The Housing Bubble

It’s Friday desk clearing time for this blogger. “Central Texas’ housing market posted another strong month in October. Greg Cooper, CEO of Austin-based Goldwasser Real Estate, said he recently used personal correspondence to help his clients win the bid for a house in Northwest Austin. Listed for $445,000, the house had received three other offers in just one day on the market. Cooper’s clients bid $15,000 over the asking price. And then there was the letter Cooper wrote for them to the seller. It said they had fallen in love with the ‘magnificently maintained’ home, and could envision their two daughters, ages 2 and 9 months, growing up there and playing in the backyard.”

“Cooper said the seller told him it struck a chord with her. ‘That’s the kind of thing you’re having to do to win in this marketplace — go above (asking) price and tug at heartstrings,’ he said. ‘The last time I had to use that letter was in 2007, at the peak, and we had more listings then. And we thought the market was hot back then.’”

“An improving economy, record-low interest rates and a shortage of homes for sale has prodded central Ohio home shoppers into action, in some cases leading to bidding wars and multiple offers. Milt Lustnauer, a veteran RE/MAX Premier Choice agent, yesterday advised an Upper Arlington home shopper to offer more than the asking price on a house that was listed for about $250,000. ‘The house came on the market yesterday and already has two offers,’ Lustnauer said. ‘My suggestion was to come in over list price.’”

“Home prices in the New York metropolitan area, including North Jersey, dropped 2.3 percent in September compared with a year earlier, according to Standard & Poor’s Case-Shiller home price index. Home prices in the region have dropped 23 percent since their peak in mid-2006. In Bergen County, the median price of a single-family home was $427,000 in September, down 5.1 percent from September 2011. In Passaic County, the average price was $274,401, down 18.5 percent from a year earlier, while the number of sales rose 15 percent.”

“‘Why are home prices [nationally] going up? The key reasons are low interest rates and declining inventories of new and lived-in homes. Others include investors buying distressed sales in bulk, job growth, and, perhaps, self-fulfilling expectations.’ said Patrick Newport, economist, IHS Global Insight.”

“The recent acquisition by Beijing’s Xinyuan Real Estate Co of a planned condominium site in New York City could be a watershed for Chinese-backed property development in the United States. ‘The location is very popular with US domestic purchasers, and New York is a top destination for purchasers from China,’ CEO Yong Zhang said in announcing the deal.”

“Zhang said the project in the trendy Williamsburg neighborhood on Brooklyn’s waterfront, ‘will offer a quality residential condominium development to more than 200 New York families, as well as allow us to capture a large demand from China for quality residential product in the United States’. ‘We target all kinds of buyers, but we expect 40 percent of sales to go to Chinese buyers and 60 percent to New York residents’ including those who might have been priced out of the costlier Manhattan market, said Omer Ozden, who advised the Chinese company on the deal.”

“Investors from China, Hong Kong and Singapore are snapping up real estate in many of Sydney’s most desirable locations - from the central business district to waterfront properties and areas surrounding schools and universities. Similarly, Asian investors are swooping on top-end residential property in Queensland and Victoria. Foreign developers have grabbed 30 per cent of the Australian apartment market to date. In Sydney, researchers say about 90 per cent of the 700 units in the giant Macquarie Central development near Macquarie University have been acquired by Asian buyers.”

“Mark Bouris, from Yellow Brick Road Wealth Management, said Asian buyers ‘aren’t going to buy all the stock.’ ‘Really, we’ve got to embrace whoever wants to buy real estate and that will encourage more vendors,’ he said.”

“Dozens of families spent last week sleeping in their cars or in tents outside Landcom offices at Elizabeth Hills and Edmondson Park in Sydney’s south west before the blocks went on sale yesterday morning. Lots are 367 to 558sq m in size and priced between $245,000 and $315,000. Landcom spokesman Robert Sullivan said close to half of the blocks were sold within three hours of going on sale.”

“‘People chose to camp out at Edmondson Park because they were prepared to sit there for a week to make sure they got the lot they wanted,’ Mr Sullivan said. ‘When one person decides to camp out, it creates a domino effect where others choose to do the same.’”

“Richard Smith and his fiancee Merryn Courtney, both 24, had slept in their car since last Monday to ensure they were first in line for the best 550sq m block, selling for $315,000. When the doors to the sales office opened at 10am, all they had to do was sign on the dotted line. ‘It was the pick of the lot so we had no choice but to camp out to get it.’ Mr Smith told The Sunday Telegraph.”

“For four decades, the Chinese economy was envy of the world. Underwriting the impressive facade, however, is an incredibly risky strategy. Governments borrow money using land as collateral and repay the interest on their loans using funds they earn from selling or leasing the same land. All this means that the Chinese economy depends on a buoyant real estate market to keep grinding. If housing and land prices fall dramatically, a fiscal or banking crisis would likely soon follow. Meanwhile, local officials’ hunger for land has displaced millions of farmers, leading to 120,000 land-related protests each year.”

“According to a 2011 survey by Landesa, a Seattle-based nonprofit organization, local governments earn on average $740,000 per acre of land. That is 40 times the average amount they pay to displaced farmers. On the surface, banks’ balance sheets have remained healthy despite these debts, since banks tend to roll over or ‘ever green’ loans by issuing new loans to help borrowers ‘repay’ old ones. In addition, local governments have been able to make their interest payments using their land as collateral.”

“Even before it pops, China’s real estate bubble is causing social harm. Close to 300,000 peasants are removed from their villages every year to make room for the construction of airports, highways, and buildings. Since 1980, more than 60 million peasants have been moved. The displaced are not usually consulted before relocation. Governments frequently force them to leave by suspending the supply of utilities, such as electricity, to their homes. Increasingly, local governments are even hiring or colluding with gangsters to intimidate villagers who refuse to move. Tellingly, in some villages, these mobsters are known as the ’second government.’”

“Compensation to farmers who do move is often inadequate, because negotiations over the value of their land take place without them. The opacity allows authorities to line their own pockets with funds meant for farmers. It is no surprise, then, that in a recent Landesa survey of nearly 1,800 rural households across 17 provinces, about 20 percent of the displaced (which made up 43 percent of the survey’s sample) had not received any compensation.”

“Stockton, California, has the highest U.S. foreclosure rate. It also has a housing shortage. Government loan-modification programs have gained traction, and the Federal Reserve has kept bank interest rates near zero. Investors are purchasing thousands of foreclosed homes in bulk before they even hit the market, further limiting new supply.”

“Slowing the foreclosure process has allowed banks to avoid booking losses on non-performing loans, said Joshua Rosner, an analyst with Graham Fisher & Co. in New York.’The goal all along — from the banks, the servicers and the government — was sort of to slow walk the whole thing, bleed it through over time,’ Rosner said in a telephone interview.”

“A Miami-based company says it’s seeking investors interested in buying into Florida’s bloated foreclosure market. Title Capital Management is overseeing a $150 million fund in which investors buy, renovate and rent homes before reselling them in five to seven years. A separate $50 million fund allows investors to buy, fix up and ‘flip’ the properties.”

‘Since 2006, banks have repossessed 450,000 homes across Florida — and 200,000 of those have yet to be marketed for sale because lenders are hoping prices keep rising, said Jack McCabe, a housing analyst in Deerfield Beach. There are 350,000 Florida homes currently in the foreclosure process — and 550,000 more that have yet to enter the courts, McCabe said. All told, 1.1 million of the state’s 11.1 million homes are in or near foreclosure, he said.”

“But the strategy isn’t foolproof, said Mike Larson, an analyst for Weiss Research in Jupiter. ‘It does raise the antenna a little bit,’ Larson said. ‘If everybody’s doing it, what’s the risk? The risk is that they could overpay for homes again.’”

“For the first time in almost three years, Nevada is experiencing a spike in the number of foreclosure, causing concern too many houses will flood the market. The concern lies with the speculation that banks have figured out a way around Assembly Bill 284, making it more difficult for banks to foreclose. The bill took effect Oct. 2011 and effectively slowed the state’s foreclosure rate.”

“‘It would not be a good thing, just for basic supply and demand, if we had a tsunami of new foreclosures,’ said Las Vegas attorney Tisha Black Chernine, who helped write the assembly bill. ‘I think that Nevada is going to have to prepare for more foreclosures,’ she said. ‘But that is not necessarily a bad thing. We have to get through this inventory, we have to get people back on their feet.’”

“Developers of Toronto’s Trump International Hotel & Tower have launched lawsuits against seven investors in an effort to force them to close on deals for condo-hotel suites some claim haven’t turned out to be the Hollywood gold buyers were expecting. The legal move by Talon International Inc. comes at the same time that a London, Ont. doctor is seeking $750,000 in damages for ‘misrepresentation,’ unless he can get back deposits on the hotel suite he bought in the ill-fated project back in 2009.”

“Dozens of purchasers of suites in the 65-storey luxury hotel are now trying to get deposits back and renege on final payments averaging over $500,000. Most were caught up in the get-rich-quick mentality of Toronto’s booming condo market and intended to flip the units or use them to generate retirement income. Other buyers, some too frightened of the legal ramifications to walk away from deals penned up to seven years ago, say they are finding themselves in a crippling Catch-22 — unable to sell the units or secure mortgages on balances due.”

“‘One mortgage company asked me, ‘How could I give you a mortgage on a property that is losing money every single day?’ said one devastated buyer, a blue-collar worker who borrowed the $175,000 down payment from his immigrant parents and owes $750,000.”

“Trump Organization lawyer Alan Garten said the story is far simpler than an argument about securities law. Whether the hotel is doing better or worse in terms of occupancy or room rates than was promised, he cannot say. ‘To me it is totally irrelevant, because it doesn’t give you an excuse to get out of your contract,’ Garten said. ‘It’s buyers remorse 101.’”