The Housing Bubble

It’s Friday desk clearing time for this blogger. “Jenn Zepernick and her husband are paying about $285,000 for a newly built four-bedroom Pulte house in Windermere, near Orlando. The family qualified for a loan insured by the Federal Housing Administration because they were considered first-time homebuyers even though Jenn Zepernick had owned a place for a few years in the early 2000s. ‘It’s always great to have a new home at a great mortgage rate — you can’t beat that,’ she said. ‘With the market doing so well, we were like, ‘This was a no-brainer.’”

“Some people believe there’s a vast backlog of foreclosed homes that are about to hit the market. Glenn Kelman, the CEO of online brokerage Redfin, is not buying it. ‘Every conspiracy theorist in real estate believes that there’s a huge chunk of inventory that the banks have just been holding back, waiting for our hopes to rise so that they can dash them again, and I just don’t believe it,’ he says.”

“The number of home foreclosures continues to soar in Florida. Anthony DeMarco, executive VP for government relations with the Florida Bankers Association, says no one should be surprised that Florida remains a hotbed of foreclosure activity. ‘You have the economy and unemployment that’s still up there and that leads to foreclosures.’”

“But DeMarco also points out that some, if not many of the foreclosures counted in this report may have already been in the pipeline for quite awhile. ‘With the robo-signing issue that was out there about eighteen months ago, banks did a self-imposed moratorium and went through and checked all the foreclosures either in the system or coming in the system. That held back some.’”

“The net effect, DeMarco says, is somewhat the same as a dam breaking on a flood-swollen river. ‘You have government programs where the bank willingly works with the government to try to keep people in their homes. What will happen with that, a new program comes out and the new foreclosure process basically stops to work with the government once again on these programs. All of these issues combined have led to resurgence in foreclosures.’”

“Earlier this week, a crowd of advocates gathered on the steps of the Massachusetts State House to rally in support a bil that aims to reduce home foreclosures in the Commonwealth. Among them was Antonio Ennis of Dorchester. During the 2008 housing crisis, the value of his house went down and he began falling behind on payments, putting him at risk of foreclosure. ‘If they reduce the principal …with my current income situation, I can get back on track with my obligation of paying the mortgage, and not just me, millions of other people can do the same thing,’ said Ennis.”

“One of the biggest problems the homebuilding industry faces is depressed property value appraisals, which are further hurt by abandoned properties. ‘We have to rip off the Band-Aid. We need to get this issue behind us and get housing back on its feet,’ said New Jersey Builders Association CEO Timothy J. Touhey.”

“‘What goes up a lot must keep going up’ was the conclusion from the very first Reuters Indian housing market poll this week. And it sounded very familiar. Past experience shows that respondents to housing market polls – whether they be independent analysts, mortgage brokers, chartered surveyors – tend to cling to an optimistic tone even as trouble clearly brews below the surface.”

“Even new housing projects located miles away from the city have spawned skyrocketing prices, but few are fully occupied. Pankaj Kapoor, founder and managing director of Liases Foras, a real estate research firm, spoke of how projects under construction on the outskirts of Delhi were more brightly illuminated than the completed ones. Builders would use halogen bulbs to light up newly contructed, unsold apartments and feign occupation while completed projects looked less radiant as they were owned by speculators, not real inhabitants.”

“That sounds a lot like the new ghost towns of Spain. ‘There is no social fabric, no shops and (home buyers) will not be able to live there. I feel some of these properties are 10 to 15 years away from any kind of habitation,’ Kapoor said.”

“Jingjin City is about 120 miles from Beijing, but few people live in the sprawling development. No train or subway goes there. Jingjin City has no hospital. No kindergarten. No supermarket. Grass grows man-high outside the unoccupied villas. At Moon River Castle Apartments in east Beijing, fewer than 30% of the parking spaces were filled in one building, and only a few apartments appeared occupied. There were no stores on the first floor — only a small supermarket.”

“At Moon River, apartments cost 3,300 yuan a square foot — equivalent to about $520. ‘I think the house prices in our county are crazy in recent years,’ says Ma Fengzhi, 41, who teaches politics in a Shenqiu high school in central Henan province and makes about 1,000 yuan a month, or about $160. She calls that ‘midlevel.’ ‘A lot of people earn less than me, I’m a middle level, but most of us want to buy our own house,’ Ma says. ‘Why? Because we think it’s a good way to store value. Vegetable and meat prices are rising. The bank cut interest rates. Where should we put our money? Buying a house is the best choice right now.’”

“The lack of affordable properties continues to prove problematic across Australia and some industry experts are concerned that the situation will worsen. Many Australians are finding it hard to stump up enough money to secure a mortgage and housing supply has hit rock bottom in some parts of the country. ‘The reality is that approvals for both detached houses and multi units remain at historic lows. This just highlights how much lost ground is yet to be regained in South Australia,’ Housing Industry Association executive director Robert Harding said.”

“Mr Harding believes that action needs to be taken at national and state government level in order to stimulate some much needed growth in the property sector. It is absolutely crucial that house hunters are given more incentives to take out a home loan.”

“Price pressure in the Bay Area was a major factor in the rise in prices in San Joaquin County until the bubble burst. With prices again rising west of the Altamont Pass, some buyers are venturing into this county. One agent reported listing a Tracy home Saturday and receiving 16 offers, one of them for cash, many for more than the list price and most from Bay Area buyers.”

“The lack of inventory has forced buyers to make multiple offers as competition heightens for what homes are on the market. ‘I love the market now,’” said Lela Nelson, who’s been selling homes in Stockton for 34 years.”

“Millions of Californians are paying close to half their income for housing – a level once considered foolish. Even as home prices have tumbled, the cost of homeownership has continued to rise. In 2006, Ernie and Edith Garcia began building their dream home on a Fountain Valley lot his grandparents had purchased decades earlier. Six years, one recession and one layoff later, the mortgage on their home has become an anvil around their necks. ‘The American dream?’ Ernie Garcia asks. ‘This has turned out to be the American nightmare.’”

“Today, some 2.7 million California households – homeowners and renters – pay at least half their income for housing. That includes the Garcias and about 200,000 other Orange County households. The numbers have nearly doubled in the past decade, according to the Census Bureau. A much bigger group – 4.6 million California households – is paying 35 percent or more, above the traditional 30 percent norm, up by 1.7 million in a decade.”

“Natalie Lohrenz sees a lot of homeowners in trouble as counseling director at Consumer Credit Counseling Service of Orange County. Before they reach her, homeowners have frequently made many bad decisions. ‘Not only are they not saving for their future, they’re robbing from their future’ by raiding their retirement savings, Lohrenz said. ‘Many of them have let everything else go in their struggle to keep their homes.’”

“The United States has more than 20 million people unemployed, underemployed or out of the workforce altogether because of a burst housing bubble. We also have more than 10 million homeowners who are underwater in their mortgages. And, we have tens of millions of people approaching retirement who have seen most of their life’s savings disappear when plunging house prices eliminated most or all of the equity in their home.”

“This situation could have been prevented if the government had taken steps to stem the growth of the housing bubble before it reached such dangerous levels. Governments and central banks should be focused on preventing bubbles before they grow large enough to be so dangerous and disruptive. Central banks in particular are well-situated to take action, since central banks are designed to be less susceptible to short-term political considerations.”

“There is probably no way at this point to deflate the bubbles in Australia, Canada, and the U.K. without causing considerable pain. It would probably still be better to take steps now than allow for even more people to become caught up in the bubble.”

“Perhaps more importantly, the public has to demand that central banks put bubble prevention at the top of their agenda. These banks have been ignoring economy-wrecking bubbles everywhere, somehow thinking they have down their job because they kept inflation at 2.0 percent. It’s wonderful that the central banks met their inflation target, but why should anyone give a damn?”