The Housing Bubble

It’s Friday desk clearing time for this blogger. “South Florida is the least affordable of the nation’s 25 largest metro areas for moderate income households struggling to pay for housing and transportation, according to a new study. South Florida households that make between $25,444 and $50,888 per year end up spending nearly three-fourths of their income just for shelter and to get around, the national study found. Those using food stamps have more than tripled in five years in Broward and Palm Beach counties, according to the Florida Department of Children & Families. Even middle-class families with steady jobs are finding it hard to buy a home in the three counties, another study found. The median household income in Broward, Palm Beach and Miami-Dade counties remains 13 percent short of what it takes to buy a median-priced home here.”

“‘Things got worse in the last decade,’ said Robert Hickey, senior research associate for the Center for Housing Policy. ‘Expenses rose twice as fast as pay.’ Housing and transportation costs are ’so out of sync with local incomes that they consume a very large portion of the household budget,’ according to the study.”

“The housing bubble and the collapse that followed left a generation of Bay Area homebuyers struggling to recover from failed investments and shattered dreams. After serving in Iraq in 2004, Wilfred Bertiz returned to his Silicon Valley job at a company that makes computer servers, only to lose it in a downsizing. His San Jose townhouse was foreclosed on in 2010 while he was trying to arrange a loan modification.”

“Recently he drove by his old townhouse. ‘There was nobody in it,’ he said. ‘There’s not even a for sale sign on it.’”

“Two years after she listed her Hyde Park home for sale with an optimistic asking price, former U.S. Senator and Ambassador Carol Moseley Braun has sold it as a short sale, for less than she owed on the mortgage. Moseley Braun bought the vintage row home for $1.7 million in 2006. She sold it Tuesday for $1.205 million. That puts an ironic twist on something she told me in 2010, when she was asking $1.9 million for the home. ‘I’m not into ‘buy high, sell low,’ she said then, when I noted that she was asking 11 percent more than the purchase price. At the time, the neighborhood’s going prices were instead markedly below where they had been in 2006, when she bought it.”

“She had not dropped the price since putting the home on the market; at the time of the sale, she was still asking $1.9 million.”

“Katie Elliott unfailingly cautions her first-time homebuyers in Reno and Sparks that they’re about to enter a highly competitive arena filled with multiple offers, bidding wars and frequent rejection. It’s not unusual for a seller to get a dozen or more offers within a day or two of listing a property. Theresa Thomson, a Realtor with Prudential Sierra Nevada Properties in Reno says agents are watching new listings minute-by-minute.”

“It’s not unusual, Thomson says, for several real estate agents, their buyers in tow, to be waiting in line outside a newly listed home. ‘When something comes on the market, you’ve got to get out there with your buyer,’ says Thomson. ‘You don’t want to wait a day. Maybe not 12 hours.’”

“Henry Cejudo currently owns about 14 properties, mostly in Glendale. The median home value in the city rose 33 percent to nearly $123,000 from July 2011 to July 2012 as lower housing inventory met increased market competition. ‘It’s a game and the highest and fastest bid normally wins,’ Cejudo explained. ‘Real estate is America’s cup of coffee right now and this is the time to buy. We’re buying and fixing them up, sitting on them and then selling them six to eight months later.’”

“Among investors flocking to the Arizona housing market are Canadian snowbirds. ‘I’m always going up against different international buyers, especially Canadians, who are constantly looking for homes,’ Cejudo said. ‘Soon, it will be like a second Canada out here.’”

“Veteran Mississauga realtor Mike Donia has been through two housing downturns and he’s been seeing the same telltale signs across the GTA since May. Inquiries to his office from buyers are down at least 65 per cent, bidding wars are going bust and he’s seeing a growing number of power of sale properties — including a $13.9 million Bridle Path mansion — popping up on the MLS. At the same time, he’s got over a dozen clients trying to get out of pre-construction condo deals penned more than a year ago because they now find themselves overextended and fearful the condo boom is about to go bust.”

“‘My geiger counter has been going off for four or five months now,’ says the 25-year veteran of the GTA real estate business. ‘I can’t tell you when the epicentre of the earthquake is going to hit, but the picture on my wall is shaking.’”

“Just recently, Donia was incredulous as a homeowner sent back four offers, expecting to see the bidding war for his $800,000 Mississauga home escalate. All four prospective buyers walked away. ‘Buyers today are like sharks — they may not see the food but they smell the blood in the water. They are looking for those fish that are floundering,’ says Donia.”

“The federal Treasury is relying on a jump in the construction of houses, apartments and office buildings to keep the economy ticking over as iron ore, coal and other commodity export prices fall more sharply than it expected and investments in resource projects peak earlier than forecast. A boom in construction would help offset the decline in the price of commodity exports, this year and in future years. David Gruen, the executive director of Treasury’s macroeconomic group, said there was no danger of a housing bubble because of an under-supply of homes.”

“‘In a couple of years, when mining investment does not contribute to growth any more, we will need other things to contribute to growth,’ Gruen told Labor and Coalition senators in Canberra.”

“He also warned against thinking of the recent commodity price boom as a ‘bubble’ and predicted Australia would soon enjoy a significant boost to mining industry productivity as more mining investment projects come to fruition. ‘I guess I wouldn’t call the resource prices a bubble; I would call it a natural understandable response to a big increase in demand that was unanticipated,’ he said.”

“However, he conceded commodity prices have fallen by more than the government expected in the May budget, reducing the expected pace of the resources investment boom. He said falling commodity prices had triggered ’some pullback in some high-profile investment projects.’”

“Even as China’s economy slows from efforts to fight a bubble in high-end housing, waiting in the wings with potential to revive growth is a different housing market: The low end. Some 50 million of China’s 230 million urban households live in substandard quarters often lacking their own toilet and kitchen, research firm Dragonomics estimates. The firm figures China will need to build 10 million apartments a year until 2030.”

“At the research centre of China’s largest property developer, China Vanke, is an apartment that measures 160 sq ft (14.8 sq m ), about the size of a parking space. The bed folds to make seating. The shower is a vertical tube by the front door.”

“At about 835 yuan (S$162) a square foot, an apartment that size is relatively affordable at the yuan equivalent of US$21,500 (S$26,200), which is around six times the per-capita disposable income for China’s urban residents. By contrast, the larger apartments that have been the traditional focus of China’s developers could cost as much as 40 years’ income.”

“Texas-based property investment fund, Century Bridge Capital, which has raised US$170 million to put to work in Chinese real estate, plans to focus on smaller apartments for the owner-occupied market. ‘If you build for speculators and make a 70 per cent margin, that’s a grand slam home run, but it’s not sustainable. We are building to meet genuine demand. The margins are smaller, but you can keep hitting single after single for a long time,’ said Mr Tom Delatour, CEO.”

“‘Wall Street thinks China’s government has killed the economy by deflating the luxury property bubble,’ he said. ‘In fact, they have saved it.’”

“Such initiatives offer hope to people like Mr Ou Yibao, a 27-year-old software engineer who lives in a dingy rental in Shenzhen and is currently priced out of ownership. While a focus on building expensive homes from 2005 to 2010 juiced revenue for developers, investors and municipalities, ‘the government sacrificed the aspirations of a generation to fuel this boom,’ Mr Ou said. ‘People like us are left with little choice but to slave for years to buy a home.’”

“Boomers who grew up in metro Vancouver in the 1950s have nostalgic memories of a port city where their parents owned a house, they played soccer on the street with pals after dinner, and neighbourhood loyalties were strong. My grandparents lived about three miles away, and we drove there for Sunday dinners. Our cleaning lady lived in a house three blocks away from our place in Dunbar. My friends and I walked to school after breakfast.”

“I have vague memories that entry prices for west side homes in the early 1960s were in the $15,000 to $20,000 range. When, finally, my folks planned a big move to a larger house on the University of British Columbia Endowment lands in 1967, the price was an astronomical $36,000. In the late 1970s, my wife and I moved away to Calgary. Vancouver real estate became an even more distant reality. And then I remember the first phone calls from family talking about the rapid rise in house values. Hong Kong was going to revert to Chinese Communist ownership, and nervous Asian capital was moving to Vancouver.”

“Friends who had stayed in Vancouver began to report enormous increases in the value of their modest bungalows. We also noticed from afar that they tended to conflate their new real property wealth with business acumen.”

“We wondered how a city could claim ‘world class’ status, when it had few corporate head offices and declining fortunes in forestry, mining and the fisheries. We saw that Vancouver friends had little ability to travel, even to see us in Calgary. Housing was rich, but paradoxically cash was tight. After 30 years in Alberta, we sold out and moved back to Vancouver as renters. Our cautious $200,000 investment in Alberta real estate netted about $450,000. We soon found out that equalled an 800-square-foot condo in False Creek. The old neighbourhood now starts at $2 million, and ranges up to $6 million. Many of the houses are vacant; they are essentially emergency boltholes for Asian immigrants who have taken out Canadian citizenship via national immigration policy favouring offshore entrepreneurs with money to invest.”

“I cannot drive by our old house on Camosun Street anymore; it was torn down and replaced by a sprawling pink stucco ‘Vancouver special.’ The street is flanked with parked BMWs and Range Rovers. Children no longer play soccer after dinner. Our cleaning lady sold out for $2.1 million several years ago. It is true: you can’t go home again — at least in Vancouver.”