The Housing Bubble

It’s Friday desk clearing time for this blogger. “Southwest Florida is one of the best real estate markets in the country for property flippers to make quick money with homes in demand and prices rising — beating out other housing hot spots like San Francisco, Cape Coral and San Diego, according to RealtyTrac. ‘A bunch of things have come together, and there’s this window of opportunity right now for people who can buy homes in bulk, turn around and flip them,’ said Sean Snaith, an economist with the University of Central Florida.”

“While interest rates are at their lowest level in 65 years and home values are starting to creep up, there are still ’strong headwinds’ slowing the housing market recovery in Maine and the nation, according to Frank Nothaft, chief economist for Freddie Mac who spoke Wednesday morning in South Portland. In Freddie Mac’s loan portfolio, 55.3 percent of homeowners said unemployment or curtailment of income was the hardship reason that led to foreclosure proceedings, Nothaft said.”

“‘There are a large group of people who might be potential home buyers, but they don’t have any income, they don’t have a job, and nowadays if you’re unemployed you’re unable to buy a home,’ Nothaft said, pausing a second for effect. ‘The market has changed a bit from a few years ago.’”

“Home repossessions more than doubled last year to a record 43,853 from 2011, according to the National Workers’ Housing Fund Institute, or Infonavit, the state-backed lender responsible for about 70 percent of mortgages in Mexico. The fallout is also costing homebuilder industry workers like Noemi Rodriguez and her family. The Homex saleswoman said she’s owed more than 50,000 pesos by the company for commissions earned and has stopped receiving benefits.”

“Rodriguez said she and her husband, Alvaro Calva, bought a house in Homex’s La Esmeralda development about 55 kilometers from Mexico’s central plaza. Residents there face water shortages, electricity outages and security concerns due to vacant or unfinished homes, she said. Calva, who along with the couple’s 20-year-old son Gabriel is also a Homex sales representative, said in an interview that the company ‘can’t fail because it’s so big.’”

“The Iranian property developer looked down at photographs of a Tehran apartment block on his tablet computer. The pictures showed the lavish interiors of apartments and penthouse suites in a 20-floor development his company recently completed in Niavaran, one of the Iranian capital’s wealthiest areas. One of many towers to have sprung up on the Tehran skyline in recent years. The cost of apartments in his developments - among the most sought after in Tehran - have almost tripled in two years, he said. They now sell for about 200 million rials ($5,500) a square meter, and even his medium-sized apartments cost the local currency equivalent of $1 million.”

“The developer said he had halted projects in Iran and was proceeding with caution. ‘Until around two years ago, the market rose steadily. Then it started going crazy,’ the he said on a visit to Dubai. ‘You can’t believe how quickly everything’s gone up. It’s a bubble and I don’t know what will happen.’”

“The Bank of Thailand and developers are divided over whether a property bubble is looming. Atip Bijanonda, the new president of the Housing Business Association, said a bubble and oversupply never happen at the same time. Bubbles are caused by a lack of supply that leads to a rise in property prices, while an oversupply will make prices stagnant, drop or rise slightly. ‘An increase in prices is driven by the development cost structure, which is always revised up. In some cases, it is driven by developers buying land to develop a project regardless of how high land prices are,’ he said.”

“Mr Atip Bijanonda warned that wrong measures may fail to forestall the problem and harm real buyers. ‘A lower loan-to-value ratio will not prevent short-term speculators, as they can still sell their booked units at the same or lower prices than they paid, but this measure harms real buyers who really want the units,’ he said.”

“First-home buyers are in the firing line as the Reserve Bank aims its first direct shot at the overvalued housing market. The hot housing market, particularly in Auckland and Christchurch, has led the Reserve Bank to force the big four banks to permanently increase their buffers against high ‘loan to value ratio’ lending.”

“It’s been a stressful road to the Kiwi dream, but Upper Hutt couple Ben and Michelle Martin have finally achieved it. The self-employed panelbeater, 32, and Plunket nurse, 29, were married in November, and baby Hollie joined them two weeks ago. At first, they thought they would be eligible for the first-home deposit subsidy from KiwiSaver, of between $3000 and $5000 each. But the house-price cap for their area was $300,000, and anything around that price was a ‘dump’, Martin said.”

“The pair decided to forfeit the subsidy, withdrawing $11,000 from their respective KiwiSaver funds. In the end, they raised a deposit of $33,000 for the $350,000 house they wanted. The bank had agreed to give them a 90% loan, and charged them a further $4500 in ’safety insurance’ when their deposit fell just short. While Martin reckons they paid more than it was worth, they were happy to get the property. But it wasn’t easy, and Martin says there is no way they would have been able to do it if they had to stump up a 20% deposit. ‘If it was a 20% deposit, that’s over 60 grand . . . we wouldn’t be here, that’s for sure. We’d be renting forever.’”

“Loans to investors have soared 16 per cent in the last year, Australian Bureau of Statistics trend figures reveal. Meanwhile, lending to owner occupiers - the traditional powerhouse of the market - grew at a far slower pace, just 6.6 per cent over that time. More worrying, the value of loans to first home buyers fell sharply, down 16 per cent. Over the same period since June last year, dwelling values started to rise again.”

“One in seven taxpayers now owns an investment property and one in 10 are negatively geared. Negative gearing, because of its popularity, is a key drain on the public purse - the average investor claimed losses of $10,950 last year, up $1800 on the year before.”

“In an eerie bit of deja vu, the major media are suddenly gushing warm-and-fuzzy anecdotes of at-risk families who’ve found new ‘hope’ in easy home-lending programs. This is how it gets started positive spins about homeownership by pro-government newspapers only to turn later into disaster stories when the artificially created housing boom goes bust. We know how this ‘affordable housing’ fairy tale ends: Weak homebuyers walk away from their properties; and lenders get stuck with the bad debt, taxpayers with bailouts, and investors with massive losses.”

“At a recent conference, the Urban Institute made the same reckless arguments for ‘flexible’ lending to promote multicultural housing that it made before the crisis, while continuing to deny any responsibility for the millions of risky subprime loans that went bust. The Urban Institute’s goal, one shared by the Obama administration, is to close the ‘racial wealth gap.’”

“Virtually everywhere we look, we see signs of a new and dangerous infatuation with risky homebuyers. It’s a scandalous replay of history.”

“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.”

“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.”

“And thanks to low interest rates, an infusion of all-cash buyers from Wall Street and overseas, and banks creating a beanie baby-like appearance of limited inventory by keeping foreclosed homes off the market, the sequel looks to beat the original.”

“Record high foreclosures and record low available homes for sale at the same time? Wow. The last time a con like that was pulled over on the American people, British settlers were handing out blankets to people with feather headwear.”

“Anyway, just wanted to let you know that we’d love to drain our savings, 401(k)s, credit cards and borrow from eight immediate family members to grossly overpay for your house. We have no idea how we’ll make the monthly payment, but my therapist says I need to ‘live in the moment’ more anyway.”

“Sincerely,”

“First-time Home Buyer”