A Very Dangerous Idea
It’s Friday desk clearing time for this blogger. “Jammie Sabin, president of Windsor-based Aspen Homes Inc. of Colorado said he has seen a sharp and welcome shift in consumer behavior this spring and summer compared to the past three years. Sabin said ’spec’ homes, those built without buyers backing the projects, are selling out. ‘The specs are selling as fast as we can get them up,’ Sabin said. ‘The number of people who are out there getting serious has about doubled, and they all seem like they have to go ‘right now.’”
“At the height of the real estate market in 2007, a 4,300-square-foot two-story home in the Daybreak subdivision could have fetched as much as $575,000. So it’s easy to see why, at a list price today of only $299,900, the seller has been inundated with offers — so many, in fact, that the listing agent decided to stop receiving bids after getting no fewer than 18 of them.”
“Inventory is low in most areas and price ranges, and buyers generally outnumber available properties. There also is an urgency among many buyers given the fact that mortgage rates have slipped into an almost laughable low and, like prices, are almost certain to increase. ‘If rates were at 5, 6 percent, I don’t think we’d be seeing such an urgency among buyers,’ said Adam Kirkham, co-owner of Kirkham Real Estate in Salt Lake City.”
“Suzanne Key with Ebby Halliday in Arlington, who has been a real estate agent for 22 years, said the market is running the gamut for buyers. She was involved in recent months with a buyer in Mansfield where four people were lined up to buy a $600,000 house. Yet some folks are still trying to sell their homes after two years on the market, she said. ‘It’s nothing like we’ve ever experienced,’ Key said. ‘The market is so different. We’ve got the lowest interest rates on record and combined with that, we have lots of foreclosures.’”
“About a month ago, Candace and Eddie Bill listed their 1,400-square-foot house in north Fort Worth. Candace Bill said she’s been commuting to Denton since moving into the house six years ago, but now wants to live closer to work. ‘We’re actually thinking about doing some improvements and staying here,’ she said. ‘My expectations for selling the house are realistic. It’s a little discouraging to see so many houses for sale.’”
“Shelby County’s real estate market is still feeling the effects of foreclosure activity, with a second quarter increase in activity following an even larger one in the first quarter. Holly Swogger, president of Memphis Investors Group, earlier this month hosted a panel discussion titled ‘Everything You Want to Know About Foreclosures. ‘These investors are really practical people. They drive around all sections of Memphis and Shelby County, and what they see is a lot of vacant houses that don’t even have the papers in the window yet that indicate they’re going into foreclosure,’ Swogger said.”
“The residence of the townhome units at 1002 Hwy. 98 in Mexico Beach don’t know what to do about apartment one—the bugs and dead squirrels that reside there are not good neighbors. The unit has been abandoned for the last three years and it has taken a huge toll on the building’s structure, and the crumbling drywall allows for bugs and small animals to get inside. ‘Our property value has diminished a great deal,’ said Chris Wilhelm, who shares a wall with the abandoned unit. ‘There’s dead animals in there. I don’t know what else to do—it’s going to fall down.’”
“The complexity of the foreclosure process has left Wilhelm with nowhere to turn while the property waits to be moved to foreclosure sale. Florida foreclosure timeframes are now longer than ever, with the average foreclosure lasting 861 days, or 2.4 years, according to RealtyTrac Inc. Wilhelm said he has hit roadblocks everywhere; he has gone to the health department, building inspector, code enforcement, city manager and council about the issue, to no avail. ‘If they don’t do something quick, it’s going to literally fall down,’ he said. ‘And I’m the first one that’s going to be affected.’”
“With sprawling housing developments and state-of-the-art skyscrapers, the outward impression is of a bustling metropolis. But look closer and the so-called Kangbashi New Area of the Chinese city of Ordos is anything but teeming with people. Known as the ghost town district of the wealthy mining city, it was built to house a million residents. But less than 30,000 live in this spanking new town, the construction of which started in 2004. There are many reasons why people have stayed away, soaring property prices being the most cited.”
“And despite pictures showing some of the country’s reported 64 million empty homes, Chinese authorities have since erected masses more buildings. China last year announced plans to build 20 cities a year for the next 20 years.”
“A state house is being marketed as an ‘entry level property’ - despite a probable price tag of $1 million. The real estate agent says the term refers to the starting price for a home in Westmere, rather than what first time buyers should be paying in Auckland. But a valuer in the area said entry-level properties started at about $700,000.”
“It did not give the council valuation of $900,000, made in July last year. Experts say the property is likely to go for more than $1 million. ‘This Westmere entry-level property is almost an extinct breed, but not quite,’ the advertisement says. ‘This attractive and comfortable 1920s, three bedroom bungalow has everything going for it.’”
“The lowest recent sale in Westmere was a derelict two-bedroom, 1920s bungalow on 468sq m which went for $741,000 in April. Another on the same road, a 1950s, two-bedroom brick home on 507sq m sold for $835,000. ‘It’s a time where there’s not a huge amount of listings and good, steady buyer demand,’ valuer Ross McCabe said.”
“Knight Frank’s Pranay Vakil tells Forbes India why property prices continue to be so stubborn. Q. How do existing buyers react to price drops? A: After having bought the property a buyer is not mentally reconciled to the fact that prices can go down. Take the case of a developer who has opened up a building for sale and completed 25 percent of sales at say Rs 10,000 per square feet. The developer later on finds that there is a lot of resistance at this price so he wants to reduce the price to Rs 9,000 per square feet for the new buyers. The first 25 percent of the buyers are paying at Rs 10,000 per square feet over the construction of the project and they will all come back to the developer and tell him to reduce their rates.”
“Q. Is this the same with real estate investors who collaborate with the developer? A: Investors typically are known to underwrite projects for developers. These investors make money through leverage. If he has money to buy one flat, he will book five flats with a 20 percent down payment. Sometimes he doesn’t have the intention of completing the payment because he wants the price to go up.”
“‘It is a very dangerous idea to think that dwelling prices cannot fall,’ RBA governor Glenn Stevens said in a speech today. ‘They can, and they have. We should never say a crash couldn’t happen here, and the Reserve Bank continues to monitor property markets and the performance of mortgages quite closely,’ said Mr Stevens.”
“Home prices in Australia have fallen 5 to 10 per cent from their peak according to the RBA. Measured against incomes, home prices are now close to where they were in 2002, Mr Stevens said. While admitting that home prices relative to income are higher than 20 years ago, Mr Stevens said ‘the problem is that there is no particular basis to think that the price-to-income ratio 20 years ago was ‘correct’. ‘Are dwelling prices overvalued?’ said Mr Stevens. ‘It’s very hard to be definitive on that question.’”
“Mr Stevens linked the increase in home prices to the global debt boom which was seen through the US, UK, and Europe since in the mid-1990s. ‘As everyone knows, dwelling prices rose a great deal over the decade or more from 1995, and not just in Australia,’ he said. ‘This occurred globally.’ The ‘widespread phenomenon…suggests that the global dwelling price dynamic had a lot to do with financial factors - and there is little doubt that finance for housing became more readily available.’”
“A day after RBC put out a report saying that Toronto’s condo market is not in a bubble, Capital Economics has come out with its own report saying that Canadian housing, including Toronto, is most certainly in a bubble. David Madani, economist with Capital Economics, said that Canada’s housing market is currently experiencing what appears to be a soft landing, but is, in fact, a bubble in the process of bursting.”
“A flurry of speculation has emerged about the fate of Canada’s housing market following changes to mortgage lending rules recently. Housing prices typically respond to changes in the market with a lag of five to nine months, according to Mr. Madani. ‘Overall, the willingness of buyers to pay these historically high house prices now looks to be proving fragile against the increasingly disappointing macroeconomic backdrop,’ he said. ‘The housing bubble in Vancouver already appears to be deflating, with only Toronto defying the inevitable. Accordingly, we expect substantial declines in house prices over the next year or two.’”
“‘There is always a stand-off period at the end of a housing bubble, when prospective buyers refuse to meet the price of sellers, who refuse to drop the asking price,’ he said. ‘Eventually it begins to dawn on sellers that the market has shifted and, as they become more desperate, they eventually agree to lower their asking price. But until that happens, any stagnation in prices can be misinterpreted as a successful soft landing.’”
It certainly seems like interest rates have reached a permanently low plateau.
It wasn’t that long ago Greenspan took heat for ‘keeping rates too low for too long.’
‘they all seem like they have to go ‘right now’
‘If rates were at 5, 6 percent, I don’t think we’d be seeing such an urgency among buyers’
It has certainly worked on some HBB posters.
My impression is that Irving Fisher’s “permanently high plateau” was (temporarily) driven by market forces. By contrast, the low interest rates we see today are supported by current Fed monetary policy.
This raises interesting questions:
1) Can the Fed maintain rates this low indefinitely, or could extraneous market forces beyond the Fed’s control prematurely end the policy?
2) Given that record low long-term Treasury yields have occurred in the very recent past, there doesn’t appear to be much scope for the Fed to push long-term interest rates much lower, even if they do manage to hold down rates indefinitely. This suggests the current race to buy homes may soon exhaust the current nexis between affordably-priced housing inventory and qualified buyers who are hungry for low-monthly-payment home purchases. Where will new demand come from once the current wave of mania demand from the low-monthly-payment/high-sticker-price set is exhausted?
3) Aside from severely underfunded pension plans with paltry returns on their investment funds compared to promised future benefits, what are the negative consequences of ultra-low interest rates?
June 8, 2012, 1:15 PM
Poll: Fed’s Low Interest Rates Breed Anxiety Over Retirement
By Kristina Peterson
The Federal Reserve‘s easy-money policy is breeding anxiety among investors looking at their retirement accounts, according to a new Wells Fargo/Gallup poll.
Nearly two out of three U.S. investors think policymakers should “take into account the harm low interest rates do to older Americans” when making decisions, according to the survey conducted May 4-12 of 1,018 U.S. adults with at least $10,000 in assets to invest.
Overall, around two-thirds of the investors polled thought the benefits of the Fed’s easy-money policy outweighed the costs. But many also felt nervous about the ripple effects of low rates, which have shrunk returns for senior citizens and others relying on interest earned from their savings to support them in retirement.
The central bank has kept short-term interest rates near zero since late 2008 in an effort to make borrowing cheaper to spur spending and investment. Fed officials have said they plan to keep interest rates low through at least late 2014 and are considering whether to take further action at their next policy meeting on June 19-20.
Even as the stock market has clamored for more support from the central bank, investors said those low interest rates carry side effects that are making them nervous. Among those polled, 42% said the ultra-easy monetary policy is making them fear they might “outlive” their retirement savings, 35% said it has prompted them to give less to charity than they might otherwise and 38% are living less comfortably during retirement than they might otherwise–or expect to when they leave the workforce.
…
Answer to #3:
Remember, lots of people owned their home already with existing mortgages (forget about the people who HELOC’d to the limit and those who bought during the peak 4-5 bubble years).
Those people, who bought with 6, 7, or 8% rates have very likely refinanced during today’s low rates. They are part of the source of the buildup of cash in money market funds. This permanent excess disposable cash, when people feel better about the economy can be spent on a regular basis, increasing the current very low velocity of money…result? A driver for inflation, which will be harder to slow, since raising rates will not effect this excess cash flow at all.
“Those people, who bought with 6, 7, or 8% rates have very likely refinanced during today’s low rates.”
Really? And we’re to believe an established liar like you?
You don’t need to believe me–just look at the data and judge for yourself:
http://mortgage-x.com/general/historical_rates.asp
From May of 1992 through November 2008, the 30-year fixed rate was never below 5%, and ranged from ~5% up to over 9%.
Every single owner, who is not underwater, and bought during that timeframe would be foolish not to refinance into a new loan at sub-4%. Why wouldn’t they?
By the way, you still haven’t answered my question…do you rent? Or own?
And my follow-up now…do you have a mortgage, and have YOU refinanced into a new, lower rate?
This isn’t about me Used House Pimp. It’s all about you and your lies.
I think all previous bets are off on raising the rates. They will pull a Japan and keep rates low for decades. Raising the rates is so bad for the establishment in so many ways, that even I have to admit that.
“They will pull a Japan and keep rates low for decades. Raising the rates is so bad for the establishment in so many ways, that even I have to admit that.”
Can you offer any insights on whether that supposed policy measure served to keep home prices elevated over the past couple of decades?
Harry Dent’s Formula for Surviving the Great Bust Ahead
The Gold Report | Jul. 27, 2012, 4:00 AM
…
TGR: What do you see in terms of stocks?
HD: The worst is likely to hit in the next two years. It’s a matter of when the stimulus stops working or when governments throw in the towel. At some point, for example, German citizens may just say they won’t bail out another country. They’ve been doing it to protect exports and avoid defaults on all of the money they’ve loaned out already, but considering the demographics, it’s a losing game.
We’ve studied all of the major debt bubbles and depressions in history, and this one is different because Keynesian economics, which came out of the Great Depression, wasn’t adopted as economic policy until the 1970s recessions. So now, for the first time in history, central banks around the world, the European Central Bank (ECB), the U.S. Federal Reserve, the Bank of China and the Bank of Japan, are actively fighting deflation. When banks start to deleverage or when deflation starts to step in, they just push money into the system. The question is: Do they lose control?
Japan has been through all of this before, but when it came into its crisis in the 1990s, it had budget and trade surpluses. The rest of the world was experiencing the greatest boom in history, which we’d predicted. There was mild inflationary pressure and everybody thought Japan was about to take over the world when it was about to collapse. We were among the few who predicted that ahead of time in the late 1980s.
Japan continued to push money into the system and never let private debt deleverage at all in either consumer or financial sectors. Japan is still carrying very high private debt, and its government debt has risen from 60% of gross domestic product (GDP) to 230% and still climbing. So Japan didn’t really go through a depression. It was more an on-and-off mild deflationary recession because the stimulus eased the pain. But now Japan’s debt is much larger than before the crisis and deleveraging still looms ahead. Japan has been a lost economy for 22 years now. Real estate is down 60% and stocks are still down nearly 80%, 22 years later.
Demographics say the Japanese economy will weaken even further after 2020. The interest on its debt will go up in a spring boom with rising inflation worldwide, and it will be bankrupt immediately because its debt is so high. It’s only because it’s borrowing at 1% or less that it can handle its deficits now. Sooner or later, this game has to end.
…
There is one fundamental cultural difference between Japan and the US.
We like to spend any money that we have (after all, don’t we DESERVE that leather jacket? Or vacation? Or new car?).
The Japanese saved enough to essentially fund their government’s deficit spending.
Unless you can point to the US being able to borrow all (or substantial portion) of their deficit from their own citizens, the direction of the US and Japan will be different.
‘A recent recovery in China’s residential property market has reignited worries for many that the country’s housing bubble is still expanding. However, compared to the residential property market, the commercial real estate market presents a far greater risk to the nation’s economy and urgently calls for the attention of regulators.’
‘After the government introduced restrictions on home purchases in many of China’s urban centers, the commercial property market experienced a sudden surge in transaction volume. According to the National Bureau of Statistics, investment in office buildings and retail properties grew by 43.4 percent and 34.2 percent year-on-year respectively in the first quarter of 2012, outpacing the 19 percent growth in investment in residential property seen during the same period.’
‘For the country’s largest property developers, the commercial property market, which has evaded many of the restrictions imposed on residential housing, is just another place to speculate.’
‘Currently, the average rental yield in the commercial real estate market is about 3 percent, much lower than the 6 percent interest most developers are paying on the loans to build up these properties. Also, with China’s economic growth stalling, rents for commercial spaces will probably remain weak in the coming future. But rather than making money on commercial properties now though, it is clear that developers are most likely buying low with the hopes of selling, or renting, high later on.’
http://english.peopledaily.com.cn/90778/7874187.html
Think about this:
‘the average rental yield in the commercial real estate market is about 3 percent, much lower than the 6 percent interest most developers are paying’
I’m sure they they make up for it in volume.
Well, yeah, with all this talk of a soft landing; this thing is still going up!
‘About half of China’s major property firms have seen their debt ratios exceed 60 percent and most listed developers have a negative operating cash flow, which may increase risks in bank lending for property development and other related industries, the official noted.’
‘Some developers have also raised funds through real estate private equity funds and real estate investment trusts, as well as from overseas markets and the domestic private lending market, and will face significant repayment pressure in future.’
‘However, the official told the newspaper that the country’s banking regulator is unlikely to suspend property-related loans or real estate investment trust operations.’
‘China saw outstanding loans for property development and mortgage home purchase rise 10.3 percent year on year to 11.32 trillion yuan (1.79 trillion U.S. dollars) at the end of June, according to central bank data.’
http://english.peopledaily.com.cn/90778/7886732.html
“But rather than making money on commercial properties now though, it is clear that developers are most likely buying low with the hopes of selling, or renting, high later on.”
How many real estate investors the world over are currently relying on this very same plan to make them rich ‘later on?’
They see the pre-securitization pricing, when lenders had to keep the loans, and the post-securitization pricing where lenders could separate themselves from lending risk.
This led to an increase in house prices, as a result of larger and larger loans being generated (and larger and larger commissions). With originators totally separated from lending risk, debt skyrocketed and as a result, house prices skyrocketed.
For house prices to go up, the buyer must be able to take on more debt. Buyer debt drives the house price.
So, going forward, in order to increase house prices, there are two factors:
1) Inflation
2) The ability of the buyer to take on more debt
The focus of government policy is to protect the banks and Wall Street, which then dutifully fund the politicians. So - inflation - does it help the politicians and Wall Street? Probably not. It is an interesting observation that theory dictates higher inflation could spark higher employment, but on the other hand, it could probably hurt politicians and the impact on Wall Street - banks in particular - is not clear. Bernanke advocated higher inflation in the past, as is commonly pointed out. High profile commentators do so now. But now, as a result of moving out of theory into the real world, with its political considerations, he seems to be eschewing - at least publicly - increasing inflation.
The ability of the buyer to take on more debt is very limited. The limits have been tested and identified. The government via FHA has shown its willingness to insure toxic debt and pay off the bad loans. Is that enough to consistently increase home prices, in an era of 100% debt to GDP ratio? And there is the student debt problem with further limits the buyers’ ability to take on debt.
So - I think the response of investors is Pavlovian. The previous generation who bought houses pre-securitization see the massive appreciation. Those who bought before securitization fullly matured in the 2000s also see significant appreciation. Going forward though - is there a path forward for higher house prices? Personally, I don’t see anything more than keeping pace with inflation.
You forgot #3, which IMHO is a biggie:
3) The potential homebuyer feeling that their hard-earned down payment (whether it be 3.5%, or 25%) is safe if they were to buy.
There also is an urgency among many buyers given the fact that mortgage rates have slipped into an almost laughable low and, like prices, are almost certain to increase. ‘If rates were at 5, 6 percent, I don’t think we’d be seeing such an urgency among buyers,’ said Adam Kirkham, co-owner of Kirkham Real Estate in Salt Lake City.
This guy is a walking contradiction. If rates were at 5 or 6 percent and there was no buyer urgency, why would prices be “almost certain to increase”?
To be fair, it was the reporter who said ‘mortgage rates have slipped into an almost laughable low and, like prices, are almost certain to increase’ and the real estate guy who said ‘If rates were at 5, 6 percent, I don’t think we’d be seeing such an urgency among buyers’.
But I’d add, if rates go up, prices will fall. Therein lies the trap. Prices would be much lower if rates were being set by the market. And that’s not even including the shadow inventory manipulation, the GSE zombies, or the absurd FHA programs.
I sit here and watch people post like crazy in the Bits Bucket; Romney, Obama, less filling, tastes great!
There is an global economic hurricane about to hit, and these people are arguing over meaningless crap. Oh well, nobody can say I didn’t try to warn them.
There is an global economic hurricane about to hit, and these people are arguing over meaningless crap. Oh well, nobody can say I didn’t try to warn them.”
Euro break up ?
It’s worse than that. Look at all the crying about Greece, and now Spain. Wait until China and India go down, along with Canada and Australia. The size of the combined manias dwarfs anything ever seen. And we’ve built a housing house of cards in the US, with a bubble hanging over the economy.
Hurricane doesn’t even describe it. A while back I heard a scientist questioned on what would happen when the magnetic poles switch, as happens in nature. He said we don’t know; we’ve never experienced it. We’ve seen many hurricanes, but never something like what is happening now with global housing markets.
“Wait until China and India go down, along with Canada and Australia. The size of the combined manias dwarfs anything ever seen.
…
Hurricane doesn’t even describe it.”
Have you ever seen The Day After Tomorrow?
But I’d add, if rates go up, prices will fall. Therein lies the trap.
If.
When.
Hasn’t happened yet.
The final straw that broke my back was the news story where Teh Bernank hinted that interest rates were not going to go up until the 2014 timeframe or whereabouts. In other words, these magical price drops are still 18 months away — at least price drops due to high interest rates — and even then interest rates are sticky on the way up, so prices will be sticky on the way down. During the time I would have waited for prices to fall, I would have paid 3-4 years of rent, and any inventory left would be so trashed as to not be worth waiting and paying rent for.
As for the coming global collapse, you’ve been warning about this for a while. But then you go vague with talk about “hurricanes” and “bubbles” and “houses of cards.” But what is going to happen in a practical sense? Is money no longer going to be accepted as legal tender? Are all contracts going to become null and void? Will G-men come to my dwelling and take anything of value? Will I cart around wheelbarrow of Ben Franklins and burn bricks made of Andrew Jacksons? Will I still have a job? Will my statement from my investment house come back with a bunch of 0’s on it? Will there even be any mail? Or gas? And the zombies? Will ANYone think of the zombies?!
And if there’s going to be a collapse, what should we DO? This is a serious question. Sure, I know the yada yada about living below my means and saving my money. But I’m thinking in practical terms. When said hurricane hits, can I just go to the ATM and withdraw $180K and live off of that for the next 30 years? Or keep it in the mattress and pull it out ? Should I store $50 bills? $100 bills? Are merchants even going to accept dollars or be able to make change, or even get merchandise to sell for any barter? Should I hoard gold? Hoard guns? Hoard canned peas? Kinda hard to stash a flock of chickens and 150,000 cans of canned peas in a rental in a high rise. Every dwelling has a contract of some sort. In a financial hurricane, why would a lease contract hold true any more than a mortgage contract? Or should I put all my belongings in a schoolbus ready to drive off on a moment’s notice, like the Preppers?
I guess I should go buy the DVD’s of Jericho.
Housing prices are falling my friend.
‘the coming global collapse, you’ve been warning about this for a while’
If you talking about a collapse of the housing bubbles in China, etc, yes. I have no idea how it will play out exactly and I don’t think anyone else does either. How could they? But what’s changed since 2005 is what these govts have done. China would almost be over their bubble if they hadn’t juiced the economy with easy money. Same with Canada and Australia, among others. This will make the end result worse IMO, and if you read all the articles I do, you’d see what I mean. I kinda wish I had time to blog a lot about this but I don’t. If I went vague, it was because I have had a few long days at work, and can’t go into it as much as I would like. Even if I did, I don’t think anyone is listening:
‘the average rental yield in the commercial real estate market is about 3 percent, much lower than the 6 percent interest most developers are paying’
OK, this, if true, is a freaking disaster.
‘About half of China’s major property firms have seen their debt ratios exceed 60 percent and most listed developers have a negative operating cash flow, which may increase risks in bank lending for property development and other related industries’
This is a freaking disaster with a big flashing red light.
You know what I smell? Complacency. I see people getting into bidding wars. Borrowing a bunch of money. The press and govt sweet talking the whole deal. Hardly any press on what’s happening with these bubbles in huge economies and how it might change the global picture. (But if some assh@t passes gas in Spain, the Dow drops 200 points.)
Complacency. Soft landings everywhere (even thought that hasn’t happened once). Another housing bear becomes a bull; they should just post that on Yahoo and leave it there. You know what? I don’t see it, and they ain’t asking me either.
I don’t know what’s coming. But what I said in 2005 is probably as good as anything; hold onto your hat cuz it’s gonna be rough.
“But what I said in 2005 is probably as good as anything; hold onto your hat cuz it’s gonna be rough.”
It seems quite surreal to be having the same conversation seven years on…different group of countries, same rolling international property bubble…
“But I’d add, if rates go up, prices will fall. Therein lies the trap. Prices would be much lower if rates were being set by the market.”
That gets to one of the questions I just posted: Even if the Fed has the will to hold down rates indefinitely, do they have the means to do so?
“Even if the Fed has the will to hold down rates indefinitely, do they have the means to do so?”
As long as we’re the ‘least bad game in town’, then yes. When we’re not, the yes becomes a probably no. Keeping it a yes means that we have to at least *appear* to be trying to right our fiscal ship.
I sit here and watch people post like crazy in the Bits Bucket; Romney, Obama, less filling, tastes great!
You’ve got your own personal JackAss Factory here my brother.
Speaking for myself, I only post on politics and act like a jackass to get under the skins of folks like Eddie and TuttiFrutti. I really couldn’t care less who wins the next election, and don’t believe it will change much either way.
It matters for who gets on the supreme court and the decisions that get made there.
From what I see, it will take rates much higher than 5% to dissuade current buyers.
Pick out a home on Zillow that has both a rental estimate and a price, and then look at the estimated mortgage payment vs. rental payment:
Here is one that I picked largely at random in Gilbert, AZ (I picked the location before I found the home):
http://www.zillow.com/homedetails/605-N-Devon-Dr-Gilbert-AZ-85296/2119007242_zpid/
I purposefully picked a home that was not the highest priced, nor lowest.
Estimate of mortgage payment?
$695
Estimate of rent?
$1,425
How is an increase of the mortgage even to $1,000 going to dissuade a buyer today?
Estimate of rent?
$1,425
——————————————————————-
Yet rentals in the same area can be had for under $700 a month.
You’re a liar.
The $1,425 per month in rent is Zillow’s estimate, not mine.
Find me a single 4 bedroom, 3 bath house over 2,100 square feet in Gilbert, AZ for $700 per month (~$0.33 per square foot, per month). Here is a start for the search:
http://phoenix.craigslist.org/search/apa/cph?query=Gilbert&srchType=A&minAsk=&maxAsk=&bedrooms=4
You have the entire internet to find one. Just find me one.
Those condo sales in Fort Worth are going to come to a screeching halt as the tax abatements start ending next year.
So now would be the perfect time to buy that 3 bedroom condo on the Colorado with it’s own personal dock space?
From the article about Loveland: the 300 annual building permits are more that the post bubble 100 or so that became the norm, but are still a far cry from the 1500+ that were the norm in the bubble years.
The claim that they are mostly selling in the low 200 and below range does square with what I am seeing on the ground. Above that price point almost nothing is selling. Some folks down the street just moved out of the house they’ve been trying to sell for almost 2 years now. I never saw the ubiquitous “under contract” sticker slapped on the for sale sign. I don’t know if they will be defaulting or will become accidental landlords. Their house is on the golf course side of the street, so they are the priciest ones in the nabe (many sold in the low 400’s when new). It will be interesting to see what happens next. Everybody else on the street is sitting tight. The number of houses for sale in the nabe does seem to be at an all time low. The “walk the dog” index is a single house for sale on the 40 minute route. I remember when I would see as many as 10 or more.
I use the dog walk index too. Still a lot of houses up for sale. And those that do sell, if they are smaller, tend to get torn down so that a charmless 3,500 square-foot pressboard rectangle can be erected. I saw one today being built literally an arm’s length away from the neighboring 3/2.
Much like manipulated interest rates, the McMansion refuses to go away.
I think that in my nabe none are for sale because it’s common wisdom that houses in our demographic (300K+) won’t sell, hence my remark about everyone sitting tight.
What is also interesting is that the new construction is happening on the east side of town, close to I-25. I suspect that a lot of the buyers are people who work closer to or in Denver and who are put off by Denver prices, hence the proximity to the freeway.
Maybe. But I also assume the stuff by I25 is cheaper than it is in the middle of Loveland, too.
“…the McMansion refuses to go away.”
That’s due to manipulated interest rates combined with federally guaranteed FHA, Fannie Mae, and Freddie Mac financing.
I had a friend in the construction business some 25 years back. He called the current day McMansion a “gingerbread house”. Though his gingerbread houses were a little more ornate, the concept was the same.
He loved to build them because there is much less cost in building a big box than making wings and changing elevations and adding architectural features to the house with various window sizes and openings. Keep it all as uniform as possible. High profits.
His “gingerbread” was the glued on “architectural reliefs” that added some interest to the BOX. Maybe some kind of transom over the entry doors. It was still a box, but with a little trim work on it, and lots of interior space. Some vaulted ceilings.
The tradition continues today, but without the ornamental flourishes to make it look like its somehow expensive.
Just gotta laugh at it all. Anyone remember that seller who would force the would be buyers to “feed the squirrels” if he sold the house to them???
“The residence of the townhome units at 1002 Hwy. 98 in Mexico Beach don’t know what to do about apartment one—the bugs and dead squirrels that reside there are not good neighbors.
“‘It’s nothing like we’ve ever experienced,’ Key said. ‘The market is so different. We’ve got the lowest interest rates on record and combined with that, we have lots of foreclosures.’”
Apparently Suzanne has never witnessed a train wreck.
Ask any Realtor: There has never been a better time to buy…………or sell.
It is CORRECT if:
20% down of your own saved money
No more than 28% of after tax income to P/I
You have to have a job and proof of income
Banks have to eat any losses
“Home prices in Australia have fallen 5 to 10 per cent from their peak according to the RBA. Measured against incomes, home prices are now close to where they were in 2002, Mr Stevens said. While admitting that home prices relative to income are higher than 20 years ago, Mr Stevens said ‘the problem is that there is no particular basis to think that the price-to-income ratio 20 years ago was ‘correct’. ‘Are dwelling prices overvalued?’ said Mr Stevens. ‘It’s very hard to be definitive on that question.’”
“…it was built to house a million residents. But less than 30,000 live in this spanking new town, the construction of which started in 2004. There are many reasons why people have stayed away, soaring property prices being the most cited.”
If only 30,000 of 1,000,000 units are occupied, then why are property prices soaring?
Oh yeah…I forgot that China is a communist country.
Twenty new cities a year for 20 years. It will never happen, but I’m trying the wrap my head around that. I’ve seen various photos of Ordos, as well as photos of the brutalized Chinese natural environment, and even pictures of what happened to many of the 2008 Beijing Olympic venues. It is dystopia.
When something’s this unstable, things can change in an instant. I read Oxide’s post upthread, and I agree that the uncertainty is almost disabling. The only thing that I can be sure will retain value are relationships based on trust.
As for housing, I will have to capitulate shortly, as I’ve written before. It’s not right what has happened over the last twelve years and that’s going to be reflected in my vote.
“The only thing that I can be sure will retain value are relationships based on trust.”
Mormons will have a leg up in this area…
Isn’t SLC a major fraud hub?
“‘If rates were at 5, 6 percent, I don’t think we’d be seeing such an urgency among buyers,’ said Adam Kirkham, co-owner of Kirkham Real Estate in Salt Lake City.”
Funny thing is, I had a close-up look at a nearby $300K+ market a couple of weeks ago (Bountiful, near the LDS Temple) and saw plenty of inventory sitting on the market with no evidence a buyer would soon show up. I posted an example or two on the HBB a couple of weeks back of serial price reductions on homes that had been on the market for a while with no takers.
My impression is that the high end is languishing, even as the frenzied buyers snap up everything that comes on the market at more affordable prices.
I agree with Ben’s comment about the storm that’s on it’s way. It’s global in scope. I’ve seen it up close in 18+ countries. I think that central bankks’ policies are producing huge unintended consequences. An exempte is an insurance company or pension fund desperate for yield here in the US buys MBS in the Philippines or perhaps bonds issued by their banks - that in turn funds more high rise luxury co dos in Manila. The amount of property speculation going on concurrently in so many places around the world is simply incredible.it makes our 2003 - 2007 party here in the US seem, well, kind of small by comparison!
‘What makes Turkey such an attractive place for property investment? Investing into real estate in Turkey is beneficial because the value of property will only rise in the future. The demand for holiday homes is on the rise as this place becomes more interesting to investors. The price of property here is much lower than what people find in Europe.’
http://www.sbwire.com/press-releases/is-turkey-a-hot-destination-for-real-estate-investment-152725.htm
The current advice for potential investors and visitors alike is to forget what you think you know about the country and explore the New Nicaragua. Underlying the opportunities are the elements that have always attracted the curious and daring: pristine natural settings, temperate weather, a strong history and culture, scores of recreational and tourism opportunities, picturesque cities and towns, and, perhaps most important, a warm and welcoming population.
The real estate market boom is being driven by both residential and commercial property. On the residential side many baby boomers from the US are discovering Nicaragua as a less expensive alternative to Panama, Mexico or Costa Rica where prices are typically 30-50% higher and the potential for capital appreciation is slowing down.
http://www.businessreviewindia.in/press_releases/how-to-buy-real-estate-in-nicaragua
A three-bedroom apartment (1,000 square feet super built-up) in the Mumbai suburb of Bandra (east) can set you back easily by over Rs 4 crore. But for just half the amount, or Rs 2 crore ($400,000), you could own a flat in Dubai. Says Anand Narayanan, national director, residential agency, Knight Frank, “The property price deflation in foreign countries since 2009 has given opportunity for Indians to buy. The relative value has become attractive and a whole lot of people are open to buying property abroad.”
http://www.business-standard.com/india/news/buying-property-abroad-can-be-much-cheaper/480273/
A south Invercargill home has possibly set a record for rental investment returns. Bayleys Invercargill said the two-bedroom house in Appleby was bought for $35,000. The buyer, an experienced local investor, cleared the section and promptly added two more bedrooms by converting a second lounge for just $2500. The property was now being rented out for more than $400 a week. Including the total cost of the house, Bayleys said the rental yield was 54 per cent. ‘There are no official records when it comes to the highest rental yields from residential property in New Zealand, but anecdotally among our network of 60 Bayleys offices, we believe this would have to be a New Zealand record.”
‘However, David Whitburn, the president of the Auckland Property Investors Association, said the return was ”complete rubbish” as it was a gross figure. ”It’s in an area of extreme social deprivation, extremely high unemployment, total lack of desirability.” Landlords in such areas had to factor in the possibility of high tenant turnover, high rates, and possibly higher insurance and maintenance bills. Net yields, which allowed for vacancy rates and operating expenses, or actual cashflows gave a truer picture of a property’s investment return.’
”I’ve found too many members have been disappointed for buying 15 per cent gross yields in areas like Murupara [in the Bay of Plenty], only to find out their property’s only rented out for 30 weeks of the year.”
http://www.stuff.co.nz/business/money/7275828/Invercargill-rental-returns-over-50-pc
The performance of the condominium real estate sector in Thailand’s capital Bangkok has been mixed, depending on property type and location, according to the latest market report from consultants CBRE. The biggest changes over the last three months has been in the luxury sector with prices hitting record levels. However, these levels have not been seen in every recently completed project.
In the one bedroom condominium market price performance has been more mixed. The results of some public listed developers shows that some project launched in 2010 and 2011 have not sold out.
‘Generally the best performing projects have been those closest to transit stations. In some areas the one bedroom sector is going to come under pressures from developers unsold inventory and shadow inventory from units bought by speculative buyers who want to resell before completion,’ said Aliwassa Pathnadabutr, managing director of CBRE Thailand.’
http://www.propertycommunity.com/property-in-thailand/thai-property-market-sees-mixed-pricing-and-occupancy-levels.html
Thank you, Ben, for fishing out all this international news.
Dead thread, but that’s hilarious about Invercargill being an alleged investment opportunity. I was in NZ in 1997 and was talking with an Auckland cabdriver about the rest of the country, which I did not have time to visit. When I mentioned Invercargill, which is relatively remote and at the southern tip of “South Island,” he laughed. “Lots of property available there!” he chucked. I have not visited to this day, and for all I know it might be awesome, but when out-of-the-way tertiary cities are featured as places for get-rich-quick real estate deals, the end of the cycle is upon us.
“Housing prices typically respond to changes in the market with a lag of five to nine months,…”
Maybe that explains why U.S. stock prices have recently swooned, even as housing prices continued rising?