When The Easy-Money Punch Bowl Goes Dry
It’s Friday desk clearing time for this blogger. “Real Estate Institute NZ sales figures for May show Auckland residential values were up 7.8 per cent on last year, setting a new record median of $500,000. The increase in the number of sales compared to last May was 27.6 per cent. QV issued three-monthly figures on Tuesday that showed annual house property growth for Auckland was 6.8 per cent and the average sale price was $627,411. It’s a double-edged sword, low interest rates but high prices.”
“John Gray, president of the Home Owners & Buyers Association, says the association is concerned some buyers are being careless. ‘People are in a bit of a frenzy and are not doing due diligence. Because of the pressure that has been brought to bear by agents saying, ‘You’ve got to get in quick, got to make the offer unconditional’, that means people drop their guard in the heat of the moment and have been caught out,’ he said.”
“More West Australians than ever are defaulting on their home loans, according to figures published yesterday by the Supreme Court of WA. The Community Housing Coalition of WA yesterday described the figures as yet more evidence of housing stress in the west, where rents are climbing fast and the public housing wait list reached 23,000 last December.”
“House prices have also fallen - the median Perth house price has dropped from $505,000 in March 2010 to $469,000 in March this year, leaving some homeowners with mortgages bigger than the value of their homes. Community Housing Coalition of WA chief executive Barry Doyle said he believed the record repossession cases were a result of ‘imprudent lending and perhaps imprudent borrowing.’ ‘A few years ago a lot of people on low incomes ended up borrowing heavily because there were government incentives and fairly lenient lending practices,’ he said. ‘They were given mortgages that didn’t really take account of their ability to pay.’”
“Zhu He, a real estate sales manager in Beijing, reports that the owners of an 800-unit apartment complex in central Beijing have pulled dozens of apartments off the market. The property values in some real estate markets of the country have declined by half. Zhu notes: ‘Real estate is too important to the Chinese economy.’”
“Memories are still fresh of home prices more than doubling in some cities including Beijing and Shanghai in 2009 and 2010 soon after the country rolled out a massive stimulus package to prop up growth on the wake of the financial crisis. Fears of being priced out of the market again have recently pushed some would-be home buyers in a few cities to queue up overnight for new apartment launches, according to domestic media reports. ‘Panic as well as real pent-up demand will drive up home prices,’ said Xianfang Ren, an economist with IHS Global Insight in Beijing.”
“Australian lenders are cutting borrowing costs by selling mortgage-backed bonds in the US, funding loans for what is the world’s second-most expensive housing market. ‘People are saying ‘look at Australia, that looks good, there’s no bubble there’ and are buying,” said Andrew Feltus, Boston-based portfolio manager at Pioneer Investment Management, which manages $US186.5 billion globally.”
“Former Memphis mayor Willie Herenton is underwater on a five-bedroom, 4.5-bath house. The house is for sale for $369,000. Herenton said he sold another home in his same subdivision, Banneker Estates, in a short sale. He’s both divesting and downsizing his real estate holdings. ‘My son owns a home here and lives in Chicago. We have excess real estate and we’re doing some consolidation. I have several homes.’”
“Lighthouse Point Commissioner Chip LaMarca is facing foreclosure on his home after, records show, he stopped paying his second mortgage, per Gossip Extra. LaMarca said he took out the second mortgage on his $319,000 home in 2006 to put money into his construction business, which appears to have faltered along with the rest of the construction industry. ‘I’ve been on the phone with the bank and I’m hoping they’ll work with me,’ LaMarca said. ‘People who seek office are people… Nobody’s perfect.’”
“Occupy Marin has taken up the cause of a Mill Valley couple who are trying to avoid being evicted from the home they lost to foreclosure. John Graybill said that with the encouragement of a World Savings employee they took out a second equity loan of $600,000 — even though the house had most recently been appraised for just $243,000. Graybill said the World Savings employee lied on the loan application indicating that the couple had two new cars and $100,000 in home furnishings, which they didn’t have. The loan featured an adjustable interest rate and balloon payments.”
“‘We were foolish. We shouldn’t have borrowed the money,’ Graybill said. ‘We shouldn’t have used our home as a checkbook.’”
“U.S. lenders are notifying more delinquent homeowners they face foreclosure. The homes that do eventually end up in foreclosure may initially spur another drop in prices as the inventory reaches the market, said Mark Zandi, chief economist of Moody’s Analytics Inc. ‘More price weakness could ignite more defaults as more underwater homeowners think that prices aren’t going to rise anytime soon,’ Zandi said. ‘The threat is that a vicious cycle is re-ignited. I don’t expect this to happen, but it is a risk.’”
“Premier Wen Jiabao acknowledged that the economy was experiencing ‘relatively large’ downward pressure and went on to say, as reported by Bloomberg: ‘We must unswervingly continue to implement all manner of controls in the property market to allow prices to return to reasonable levels. We cannot allow prices to rebound, or all our efforts will come to naught.’”
“To the reformers, fixing the real estate crisis is an existential matter for the Chinese economic system and the future of the country. On his Weibo blog, an influential economist in Jiangsu province shared the concluding phrase from his briefing to a meeting chaired by Premier Wen during his visit: ‘The Communist Party rose to power by accomplishing an agrarian revolution; if the land system breaks down, it will shake the very foundation of the nation.’”
“China’s banking system is derided as an ATM for unproductive, government-directed investment. When the easy-money punch bowl goes dry and the economy goes south, the banks’ lazy bad bets come back to haunt them.”
“A recent NewsLeader editorial touched on the negative effects of record-low interest rates. The general rationale behind driving down interest rates is that such a policy is beneficial to the Canadian economy. Well, that all depends on how and by whom said benefits are defined. Regarding Canadian consumers it has been and continues to be devastating. The temptation to go on a borrow-and-spend spree has proven irresistible to consumers who view low interest rates as ‘cheap money.’ One consequence is that the ratio of household debt to disposable income has risen by 40 per cent over the past decade: earlier this year it breeched an astounding 150 per cent, and continues to rise.”
“And then there is everyone’s favourite topic of conversation: real estate. Canada’s house prices have doubled since 2002. Low interest rates have fuelled a buying frenzy. Add to that a favourable Capital Gains Tax regime and encouragement of foreign ‘investors’ and the consequence is that the market is now influenced by speculation rather than the needs of ordinary Canadian families seeking a home, more and more of whom are being excluded from that opportunity.”
“Reading Ross Gittins’s article last week (’Houses hit affordability ceiling, the price plateau is here to stay’) I started to think that perhaps my dinner party crowd is a little different to his. We’re not worrying if housing is getting unaffordable; the people sitting around my table are talking about raising kids in a rental or moving out of the city. They know housing is unaffordable.”
“If only 24 per cent of properties are affordable to 60 per cent of buyers in Sydney, then who is buying the unaffordable properties? Well, there are 1.7 million property investors in Australia, encouraged by negative gearing and capital gains tax exemptions to invest in housing and shelter their other income. There are also many households who’ll stretch themselves to the financial limit to get their piece of the great Australian dream, even if they might not necessarily be able to hold on to it.”
“Gittins is right when he says that we’ve seen a structural shift to a lower interest rate environment, but servicing the loan isn’t the whole picture. Because households now borrow so much more, we’re actually paying banks almost twice as much in interest payments than we were back when interest rates were at 17 per cent – and it takes much longer to repay the average home loan.”
“When The Easy-Money Punch Bowl Goes Dry”
Any predictions on when this will eventually happen?
How to Determine How Much Home Can You Afford
by Donna Fuscaldo
Published July 11, 2012
FOXBusiness
Interest rates are low and home prices have plummeted from their 2008 highs, making it an ideal market for homebuyers. But before even starting the hunt, every buyer needs to determine exactly what they can afford and how much they will need for a down payment.
While a down payment is sure to be in the thousands, 90% of new mortgages are government-backed conventional (Fannie or Freddie) and FHA loans, according to Bob Walters, chief economist at Quicken Loans, that only require 3.5%-9% upfront, compared to the standard 20%. Veteran Home loans or VA loans sometimes finance the entire home purchase and don’t require a down payment.”
…
There are non-profit companies that offer eligible buyers assistance in buying a home. For instance AmeriDream, a non-profit focused on helping people find affordable housing, helps people with low and moderate incomes buy homes by offering down-payment assistance. Buyers who are approved for an FHA loan, but don’t have the money for the down payment can apply for the AmeriDream down payment assistance.
The Nehemiah Program, which is a down payment assistance program that offers help to buyers who qualify for an FHA loan. With this program there are no limits on income or assets. For a list of down payment assistance programs click here.
‘A few years ago a lot of people on low incomes ended up borrowing heavily because there were government incentives and fairly lenient lending practices,’ he said. ‘They were given mortgages that didn’t really take account of their ability to pay.’
Luckily that could never happen here in the good ole U.S. of A.
“Occupy Marin has taken up the cause of a Mill Valley couple who are trying to avoid being evicted from the home they lost to foreclosure. John Graybill said that with the encouragement of a World Savings employee they took out a second equity loan of $600,000 — even though the house had most recently been appraised for just $243,000.”
Occupy Marin (snark)…
Do other posters besides me recall a few years back, when it was different in Marin? At the peak of the bubble, condos in Richmond, across the San Rafael bridge from Marin, sold for well north of $243,000.
Anyone buying property in Richmond needs their head examined. It’s the only place I can think of where utility crews need a police escort due to taking small arms fire (not making this up).
What did they do with the $600,000?
Did they spend it all?
How come the journalist didn’t ask these questions?
“What did they do with the $600,000?”
Silly Wabbit, you can`t be asking questions like that. It was obviously the World Savings employee`s fault. That was who encouraged them to take out the loan. These people are obviously victims.
Either that or they are Donald Trump wannabe Deadbeats that got cought holding a $600k bag when the music stopped before their brilliant realestate investment had made it to a million $ where they could sell at a profit and continue their work free climb to financial independence.
“…to allow prices to return to reasonable levels. We cannot allow prices to rebound…”
Good luck with politically implementing that logical contradiction.
‘A survey released by the People’s Bank of China on June 19 showed that among 20,000 respondents in 50 cities across the nation, 29.4 percent said they could afford homes at their current price level…Local governments across China have been trying to adjust house sales policies to help kick-start the economy, said Xue Jianxiong, analyst with China Real Estate Information Corp, or CRIC, a realty information provider.’
‘Xue added that discounts introduced by developers in the past months have attracted buyers; the number of available apartments have decreased, while demand grew, with the average price rising as a result, in many of the popular projects. As well as developers, local governments are also trying to increase sales.’
‘However, some policies aimed at loosening purchase controls proposed by some local governments, including those of Foshan, Wuhu, Shanghai, Chongqing and Chengdu, have been suspended or canceled after being found to conflict with the central government’s plans to curb price increases, the report said. One example was a policy proposed last week in Henan province, which offered a 30 percent discount on interest rates for first-time homebuyers.’
‘But two days after being offered, Henan authorities withdrew it, due to what it called conflicts with central government controls.’
‘The average price of some new properties, especially high-end ones, have seen up to 20 percent annual price increases in Shanghai. ‘Some buyers are worried that house prices might further increase so they bought homes during the past two months, which helped push up prices since April,’ said Zhang Yulin, an account manager at Xinyuan Property Agency in Shanghai.’
So a little confrontation between local govts/developers and the central govt. This quote goes along with something I’ve been pondering:
‘The Communist Party rose to power by accomplishing an agrarian revolution; if the land system breaks down, it will shake the very foundation of the nation’
I’ve posted reports that there were so many thousands of mass protests, often concerning land related scandals, that the govt stopped publishing how many there were! Wouldn’t it be interesting if the bubble fallout brought down the regime in China.
“A recent NewsLeader editorial touched on the negative effects of record-low interest rates. The general rationale behind driving down interest rates is that such a policy is beneficial to the Canadian economy.”
Sorry to keep recycling my favorite quote, but it has unlimited applicability.
’Houses hit affordability ceiling, the price plateau is here to stay’
It appears that housing prices have reached a permanently high plateau.
“Because households now borrow so much more, we’re actually paying banks almost twice as much in interest payments than we were back when interest rates were at 17 per cent – and it takes much longer to repay the average home loan.”
This banking scam will work great until it blows up, at which point you can bank on bailouts to rescue blown-up lenders.
“‘Panic as well as real pent-up demand will drive up home prices,’ said Xianfang Ren, an economist with IHS Global Insight in Beijing.”
For those of you who do not speak Mandarin, the name “Xianfang Ren” translates into “David Lereah”.
Here is another blast from the past:
“The steady improvement in [home] sales will support price appreciation…[despite] all the wild projections by academics, Wall Street analysts, and others in the media.” David Lereah, Jan 10, 2007
‘Overall, this is a soft landing, but we can see that the Chinese economy is undergoing serious pain,’ said Xianfang Ren, an economist at IHS Global Insight in Beijing. ‘I have 80 percent confidence that the economy will pick up in the third quarter as we have been in a slowdown for six consecutive quarters now. However, if the economy does not show an upturn in the next few months, factories will probably have to lay off workers and that will hit employment.’
‘Jobs are a crucial variable for China’s Communist Party leadership, especially in the run-up to its once-a-decade handover of power - a showpiece event scheduled for the autumn that the government is determined to ensure takes place against a backdrop of social stability and economic prosperity.’
‘It also said that real estate had restrained growth, but echoed consistent comments from Premier Wen Jiabao that now was not the right time to ease controls on the property market, introduced to curb rampant speculation that have pushed home prices well beyond the reach of many middle class urban Chinese.’
‘China’s real estate investment growth slowed sharply in the first half at 16.6 percent versus an annual rise of 32.9 percent in the same period a year ago - a clear negative for the 40 other sectors of the domestic economy which it directly impacts.’
The use of the phrase “soft landing” should automatically discredit any speaker on economic matters regardless of nationality. Because the global economy now consists of little more than boom-and-bust speculative bubbles, the only type of landings we have now are crash landings.
With the Boomers retiring, it will be interesting to see if the United States has a demographic hard landing. So much of what we take for granted depends on Ponzi dynamics, which also tend to resolve with a crash.
Yeah, or it’s contained, etc. Has there ever been a bubble of any size that resulted in a soft landing for the asset markets involved?
Australian lenders are cutting borrowing costs by selling mortgage-backed bonds in the US, funding loans for what is the world’s second-most expensive housing market. ‘People are saying ‘look at Australia, that looks good, there’s no bubble there’ and are buying,” said Andrew Feltus, Boston-based portfolio manager at Pioneer Investment Management, which manages $US186.5 billion globally.
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Whoa boy. This time, when the scams blow up, they are going to take democracy down with them, as the world’s democracies previously exhausted their political and financial legitimacy in order to revive the scammers. It wasn’t a good decision.
From the article:
‘Covered bonds are taking away from domestic demand for RMBS and Firstmac is considering the US market as an alternative source of funds, according to James Austin, the lender’s chief financial officer. ‘There is a small but growing pool of US investors as the Australian story is told and developed,’ Mr Austin said. ‘It’s seen as a positive because it’s a diversification, it’s a safe haven.’
“Australian lenders are cutting borrowing costs by selling mortgage-backed bonds in the US”
Yeah, that really caught my eye, so did this one.
“”Regarding Canadian consumers it has been and continues to be devastating. The temptation to go on a borrow-and-spend spree has proven irresistible to consumers who view low interest rates as ‘cheap money.’ One consequence is that the ratio of household debt to disposable income has risen by 40 per cent over the past decade: earlier this year it breeched an astounding 150 per cent, and continues to rise.”
This has to stop, we are going to go down hard because of these fools.
Ignore any pressing problem is the face of the country now and it we all go away in time feel sorry for the investors and pretenders the Gov’t will bail us out.
The folks down the street from you the loan mod people, the lease a BMW clan and the ones who rob Peter to pay Paul and the neighbors think they are just a great and we should feel sorry for them they are the problem, and they will be your problem when you got to sell your home?
“When The Easy-Money Punch Bowl Goes Dry”
Will it ever? When people can still borrow the minimum down payment of 3.5%, I’d say the easy money gravy train is still running strong.
“Because households now borrow so much more, we’re actually paying banks almost twice as much in interest payments than we were back when interest rates were at 17 per cent – and it takes much longer to repay the average home loan.”
This quote from Ben’s posting says otherwise…there will be a day of reckoning.