The Housing Bubble

A few recent local observations that might be relevant:

Ran into our longtime local realtor at CostCo down in Bakersplat yesterday, and after remarking how nice it was that all the marginal people had given up on their flipper houses and moved out, leaving our little valley in peace again, he told me he’d gotten out of the real estate and Arabian horse business altogether. (I wrote a guest blog about him several years ago; this was the fellow who at one point was making close to seven figures a year selling ranch properties and breeding stock to Saudi royals at the Paris/Belfast auctions.)

“I got sick of all the aholes”, he glowered, then, crossing his arms over his chest informed me, “Now I’m in personal security”. (As in, private body guard for studio heads and presumably the same Saudi royalty who bought the horses he’d bred)? Certainly an interesting skill set if nothing else….

Then a bit later, I spoke with the fellow who owns the restaurant supply place in B-splat. An immigrant American, he’s expanded his operation by 40,000 square feet and opened two new locations in the Central Valley over the last two years. (He and his wife started from scratch with one small storefront twenty+ years ago, and it’s still a family-run concern.) Business is booming for him as area restaurants open up and then close within a year or two, leaving him to resell and deliver/set up their equipment and furnishings throughout Central CA.

He was lamenting that he can’t scale up to more locations because of the awful real estate situation in the North Central Valley (Modesto/Merced area, high rents, no customers) and because the Chinese have the import business sewn up from overseas, so starting his own line is prohibitively expensive if he tries to bring in product through the ports. When I suggested he manufacture in Mexico and import overland, and he told me that the Chinese have started manufacturing in Mexico as well.

As I drove out of town towards home I noticed a huge project starting up on the outskirts in what is currently a light industrial area. Lots of heavy equipment and probably 80+ acres of broken ground along Hwy 58 to be graded in what has traditionally been a poor Hispanic section of chop shops, trailer parks, and small manufacturing concerns.

Our Congressman, Kevin McCarthy (R. CA) is currently the House Majority Whip, so I suspect this “fiscal hawk” is continuing on in the profitable footsteps of his predecessor, former House Ways and Means Committee Chair, Bill Thomas, (R CA). Ironically, McCarthy’s opposed by Democratic Senator, Barbara Boxer, (D CA) in using some $600M+ of unused seven-year-old earmark funding towards his own (unallocated) district pork, instead of ceding it back to the bankrupt State for re-allocation. Must. Stay. In. Office….

http://www.politico.com/news/stories/0612/77916.html

A house divided against itself cannot stand.

– Abraham Lincoln

Bumper sticker on a friend’s father’s (who was a tool and die maker at GM Lordstown) Chevrolet Caprice wagon back in the day:

Toyota - the same nice folks who gave us Pearl Harbor

SF, top city for DINK couples, rich in DINK-worthy real estate:

“Unless you’ve had your head in the sand, you know DINKs flock to San Francisco, a city famed for having more dog-raising families than kid-raising ones. So perfect is this fair city that DINK Life headquarters in San Francisco (they’re even writing a book about the DINK lifestyle).

DINKs are so powerful a demographic they got their own acronym sometime in the 1980s; along with that acronym came a flood of targeted marketing and spending-habit studies. No surprise that with a much freer expendable income than their child-rearing brethren, these American adults spend money differently. That includes how they spend it on real estate.

Here in San Francisco where inventory is tight, we have to expect some overlap between parent homebuyers and DINK homebuyers, especially dog owners. Both groups, as homebuyers, will want yards.

But families with children are fast leaving the city, per the Huffington Post: “According to statistics presented to a special hearing of the Board of Supervisors on Thursday, San Francisco has the lowest percentage of children of any major city in the country. Only 13.4 percent of the city’s approximately 800,000 residents are under the age of 18.”

Today’s DINK buyers want to be able to walk to as many essential services as possible. Alex Clark, a Realtor® in San Francisco confirms: “DINKs are definitely different than San Francisco families with kids looking to purchase. Walkability is important, as is access to recreation. Big on the list is close access to restaurants, and low on the list are designer kitchens…as they tend to cook less. Parking is less and less of a priority, hence the importance of walkability or the increasingly more popular “bike-ability.”

This demand has real force on the industry. The George Washington University School of Business reports that walkable neighborhoods have now exceeded suburban ones in terms of demand. Their study found that for each 6% improvement in a neighborhood’s walkability score, rent prices for office and retail space increase 7%, apartment rents increase 6%, and home sale prices go up $133/ft2. So in a sense, DINKs demanding close-in property help keep the price of said property in this city as expensive as it is—and getting more so.

With no kids and need for less space overall and a strong desire for walk-(or bike)-ability to both work and daily essential services and amenities, DINKs have potential to influence future housing construction. Their priorities—and buying power—encourage small scale homes, closely centered near an already established retail/business area. This preference for a more close-in, clustered style of living has already made its stamp on American real estate. As pointed out in DINK Life’s recent article “DINKs Quickly Becoming the Power Couples of Real Estate,” the performance of suburban property in this country during the recent recession shows that “as U.S. home values declined from 2008- 2011, areas located far from urban hubs have lost value most dramatically. Areas close-in, however, have either held their value or increased it.”

http://blog.sfgate.com/ontheblock/2012/12/06/sf-top-city-for-dink-couples-rich-in-dink-worthy-real-estate/

This one is for Neil.

Posted: 8:18 a.m. Thursday, Dec. 6, 2012

Wells Fargo serves up principal reductions and popcorn

By Kimberly Miller

Palm Beach Post Staff Writer

WEST PALM BEACH —
It was more like a café than a place where struggling homeowners negotiated deals to stave off foreclosure. But that’s where things are four years after the economy broke and real estate toppled _ pink lemonade, popcorn and Kelly Clarkson videos.

Wells Fargo Home Mortgage took over a portion of the Palm Beach County Convention Center on Thursday, beckoning 13,500 homeowners within a 100-mile radius to come talk face-to-face about their mortgage challenges and possible solutions.

About 235 homeowners registered for the free event _ an average amount for a homeowner workshop, Wells Fargo officials said. Unlike the camp-outs, long lines and raucous public testimonials that accompanied the 24-hour blitzes of the Neighborhood Assistance Corporation of America’s two visits to West Palm Beach, Wells Fargo took a more refined approach.

A concierge greeted each homeowner, who was escorted through a check-in process and then to a waiting area where tables were set up restaurant style. Four flat screen TV’s played music videos. Popcorn and pink lemonade were served.

“We try to create an atmosphere to make customers feel comfortable,” said Robert Silva, with Wells Fargo community relations. “This can be a nerve-wracking experience.”

Homeowners at Thursday’s event were evaluated to see if they were eligible for such foreclosure prevention programs as Florida’s $1 billion Hardest Hit program, the federal Home Affordable Modification Program or the National Mortgage Settlement.

It was the first large-scale workshop hosted by Wells Fargo in West Palm Beach.

Greenacres homeowner Yesenia Azanedo said she was awarded a loan modification that lopped a whopping $200,000 off her principal amount.

“We finally got to a happy ending,” she said. “We got a good answer today.”

Mary Hagan of Riviera Beach also won a loan mod. She wasn’t clear on the details, but said it will lower her monthly payment.

“I just want other people to feel like they can do this. They can only say ‘yes’ or ‘no.’”

In October, the U.S. government filed a civil lawsuit against the San Francisco-based bank alleging it engaged in reckless lending that cost the Federal Housing Authority hundreds of millions of dollars in insurance claims when the loans defaulted. In July, Wells Fargo reached a $175 million settlement with the Department of Justice following accusations that it steered black and Hispanic borrowers into expensive sub-prime loans.

And not everyone walked out of Thursday’s event with a lower mortgage payment.

“I’ve been faxing documents for two years,” said Jupiter homeowner Elke Klukas, repeating a familiar complaint among homeowners attempting a loan modification.

Klukas, a homecare provider, stopped paying her mortgage in December 2009 after a job loss. Now she’s working again and hoped to negotiate a deal Thursday to stay in her home.

She was denied until her home can be appraised.

“I just hope to know before Christmas,” Klukas said. “If I have to move sometime next year, I want to know.”

comment(6)

(This one is for RAL)

Posted by CheeseusSonofdog at 10:18 a.m. Dec. 6, 2012

But, but,but… I thought there were no more foreclosures? That inventory was at all time lows? That the housing market has never been healthier? Almost 15,000 future homes to come on the market from just this one bank. Suckers buying now are idiots. There is inventory, no matter what the realtor gang says. The banks just haven’t foreclosed on it yet. Don’t buy when a market is being manipulated.

http://www.palmbeachpost.com/news/business/wells-fargo-invites-13500-homeowners-to-event-in-w/nTN8y/

In a slow economy, baby is a luxury item:

“Which is the more powerful agent of social change: fear or sympathy? Women in rich and middle-income countries may soon find themselves enrolled in a real-life experiment testing this proposition. That is because birth rates are dropping in much of the world. Demographics may soon rocket to the top of the political agenda, demanding an entirely new way of thinking about women and motherhood and the economy.

One reason for the shift was, as it were, born in the USA. That is because, for a long time, the United States has watched declining birth rates in places like Western Europe, Russia and even China with an air of superiority. The United States, lusty and fertile, was bucking the demographic trends.

Then, last week, new data showed that in 2011, the U.S. birth rate fell to the lowest level ever recorded – 63.2 babies per 1,000 women of child-bearing age.

This is a big change for the United States, bringing the birth rate in the country more closely in line with those of the rest of the developed world. The total fertility rate in the United States, a measure of the total number of children the average woman is likely to have, in 2011 was 1.89.

A recent study led by Joel Kotkin for the Civil Service College of Singapore found that the U.S. rate was edging toward European numbers: 1.54 for Greece, 1.48 for Italy and 1.5 for Spain. In rich Asian countries, including Japan and Singapore, the rate has fallen even more sharply. Even in many middle-income and poor countries, the level has fallen below the replacement rate of 2.1 – to 1.89 in Vietnam and 1.9 in Brazil.

These figures, particularly the recent decline in the United States, have prompted a chorus of cultural lamentation.

Mr. Kotkin, for example, sees the falling birth rate as the central feature of what he calls “post-familialism,” a new form of social organization that prizes liberation, personal happiness and perhaps even a “hip” urban aesthetic over the more traditional values of community and self-sacrifice.

This cultural critique – made, not accidentally, mostly by men – misses the central fact about falling birth rates. They are, above all, driven by decisions by women. And, in the countries where we have seen birth rates drop, they are about decisions driven by women who face three defining facts.

First, women have the historically unprecedented power to control their own fertility.

Second, the old close-knit family and community ties that once supported child-rearing have been severed by industrialization and urbanization, and not much has emerged to take their place.

Third, women’s economic circumstances have been transformed. Women in countries where birth rates have fallen tend to be richer than were previous generations with higher birth rates or their sisters in countries where the birth rate is still high.

But that shift masks some other important characteristics in the life of the middle-class woman in middle- and high-income countries.

She is more likely than ever to work – and to need to work to maintain her family’s middle-class status. She is also more likely to live in a society in which a great deal of time and money must be invested in each child to ensure his or her future success. And, particularly in Europe and the United States, family income has probably stagnated or increased only marginally over the past decade, and certainly since the recent recession.

But the truth is that for most women, children are the most delightful and luxurious of consumer goods. (Full disclosure – I am the mother of three.) They are, however, expensive, both in terms of time and in terms of money, and more and more women in middle-income and upper-income societies are judging, with considerable sadness, that they simply cannot afford to have as many children as they would like.

This is where the question of fear versus sympathy comes in. For decades, feminists have been demanding that we come up with better ways for women to be both mothers and full members of modern society. That has often been dismissed as a “women’s issue.” So we have not addressed it – and now women are voting with their wombs.”

http://www.theglobeandmail.com/report-on-business/economy/in-a-slow-economy-baby-is-a-luxury-item/article6063363/

Inequality and Poverty American-Style:

“Irrespective of ones circumstances or stage of life, illness is never welcome, in America if your poor it can prove to be a total catastrophe, ending often in personal bankruptcy. “According to a report published in The American Journal of Medicine, medical bills are a major factor in more than 60% of the personal bankruptcies in the United States“. Health care insurance an unaffordable luxury, for the 15% or 50 million people now living in ‘official’ poverty in America, anxiously relying on good luck and a poor diet to keep sickness at a bay.

Average individual health care insurance costs around $200 per month, unbelievable as it may sound to the unfamiliar, this does not automatically cover prescription charges. Having paid around $12,000 into insurance company coffers and made no claim in five years, a friend recently needed hospital care; no charge, antibiotics however, prescribed and dispensed $50 – ‘have a nice day’. My daughter living in New York with family health insurance, was charged $100, yes $100, for an ameliorative wonder cream earlier in the year, one can only imagine it was infused with miracle oil and laced with melted gold. The Bureau of Investigative Journalism (BIJ) in a recent documentary state, the US healthcare industry is the largest in the world, with “$300 billion a year spent on prescription drugs alone”, a figure that is rising in tandem with the pharmaceutical companies colossal profits, the top three according to Fortune Magazine making $27,000 millions in 2010. Surprisingly or perhaps not given US politicians relationship with corporate leaders, Noam Chomsky states, the prices set by these companies are protected in law. Unsurprisingly and in keeping with commonsense and codes of social fairness, 80% of the population would support lower rates.

The American health care system is a moneymaking machine for the Insurance giants and their pharmaceutical bedfellows and a major cause of poverty and hardship in the country. It is inefficient and at approximately twice the cost per capita of comparable countries, extremely expensive, Cuba e.g. Noam Chomsky says “achieves the same outcomes at 5% the cost.“ The fact that the worlds only so called ‘super-power’ does not offer a health care system to all 311 million or so of its citizens, based on need and “free at the point of delivery”, reflects the driving political/economic ideological doctrine that underpins all areas of life in America; Capitalism, with its single motive; profit. It is a system that is fuelling economic and social inequalities that are trapping increasing numbers of people into a life of poverty devoid of hope.

More people are living in poverty in America now than at any time since 1959 when data was first collected with around 43 millions (August 2012 figures) a 70% increase in five years, relying on the Supplemental Nutrition Assistance Program – Food Stamps for their meals. The 15% figure may be an understatement as the income level used by the government to define ‘poverty’ increases based on the rate of inflation. The threshold established for a family of four in 2011 was $23,021 per annum, extreme poverty where 21 million Americans live – $11,000. However if as The Economic Collapse, report on Poverty in America state “inflation was still calculated the way that it was 30 or 40 years ago, the poverty line would be much, much higher and millions more Americans would be considered to be living in poverty”. Wealth and poverty predictably falls along lines demarcated by race as well as social backgrounds, 27% of Hispanics and Blacks and 31% of single mothers, compared with 13% of adults generally and 11% of families are living under the demoralizing, de humanising shadow of poverty.

Since the late 1970’s poverty rates and levels of economic equality have been dramatically increasing. Under the presidency of Ronald Reagan and the days of unbridled competition and market forces that his administration, and across the sea The Iron Lady championed, poverty numbers leapt to a tat below the present figure. Reagan famously admitted to having “fought a war on poverty and poverty won.” Those under fire were poorly armed and inadequately prepared, the battle rages today and more furiously, with inequities and social disadvantages acute.”

http://www.counterpunch.org/2012/12/07/inequality-and-poverty-american-style/

Looks like an upcoming episode of the TV show Modern Family is going to center around house flipping. Should be interesting to see how they handle that one.

Hi. From suburban Boston another government interference helping make housing more expensive. Why don’t busybody tax and spend liberals do their charity work on their own dime?

http://boston.craigslist.org/gbs/nfb/3452114748.html

Denver Post - Report shows warming weather may cost winter tourism $2 billion a year:

“A new study says a warming climate could cost the country’s winter tourism industry as much as $2 billion a season as snowpack dwindles.

The analysis — authored by a pair of doctoral students from the University of New Hampshire — concludes that rising winter temperatures since 1970 are threatening winter tourism in 38 states. The report said the difference between a good snow year and a bad snow year from 1999 to 2010 cost the industry between $810 million and $1.9 billion; 13,000 to 27,000 jobs; and 15 million skier visits.

Looking forward, the researchers estimate snow depth could decline to zero at lower elevations in the West and that the ski season in the East could shrink by as much as half in the coming decades.

The researchers said Colorado resorts and resort communities lost $154 million in revenue and 1,867 jobs in a bad snow year.”

New York Times - Soaring Rents Drive a Boom in Apartments:

“Houston is better known for urban sprawl than dense apartment living. But as part of a national rush to capitalize on rising rents, developers there are building thousands of apartments like those south of downtown at Camden City Centre, where 268 units will open early next year in a complex that also has two swimming pools, billiards tables, a coffee bar and fitness center.

As residential building recovers from a near standstill after the housing crisis (it’s over? NOT!), much of the momentum is coming not from subdivisions with green lawns and two-car garages but from rental apartments. Multifamily construction nationwide is two-thirds of the way back to its prerecession peak, while single-family home construction is still only about a third of the way back to its peak, said David Crowe, the chief economist of the National Association of Home Builders.

The multifamily construction recovery, fueled by young people who are striking out on their own, is strongest in the South and West, particularly in markets where job growth is picking up. Last month, the Commerce Department released data on new construction that showed new apartment complexes were going up at the fastest rate since July 2008.

That has led to a fear of overbuilding. While rents are still rising, analysts say the steep increases between 2011 and 2012 are unlikely to be repeated as a surge of units are completed in the latter part of this year and will continue to come on the market early next year. Nationally, residential rents rose 4.2 percent in 2011, but only 3.6 percent so far this year, according to Axiometrics, a Dallas-based apartment market research firm.

Still, vacancies remain extremely low and the pace of building in recent years has not been quick enough to replace obsolete, decrepit or demolished units, said Mr. Crowe of the homebuilders group. He projected that it would be several years before supply was back to normal.

“The demand for building is all over the country, really,” said Ric Campo, Camden’s chairman and chief executive. “We’re seeing higher rents, faster lease-ups, lower construction costs — everything you want to see. Part of it is there’s a pent-up demand for new product because we didn’t build anything during the downturn.”

Wall Street Journal - Resort Living Comes to Campus:

“Residents at a new rental community in Orlando, Fla, lounge around a resort-style pool in private cabanas. They practice their golf swings at the putting green and meditate in a Zen garden. Videogamers sip complementary coffee while playing “Call of Duty: Black Ops II” on a multiscreen television wall. Now, they’re facing final exams.

Welcome to University House, a $65 million private college dormitory that just opened near the University of Central Florida. Built by Inland American Communities Group, University House is one of the latest upscale communities sprouting up in college towns — including East Lansing, Mich, Tempe, Ariz, College Station, Texas, and others. Developers say that colleges provide a steady stream of new customers every year, and that students — and their parents– are willing to pay for luxury amenities.

Instead of bunk beds, cinder-block walls and communal showers, these newly built dorms off campus resemble apartments and offer a wide range of amenities, such as walk-in closets and custom-designed furniture. Everyone usually gets his or her own bedroom and bathroom, so the only sharing is in the high-end kitchens that often feature granite countertops and stainless-steel appliances.

Real-estate investors and developers, hungry for new areas for growth, are finding a lucrative and previously untapped market in these areas surrounding college campuses, one marked by low inventory, booming enrollment and an increasing appetite for luxury living.

These flashy residences aren’t cheap. At University House, located off campus, rates start at $665 per person, per month for a four-bedroom, four-bath unit. A student who wants to live solo in a one-bedroom unit pays nearly $1,000 a month. By comparison, two students can share a traditional dorm room on campus for about $550 each a month for the academic year. An on-campus apartment with four bedrooms and four baths costs each resident more than $800 a month.

On campus, “you never get your privacy,” says Nicole Ibinarriaga, a 20-year-old junior whose parents pay her $690 monthly rent, which includes parking, at the University House, where she lives in a three bedroom, three bathroom unit with two other women. “Now, I can take a five-hour shower and not worry about it, or take a bubble bath.”

It is interesting we have the governments statistics out and they show strong job creation and a dip in unemployment. The private numbers from the ADP and Gallup show a slowing economy, this pattern of the divergence between the sources has been going on for several months. In my world, the private numbers seem to be more accurate. Now, just some background. The unemployment rate is set by a survey, which is how Gallup sets the unemployment rate. The job creation number is done by hard numbers although ADP does not have as extensive sources of data to arrive at the number so part of its number is a projection. Nonetheless, this gap should not exist. Have we reached a point in America that we could no more believe our government’s numbers than we can believe China’s numbers? I have to go but I will read the responses later today.

New poll out from Quinnipiac:

“Registered voters say 48 - 43 percent that President Obama and Congress will reach agreement on a plan to avoid tax increases and spending cuts set to go into effect at year’s end, the independent Quinnipiac University poll finds.

By a huge 67 - 23 percent margin, voters oppose eliminating the home mortgage interest deduction, but strongly favor, 62 - 28 percent, limiting the deduction to the first $500,000 of mortgage debt. By 56 - 35 percent, voters favor eliminating that deduction for second homes.

Voters 65 - 31 percent support higher taxes on households making more than $250,000 per year, with 84 - 14 percent support from Democrats and 66 - 31 percent support from independent voters. Republicans are opposed 53 - 41 percent.”

—————-

What I find interesting about these polls is that the American public can now distinguish between “poor” and “rich,” and that these laws don’t have to be all-or-nothing. Just four years ago, if a Republican said “Obama will raise taxes,” voters assumed it meant everybody, i.e. them too. (And threw in a few references to watermelon to boot.)

Fast-forward through Joe the Plumber, Occupy Wall Street, and Ann Romney’s $77,000 tax deductable horse. Now people are wise enough to say that Obama will raise taxes on some people, or that the MID won’t be eliminated totally, just on second homes. This is a pretty big shift.

I think that shows up in the Quinnipiac numbers. Look at the last sentence, where even 41% of registered Republicans break with the leadership and support raising taxes on the rich. For a party that depends on the peons being in lockstep, that’s a bad sign.

Government should not be in the business of buying or insuring private debt. This system is absolutely ripe for abuse, as we’ve witnessed in the education and housing markets.

A Proper Accounting: The Real Cost of Government Loans and Credit Guarantees
Published: December 05, 2012 in Knowledge@Wharton

While all eyes are turned to the U.S. government’s enormous debt, few have given equal attention to the massive costs and risks embedded in another of the government’s financial functions: its role as lender rather than borrower.

Flaws in the way the government accounts for its loans and credit guarantees understate the costs that taxpayers are bearing with student loans and other credit programs totaling more than $2.5 trillion, plus more than $5 trillion in mortgages backed by the federally owned companies Fannie Mae and Freddie Mac. In fact, a proper accounting — like that required of most businesses — would make the government’s budget deficit even larger than the officially reported amount.

…

Student loans and mortgages backed by the Federal Housing Administration, among more than 100 other lending programs, contain potential losses that are much more costly than what current accounting suggests, according to the FER.

Buying Low, Booking High

Illustrating this process, the FER says that in 2009, the Treasury Department paid $220 billion for bundles of mortgage-backed securities purchased in the open market, and then reported a $5 billion gain by booking them at higher values produced by the lower discount rates justified by government accounting rules. “It is the same kind of deceitful accounting that would take place if you were to take over General Electric and discount all the cash flows at the Treasury rate,” Herring says. Doing that would make it look as if you had added value to GE overnight, even though you had actually done nothing except destroy value through government interference, he observes.

http://knowledge.wharton.upenn.edu/article.cfm?articleid=3126

It’s deja vu all over again

10 Least Affordable Cities to Buy a Home

http://youtu.be/DL-a-r7iJIU

Some more welfare and student assistance fraud.