Part Of The Housing Bubble Narrative
Readers asked what to do in a housing bubble. “Bubble 2.0 is cresting. What is your plan B? I don’t have one. I just realized I never really had a plan A, either.”
A reply, “Ha-ha, yes, it IS cresting. Someone mentioned City Data forum on this blog, and you can see the signs of another market lock-up when you read threads about people having difficulty getting the price they want for their home, or even getting offers. You know something’s happening when potential sellers start complaining about potential buyers. When the seller-buyer standoff happens, look out below!”
Another, “Back during the late spring of 2005, Tucson’s leading daily fishwrap ran a story about the buyer-seller standoff. It all started when the mean ole appraisers could no longer justify the lofty local home prices. This meant that buyers had to bring more money to the closing table. Or that sellers would have to drop prices. Cue up the standoff.”
“That summer, there was an amazing proliferation of ‘for sale’ signs. Happened very suddenly, and it followed several years of tight inventory. Methinks that the same scenario is about to repeat.”
And finally, “For far too many, Plan A is also their Plan B. And if today’s CDC findings are to be believed, increasingly Plan C is a 12 gauge cartridge and a good strong thumb. More Americans now die of suicide than in motor vehicle crashes. This is no time to be stuck with a mortgage.”
From ValpoLife. “The number of homes listed for sale increased by just 1.6 percent in March from February, but supplies are still 17 percent below where they were a year ago. BELOW!!! Silver lining mentality…this lack of inventory is causing the return of bidding wars, as well as sales above asking price. Well above. Thankfully, low financing costs continue to fuel the real estate fire as well.”
“Inventories are tightest on the low end of the market, where investors came in and bought most of the distressed properties, and are now holding them as single-family rentals. That’s why sales of those low-end homes are down 16 percent from a year ago, and sales of higher-end homes are up 25 percent, according to the NAR. The danger in this is that they will start to unload the homes they own, which would bring that much-needed supply back, but which could also turn home prices in the other direction. Not good!”
“Banks are in control of millions and millions of properties. Rather than put all of the homes on the market all at once they are releasing them for sale very slowly. Unfortunately, banks have little to no incentive to release more homes since they can write off the bad debt and pay little to no taxes.”
“So this leaves us with what? The need for more homes. Homes are selling at a pace not seen since 2007. It’s time! If you ask yourself why you should list now, I’ll give you the simple answer: Supply is low. (Duh!) Selling now when demand is high and supply is low will garner you your best price, aka. a bidding war, aka. more $$$$ in your pocket, aka. cha-ching!”
The Desert Sun. “Two ’simple’ but fundamental forces are at work across the valley, Inland Empire and Southern California, said John Walsh, DataQuick president. First, the increase in the median price reflects a shift in the ‘mix’ of houses being sold, meaning the median price can rise when more expensive homes transact in a given period. ‘The (median price) gains are especially high right now because of the change in market mix: Sales of lower-cost homes have fallen at the same time activity in the higher price ranges has risen,’ Walsh said.”
“Second, the demand for homes has risen at a time when the available supply is unusually low. ‘Prices have had nowhere to go but up in many areas,’ Walsh said.”
My Valley News. “ForeclosesureRadar recently reported that as of March 2013, out of the 7.3 million California homes with a mortgage, 1.8 million were underwater. Another 225,000 homeowners had a five percent or less equity in their homes. They defined this group as ‘near negative equity’ because of costs associated with the sale of a home typically from six to 10 percent of the sale price leaving these homeowners effectively underwater, too. A total of 2 million are still underwater in the state of California. Of that 2 million, more than 1.1 million owe more than 25 percent of their homes value.”
“California foreclosure filings have been on a steady downtrend since March 200, as government agencies have rolled out an array of programs that have successfully lengthened the foreclosure process. Just in the past 12 months, NODs were down by 65.3 percent, according to ForeclosureRadar. Their Director of Economic Research stated, ‘Proclaiming a housing market recovery (we hear almost daily in the news), based on prices alone is akin to a blind man holding the tail of an elephant and proclaiming it a snake!’”
“Several other factors crucial to a healthy housing market seem to be absent in California – such as a solid income and job growth, increase in home sales, and low levels of negative equity. Actual sales this year are down and nearly 25 percent of all homeowners with a mortgage are still underwater. These fractures will continue to have a drag on our market statewide.”
“Regardless, many state that the lack of inventory will cause home prices to jump by 20 percent or more this year. Note, as they continue to rise, return on investment will decline.Therefore, those looking for long-term real estate investments should act quickly.”
From WDRB. “‘We’re seeing multiple offers again for the first time,’ says broker, Jacqueline Klein with Parker & Klein Real Estate. Klein says the Louisville housing market is hot for sellers in particular. A home sits on the market for an average of 120 days compared to 150 last quarter. ‘It’s a great time for sellers to put their house on the market, plenty of buyers out there and they’re all kind of fighting for the opportunity to buy your house,’ she says.”
The Financial Post. “Apparently some Canadians are still willing to do the bidding of organized real estate and go to war over price. A new survey from Bank of Montreal finds 72% of buyers are unwilling to get into a bidding war. Among first-time buyers, 37% are willing to go ‘over budget,’ BMO said in a news release. Taken the other way, there are still 28% of people ready to play this shell game and it’s even higher among the novices who might not be expected to know better.”
“‘In a housing boom, when you’ve got multiple people bidding, the buy side becomes crowded. Prices can lose touch with fundamentals. Bidding wars are part of the housing bubble narrative,’ said Dave Madani, an economist with Capital Economics who has called for a 25% reduction in Canadian home prices.”
“Laura Parsons, a mortgage expert at Bank of Montreal, said there are number of variables that produce a bidding war and that includes a shortage of listings. ‘If there is not a lot to choose from, that creates an anxiety in buyers,’ said Ms. Parsons. ‘You can have variables like the time of year, your need to get your kids in school. [Buyers] can be very anxious. You know when you see a sale on in the mall at Christmas, everybody wants it and they come and say after ‘why did I buy this,’ says Ms. Parsons.”
“There is something called game theory in economics which Mr. Madani says causes people to bid on something just for the sake of winning. ‘It’s called the winner’s curse,’ he says.”
‘First, the increase in the median price reflects a shift in the ‘mix’ of houses being sold, meaning the median price can rise when more expensive homes transact in a given period. ‘The (median price) gains are especially high right now because of the change in market mix: Sales of lower-cost homes have fallen at the same time activity in the higher price ranges has risen’
Oh, they didn’t tell you this on the news did they? Just that it’s going up up UP! Ka-CHING!!!
Somebody posted here recently that many on this blog had no patience. I’d add no nose for bull sh#t either. The media and REIC are in full stampede mode and if that ain’t obvious you aren’t paying attention.
And a rising median $ explains why prices are falling when measured in price per square foot.
‘Leaving money on the table’, a hallmark of inexperienced estimators at bid time resulting in bankrupt engineering and construction firms, is precisely what separates suckers from the wise in the totally corrupt housing sales biz. You’re right though….. there are some suckers right here on this blog in spite of the wealth of experience and wisdom.
Either you understand the value of the item and proceed accordingly or you bankrupt yourself. That’s the reality.
“The media and REIC are in full stampede mode and if that ain’t obvious you aren’t paying attention.”
Are they stampeding towards higher ground, or is that a cliff dead ahead in their path!?
I guess time will tell…
“Oh, they didn’t tell you this on the news did they? Just that it’s going up up UP!”
Do you really expect the morons who read news copy over the airwaves to understand the parabolic phase of bubble price movements and report on it?
Actually, this was clearly stated in a story here in the local paper about a week ago.
Trust me, most media don’t have hidden agendas about housing. When there is one, you immediately know about it because only the newspaper execs (i.e. publisher, executive editor) are involved.
Housing bubble 2
Surging home values, affable financing, market manipulation—Sacramento’s seen it before. But how will things end this time around?
Crowded around a Natomas porch with more than a hundred open-house regulars on a sunny Saturday in April, Chris Raynes waits for his name to be called.
For more than a year now, the first-time buyer has unsuccessfully tried to join the homeownership ranks. Despite a chunky savings account, devoted real-estate agent and solid lending company, a mysterious crush of cash-fat investors keep elbowing the 43-year-old state worker out of the way. Hundreds of aspiring homeowners can feel his pain.
—
Media outlets earlier this month reported Blackstone’s $200 million acquisition of more than 1,200 homes across the Sacramento region. The company has turned most of these homes into rentals—for the time being.
—
http://www.newsreview.com/sacramento/housing-bubble-2/content?oid=9762053
Last night I did my once every few months, hey lets look around at whats for sale in an area I’m interested in check. If supply is so short and bidding wars and all that, then tell me why I am seeing many price reductions over the last couple of months also. No reporting on those! Of course the prices are still too high even with the reductions because they are flipper or wishing prices to start with.
There’s bullsh#t and there’s horsesh#t. To me, BS is not knowing or caring about the truth. HS is knowing about the truth but not caring. I think the media in most cases is just BSing because they only care about viewers or subscribers or hits or whatever. Maybe the same with most clueless Stealtors. Politicians and banksters are HSing.
Bigguy
Although your area has price reductions, doesn’t mean that’s a macro trend. Our area is an over bidding stupidity island. Listing nosebleed high and closing above list. Stupid is what stupid does.
At least we under bid list on our fixer and our broker was brazen. He exceeded our expectations on hammering the opposing party.
We were in a bidding war for a non-qual FHA loan due to condition.
We were all cash. But still, it’s all cash in the end.
“Stealtors” - love that!
Windows-what a racket.
Ben
Thank you an exceptionally great day of posts. Game Theory is a multi-dimensional subject. Levine, an Econ Professor at UCLA, has great online info on it. Once you peel back the banana peel, and evaluate the SFH market, Peter Schiff sums it up nicely:
“The Fed knows that the U.S. economy is not recovering.
It simply is being kept from collapse by artificially
low interest rates and quantitative easing.
As that support goes, the economy will implode.”
As that support goes, the economy will implode.”
And thus, that support will never be withdrawn.
Welcome to Japan v2.0.
And thus, that support will never be withdrawn ??
Never-say-Never….QE will be withdrawn…In the mean time there are some winners and lots of losers…
And when QE is withdrawn(not far off), it’s going to be calamitous for those holding debt.
calamitous for those holding debt.
Do you mean bond-holders?
Corollary: Support will only ever be withdrawn if circumstances beyond the Fed’s control force it to do so.
I’m having trouble imaging what those circumstances could be.
Your average economic meltdown seems to inspire the Fed to cavort in a massive buying spree; would a massive economic recovery force them to unwind for some reason? It’s not obvious to me that even that would do so. Perhaps they would sell the assets on their balance sheet in an attempt to reign in a future price bubble in those asset classes? Recent history seems to suggest that they would not tinker with even bubbles until after they pop (though perhaps the Fed will reevaluate the Greenspan Doctrine in the face of recent history about the impact of bubbles).
Full disclaimer: I think the odds of an unexpectedly-strong recovery occurring are vanishingly small.
“I’m having trouble imaging what those circumstances could be.”
Raging inflation a couple of decades out? (Refer to the 1970s versus the early-1960s, when interest rates last plumbs the depths they currently plumb.)
Here is one view of how things could shake out sooner than later.
And if this one plays out according to Stockman’s dire scenario, I plan to buy the dip on Treasurys.
David Stockman: Fed fueled bubble economy could collapse during Obama’s second term
April 16, 2013 By Andrew Moran
David Stockman, former Michigan Republican Congressman and budget director for President Ronald Reagan, made a stop on the Fox Business Network (FBN) on Monday and spoke with host Neil Cavuto regarding his new book “The Great Deformation” and the economy.
In the interview, the ex-budget head highlighted the mounting debt issue, the largest bond market bubble in history, the fallacy that budget deficits don’t matter and the paucity of equity because everything is debt on debt on debt (ponzi scheme). Although Cavuto continually interrupted Stockman, he was able to provide the audience with important aspects of information.
“There is no way a deficit doesn’t become a tax increase sometime down the road. We are burying the next generation in debt. The whole system is out of kilter,” explained Stockman. “As we get down the road and finally the day of reckoning comes and we have to begin to manage this debt, which is totally out of control. We’re going to be taxing everybody.”
When asked if the country is approaching that situation, Stockman responded that the United States is because the nation is nearing a time when the Federal Reserve cannot continue to purchase all of the debt. It could be in the next couple of years, according to Stockman.
…
When asked if the country is approaching that situation, Stockman responded that the United States is because the nation is nearing a time when the Federal Reserve cannot continue to purchase all of the debt.
But the real question is can the Federal Reserve…the owners of the printing press…ever find themselves unable to purchase anything? It would seem that if the purchasee is willing to accept dollars the answer would be no.
“As that support goes, the economy will implode.”
And if you know anything whatsoever about game theory, then you understand the Fed’s best response to the situation they face is to never, ever let that support go.
Can the Fed buy every single house in the country?
What would stop them?
Why not? House prices are denominated in dollars, which the Fed can virtually create in unlimited quantities. Its rival bidders on homes for purchase lack their huge advantage, which is a monopoly right to print.
If there is a technical reason why the Fed could not buy every single house in the country, if it decided that was in their (and America’s!) best interest, I would love to hear the details.
If there is a technical reason why the Fed could not buy every single house in the country, if it decided that was in their (and America’s!) best interest, I would love to hear the details.
The only limit on their ability to print is the risk of political backlash.
My guess is that attempting to buy ALL the houses would result in some…
Political backlash is easily negated by each party pointing to the other party and shouting “They did it!”
My guess is that attempting to buy ALL the houses would result in some…
Of course there’s no need to buy them all. Simply buy all the ones nobody wants at the “right” price and everyone will be perfectly happy to let them.
Of course there’s no need to buy them all. Simply buy all the ones nobody wants at the “right” price and everyone will be perfectly happy to let them.
+1, Carl. I had that same thought as I was writing above.
They definitely don’t need to buy them all to manipulate the market. Pricing is set at the margin, so all they have to do is buy the margin.
“Pricing is set at the margin, so all they have to do is buy the margin.”
You keep posting this beaut but it’s not true during falling demand.
You keep posting this beaut but it’s not true during falling demand.
What you’re missing is that during periods of falling demand, there are fewer transactions occurring; that means that in order to control pricing at the margin, you actually need to participate in FEWER transactions.
And what your’e missing is pricing isn’t “controlled on the margin” at anytime. In particular in a market with falling transactions.
I’m waiting for letters to appear again about feeding the squirrels.
(on a related note, a pair of nice sized mallard ducks have taken up residence in our backyard in-ground pool;
very . . . odd, but cool ! the kids love’ em.
they fly-in every morning, swim around, then take a snooze during the day. My spouse & I wonder where they go when they leave each night, and if they will return. So far they have come back every day for the last 3 weeks.)
GLENDALE NEWS-PRESS
Small Wonders: Jumping into housing bubble 2.0
May 03, 2013|By Patrick Caneday
Dear Home Seller,
Thank you for allowing us in your home during yesterday’s open house. Our Realtor suggested we include this personal letter with our bid to set us apart from the 83 other offers you’re likely drooling over right now.
I’m supposed to tell you how thrilled we’d be to spend the better part of $1 million to be the next proud owner of your 1,200-square-foot, depression-era fixer-upper. We hope you find our bid of $75,000 over asking price pleasing.
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I fancy myself a writer, but I’ve got nothing on the wordsmith who drafted the listing for your “quaint California bungalow.”
If “curb appeal” means planting primrose in that patch of abandoned earth that used to be a front lawn, then every flipped house in L.A. County has great curb appeal.
We truly admired the tile work throughout the house. Some lucky quarry owner paid off his second home thanks to you. Tile flooring on the walls and ceiling is going to be all the rage next year. Kudos for being fashion forward.
Not only do you have elegant taste, but a sense of humor, too. That “bonus room” that “could be used as a fourth bedroom” was hi-lar-i-ous! I’m no expert on building code, but a closet, four-plus square feet of floor space and airflow are usually minimum requirements for a bedroom.
We want to compliment you on the wall sconces, too. Some say gargoyles are a bad omen unless perched on a gothic cathedral. Not you. And the judicious use of Grecian columns to counterpoint the “vintage” mid-century cabinetry and Formica countertops in the kitchen? Tres chic!
Just loved what you did with the backyard, too. Who knew “going green” meant letting your lawn turn brown?
We’ve always dreamed of paying high six figures for a box on a busy street in a neighborhood “ripe” for gentrification. I’m sure we’ll get used to the nearby airport traffic, fast-food drive-through across the alley and pit bull puppy farm next door.
We’re so glad you took your agent’s advice and listed your house extremely high, yet just low enough to create a feeding frenzy. We’re honored to take part in Housing Bubble 2.0 since we missed out on the last one by being wise and not taking on a toxic mortgage in an overinflated housing market. Thankfully, with time comes desperation, so this time we’re in it to win it.
‘Who knew “going green” meant letting your lawn turn brown?’
That’s our landlords’ plan for this summer, as they don’t have money left over after replacing the sprinkler system pipes to also put in new sod. Their version of ‘going brown’ involves spreading mulch around the back yard where the grass used to grow, and hoping the HOA’s architectural committee doesn’t notice.
Works for us: Lower water bill should help our family budget quite a lot!
Thank your lucky stars that they didn’t pay for the sprinkler system by raising your rent.
Junkie,
How many times do we need to explain to you that carrying expenses are never automatic pass through costs?
You’ve learned nothing.
Pshaw. The more bloated, inefficient, and wasteful my business is, the more I can charge my customers. It’s an economic law.
And the more you ding your customers, the more you create new competition as your customers migrate toward away from you.
aqius
Thanks for the happy story.
We own a 1968 in-ground pool, We were using a regular hose to refill water and it dawned on hubby (EE) it was a regular garden hose and not a lead free drinking water quality hose. We changed it out immediately. Swimming in leaded water is not advisable.
You might have a newer pool that is plumbed newer.
Just some unsolicited advise.
You don’t drink the pool-water, do you?
Seriously—the amount of lead that absorbs into the water is very small (though more than you want in your body, of course), and the amount that you would absorb if you are not drinking it is miniscule; those two together make me think this is a distinction without a difference.
p.s. Even when there is lead solder on older plumbing joints, it absorbs into the water VERY slowly. The easiest technique to avoid exposure is to run the water for a few minutes prior to drinking it first thing in the morning (or after any time the water has been still in the pipes for a long time).
In other words, unless you are leaving the water in the hose, the amount that absorbs into the water as it flows past is very close to zero. Just let it run for a minute before you fill the pool if you are worried about it.
I think you are wasting your money buying an expensive RV water-hose.
advise=advice
“Inventories are tightest on the low end of the market, where investors came in and bought most of the distressed properties, and are now holding them as single-family rentals.”
Sounds just like the mistake our landlords made just before the Bubble popped, leaving them deep underwater.
“Regardless, many state that the lack of inventory will cause home prices to jump by 20 percent or more this year. Note, as they continue to rise, return on investment will decline.Therefore, those looking for long-term real estate investments should act quickly.”
Hurry up and buy ten California houses today, just in time for the next crash!
“‘In a housing boom, when you’ve got multiple people bidding, the buy side becomes crowded. Prices can lose touch with fundamentals. Bidding wars are part of the housing bubble narrative,’ said Dave Madani, an economist with Capital Economics who has called for a 25% reduction in Canadian home prices.”
And another part of the housing bubble narrative is a flood of easy money from central banks trying to stimulate sales.
“Klein says the Louisville housing market is hot for sellers in particular. A home sits on the market for an average of 120 days compared to 150 last quarter.”
Down from five months to only four months to sell a place? Yep — Louisville’s market is on fire, all right!
The Vanguard REIT fund that FPSS advised me not to buy into (”too risky”) is up 15.7% year-to-date. Since the year is only 1/3 over, the annualized rate of return is (1.157^3-1)*100% = 55%. No bubble here, folks…move along.
And BTW, where is FPSS these days? Lurking under a new handle, perhaps?
P.S. If things keep going up at this rate, a good share of my annual income this year will come from shifting my portfolio into this fund when the Fed announced their real estate bubble reflation plans last year.
And BTW, where is FPSS these days? Lurking under a new handle, perhaps?
I wondered about him myself recently; I doubt he could hide under a new handle, as his expression of snark is far too distinctive.
He definitely has one of the HBB’s more distinctive styles, right up there with RAL’s…
“That summer, there was an amazing proliferation of ‘for sale’ signs. Happened very suddenly, and it followed several years of tight inventory. Methinks that the same scenario is about to repeat.”
This is very insightful, and I can easily predict at what point the scenario will repeat:
When this accelerating rate of price increases reaches stall speed, all the fly-by-night investors who have been snapping up low-end inventory in order to capitalize on Fed-funded capital gains will race for the exits. The greater fools who took the low-interest, low-downpayment, easy-qualification loans will be left holding the bag on negative home equity wealth effects.
It’s gonna be deju-vu all over again, even though nobody could have seen it coming.
“Bidding wars are part of the housing bubble narrative,’ said Dave Madani, an economist with Capital Economics who has called for a 25% reduction in Canadian home prices.”
It will never happen, because Canada is different. Canadian real estate always goes up, eh.
I predict the debate to continue right up until the day the Canadian real estate bubble bursts.
Analysis: Canadian housing: bursting bubble or gentle landing?
Reuters, 02/05 20:18 CET
By Andrea Hopkins
TORONTO (Reuters) – It’s looking like an unsettling spring in Canadian housing, a market that has proven far more even-keeled and less scary for investors in recent years than in the United States.
In what is traditionally the best season of the year for real estate agents, Toronto agent Ecko Jay says the industry is seeing far fewer buyers, a result of tighter lending rules, high prices and fear of a bubble. In Toronto alone, sales dropped 40 percent in the first quarter from a year earlier, making homeowners and investors jumpy.
“Some people want to cash in and pull out now,” said Jay, a 26-year veteran of the Toronto housing market, noting some are spooked by worst-case predictions of a 20 percent drop in prices from current levels.
“They say, ‘Before it gets low, let’s sell,’” Jay added. “And some of my clients want to sell and rent, hoping that when it goes down they will pick up something at a better price. Nobody has a crystal ball.”
But then there are Canadian policymakers, economists and market watchers who have the next best thing to a crystal ball. Their data and analysis point not to a bursting of the bubble like in the United States in 2007-08, when prices from peak to trough dropped 35 percent, but rather a gentle easing in Canadian housing prices, or perhaps just a momentary pause.
Naysayers believe Canada may be too optimistic and relying heavily on that old saw that Canada is not nearly as reckless as the United States. After all, the debt-to-income ratio of Canadians is at a record high, close to the levels experienced in the United States before its market crashed, and home ownership is at nearly 70 percent, also a record and five points more than its neighbours to the south.
But Canada does have some things going for it, most notably a move by the government to tighten mortgage lending rules four times in five years, most recently in July 2012, which has taken some buyers out of the market, dampening demand.
“If you look at the developments over the last year in Canada and compare them to the situation in the U.S. before the crisis, there is a clear difference,” said Julien Reynaud, an economist at the International Monetary Fund who follows Canada.
“It is not just a question of housing supply and demand; it is rather a difference in the system of mortgage finance.”
…
EPOCH TIMES
35 COUNTRIES, 21 LANGUAGES, AND GROWING
New York US China WorldMarkets etc.
News Analysis: A New Housing Bubble Inflates
By Frank Yu, Epoch Times | May 2, 2013
Last Updated: May 2, 2013 2:10 am
A “FOR SALE” sign stands in front of a home in Miami, Fla., March 26. Home prices have been on the rise, but it looks like another bubble is forming. (Joe Raedle/Getty Images)
Despite some recent mixed economic reports for March, housing continues to be one of the brighter spots in the economy.
David Blitzer, S&P
The S&P/Case-Shiller composite home price index increased by 9.3 percent for the year ending February 2013, according to data released April 30. It is the biggest 12-month rise since May 2006.
It is a welcoming sign for homeowners, but also confirms the fear that another housing bubble is forming in many parts of the country.
Housing prices have been on an unmitigated rise since mid-2012, helped by a loose monetary policy by the Federal Reserve and a chase for yields prompting some Wall Street banks and hedge funds to snap up properties in previously distressed markets.
By all accounts, the real estate market has been hot. According to release issued by the U.S. Census Bureau last week, sales of new homes last month came in at 18.5 percent above March 2012 figures. The median sales price of new homes nationally was $247,000, a 3 percent increase from the same month in 2012.
According to analysis by Business Insider, the median home price over the past 12 months through February 2013—at $246,767—is now higher than the median home price at the height of the most recent housing bubble, as of March 2007.
Price Inflation Not Driven by Economics
“Despite some recent mixed economic reports for March, housing continues to be one of the brighter spots in the economy,” David Blitzer, chairman of the index committee at S&P, said in the report released by Dow Jones Tuesday.
The first part of Blitzer’s quote is telling—“despite some recent mixed economic reports”—and confirms perceptions that underlying economic fundamentals do not warrant such rises in home prices.
Data from the Federal Housing Finance Agency (FHFA) corroborates that economics aren’t driving recent home price movements. As of February 2013, the FHFA showed that sales of new and existing homes increased by 9 percent and 15 percent from February 2012, respectively.
But those figures aren’t consistent with consumer incomes, which have been stagnant over the last year. A more realistic view is that recent gains in housing are inflated by the Federal Reserve’s quantitative easing (QE) measures, which have kept interest rates at artificially low levels. Such low interest rates have enabled more consumers than normal to take out new loans and refinance existing loans.
A byproduct of QE is that the Fed has become the world’s biggest buyer of mortgage-backed securities, containing loans that are largely guaranteed by the government mortgage finance firms Fannie Mae, Freddie Mac, and Government National Mortgage Association (Ginnie Mae).
The recent housing recovery feels “eerily familiar to the previous government policy-induced boom that went bust in 2006, and from which the country is still struggling to recover,” Edward Pinto, former chief credit officer at Fannie Mae, wrote in a Wall Street Journal op-ed recently.
…
I guess my plan was to rent until prices reached reasonable levels. I’m not sure this will happen in any meaningful timeframe.
Rent forever. You will be rewarded with better deals at lease renewal.
I hope to spend four months a year on the west coast or in the mountain country of Cascades or Sierras starting in a few years. Will be doing VRBO rentals. More likely near colleges where there is a decent masters swimming program, and I think Santa Cruz, Santa Barbara, and SLO. I will also want to rent in North Scottsdale.
Related housing mania symptom numero uno: DENIAL!!!!!!!
What’s This Talk of a New Housing Bubble?
By Morgan Housel
April 30, 2013
There was great news for the housing market this morning.
Or terrible news, depending on how you interpreted it.
Nationwide housing prices grew 9.3% in the 12 months ended February, according to the S&P Case-Shiller Housing Index. That was the biggest annual gain since 2006, when the housing bubble peaked.
This is excellent for homeowners, especially those underwater on their mortgages. But it’s scary for those who think it signals a return of the housing bubble that did so much damage to the economy. And there were plenty of them.
“The Second Housing Bubble Continues to Inflate,” wrote Business Insider.
“Presenting: The Housing Bubble 2.0,” wrote the blog Zero Hedge.
Please. Calling this a housing bubble is dangerously premature.
…
Images for housing bubble
– Bubble meets pin
– Uncle Sam’s bubble gum
– Uncle Sam, Realtor™
Team Obama to Banks: Issue Home Loans to Riskier Borrowers
The housing bust proved that the federal government isn’t particularly good at anticipating how many people will default.
Conor Friedersdorf Apr 4 2013, 8:00 AM ET
For Southern Californians, the housing bubble and bust weren’t abstractions. We watched the market inflate, witnessed people making terrible choices long before they knew it, and marveled at the fall while perusing real-estate listings or driving through the hardest-hit neighborhoods. I’ve heard so many stories from people who made risky investments in real estate, bought more house than they could afford, or shouldn’t have qualified for a home loan at all. And I’ve cursed the investment bankers and politicians who, to varying degrees, inflated the bubble.
What I never imagined is that we’d forget its lessons so quickly. Oh, I knew some people would. Twice while sitting in a coffee shop, I’ve overheard Orange County residents talking, as they so often did during the early aughts, about all the money to be made if they could just scrape together enough cash to make the minimum down payment on a house before interest rates rise.
But what is President Obama thinking?
I’m tired of this.
These two paragraphs from the Washington Post are a month old, peepul. If this story were worth anything, it would have been picked up by other outlets — AP, bloomi, reuters, fox? — with new developments or more detail. Instead, I see NADA, except for quotes and misquotes from the likes of Bob Erhlich’s mee-tooo column, Rush Limbaugh and a post in a thread on the forum at Major League Gaming (which got one reply).
Methinks there ain’t much there there.
Ben asked how the Obama Admin has power over the Department of Justice to not sue banks if the loan defaults. Hm, well, if the buyer “meets government standards but later defaults,” I don’t see how the bank can be recriminated. Nor do I see any financial recriminations if the loan is government backed. Maybe the Justice Department is just repeating assurances that are already there, not creating new immunity?
It’s common practice — VERY common practice — for the gov to float trial balloons for public comment even if they have no intention of writing or modifying any type of program or regulation. I won’t believe anything until I see actual government text, maybe from Justice. I can tell you that any text will be carefully wordsmithed and signed off by several layers of management before seeing the light of day.
‘Maybe the Justice Department is just repeating assurances that are already there’
Yes, the assurances are already there, as Wrong Way Barack never prosecuted anyone at the big banks for all the crimes committed a few years back.
Because the ‘anyones’ at the bank are Wrong Way Barack’s masters.
One disastrous presidency after another while Rome burns.
“Yes, the assurances are already there, as Wrong Way Barack never prosecuted anyone at the big banks for all the crimes committed a few years back.”
Not only did he not push for prosecutions, he invited Lloyd Blanfein and Jamie Dimon to the White House dozens of times to enjoy fantastic entertainment on the dime of the American taxpayer.
Barack Obama = Uncle Tom = Liar
Hey, Barack, why did you lie to the American people, and say that you weren’t running for president to help out wealthy bankers when that has been your number one accomplishment?
He’s a bonafide liar. What is unnerving is how proficient at it he really is. He failed US Citizens. Failed.
Barack Obama = Uncle Tom = Liar
I can go along with the “Barack Obama = Liar” part, as he clearly has had the existing system’s vested interests closest to his heart (at least as demonstrated by his actions), as opposed to what he promised.
But “Uncle Tom” is an unnecessary racial slur that does not add anything to your argument.
Hope and Change = More of the Same.
“But “Uncle Tom” is an unnecessary racial slur that does not add anything to your argument.”
I think it perfectly sums up Obama’s subservient nature to rich white bankers. If you want to interpret it as a racial slur, that’s your choice.
If you want to interpret it as a racial slur, that’s your choice.
It’s not me that is interpreting it that way; that is the generally-understood definition:
un·cle tom
/täm/
Noun
derogatory. A black man considered to be excessively obedient or servile.
Oh wait, I guess he is excessively servile to the banksters.
Still seems unnecessary to use a racially-loaded term.
How about we just call him a Bankster’s Whore?
FHA’s solvency plan isn’t fair
By Stephen Gandel, senior editor
May 2, 2013: 1:16 PM ET
The government insurer, which may or may not be in need of a bailout, plans to generate $10 billion by locking middle class borrowers into high fees for decades.
FORTUNE — This is what you call kicking ‘em when they’re down.
Consumers who don’t have a lot of cash to put down when buying a house usually have to pay a higher rate than typical borrowers for the first few years of their mortgage. Now, thanks to a change at a government program, they will have to pay that elevated rate for as long as 30 years.
This is apparently how the Federal Housing Administration plans to shore up its finances.
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Sounds fair to me! Shouldn’t the group of buyers who can’t scrape together a down-payment (and thus are collectively a higher-risk pool) be the ones to fund the default insurance of that high-risk pool of buyers?
Or to put it another way: why should anyone OTHER than the high-risk buyers fund the insurance payments for those high-risk buyers?
Is this happening again? A new US housing bubble? Say it isn’t so!
Posted on April 5, 2013 by RightFromYaad
Is the US Government in the business of making economic “bubbles”? It looks that way. Wasn’t this the cause of the last housing bubble and housing sub-prime mortgage meltdown just 5/6 years ago?
Maybe a bubblet. Boomers moving into urban areas. “urban” is relative. If they spend their working lives in towns under 30,000 population, then Tucson, for example, would be considered urban. I can see why urban areas would hold attraction. Better medical facilities than being out in the sticks. But beware of the entitlement crisis ahead. Lots of urban unrest and violence could make the boomers regret going to cities.
But to those who rent and enjoy clean ocean air in, say, Big Sur, as opposed to soot in the South Bay, they don’t have to worry about being near good doctors for awhile.
Remember how safe subprime loans were back when the Housing Bubble was inflating for the first time (e.g. 1997-2006)?
Apparently subprime loans are once again safe, now that the Housing Bubble is over. Or at least that’s what REIC journalists are claiming!
2 LENDERS SUCCEED IN ZERO-DOWN LOANS
By U-T San Diego 12:01 a.m.May 4, 2013
Updated4:19 p.m.May 3, 2013
Who says lenders need to charge you a cash down payment when you take out a mortgage in this era of hyper-strict underwriting?
Just about everybody:
• The biggest sources of home loan money, Fannie Mae and Freddie Mac, won’t fund a loan without a down payment. Even then, if your down payment is less than 20 percent, they require private mortgage insurance.
• Federal banking regulatory agencies have proposed — but have not yet finally adopted — a regulation requiring a 20 percent minimum down payment as the new standard for safe lending and best pricing.
• Congressional critics complain that the Federal Housing Administration’s current 3.5 percent minimum is part of the reason the agency is now in financial hot water. They want 5 percent down at least.
• Financial analysts and mortgage industry experts argue that requiring some amount of “skin in the game” is essential to provide borrowers a stake in the transaction.
But hold on. Two prominent federally chartered credit unions beg to differ with this consensus opinion. They have quietly been running what they consider to be successful, carefully administered zero-down-payment programs for borrowers for much of the past two years, and are seeing almost no defaults or foreclosures.
Navy Federal Credit Union, the largest credit union in the country with 4 million members, offers a zero-down option for qualified home purchasers coast to coast with no mortgage insurance. On top of that, it allows “seller concessions” — contributions by sellers of homes to defray buyers’ closing costs — as high as 6 percent of the home price.
The maximum loan amount is $1 million, but typical loans are in the $200,000 range. Navy Federal says it has closed $740 million of these zero-down mortgages in the past 12 months alone. Borrowers need to pass underwriting muster in terms of income and reserves, and you need moderately good — not perfect — credit scores. Delinquencies on the program to date: well under 1 percent, according to Katie Miller, vice president for mortgage products.
Meanwhile, NASA Federal Credit Union has started marketing its own version of zero down. Maximum loan amount is $650,000. Seller concessions are capped at 3 percent. Underwriting is rigorous and preferred FICO credit scores start in the mid-700s. Delinquencies over the past year and a half: zero, according to Bill White, NASA Federal’s vice president for real estate lending. Foreclosures: zero.
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How is the plan to wind down the GSEs coming along?
Oh…
Obama’s pick for housing agency head faces big headaches
By James O’Toole @jtotoole May 3, 2013: 5:18 AM ET
President Obama congratulates Mel Watt at the White House on Wednesday after nominating him to be the next director of the Federal Housing Finance Agency.
NEW YORK (CNNMoney)
The next head of the Federal Housing Finance Agency will have quite the task waiting.
President Obama nominated Mel Watt, a Democratic congressman from North Carolina, this week to be the next head of the FHFA. Should Watt be confirmed by the Senate, he will play a critical role in shaping the future of the U.S. housing market.
Ever since the crisis hit in 2008, the FHFA has been in control of housing finance giants Fannie Mae and Freddie Mac, which own or guarantee more than half of all outstanding mortgages in the U.S., according to the Congressional Budget Office.
“This position is far more than just a regulator,” said Bartlett Naylor, a financial policy expert with the advocacy group Public Citizen. “Anyone with a mortgage intersects with Fannie and Freddie and therein with what Mel Watt will be responsible for at the FHFA.”
At the top of the agenda for the FHFA is the question of whether it will reduce loan balances for struggling borrowers whose mortgages are backed by Fannie and Freddie. The outgoing head of the agency, Ed DeMarco, has opposed calls from the Obama administration and progressive groups to move ahead with such reductions.
DeMarco has argued that principal reductions would shortchange taxpayers and could prompt borrowers who are current on their mortgages to deliberately fall behind.
Supporters of principal reductions say they could help stabilize the housing market and give the economy a boost.
A study released this week by the CBO argued that the government could actually save money through an expanded principal reduction program because it would reduce the number of defaults and foreclosures. Some 1.2 million borrowers could be eligible for some form of principal forgiveness, the CBO said.
The Obama administration has tried to help underwater borrowers — those who owe more than their homes are worth — through the Home Affordable Modification Program, or HAMP. But that initiative has been limited in its effectiveness over the past few years, securing principal reductions for less than 120,000 borrowers as of the end of 2012, and it limits such reductions to mortgages that aren’t controlled by Fannie and Freddie.
Some on the left have questioned Watt’s independence in view of the substantial campaign donations he’s received over the years from banks and other financial institutions. But he has also received large contributions from unions, and his nomination had drawn support from progressives — including Massachusetts Senator Elizabeth Warren, AFL-CIO head Richard Trumka and advocacy group MoveOn.org — who have praised his efforts in Congress to protect consumers.
Watt’s confirmation process may still be contentious. Republican senators Bob Corker and Mike Crapo expressed concern about his nomination this week, calling on the Obama administration to articulate a plan for reducing government involvement in the housing market going forward.
That will be no easy task.
Back in 2006, just 30% of new mortgages were backed by the government, according to Inside Mortgage Finance. But as the housing sector cratered, private capital fled the market and the government’s role expanded. In 2012, more than 86% of new mortgages had government backing.
Fannie and Freddie — known together as the GSE’s, or Government Sponsored Enterprises — sustained massive losses as the housing market went bust, requiring taxpayer bailouts that swelled to more than $187 billion. The companies have since paid the Treasury Department nearly $60 billion in dividends as they’ve returned to profitability, but it’s unclear when they’ll be completely free of their obligations and how they’ll be managed in the future.
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“The danger in this is that they will start to unload the homes they own, which would bring that much-needed supply back, but which could also turn home prices in the other direction. Not good!”
At what point did affordable housing (in the sense of affordably priced) become a bad thing?
As soon as it became part of the family income?
HBB posters are hardly the only financial market participants feeling a knee jerk urge to grab hard assets as an inflation hedge.
Without thinking too hard about this, I wonder why the Norwgians don’t focus their fire-sale real estate shopping activities closer to home (Greece, Italy, Spain, Cyprus, etc) rather than playing poker in the U.S. arena against Wall Street’s gun slingers. I recall institutional investors in Norway ran into some problems with U.S. real estate-related investments back during the subprime crisis. I’m sure this time is different, though…
From COMPANIES 11:02pm
Norway oil fund lifts property purchases
Sovereign wealth fund undertakes a huge array of deals
Norway oil fund shifts from bonds to stocks
Norway oil fund invests $600m in US
Norway oil fund steps up property push
Last updated: May 5, 2013 11:02 pm
Norway’s oil fund ramps up pace of property acquisitions
By Richard Milne in Oslo and Ed Hammond in London
The facade of the Credit Suisse headquarters in Zurich©Bloomberg
Norway’s oil fund has taken over Credit Suisse’s headquarters in Zurich
Norway’s oil fund has sharply accelerated the pace of its property acquisitions as the world’s largest sovereign wealth fund seeks to establish itself as a big name in the real estate world.
In the six months to March it has increased the pace of growth in its property assets by more than 10-fold from the same period a year ago, when it was still finding its feet in the sector.
Since those early days, the oil fund has done a huge array of deals including a $600m investment in US offices, taking over Credit Suisse’s headquarters complex in Zurich, buying a stake in Sheffield shopping centre Meadowhall and spending €2.4bn on European warehouse and industrial property.
It now has about NKr37.6bn ($6.5bn) of property assets, or 0.9 per cent of the $720bn fund, up from NKr26.7bn at the end of last year and NKr11.2bn last September, when property represented only 0.3 per cent of the fund.
Yngve Slyngstad, the fund’s chief executive, said in an interview that the fund could close in on its target of having 5 per cent of its assets in property within a few years.
There have been doubts that Norges Bank Investment Management might struggle ever to reach this target because of the fund constantly grows as money flows in from Norway’s petroleum revenues. The fund’s manager is restricted to increasing its exposure to the sector by only 2 percentage points of total assets under management a year.
Property represents the oil fund’s first foray into assets outside its traditional mix of equities and bonds and is seen as an important test of whether the fund will be allowed to invest in more alternative assets, such as infrastructure or private equity.
But the sheer speed with which the fund grows – it added NKr366bn in the first quarter through a mix of inflows from Norway’s oil revenue, currency moves and returns on its assets – makes investing in new asset classes difficult.
Mr Slyngstad said most of the sellers in its recent property deals – such as Credit Suisse, ProLogis and life insurance companies – were “long-term owners changing assets, not the short-term owners” many were expecting to sell.
“Real estate is a very large asset class. One of the challenges for the moment is there is not as high a turnover in the real estate asset class as you would expect,” he said. “Leveraged investments are not the ones being sold at the moment. Over time it is natural that the ownership of real estate will change from the current pattern.”
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Stupid is as stupid duz.
THE WAITING GAME
As housing supply dwindles, some experts warn of prices beginning a dangerous climb
By Lily Leung
7:49 p.m. May 3, 2013
Updated 12:01 a.m. May 5, 2013
Want to buy a new home in San Diego County?
You may have to wait in line.
Demand for housing has become so intense that major builders are requiring prospective clients to sign up on lists for a chance to buy a home. If you’re among the 100-plus people in a queue, you can blame that on the region’s lack of new construction and near record-low listings.
“The problem is being created by the absence of inventory in the resale market,” said San Diego economist Alan Nevin. “That’s creating a panic mentality.”
That type of thinking has brought some housing experts back to the mid-1990s, when would-be buyers camped out for days at subdivisions when new phases were released. That process has been largely replaced by a more-organized method: waitlists.
Waitlists may be a more-controlled system than campouts, but they’re still a gamble for buyers. Supply is so low that your turn may not come for a while. Or your preferred home style may run out by the time your number is called. In one new community near Carmel Valley, clients who land on a list now are looking at an entry date of about summer 2014 if the current list pace continues.
Even if you make it out of a waitlist, you could see the price of new homes jacked up. Some homebuilders, taking note of increased demand, have been boosting prices after each phase.
Nevin fears these supply-demand dynamics could fuel a dangerous rise in home prices, which have accelerated due to a sizable share of investment and cash buyers creating more competition in the overall market.
Single-family home prices have risen 14 percent from a year ago while condo values have gone up by 21 percent, said Nevin, citing a recent per-square-footage analysis from the Greater San Diego Association of Realtors.
“That’s an outrageous increase even though (homeowners) love to see their home values go up. But it will become another debacle like what we had,” said Nevin, referring to the lead-up to the housing crisis.
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This Old Short Sale
The First Episode of This Old Short Sale Was Broadcast Locally
WGBH Boston broadcasted the first episode of This Old Short Sale on Tuesday, February 20, 2010 at 8:30pm. It featured the renovation of an upside-down serial refinanced Victorian in Boston’s historic Dorchester section, with contractor Norm Abram, host Bob Vila, and plumbing expert Ron Trethewey (his son Richard, now the show’s plumbing and heating expert, also made his debut, in a “cameo” appearance). The first 13-week This Old Short Sale series set a new ratings record for WGBH.
Morash “discovered” his crew in unlikely places. Abram had been commissioned to build a barn on the serial refinanced property. The quality of his work was so impressive (Norm had the smallest scrap pile Russ had ever seen) that the carpenter was invited to lend a hand with the eviction of the Dorchester family. In his search for a host, Morash came across a developer and builder specializing in delinquent loans in the pages of The Boston Globe. Bob Vila, who had no prior television experience, was given a screen test and deemed a perfect fit.
The prices seem to be the lowest in a decade. Naturally this is a perfect opportunity for investors and homebuyers. The rising in the housing market was inevitable. Let’s just hope this won’t result in yet another bubble.