Raising ‘B-Word’ Questions Again
The Herald Tribune reports from Florida. “The boomlet in Southwest Florida’s housing market over the past year has been so vast that it is raising ‘B-word’ questions again — as in ‘bubble.’ Though opinions vary widely, even those who dismiss the notion that another housing bubble is in the works say they are concerned about rising home values and the proliferation of bidding wars that are reminiscent of the mid-2000s. Jack McCabe, a Deerfield Beach real estate consultant who accurately predicted the rise and fall of the last market, represents one of the most ardent doomsayers.”
“‘These investors are paying ridiculous amounts of money for property that just does not justify it,’ McCabe said. ‘If we get to the point where these homes are no longer affordable to the general public, we are in for our next bust.’”
“An influx of investors led by Blackstone, among the nation’s largest private real estate owners, have flooded into Southwest Florida to buy up distressed properties for use as rentals. In many cases, the cash-powered institutions have bullied traditional home buyers and smaller investors out of foreclosure-buying opportunities by routinely paying well above the bank’s asking price — sometimes even when no other parties are bidding, data from researcher RealtyTrac Inc. and a Herald-Tribune analysis of property transactions show.”
“So far, these groups have paid, on average, 45 percent more for the homes in Manatee and Sarasota counties than the properties’ value, RealtyTrac’s analysis shows. Prices were bolstered further by bulk foreclosure buyers, who paid an average of $127,146 for homes in Sarasota County last year. Those same properties were valued at only an average $93,479, RealtyTrac’s analysis showed. In Manatee County, many of the same buyers shelled out an average of $136,624 for properties with an estimated worth of $94,208 on average, the research shows.”
“New York-based Fundamental REO is one such buyer. Since Thanksgiving, the firm has bought 14 homes in Manatee and Sarasota at a significant mark-up from the prices paid just a short time earlier. Fundamental paid $139,000 for a 1,431-square-foot house in Parrish, for instance, just two months after the previous owner paid $89,300, records show.”
“RealtyTrac estimates that smaller investment companies following the same buy-and-hold model snapped up 388 properties in Southwest Florida last year and 5,289 across Florida. Many of those homes are acquired at auctions, or from bulk portfolio sales lenders hold. In those cases, prices are often evaluated based on replacement costs and projected income streams and not on relative values.”
“Fueled solely by speculation that the market will continue rising, those are the type of short-term price spikes that could ultimately harm the housing recovery, said Shannon Moore, broker and owner of Green Lion Realty in North Port and Port Charlotte. ‘They’re paying way too much at auction,’ said. ‘I just don’t see how they can get rents to cover what they paid. The numbers just don’t make sense.’”
The Miami Herald. “Rents on single-family homes in the greater Miami area rose 2.8 percent in March from a year earlier, far below the 12.1 percent spike in the asking prices for houses over the same period, according to Trulia. In the Fort Lauderdale area, rents for single-family homes fell 1.2 percent year over year, even as the asking prices for homes increased 10.7 percent.”
The Sun Sentinel. “Single-family rents in Broward County dipped 1.2 percent in the past year, while prices countywide rose 10.7 percent over the same period, Trulia said. In Palm Beach County, single-family rents inched up 3.8 percent, but that’s still far below the percentage increase for prices (14.1).”
“‘Investors bought up cheap houses in hard-hit markets and rented them out to people who lost their homes to foreclosure or delayed first-time homeownership,’ Jed Kolko, Trulia’s chief economist, said in a statement. ‘With four million more rental homes now than during the bubble, supply has expanded to meet demand, and rents are flat or falling in markets where investors are most active.’”
“As a result, some investors will decide to sell homes they’ve been renting, helping to boost depleted for-sale inventories, Kolko said.”
The Palm Beach Post. “Despite the sunny names in a neighborhood where residents also live on Faith and Pot o’ Gold, two homes sit vacant, burned out, boarded up and part of a growing shadow inventory of foreclosed homes in Florida. Palm Beach County’s shadow inventory increased 78 percent from the first quarter of 2012 to a current measure of 25,702 homes, according to RealtyTrac. Statewide, the increase was even higher, leaping 82 percent from 175,707 to 319,147. Nationwide, shadow inventory increased 12 percent from the beginning of 2012 to today.”
“The pileup in the shadow inventory is a case of banks not wanting to take a hit on distressed properties, said Ken Thomas, a Miami-based banking consultant and economist. Lenders don’t want to reduce a home’s value by 40 percent on their books and pay thousands of dollars to rehab it for sale, he said. ‘They basically just get up every morning and pray the market is better that day,’ Thomas said. ‘In the meantime, these homes just sit and accumulate.’”
“More than 111,000 homes in South Florida — Palm Beach, Broward and Miami-Dade counties — are counted as shadow Inventory in RealtyTrac’s report. Realtor Shannon Brink of RE/MAX Prestige Realty in West Palm Beach said there is so much pent-up demand for homes, he’s more concerned about another real estate bubble than worried that the shadow inventory will weaken sale prices.”
“‘If we don’t see more inventory, and buyers outpace sellers, it may increase prices too much in too short of a time period,’ Brink said. ‘We are going from one extreme of too much inventory to too little.’”
The News Press. “The number of foreclosures backlogged in the Lee County court system drifted up in 2012 after three years of sharp decline — but now the numbers are trending down again. Faster and easier short sales by lenders are responsible for the recent improvement, said Jeff Tumbarello, director of the Southwest Florida Real Estate Investors Association, which generated the statistics.”
“Kara Jursinski, a Fort Myers-based attorney who represents people being foreclosed on, said the backlog’s rise in 2012 could be due to the use by more lenders’ attorneys of a form of foreclosure that pushes the case through quickly: in no more than 60 days the borrower has to come up with a credible defense or the lender gets a judgment allowing the sale at public auction of the house to meet the mortgage debt.”
“The problem, Jursinski said, is that while the lender’s attorney is pushing through the foreclosure, the borrower may be working with another bank official on a short sale. In that case, sometimes the lender ‘wanted to afford buyers time to do modifications or short sales’ but the fast-tracked foreclosure threatens to preclude those solutions.”
“As a result, she said, ‘Sometimes they get a final judgment and keep canceling the sale’ in hopes that the short sale can be accomplished. Jursinski said she’s handled cases in which the bank cancels the sale date as many as four times. ‘It’s just a waste of time for the courts and the attorneys’ and slows down the whole process.”
“The traditional spring selling season has arrived, but what it lacks this year are sellers. Housing inventories are hovering near their lowest levels in more than a decade, creating a free-for-all mentality among investors and other buyers competing for a limited supply of homes.”
“To shake listings loose, agents are knocking on doors, sending out postcards and checking back with clients who previously took their homes off the market. Other agents are even calling for-sale-by-owners, hoping to persuade them to change their minds and list their homes.”
“When prices plunged, millions of homeowners lost equity, putting them ‘underwater’ on their mortgages. Even though values are rebounding, many homeowners still can’t sell without bringing thousands of dollars to the closing table. Meanwhile, a large contingent of homeowners who have equity are keeping their properties off the market, figuring they have weathered the downturn and now want to see prices keep rising before they consider selling.”
“Every few weeks, real estate agent Roger Palmieri goes on a little neighborhood stroll. If people are out pulling weeds or getting the mail, Palmieri strikes up a conversation, asking if they realize how hot the housing market is and whether they’d like to sell their homes. He ran into Richard and Doris Yates lounging on their front porch. The Yateses politely listened to Palmieri’s spiel but said they aren’t yet ready to list their 1,800-square-foot home, in part because they need prices to keep rising.”
“The couple bought for $118,000 in 1999, records show. The value escalated to as high as $350,000 during the boom, according to Richard Yates. Palm Beach County appraised the home last year for about $150,000. ‘If somebody would come and give us $300,000, I’d take it, but now we’d be lucky to get $220,000,’ he said. ‘We waited too long.’”
“The pileup in the shadow inventory is the case of banks not wanting to take a hit on distressed properties …”
And …
“If we don’t see more inventory, and buyers outpace sellers, it may increase prices too much in too short a time period …”
But if prices increase then the value of the inventory held back by the banks also increases, which means mortgages that were underwater get their values restored. And if mortgages get their values restored then the banks will no longer be insolvent. And if the banks are no longer insolvent then investors will jump on them and boost up the prices of their stocks. And if banks get their stocks prices up then they can sell shares to the public because of the increased demand for their shares, due to the fact that “Price always equals Value”, and selling more shares will allow the banks to recapitalize themselves.
See? It’s all good.
(snort)
Plus the increased prices reinstate the FBs convictions that they are financial geniuses and that they should decide to stay the course instead of walking away.
What would really be interesting is to see what the folks who have been living in the house but not making the payments would do if the price of the houses rises up past their break-even point. Since they would be made whole again would they want to make up for the non payments?
It would be interesting to see what would happen, now that the house’s prices have risen, if the banks now decides to drop the hammer and kick them out.
Why would the FB’s want to make up for the payments? The question is whether the bank can require them to. My guess says they can.
in my nabe (fallbrook,ca)…a 1bd condo “worth” (comps from almost a year ago) 100K are being bought up for what the back taxes, assoc.fees, p&i, fines etc., all totaled, are being rolled in to the actual selling price…126K bought by investors, who put a few more thousand into it and now it’s on the market for 159K…??…the place was vacant for years.. not many lookers…maybe they’re trying to rent it also…
btw, zillow is worthless!!…
I hate to tell you but Zillow is a data aggregator and they’re data(not “zestimates”)is the best out there.
Yo, angus. Nice to see ye.
The banks will kick them out so fast the FBs’ heads will spin.
“…geniuses…”
Close friend of my wife recently crowed on her FB page (double-entendre’ intended) about how one of the myriad government-sponsored underwater refi plans currently in play has saved their family’s bacon on a 2007 home purchase. And one of her friends (not me!) couldn’t resist adding a comment about how Obama’s economic plan is working out very well for them — quite a ribbing, given that her husband is a hard-core anti-Obama Rush Limbaugh ditto-headed NRA member.
“So far, these groups have paid, on average, 45 percent more for the homes in Manatee and Sarasota counties than the properties’ value, RealtyTrac’s analysis shows.”
This makes no sense. Why would large institutional investors pay more than they need to? It’s got to be another back door bailout for Wallstreet.
One possible scenario:
1) Get a ‘high powered’ executive team together and pitch RE investment to small to middle class investors (is there a doctor in the house?).
2) Collect a bunch of OPM and start buying houses from banks, but pay too much.
3) Banks get rid of inventory at a better price than they should, while people they don’t care about (not 1%ers) take the hit.
This is pure speculation; I don’t have any insider information.
4) Get the FHA, Fannie Mae and Freddie Mac to federally guarantee “affordability” loans at ludicrous price levels which will enable the Blackstones, BlackRocks, etc to resell their investment homes onto the backs of low-income buyers who will default in large numbers. (The ultimate bagholder is the U.S. taxpayer…)
Been talking about this for awhile now;
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&sqi=2&ved=0CDIQqQIwAA&url=http%3A%2F%2Fwww.bloomberg.com%2Fnews%2F2013-04-10%2Fhome-prices-may-decline-in-some-cities-as-rates-increase.html&ei=93JlUcf4MuGviQLi5YHYCQ&usg=AFQjCNGz-NwMpxvouGtMU0uYHEXPgvDXQg&sig2=qG-6F-DHTqPUgPv8OX88cw
“Home Prices Seen Falling in Some Areas as Rates Increase
By Prashant Gopal - Apr 10, 2013 6:01 AM PT
Home prices are climbing too fast relative to buyer incomes, signaling that property values may fall in some U.S. cities once mortgage rates rise and reduce affordability, according to a study by Zillow Inc.
…”
I guess the Zillow ‘experts’ some how missed the memo that the Fed will never, ever end QE3?
My bet is the fed cant sell a million homes to Chinese investors without some serious political backlash but hedge funds can
Zillow is not revelent in home values no agents or appraisers consider them in a hot market, recently a home sold for 1.1million and zillow had the property at 795k?
It goes both ways. Zillow had a colleague’s home at $1.8 mil — where they listed it when they first tried to sell. It eventually sold for $1.3 mil, and if you go to the Zillow entry on the home, there are *s shown on the listing history for the original list price. The only list price to be seen before the final sale price is $1.4 mil, which just goes to show once again that REALTORS™ ARE LIARS.
I don’t think the Zestimate is useless. However, their constant scrubbing of sales prices is annoying. And their zestimate chart only goes back 10 years.
“I don’t think the Zestimate is useless.”
It seems plenty bad when their estimates are too high by half a million bucks, and then they hide the evidence by suppressing the information after the sale…
Zillow’s Zestimates are pure fantasy.
Yes they are. However their sales volume, price and trending data is very accurate. They are data aggregators.
Why would large institutional investors pay more than they need to? It’s got to be another back door bailout for Wallstreet.
I bet the big boys got large amounts of houses at very good prices, which probably didn’t even show up in the comps. These are comparatively little guys, buying 20 or 30 houses.
Probably a bunch of doctors and the like, getting fleeced by their investment advisers, as you suggest.
‘These are comparatively little guys’
Yeah, sure.
‘Colony Capital is among the private-equity firms that are buying U.S. homes in bulk after prices fell by a third from their July 2006 peak. The Santa Monica, California-based firm has raised $2.2 billion to purchase properties with a plan to rent them out. Colony doubled the size of its portfolio during the quarter ended Dec. 31, to 5,405 homes, and has increased the number to 7,000…Colony Capital LLC’s Tom Barrack said U.S. homes are in danger of becoming overvalued as low borrowing rates and an improving labor market fuel demand.’
“We have asset bubbles for sure and asset bubbles are necessary when you don’t have growth” in the economy, Barrack, Colony’s founder and chairman, said today in an interview at the Bloomberg Doha Conference.’
http://www.bloomberg.com/news/2013-04-08/colony-capital-s-barrack-sees-bubble-in-u-s-housing-market.html
‘asset bubbles are necessary when you don’t have growth’
Hey Bloomberg, do you even pay attention to what you publish? Like maybe ask the question, ’so if it’s a bubble, why in the heck are you buying houses?’
Trying to time the market, I guess?
At least they’re calling it a bubble and not some permanent new paradigm.
Richard and Doris Yates: What did you do with the money?
Realtor Shannon Brink of RE/MAX Prestige Realty in West Palm Beach said there is so much pent-up demand for homes
Remember in 2007 Remax CEO telling people to “hurry and buy a house while prices are low”?
Remember in 2008 Remax CEO telling the public on CNBC to “buy now. There is guaranteed appreciation”?
Remax is a NAR proxy for one simple reason. NAR has no credibility left. And neither does Remax.
I feel quite comfortable saying that, in this culture, NAR and ReMax have more credibility with the public than anyone on this blog. Certainly more than I do. This whole affair has been a lesson on who is deemed disposable and why.
Tell me about it. All of my coworkers are busy trading up or buying for the first time. Tell them that prices are going to fall and they look at you like you’re some kind of nut.
Where are they buying, or looking to buy?
I work on the east side so most of the koolaid drinkers here are buying in South Aurora or Parker.
Might as well buy in Kansas out there…
Might as well buy in Kansas out there
Yeah, well we live in south Denver, and reluctantly make the drive out there. Thought about getting a new apartment near Colorado Blvd and 6th but the commute advantage isn’t enough to justify the higher rent in a neighborhood where all the pretty young things want to live and pay high rents.
Hey - we are not just going to GIVE away our house…
“The couple bought for $118,000 in 1999, records show. The value escalated to as high as $350,000 during the boom, according to Richard Yates. Palm Beach County appraised the home last year for about $150,000. ‘If somebody would come and give us $300,000, I’d take it, but now we’d be lucky to get $220,000,’ he said. ‘We waited too long.’”
“Nationwide, shadow inventory increased 12 percent from the beginning of 2012 to today.”
’he said. ‘We waited too long.’”
Seaman: These are dead sir.
Bernanke: Now give away. Ahead easy. Careful with your bailouts. Don’t hit them. Is there anyone making payments out there? Can anyone hear me? We waited too long. Well, keep checking them! Keep looking! Is there anyone making payments out there? Can anyone hear me?
“Bring out your debt!”
“Nationwide, shadow inventory increased 12 percent from the beginning of 2012 to today.”
Nothing that all-cash Chinese investors can’t snap up in a few weeks time.
‘…If somebody would come and give us $300,000, I’d take it…”
GAAAAAAAAAA!
And just remember….. the massive pools of REO getting split up into smaller pieces equals the same inventory….. and the timeless fundamental that applies is privatize risk, socialize losses. And that is precisely what the former custodians of this inventory did.
Now that you’ve sunk investor $$$ into depreciating assets, now what are you going to do?
‘routinely paying well above the bank’s asking price — sometimes even when no other parties are bidding’
But when they bid up the price of their latest buys the value of their earlier buys go up. If they have a lot of houses bought at lower prices then their paper profits gets a boost.
Think comps. You don’t have to bid up the prices of all the houses, just the ones that represent the comps. If you own a lot of comps and the value of just a few houses represent the value of the comps you own then all you need to do is boost the value of the representative houses.
And you boost the values by boosting the prices because price equals value.
Your explanation only works when the purchaser has enormous market power in the market where they are buying — enough to monopolize the price setting process.
I’m not saying you are wrong; merely pointing out the necessary conditions for price fixing to occur.
“And you boost the values by boosting the prices because price equals value.”
It all works great, so long as the monopoly buyer never has to sell to anyone else…
Distressed sales do not go into the “comps”, even if bought above asking.
Are some firms considered too-dumb-to-fail?
If you are using your own money then the incentive is to buy at a low price. But if you are using OPM then the incentive, in this case, is to buy at ever rising prices.
Too dumb to fail? Happens all the time in the business world. All the time.
I guess the other wildcard in whether this “business model” of paying a huge premium for investment homes in the absence of other bids is whether the Fed’s QE3 MBS purchase program will inflate housing prices beyond almost anybody’s wildest dreams.
So far, so good…
…in the absence of other bids will pan out is whether…
Recall the North Carolina article I posted recently, with quotes from UHS on how the private equity firms were not haggling on foreclosures and even buying new houses to rent out. We could spend a day trying to divine their calculating wisdom. Or maybe take the simpler route and declare them knife-catching, bag-holding dumba@@es (KCBHDA).
Notice we don’t hear much about their occupancy rates…one of Zero Hedge’s recent posts mentioned Colony’s was about 50%.
These KCBHDA’s wouldn’t need to become net sellers for markets to take a hit, they would just need to slow—>stop their buying. Who picks up the slack in markets where 30% of sales have been “investors”?
“Or maybe take the simpler route and declare them knife-catching, bag-holding dumba@@es (KCBHDA).”
Certainly their business model has an exit strategy to unload the falling knives on unwitting greater fools? It seems quite likely the greater fools are Main Street U.S. taxpayers, and either the federal government or the Federal Reserve will somehow be involved in passing the trash…details to be revealed in a few years through the lens of the rear view mirror.
‘Who picks up the slack in markets where 30% of sales have been “investors”?’
An even dumber cohort of KCBHDAs is always available to pick up the slack…
The exits could get crowded.
Here is a conspiracy theory which I just throw out for discussion: What if Blackrock and others paying astronomical bids are working as agents of Uncle Sam, Inc, to “solve” the underwater mortgage problem? (I have no basis for this conjecture, aside from the observation that overpaying by 45 percent seems ludicrous from a private business standpoint…only the government can afford to throw money down the housing market rat hole at that rate…)
The wooing of Tim Geithner has begun.
Fox Business Network reports that the former Treasury Secretary, who stepped down in January and sealed a book deal with Random House earlier this month, has been fielding calls from at least one major financial firm about a possible future job.
Geithner has recently held a series of meetings with BlackRock (BLK) chief executive Laurence Fink, according to three people with direct knowledge of the matter. Although no specific job at the big money management firm has been discussed, Fink and Geithner discussed possible future employment, these people say.
…
The fix is in!
Now that’s Hope and Change you can believe in.
Don’t assume conspiracy when stupidity is an adequate explanation.
GHEI: Reinflating the housing bubble
Loosened borrowing rules set the stage for another bust
By Nita Ghei
Wednesday, April 10, 2013
There is evidently no idea bad enough and no failure severe enough to stop the government from trying it once again. In myopia remarkable even by abysmal government standards, the White House is pushing for policies that fueled the housing bubble, which burst a mere five years ago. Reintroducing those policies at this stage of a nascent recovery in the housing market will set the stage for repeating history, and very likely leave taxpayers on the hook once again for another bailout.
Last week, the administration began exerting pressure on banks to lend to people with lower credit scores, arguing that the gains from the current modest recovery are largely being captured by either investors or provident people with excellent credit scores, and that this strategy leaves out a pool of potential purchasers. The problem is, of course, that banks are in the business of making profits. Some bank surely would lend to these people if it made sense to do so. Under the current legal and economic circumstances, it does not, in fact, make any sense to make these loans. Far from fueling growth, distorting the market further will make economic recovery that much more difficult.
The main problems with the functioning of the housing market are the extensive intervention by government on the one hand and monetary policy that keeps interest rates at levels extraordinarily low by historical standards on the other. The housing market is further distorted by the existence of Fannie Mae and Freddie Mac, which remain major players, and the Federal Housing Administration (FHA), which generates a third of new loans, well above its pre-bust and even pre-bubble share.
The FHA’s role traditionally has been restricted to providing insurance for people with down payments as small as 3.5 percent of the purchase price, and credit scores too low to qualify for a mortgage without this federal insurance. The role changed with the bursting of the housing bubble and the Federal Reserve’s policy of loose money, which drove interest rates down far below historical levels. With mortgages at less than 5 percent, and often lower, the return to banks shrank. At these low interest rates, banks had little incentive to accept risk. Accordingly, they made their loans as low-risk as possible, limiting themselves to borrowers with significant down payments and stellar credit. The result was that new home purchases fell precipitously for people with respectable — but not perfect — credit.The FHA’s existence exacerbated the problems of the housing market. In theory the FHA — that is, the taxpayers — insure against the risk of default to encourage banks to make loans to people with less money to put down or with mediocre credit scores. Even FHA-insured loans saw borrowers’ average credit scores rise, following years of investigations into alleged wrongdoing by lenders, including a lawsuit filed last year against Wells Fargo, the nation’s largest mortgage lender. Banks quite rationally feared that they would be left holding the can if FHA-insured borrowers defaulted, and they reacted to the regulatory environment by declining to make higher-risk loans.
Caught between the rock of low interest rates and the hard place of federal penalties, banks are lending less. Using FHA to ramp up lending is a policy doomed for failure. It already has a negative net worth of more than $32 billion, and a capital shortfall of at least $52 billion, according to the American Enterprise Institute’s Ed Pinto. Almost 16 percent of its loans are in delinquency. Expansion almost certainly sets up the agency for a taxpayer bailout.
…
New buyers(empty pockets and tire kickers) set up like a bowling pin.
The obama housing bubble v2.0
Can hillary blame obama in 2016?
It’s all about getting a woman into the WH. And most women will vote for the first viable female candidate for that reason alone, setting aside political differences for the chance to see another longstanding barrier come down.
When did the Obama housing bubble 1.0 start, lackwit?
Obama will force all of us into Sharia Law gay marriages.
You’ll see.
About September of last year, IIRC. Using low-interest loans backed by mark-to-market real-estate collateral to big real estate syndicates, consortiums, and hedge funds.
Working on tracking down the mechanism for us….
Some bank surely would lend to these people if it made sense to do so… At these low interest rates, banks had little incentive to accept risk.
Huh? During the 2005 bubble, it “made sense” for banks to lend to anyone who could fog a mirror because the bank simply sold the loan on the secondary market and collected the fees. Interest rates didn’t much matter and there WAS no risk.
So… if it no longer makes sense to lend, then what has happened to the secondary market since 2005?
The PTB know that the level of debt that one can take on is directly related to house prices. As a result, the FHA is stepping in to back the dodgy loans. This is just a transfer payment to Wall Street.
“The Obama administration’s push for expanded home loan availability to borrowers with weaker credit has rekindled the debate over Federal Housing Administration (FHA) lending practices.
It appears that after many dark years, the housing market is finally turning the corner. Home values are up in most metro areas and serious delinquencies (defined as payments being at least 90 days late) are down. According to the most recent Mortgage Bankers Association survey, even the share of risky subprime loans in serious delinquency has fallen by 18% since the beginning of 2011.
The one exception to this trend of good housing news? Federal Housing Administration (FHA)-insured mortgages. Their serious delinquency rate has risen by 6% over the same time period. This is only part of the sobering news from FHA, which recently announced that its main single-family mortgage insurance fund is insolvent, with a negative net worth of -$13.5 billion.”
http://thehill.com/blogs/congress-blog/economy-a-budget/292371-unfounded-optimism-fhas-dangerous-risk-model
So… if it no longer makes sense to lend, then what has happened to the secondary market since 2005?”
You have to rent to them instead “lease to own ” knowing they will mostly fail in the owning part.
Like selling call options for prices that are very unlikely to get hit.
a little extra cash on your investment
There is no more secondary market.
“The pileup in the shadow inventory is a case of banks not wanting to take a hit on distressed properties, said Ken Thomas, a Miami-based banking consultant and economist. Lenders don’t want to reduce a home’s value by 40 percent on their books and pay thousands of dollars to rehab it for sale, he said. ‘They basically just get up every morning and pray the market is better that day,’ Thomas said. ‘In the meantime, these homes just sit and accumulate.’”
Don’t vacant Florida homes tend to rather quickly accumulate mold?
They do. Several years ago, one obviously unoccupied house on my regular dog-walking route had some impressive growth on the exterior. The house was painted and it sold shortly thereafter to new owners who were no doubt clueless.
Just in general, a lot of our so-called assets, including houses, are a lot more perishable than we think.
Believe it or not, vacant Arizona houses also get moldy. It goes really well with dry rot in the wood.
“So far, these groups have paid, on average, 45 percent more for the homes in Manatee and Sarasota counties than the properties’ value, RealtyTrac’s analysis shows.”
How does Blackstone expect to make money on properties they bought at a 45 percent premium?
Hell… they didn’t cashflow before the 45% premium.
It’s a game of hot potato. Who wants to hold onto this radioactive depreciating asset?
I guess they plan to keep doing the hot potato dance until the music stops — AGAIN!
…….as it is in a game of hot potato, there’s nothing but air underneath it.
Perhaps Blackstone expects that the U.S. government, directly or indirectly, will guarantee a return on investment. I don’t think such a guarantee is possible as a practical matter, but I wouldn’t put it beyond Washington to try.
I suppose someone could figure out what the minimum rate of return would be based on Section 8 payments for that city/area. I think those Section 8 waiting lists are a mile long. I wonder how long they’ll be once they legalize 10 to 20 million more.
With population growth the lowest in US history per 2010 Census, tens of millions of excess empty houses, rental rates half the cost of buying at current inflated asking price, all in the midst of a deflationary spiral, did you really believe a house is worth in excess of $120k? Seriously?
Heck, that is nothing.
There are states that are actually losing population this year and last.
1. Maine
2. Rhode Island
3. Michigan
And states that have lost population for decades but have stabilized for this year and last.
4. Illinois
5. New York
6. Massachusetts
Putting aside that argument that these are deep blue sates and people and voting with their feet.
These states require NOT ONE new house to be built.
So why is housing prices skyrocketing? Maybe a few local desirable areas but state wide demand should be down.
Verify first. You’ll see transaction prices falling irrespective of location…. as is demand.
Look out below.
And states that have lost population for decades but have stabilized for this year and last.
4. Illinois
5. New York
6. Massachusetts
NFL
“And states that have lost population for decades but have stabilized for this year and last.
4. Illinois
5. New York
6. Massachusetts”
Uh, no. Each of those states has had a population increase in every 10-year census since at least 1900.
And population growth in each of those states lagged the rest of the country for decades.
With population growth the lowest in US history per 2010 Census…
March 2013 update:
March 14, 2013, 12:01 AM
U.S. Birth Rates Remain Depressed
By David Wessel
As the Wall Street Journal reports, the latest Census Bureau data suggest that the recession-related decline in migration is being reversed, but demographer Kenneth Johnson of the University of New Hampshire says that bad economic times still seem to be depressing the birth rate.
Last year, he calculated, 1,135 U.S. counties — 36% of all counties — recorded more deaths than births. There haven’t been so many counties with what demographics call “natural decrease” in all of U.S. history, he says. Last year for the first time in U.S history, deaths exceeded births in two entire states. More people died (12,857) than were born (12,754) in Maine, while West Virginia has had more deaths than births for a number of years.
“Once natural decrease begins in a county,” Mr. Johnson says, “it is likely to recur.”
“With few young adults and a growing older population, the future viability of many natural-decrease areas is not encouraging,” he said. “Economic development, an influx of minorities, high levels of civic engagement and community cohesion have broken the downward spiral of natural decrease in some areas, but many remain at risk. “
Natural decrease is more prevalent because residents of the U.S. are having fewer babies. There were 3,954,000 births last year compared to a record 4,316,000 in 2006-2007, a decline of 8.3% in just five years. Fertility rates have declined sharply for younger women, but remain relatively stable for older women. Hispanic fertility has declined the most, especially among younger Hispanic women.
“These data suggest that the impact of the recession has been particularly pronounced on younger women,” Mr. Johnson says. Whether they will make up for this by having babies later, or simply will have fewer children remains to be seen, he adds.
…
“These data suggest that the impact of the recession has been particularly pronounced on younger women,” Mr. Johnson says. Whether they will make up for this by having babies later, or simply will have fewer children remains to be seen, he adds.
Same thing happened during the latter half of the 1920s and on into the Great Depression. Birth rate didn’t pick up until WWII. It really spiked afterward, hence the much-publicized Baby Boom.
The boom was pretty well flattened by the introduction of the birth control pill in the early 1960s. Births per American woman have never gone back to Baby Boom levels.
“You’d have to have rocks in your head to buy a house at these prices.”
BlackRocks, apparently…
Oops…I said BlackRock when I should have said Blackstone. These name changes get confusing — just ask tj/Ol’Bubba!
Florida is my personal favorite housing bubble location. I bought in May 2006 for $345,000 and sold in May 2007 for $285,000, a 17% loss in just 12 months. If I would have stayed another 12 months, my losses would have been somewhere between 65% and incalculable.
I prefer CA where massively inflated prices falling to typical resale prices results in a decline of 85%.
It’s a long way down for housing prices in CA.
Thank you for the local data!
Where did you buy? The ball had just started rolling down the hill in May 2007, so with those numbers I’m going to guess Port St. Lucie, North Port, or Fort Myers.
Other side, Coconut Creek, next to Coral Springs. it went downhill faster due to being within seeing and smelling distance of that gigantic dump mountain in Pompano Beach.
http://www.baltimoresun.com/business/real-estate/wonk/bs-bz-march-home-sales-20130410,0,2920352.story
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“Home sales numbers out Wednesday for the month of March offer an early indication that this spring is likely to be the best selling season since the Great Recession, provided there are enough homes on the market to keep up with demand.
Last month, Baltimore-area buyers entered into more than 3,200 home sales contracts, the first March to surpass that benchmark since 2007, the year the recession began, according to data collected by Metropolitan Regional Information Systems Inc., the region’s multiple-listing service, and its affiliate, Real Estate Business Intelligence LLC.
In the early 2000s, about 3,500 homes went under contract each March, according to RBI’s historical data.”
———–
“Because of the low inventory, RBI concludes, March’s median sales price in the Baltimore-area was pushed up nearly $15,000 from a year earlier, to $228,500. Each of metro Baltimore’s six jurisdictions saw year-over-year median sales price increases last month.
The median number of days a home is on the market was also down significantly, a decrease RBI also attributes to the low inventory. The median days on market declined from 88 in March 2012 to 52 last month, RBI said.”
That’s interesting….. Sales rate in Bawlmer is a mere 30% of the peak. Essentially sales collapsed and are now flat.
Prices?
Well….Prices are down a whopping 13% in a single month in Bawlmer…. oh my word.
This is good news for you.
http://www.zillow.com/local-info/MD-Baltimore-home-value/r_3523/#metric=mt%3D19%26dt%3D1%26tp%3D5%26rt%3D8%26r%3D3523%252C163743%252C417113%252C272908%26el%3D0
$228,500? I’ll give you $260,000 and not a penny less.
No me! I’ll up you to $299k! I got it! I’m smart!
If prices crater it will be good for me, I’ll only consider moving if you are right and prices drop 65%. Then it’s off to West Friendship for me.
Don’t sweat it…. prices are falling and the losses are large.
KEEEEEEEEEEEEEYRAAAAAAAAAAAAAAAAAAAAAAAASH!!!
What was that?!
You know that house you made the mistake of buying? Well the value of it just fell through the floor leaving a smoldering moon-crater.
Beware reading public. Beware.
Regional markets are the key this time, every Tom,Dick,Harry state that thinks they will benefit in home values are in for a shock only a few will realize a large jump and all will be sunbelt states and coastal markets.
I agree….. Housing prices on the coast are going to jump…. off a cliff.
Pssst….. ((they just jumped))
The end result?
http://bit.ly/12KzHhj
Yeah, most of flyover is going to languish due to lack of good paying jobs and desirability as a place to live.
What’s really going on in California
California imposed a new law on banks innocuously called “Homeowners Bill of Rights” which forces banks to switch over to a judicial foreclosure process, which they can opt to do on their own, but takes a year or more to renegotiate contracts and compensation structures for the foreclosure law firms who do all the leg work for the banks. And while those changes are being made… it makes it appear that foreclosures have slowed down dramatically in the state.
The reality?
Defaults (undeclared) are spiraling upward that yet have to pass through the foreclosure pipeline.
The truth?
California is still the highest foreclosure state in sheer volume and percentage.
The low-down?
Resale housing is still massively overpriced as a result of unprecedented interference by individual states and the federal government. The market distortions will be removed and the down draft will continue allowing the market to correct.
With millions of excess empty houses and housing demand at 17 year lows, housing prices in California have a long way to fall. A very long way to fall.
Here’s a really cool link too…
http://bit.ly/10yMxfA
“With millions of excess empty houses and housing demand at 17 year lows, housing prices in California have a long way to fall. A very long way to fall.”
So long as those millions of excess empty homes are held off the market, why wold prices ever have to fall?
In the mercantile biz, you perform a honest inventory.
Sorry in case this is a repost…but it should be posted repeatedly and often! This bubble still has a ways to go before all the air has left the souffle.
Home Prices Seen Falling in Some Areas as Rates Increase
By Prashant Gopal - Apr 10, 2013 6:01 AM PT
Home prices are climbing too fast relative to buyer incomes, signaling that property values may fall in some U.S. cities once mortgage rates rise and reduce affordability, according to a study by Zillow Inc.
Driven in part by borrowing costs close to historic lows, buyers spent three times their annual incomes on homes at the end of last year, up from a 2.6 multiple from 1985 to 1999, Zillow said in a statement today. That means properties were almost 15 percent pricier relative to incomes than before the housing bubble of the mid-2000s, according to the Seattle-based real estate research firm.
“The days of historically high levels of housing affordability are numbered,” Stan Humphries, Zillow’s chief economist, said in the statement. When interest rates rise, property prices “will have to either remain stagnant while incomes catch up or, quite possibly, home values will have to fall in some markets. This will especially be the case in some markets that have seen strong home-value appreciation.”
Median wages aren’t keeping pace with home prices, which are rising as low borrowing costs drive demand for a tight supply of properties. Prices climbed 10.2 percent in February from a year earlier, the biggest gain since March 2006, according to CoreLogic Inc. Phoenix had the largest increase among major metropolitan areas, with single-family home values rising 21 percent, the Irvine, California-based firm said.
Record Low
The average rate for a 30-year fixed mortgage dropped to a record 3.31 percent in November, and was 3.54 percent last week. That compares with a 9 percent average from 1985 to 1999, according to Freddie Mac (FMCC) data compiled by Bloomberg.
Rates may rise to about 4 percent by the end of this year, and 4.5 percent by late 2014, Keith Gumbinger, vice president of HSH.com, a Riverdale, New Jersey-based mortgage-information website, said in a telephone interview.
…
I don’t agree with everything Humphries says, but I am grateful he keeps the faith that market forces will eventually override the central planners’ command-and-control economic policies designed to thwart them.
Rates will rise to 4.5 end of year and over 5 early spring 2014. All bets off after Aug 2014 that will be most likely the start of the steady major rate increases across the board.
Cash will be king again (2015) as bank rates will take a big leap and folks leave Wall street for a safer cd’s but the market won’t collapse just retreat some. Obamacare will be a compete disaster and will be revamped in late 2015.
“…and over 5 early spring 2014.”
I doubt they will go that high, but in case they do, your assumptions will prove overly optimistic (assuming you meant the housing market):
“…but the market won’t collapse just retreat some.”
If you don’t understand why, I can pencil out the explanation for you this evening — just ask.
P.S. Given a truly dismal underlying economic picture and the Fed’s commitment to maintain QE3 until that improves, what makes you think rates will go up to 5 percent by this time next year?
Suppose your household income is $60K, and you are willing to spend up to 40% of it ($24K per year / $2K per month) on your mortgage. A lender is willing to make a 100% financed loan (including a loan to cover the down payment) at today’s low rate of 3.25% to cover the purchase price of your new home. You use MS Excel to calculate the amount of principle you could pay off at $2K per month: It is $459,552.15. You proceed to buy yourself a house for $460,000 (you borrowed the last $447.85 from your dad).
Your buddy, who has exactly the same household income as you and can afford to pay as much, but isn’t as financially savvy as you are, misses the boat. He ends up waiting until Spring 2014 to buy. Since rates have backed up to 5%, he discovers his $2000 a month will only finance a loan of $372,563.23 — 19% less than your Spring 2013 loan. Since there are no houses whose owners are willing to sell for $400K, your friend gives up and decides to keep renting.
Get it?
“for under $400K”
My editing is slipping…
Does anyone besides me find it fascinating that a mere 1.75% increase in interest rates could potentially precipitate a 19% loss in housing prices?
Does that mean I’ll FINALLY earn something on my savings?
And that Obamacare will be replaced by single payer? As in, Medicare for all? Everyone in, nobody out?
God, I hope so!
I’d like to thank Ben for teasing us with a fascinating puzzle today, as regards investment firms which apparently believe they can profit off a cost basis at 45% over asking.
Just in case any of the geniuses behind this seemingly-inane strategy happen to be lurking here, would you care to offer us some hints about how you expect this to work out for you?
CRICKETS: “CHIRP! CHIRP! … CHIRP!”
I’m just watching rental supply v demand as well as personal income growth (or lack thereof). Lets see how the central planners make it all work out. BTW, how’s that job market in S Florida? Too funny!
China’s Real Estate - Ghost Town Story
Apr 4 2013, 13:29
Last month CBS’s 60 Minutes aired a video titled “China’s Real Estate Bubble.” The video highlighted three ghost towns near China’s cities of Zhengzhou, Shanghai, and Tianjin. Viewers could see a large number of empty apartments, vacant office buildings, and abandoned shopping malls. 60 Minutes also showed two leading Chinese developers being interviewed for the show and both of them seemed to agree that China’s real estate is in dangerous territory.
After the show was aired, stocks of most of China’s real estate companies listed in the U.S. market tumbled. Among them were Xinyuan Real Estate Co., Ltd (XIN), China HGS Real Estate Inc. (HGSH), Soufun Holdings Ltd (SFUN), and E-House (CHINA) Holdings Ltd. (EJ).
I totally agree that the golden age for the Chinese real estate industry has long gone. But I firmly believe that the industry will not go bust in the next five to 10 years; rather, it will become a normal industry with average growth and profit potential.
Yes, there are quite a few ghost towns around China nowadays. As a matter of fact, in addition to the locations mentioned by 60 Minutes, there are other ghost towns located in more remote areas such as Inner Mongolia, Yunnan, and Xinjiang Provinces as well. These ghost towns are signs that there is excess and overbuilding in certain parts of China, but it does not necessarily mean that China’s real estate industry as a whole is a big bubble. (RIMSHOT!)
…
Keep on whistling as you enjoy your stroll past the graveyard!
Panelists say housing market won’t crash
Updated: 2013-04-08 11:41
By Michael Barris in New York (China Daily)
A meltdown in China’s housing market is unlikely because government policies will keep rising prices in check, a Columbia University business conference was told.
“A crash is unlikely,” said Youguo Liang, former managing director of Prudential Real Estate Investors, a unit of New Jersey-based Prudential Financial Inc.
But, he cautioned, “You don’t know if there’s a bubble until it bursts.”
…
Australia’s Unemployment Rate Jumps to Three-Year High: Economy
By Michael Heath - Apr 10, 2013 8:31 PM PT
Australia’s unemployment rate climbed in March to the highest level in more than three years, sending the local dollar and bond yields lower as traders added to bets the central bank will resume interest rate cuts.
The jobless rate rose to 5.6 percent from 5.4 percent, the statistics bureau said in Sydney today, the highest since November 2009. That compares with the median estimate for unemployment to hold steady in a Bloomberg survey of 24 economists. The number of people employed fell by 36,100, almost five times more than economists forecast.
Today’s report adds to challenges for Prime Minister Julia Gillard, whose Labor Party is 10 percentage points behind the opposition in public polls ahead of a Sept. 14 election. With General Motors Co. (GM)’s Holden division this week announcing further job-cut plans, the swaps market indicates the Reserve Bank of Australia will lower borrowing costs in August.
“This should reinforce to the policy makers that the labor market still remains soft,” said Joshua Williamson, a senior economist at Citigroup Inc. in Sydney who forecast jobs would fall by 20,000. “This rounds off a week of very soft data for Australia. It suggests that the rebalancing from the mining to non-mining economy will not go particularly smoothly. It reinforces the need for another cut in rates.”
The Australian dollar fell to $1.0507 at 12:55 p.m. in Sydney from $1.0537 before the data were released. Three-year bond yields dropped to 2.81 percent, from 2.88 percent before the jobs report.
…
With Blackstone, the creation of mega-douche, Pete Petersen, entering the bulk REO market, we now go from mass swindling by fobbing off CDOs on pension funds and sovereign wealth funds to swindling the same class of victims by securitizing mass corporate purchases of the very same houses that were entering default when the last bubble burst. This is awesome!!
So , how will this all play out, and who will get rich by betting against this latest scheme?
One aspect of this stinking pile of guts that bears mentioning is the possibility that this trend may be paving the road to serfdom for ordinary Americans by concentrating all the real property in the hands of the economic royalists who already control all the other wealth in this country.
Ben,
I read through the HBB reader’s comments and found them informed, intelligent, and insightful.
Below is my column from last month on the topic. I believe It’s the burgeoning economic story of this decade, and next debacle.
South Florida Daily Business Review
Real Estate Insight with Jack McCabe: Hedge fund buying spree may risk another bubble - Part 2
By Jack McCabe
March 21, 2013
In my last column I described the recent events of hedge funds acquiring substantial numbers of single-family homes in concentrated geographic areas in Florida and other Sun Belt states and some concerns I have about future market manipulation by investment groups causing another disastrous artificial market and subsequent crash.
There are a lot of folks in my industry who swear that isn’t possible again, that circumstances are completely different now than last decade.
Last year there were 5,289 single-family homes purchased in bulk by investment groups and hedge funds, and I believe this number could quintuple by year-end 2013.
Hillsborough, Miami-Dade, Broward and Palm Beach counties were the top four in the state. However, the Sarasota market is of particular interest as a microcosm for what may lie ahead for Florida and the nation.
The previous belief was foreign investment firms and large hedge funds along with institutional investors would focus buying in major metropolitan areas to achieve economies of scale and sizable portfolios to rent and market as securities abroad.
While more than 60 percent of South Florida sales have been to foreign national individuals and firms, most small investors expected to find real estate gold in Florida’s coastal secondary markets.
In Sarasota and Manatee counties last year, bulk buyers of foreclosed single-family homes accounted for 280 sales at an average price of $133,104. What’s curious and alarming is comparable sold properties had an average open market appraisal value of $94,208.
Hedge funds and other investors have seemingly infinite war chests full of cash to buy. No appraisals necessary or desired.
While most early acquisitions of foreclosures and bank real estate owner property was at highly distressed or greatly reduced pricing, many of the funds’ recent purchases are at inflated, artificial values. They seemingly are willing to outbid their competitors even though it may cost tens of thousands of dollars more.
Danger Ahead
Why, you might ask, would they do this? And, why now?
Blackstone’s THR Florida LLC acquisition arm bought 296 single-family homes in the Sarasota market in 2012 and has reportedly earmarked $1 billion for Florida acquisitions. It also has been acquiring homes by the hundreds in the Tampa and Orlando markets.
Fundamental REO, another large Wall Street investment firm, entered the market after Thanksgiving with an initial bulk purchase of 14 homes. One was purchased for $149,900. The previous owner bought it two months before for $89,900.
Other 2012 large area bulk investors include Portfolio Trust, Northern Trust Co., Sp1 Inc. and local investor Karl Helbig.
In 2013, many other investment groups have moved into the Sarasota market.
Here’s where, as I see it, the danger lies ahead:
Investment groups escalate acquisitions of banks and distressed properties and control a sizable percentage of future sales for a period of years. Whether collaboratively or collectively, they continue to overpay for homes and gobble up inventory.
As long as banks and homeowners favor cash offers over those requiring mortgage financing, individual buyers seeking the American Dream and middle class America will be shut out and priced out with limited inventory at artificially inflated values.
This scenario raises the specter of a possible large percentage conversion from a society based on homeownership to a rental society with devastating, unintended consequences. In my opinion, there is a high potential for a shifting of real estate wealth and a tremendous blow to consumer spending and middle-class financial security.