The Housing Bubble

It’s Friday desk clearing time for this blogger. “On Wednesday one of the world’s premier bankers declared that real estate is a good place to invest. Speaking to a business group in Toronto, Goldman Sachs chief executive Lloyd Blankfein declared that in the current environment he would ‘go long’ on property. Central banks are ‘putting a real penalty’ on holding cash with all their money printing and that’s driving investment in real assets such as property, he explained. And while policy makers are loath to allow the formation of asset bubbles, they’re even more worried about deflation, which is the alternative, because it’s a lot more damaging and difficult to fight, he said. So go with the bubbles.”

“Half a decade after frenzied house flipping inflated home prices and hastened the crash, buying and quickly reselling homes continues to pull in big profits in Tampa Bay. Nearly 2,000 homes were flipped between January and June, twice as many as were flipped during the first half of 2010, according to RealtyTrac. A Times investigation in May found that the most rapid flips, in which homes were bought and sold within a day, remained prevalent, with hundreds of sales last year earning one-day markups of more than $7,500.”

“House flipping is on the rise in Michigan and across the nation, according to RealtyTrac. But home resellers in Metro Detroit and the state are either losing money or barely making a profit. A flipping expert suggested in a webinar hosted by RealtyTrac that some flippers may be too impatient about selling. ‘If you buy and hold, it is a guaranteed victory’ because history proves that rents and property values go up over time, said Doug Baird of Spike TV’s ‘Flip Men’ cable television show.”

“Michigan had the eighth highest number of flips in the country, behind Ohio at No. 7. California ranked first. The Detroit-Warren-Livonia area ranked 10th highest among metropolitan regions for the number of property flips. Phoenix is first. Toledo had the eighth largest increase in flipping among metropolitan areas with a 156 percent jump in the first half of the year compared with a year ago.”

“Foreclosure activity in metro Toledo rose sharply in August, producing the clearest sign yet that another wave of distressed housing could be ready to hit the local real estate market. Real estate broker Jon Modene, a foreclosure specialist at ReMax Masters in Perrysburg, said it comes as no surprise that foreclosure activity is rising in metro Toledo. Many homeowners are still seriously ‘underwater.’ As debts pile up, many in that situation end up either defaulting on their mortgages or just walking away from their home, he said. ‘I think the economy is still in very bad shape. There’s been a huge upswing in real estate activity, but it’s kind of a dead-cat bounce,’ he said.”

“Mr. Modene said he recently attended a real estate conference where an expert warned that the number of distressed houses financed by Fannie Mae or Freddie Mac was still sizable. ‘He estimated only 25 percent of foreclosed houses with Fannie and Freddie have made it through the system, and that there’s another 75 percent still to come. He said to prepare for a lot of trauma.’ Mr. Modene said.”

“Sherry Cooper, chief economist at BMO Financial Group in Toronto, recently wrote that currency and other factors make second homes in places like Arizona increasingly affordable for our northern neighbors. Cooper cited a ‘yawning gap’ between average home prices in Canada and the U.S. ‘This gap is likely to close as the housing market in the U.S. continues to recover,’ she continued. ‘Prices are already beginning to increase, but this has been more than offset by the recent strength in the Canadian dollar.’”

“According to Cooper, Canadians represent the largest single group of foreign purchasers of U.S. properties in the ’sun and sand’ states, as she calls them, but Europeans and Latin Americans are pouring in money too. ‘With interest rates so low and the Fed working to push them down even further, housing activity is likely to continue to recover,’ she wrote. ‘Don’t expect the bubble-level prices to return, but vacation or retirement properties south of the border are likely a good investment.’”

“Craig Gorman, of Intero Real Estate Services in San Jose, said he recently got 15 offers on a residence in Palo Alto. ‘The house was a tear-down I had listed for $1.29 million and I sold it in a week for $1.76 million,’ he said. ‘With a lot of the homes now I would say, minimum, you’re getting eight offers. Plus, I just heard of a deal the other day where they had 50 offers.’”

“Gorman added that many people snapping up expensive properties — including the Palo Alto home — are foreign investors who are especially eager to buy in Palo Alto, Los Altos and San Mateo.”

“It could be the opportunity of a lifetime. Certainly a lot of people think so as they take advantage of the high Australian dollar by picking up bargain properties in the US or Britain. But some property experts are sceptical. The principal of Smart Property Adviser, Kevin Lee, who specialises in Australian residential property, says when he was in Las Vegas a year ago, there were 26,000 empty residential properties. ‘You can buy a two-bedroom apartment in Las Vegas for $20,000 but you are not going to be able to put anyone in it,’ he says.”

“In a friendly 34-minute interview House speaker Glenn Richardson – now looking to win a seat in the state Senate – discusses depression and his 2009 attempted suicide. But the former speaker also said he’s ready to look at slowing down home foreclosures in Georgia by bringing the courts into the process. This is important, given that District 30 is a largely exurban district that has more than its share of zombie subdivisions – particularly in Paulding County, where Richardson lives.”

“Says Richardson: ‘There are people that are upside-down. Then there are people that are upside down and backwards. I’m upside down and backwards. There are millions of people in this nation, hundreds of thousands in Georgia and this Senate district, that are struggling to make their house payments. I think that there are a couple things that we can do. I believe it may be time for the state to start looking at what I’ll call slowing down the mortgage foreclosure process.’”

“‘As long as there were only a few foreclosures going on, the balance was good. But what’s happening is, every time these big mega-mortgage companies foreclose on a house that was worth [$200,000], they foreclose on it for [$70,000], and they sell it. The person’s house right beside it goes down in value, and then they can’t sell.”

“Flagstaff median home sale prices reached an eight-year low for August as smaller homes continued to move briskly while sales of larger, higher-priced homes remained sluggish. Realtors blamed the dearth of high-end sales on tighter credit standards, both for bigger mortgages and for buyers of second homes, who in the past have been a major part of the Flagstaff summer home sales market.”

“Stephen Brighton, a Realtor with Century 21 Flagstaff Realty, believes there are two reasons why the local housing market hasn’t bounced back. He said he believes that the tight lending standards introduced after the real estate bubble burst have made it more difficult for some second-home buyers to enter the Flagstaff market. Brighton also believes there are a number of ‘Plan B’ homeowners who are renting out their homes for the next few years rather than lose perceived equity by selling now.”

“He said most real estate offices in town have begun to offer a new service to meet the needs of these Plan B homeowners. ‘Every shop in town now has a property management division,’ he said.”

“Some of Australia’s biggest residential developers are upping the ante in the battle to reverse weak sales across their housing estates with buyers being wooed with new cars and $20,000 cash-back offers. Charter Keck Cramer head of research Robert Papaleo said offers of $20,000 cash-backs had been uncommon in Melbourne, where the housing market had been performing well for years. ‘The quoted prices should really be seen as starting prices,’ Mr Papaleo said. ‘It is not like a few years ago, when developers could set the price and buyers could take it or leave it.’”

“Stringent property controls enacted by the regime to slow the growth of real estate prices are causing developers to flee in China, while others are committing suicide as they find themselves unable to pay off debts. ‘Quite a few real estate owners disappeared. Some chose to commit suicide because they could not afford to repay the huge amount of debt,’ a person who works in the real estate industry in Beijing recently told The Epoch Times.”

“Because many developments could not be sold to end customers at break-even, developers also had no way to pay back the loans. ‘Whether it’s a major developer or smaller ones, the heavy pressure of loan interest is insurmountable; one-third of real estate developers in Beijing abscond,’ the industry participant said.”

“The real estate bubble resulted in other problems, too. The biggest being the vacancy rate, according to Nie Meisheng, who spoke about the topic at a real estate forum in Hainan Province earlier this year. A survey by China’s State Grid Corporation in 2010 found that electricity meters in 65 million urban apartments and houses registered zero usage; that figure was about 30 percent of the market by dollar value.”

“Although some have challenged the data in the survey, a 100-day investigation by Beijing police in March indicated that there were 3.8 million vacant houses in the city. At an estimate of three people per house, these empty properties could hold over 11 million people, according to Beijing News.”

“Gan Li, the director of the Survey and Research Center for China Household Finance and a professor of economics at Texas A&M University, warned that Chinese household financing was stretched and at risk of forming a bubble, in an interview with Southern Metropolis Daily on Sept. 3. ‘One-third of the developers meet the needs of all people in terms of capacity now. So two-thirds of the developers will collapse.’”