The Housing Bubble

It’s Friday desk clearing time for this blogger. “Seattle real estate appraiser Richard Hagar says the economy is good here and people are buying houses non-stop. That means most people aren’t getting the house of their dreams but rather what’s left over. That may sound like a downer but Hagar sees a bright side. ‘The good news is that our housing market is going up. In fact, we’ve calculated that it’s going up about $500 a week for the average house,’ he said. That works out to about $24,000 a year—money that Hagar says you lose out on if you’re renting. ‘If they rent, they’re locked in while the housing market is increasing its value.’”

“The big bonus of buying over renting, Hagar says, is that you haven’t missed the market. You’ve ridden along with it instead of being left behind. So, even if you end up buying a house that’s not the perfect fit, Hagar says that’s OK. ‘You can buy it for 5 percent down and then in a year or two, move up to a better home. Maybe even keep the first house as a rental,’ he said.”

“Professor Peter Phibbs, from University of Sydney’s Faculty of Architecture, Design and Planning, has told a conference that the relatively stable overall home ownership rate over the past four decades has masked a significant change. While the national home ownership average is almost unchanged at 68 per cent, ownership for 25-to-34-year-olds has fallen from 61 per cent in 1975 to just 45 per cent now. The figure is only slightly higher for 35-to-44-year-olds.”

“‘But for some people the delay will be permanent,’ he said. ‘The actual increase in prices means that those people that traditionally would aspire to home ownership, I’m talking about moderate income Australia - probably in their lifetime won’t get into that market.’”

“Major real estate investment deals in Shanghai rose in the first half of this year, with a notable return of interest from overseas buyers, an international real estate services provider said. In addition, deals concluded in the first half were all made by pure investors, DTZ China Investment said. In comparison, owner-occupiers made up 41 percent of buyers last year.”

“Phil White is facing a mortgagee sale on his luxurious Auckland apartment because he has not made full mortgage repayments. White said he paid $615,000 for the two-level apartment on top of The Landings. He borrowed $450,000 from Westpac. Now, he says real estate agents are telling him he’d be lucky to recover $200,000 on the penthouse sale. He was denied New Zealand residency and so must rent out the apartment for $730 a week. However, that does not cover the mortgage repayments. White said he was not earning so could pay no more to the bank than the rent.”

“‘I have no income. I’m retired and I live on someone else’s land in a jungle in Fiji. I’m telling Westpac that if they sell it now, it’s the worst thing they can do because they’re not going to get what the property will be worth,’ he said. A City Sales apartment auction five years ago saw Blue Chip investors quit a unit in The Landings for only $200,000, a sum said to be precisely half the $400,000 they had paid.”

“Sarbjit Singh first heard about the Trump in October 2006 from a real estate agent who told him it was a great investment opportunity. He and his wife had recently bought a house and just had their second daughter. He didn’t have the money to buy another property. ‘I was only making between $50,000 and $60,000 a year,’ he says. ‘I’m a regular person, not rich.’”

“But the prospect of getting his own piece of Trump magic proved too tempting. He alleges the sales associate assured him he had nothing to worry about. Singh asked at what point he could flip the unit, and the agent told him directly after closing. Last November, Singh ran out of reserve cash. He stopped paying his fees and is now working in the evenings and on weekends in an effort to pay his parents’ line of credit. He recently missed a mortgage payment. He has no idea how he’ll get out of debt.”

”You’ll make a lot of money,’ he remembers the agent telling him. ‘Even if you don’t sell, you’ll be making lots of money from the reservation program.’”

“Steven and Joan Bailey say they‘re two-time victims of a broken foreclosure system. In 2010, they lost their North Carolina home to a foreclosure they say shouldn’t have happened because they were seeking a loan modification at the time. This year, they eagerly awaited their check from a big bank settlement. They expected at least $6,000 or even the maximum — $125,000. Their check arrived in April — for $800. Less than a month’s rent on their apartment. ‘Another disappointment,’ says Steven Bailey, who has become a foreclosure activist in Colorado.”

“The real estate market in Las Vegas has been red hot lately. But it’s not hot enough for homeowners who bought at the peak of the last boom. We first caught up with Dave and Cheryl Burton last year, when their home’s value was in freefall. The house they bought in 2007 for $700,000 had crashed down to $325,000. ‘When the market tanked,’ he told us in 2012, ‘our mindset was put your nose to the grindstone, keep working hard, and it will turn around.’”

“In just the last year, the price of a median home in Las Vegas has gone up nearly 33 percent. The Burtons’ home has also risen in value from $325,000 to $400,000. But for them, the recovery is coming just a bit too late. They will probably sell at a loss. ‘We’re trying to find that silver lining, but our hearts are heavy,’ said Dave.”

“Foreclosure rates in Fairfield County are declining, but that comes as no comfort to the homeowners who have engaged in short sales as a way to avoid the shame of having the bank take possession of their houses. A Shelton man is in the process of selling his house through a short sale. The man, who asked not to be identified, bought the house in 2005. ‘What can you do? The mortgage was tight,’ he said.”

“An attorney with a nonprofit housing organization questioned CoreLogic’s findings of fewer foreclosures. ‘The CoreLogic statistics are (based on) people who have had court action started against them,’ said Jeff Gentes, managing attorney for foreclosure prevention at the Connecticut Fair Housing Center in Hartford. ‘The more telling point is people 90 days or more behind on their mortgages.’ He estimated that one in 11 home owners in Fairfield County fits that category, and an area real estate agent also questioned the CoreLogic numbers.”

“Attorney Jonathan Hoffman, a partner in the law firm of Hoffman & Hoffman in Stamford, concurred. ‘I haven’t seen a marked improvement in getting things done,’ he said, commenting that banks often send letters to his clients, urging them to avoid participating in the state’s foreclosure mediation program. ‘We do over 100 short sales a year. I haven’t seen a slow down at all. It’s been constant for the past six years.’”

“Chris Genese with Washington Community Action Network said their research shows 33 percent of Seattle-wide homeowners are underwater by an average of $93,000, meaning they are ‘next in line for foreclosure.’ ‘It’s great that the market is recovering,’ he said, ‘but it’s not going to recover fast enough for these people.’”

“One West Seattle woman (name withheld) decided to share her story with the group. ‘On Nov. 7, late in the afternoon they let us know that they had denied our last loan modification so there was nothing for us to do because the foreclosure auction was set for Nov. 9 in the morning, so our house was sold back to the bank. I have still been fighting for my home, we are still in our home because I refuse to just give up because what they’ve done to us is not right, and what they are doing to everyone else is not right.’

“‘It doesn’t matter what the rest of the story is, that the reason I couldn’t work was because I was sick and dying and it doesn’t matter that during the height of all that craziness banks were going after you: ‘Oh, refinance your house, oh refinance your house, oh refinance your house.’ Should I have not refinanced my house? No, in hindsight I shouldn’t have, but at the time that was the culture of the banks.’”

“‘I keep telling myself that I can get over the loss of my home, but what I can’t get over is the anger that we sit so greenly in our homes believing that the economy is recovering, we sit so blindly believing that the housing market is recovering and getting better when there is a house that was foreclosed three years ago sitting right across the street from our house.’”

“Plans to prop up the housing market with a mortgage guarantee must be a short-term measure to avoid causing another financial crisis, the Bank of England’s deputy governor has warned. The Government plans to extend its Help to Buy stimulus scheme by guaranteeing home loans from January — shifting the risk of borrower default from lenders on to the state.”

“Paul Tucker told MPs that a medium or long-term mortgage guarantee would be dangerous after warnings it could inflate another property bubble. His warning follows criticism from former bank governor Sir Mervyn King over the scheme being too similar to home loan guarantees from failed US government lenders Fannie Mae and Freddie Mac. Mr Tucker said: ‘They are devices for getting out of a hole to dig another one for the future.’”

“One way to interpret the gap emerging between house prices in south Dublin and the rest of the country is that the already wealthy are now seeing their property wealth stabilise and, in some cases, rise. In contrast, poorer parts of the country are seeing their wealth – derived largely from the value of their homes – continue to diminish. As house prices in the commuter belt continue to plummet, the wealth effect is opposite to that in south Dublin. People in negative equity are not only poor, they are worse than poor because they are in debt.”

“If our opportunity and income become dwarfed by changes in wealth – driven by serendipitous changes in house prices – then lots of people will see the innate unfairness of housing wealth. Housing wealth doesn’t come from talent, innovation or creativity but rather the feudal concept of location. We can’t afford for capital to get tied up in this overvalued relic again.”

“Already the trends in food prices are punishing poor people most callously now. It would be a disaster if we learnt nothing from the housing boom and bust and allowed ourselves to become enchanted by the hollow glitter of shiny trophy assets again.”