percent increase in petitions for foreclosure sounds alarming, but I don’t think it’s indicative of the real estate market falling apart,’ said Timothy Warren Jr., CEO of The Warren Group. Marlborough Code Enforcement Officer Pamela Wilderman said the city has several properties that have been stuck in foreclosure for a year and banks do not seem eager to move that process along. ‘The longer it sits there, the more adept it is going to become at falling apart.’”

“Realtors from across the country met with their members of Congress last week to advocate public policies that promote sustainable homeownership and help stabilize the struggling housing market during the National Association of Realtors 2012 Midyear Legislative Meetings & Trade Expo in Washington, D.C. Realtors from the Emerald Coast Association of Realtors had an opportunity to connect with the country’s leaders about the housing issues that matter most in their area.”

“ECAR President Judi Rutland said, ‘Homeownership is an investment in your future and we want to ensure that anyone able and willing to assume the responsibilities of owning a home continues to have the opportunity to pursue that dream.’ ‘There is also an urgent need to extend the mortgage cancelation relief provision set to expire at the end of 2012, which assures individuals will not have to pay income tax on forgiven mortgage debt after a loan modification, short sale or foreclosure,’ said Rutland. ‘Struggling families who’ve suffered through a great economic loss should not be further burdened with additional income taxes.’”

“Is there a housing bubble in the Lower Mainland? Housing zeppelin is more like it. Bubbles, after all, are soft and cute and harmless. Zeppelins, conversely, hurtle into the ground, spewing flaming wreckage in all directions. And that’s precisely what we’re about to witness in the region. Consider the factors that have pushed our prices so absurdly high that the average family now spends 70 per cent of pre-tax income to buy and own a home.”

“It starts at the top, with the federal government and the Bank of Canada. Despite doling out repeated warnings over our addiction to credit and our per capita debt, which now stands at a deeply troubling $1.50-plus per $1 of disposable income, those in charge have continued to facilitate easy mortgage borrowing and a credit culture. Why? For one, housing-related industries account for a quarter of our GDP. We’d look far less impressive globally were we not buying and selling obscenely expensive homes to one another.”

“And it filters down from there. Ultimately, locals are inundated from all sides with stories of unicorns and pots of gold and wrongly believe the pyramid scheme of the past decade will somehow, illogically, continue forever.”

“When the smoke clears, when developers have glutted the entire region with product, when realtors are no longer rock stars and and pseudo-financial advisors, when the CMHC stops backing every high risk borrower that comes calling (the corporation, run by a board with blatant ties to the real estate industry, will soon sport a much shorter leash), when newly introduced mortgage restrictions have sliced and diced the number of potential buyers, when interest rates have jumped from their emergency lows, when local TV producers stop airing dubious realtor PR stunts (helicopters purportedly loaded with offshore realtors, trumped-up condo lineups, marketers posing as investors) as hard news, when the market is flooded with the homes of bailing baby-boomers seeking to fund their retirements, when the imaginary tidal wave of incoming Chinese is revealed as the mere speculative ripple it has been, when fatigued owners realize killer home payments devastate every other aspect of their family’s lives, and most importantly, when the mania dies (manias always die) and when real estate ownership is no longer the Holy Grail, there will be nothing left but you and decades of onerous payments on a crashing asset.”

“After the U.S.. housing crash began in 2007, the media often made comparisons with the Dutch tulip mania of 1637, one of the first and most dramatic speculative bubbles in the Western world. A different Dutch craze of that era — for lavish dollhouses, displayed by and for adults — also holds a powerful lesson. In both financial and emotional terms, these grownup toys were the real precursor to our recent obsession with house and home.”

“They were also investments in themselves. They were commissioned and sold at auction, in the same way as oil paintings and other luxury crafts. Collectors tracked their worth as investments in account books. They were listed as assets in dowries. One collector charged admission to visitors. A dollhouse owned by an Amsterdam merchant’s wife named Petronella Oortman, which is displayed at the Rijksmuseum, was worth almost the price of an actual canal house.”

“During the housing madness, tens of millions of Americans watched a sentimental reality show called ‘Extreme Makeover: Home Edition.’ As housing prices ticked up beyond rational levels, ‘Extreme Makeover’ reminded us how much home was worth emotionally. We wanted those hardworking, innocent, injured people to have that beautiful house. We wanted it so badly. Every week, we reassured ourselves: Home is priceless! These people deserve those mansions!”

“When the bubble burst, the show’s ratings declined. Suddenly, the seven bedrooms and the indoor spaceships started to seem … a little extreme. The Dutch stopped building dollhouses when the Golden Age ended. This year, five years into the housing crash, ABC cancelled ‘Extreme Makeover: Home Edition.’ We might ask ourselves what else is coming to an end.”