August 16, 2013

Warnings Of A ‘New’ Housing Bubble May Be Off The Mark

It’s Friday desk clearing time for this blogger. “Florida Realtors released second-quarter sales figures Thursday showing the Bradenton-North Port-Sarasota metro area is seeing a growing trend toward a seller’s market. James Adkins, broker-associate with Adkins Florida Group, remains positive there will not be a large dive. ‘As long as people keep their heads cool, we’ll be fine,’ Adkins said. ‘We live in a perpetual real estate bubble from crest to trough.’”

“Homeowners and home losers who still feel the sting of this last boom-and-bust housing cycle can’t help but express some degree of trepidation over the rapid ascent in home prices throughout 2013. Trulia chief economist Jed Kolko’s latest report debunks any view that prices are pushing the nation and the Inland region into the bubble zone. Out of 100 of the country’s largest markets, two counties that contributed to the last boom-to-bust – Orange and Los Angeles — had prices swell overvalue by more than 10 percent: Year-over-year asking prices there rose more than 21 percent from July 2012.”

“‘Even though in the past year, the U.S. and the Inland Empire has seen big price increases, those increases are coming from a low-level,’ Kolko said.”

“The Northwest Multiple Listing Service reported last week that King County house prices are up 15 percent, and in Pierce County 16 percent, over the past year. Though today’s prices have not reached their 2007 peaks, bubblelike behavior is occurring in a growing number of neighborhoods. Real, sustainable reconomic growth depends on investments in technology, science, infrastructure, education and other areas that support national competitiveness and job creation.”

“A steady increase in the value of homes based on real growth is in everyone’s best interest. Another housing bubble is not.”

“Step right up, people, welcome to the House Flipping for Untold Fortunes seminar and cash bar. Not a single person on one of those flip shows on reality TV has lost a dime, even in Vegas, where there are still more houses than pawned items on the market. If those bumpkins make twenty grand per shack flip, that’s a lousy month.”

“Question on the first row. You want to know, since flipping houses is such an easy way to make a lot of money, why we would tell you how to do it instead of flip more houses ourselves? It’s why people sell football tout services instead of simply betting on the games themselves. We want to help mankind.”

“Our revolutionary concept is called, ‘Flip It to a Flipper.’ Thanks for coming and please pay the man on the way out.”

“The Canadian Home Builders Association – Lethbridge Region is saying that the market is strengthened by younger buyers and a diverse southern Alberta economy. One Lethbirdge home builder is selling condos in the $170,000 range and throwing in a semester of tuition, worth $4,000. The target market? Students. The money usually coming from parents, at least as a co-signer on a mortgage. The CHBA believes the investment is more than financial. ‘It’s giving their children the opportunity to learn what it’s like to be a homeowner, so when they’re ready, they’re knowledgable,’ said CHBA’s Angie Zuba.”

“Even John McGrath, Sydney’s most prominent real estate spruiker, is concerned the nascent real estate boom spurred by low interest rates is at risk of overheating. ‘I haven’t seen it this hot since the last real estate boom,’ he told a mortgage brokers conference in Sydney. ‘If there is pressure to keep growing at this level – which I don’t suspect we will – quarter after quarter after quarter, we’d probably end up in trouble because we just can’t grow this rapidly.’”

“With all the vertical building projects rising in Metro Manila, and even in other major cities in the county, you’d wonder if all of these would be put to good use. Not only are there new residential condominiums being pre-sold to overseas Filipinos and young starting families, buildings for business processing offices (or call centers) and incentivized cyber parks are mushrooming right and left. With new projects still being unveiled every month, you’d wonder next if there would be any end in sight to this invigorated building optimism.”

“The Philippines itself is no stranger to asset bubbles. In the 80s when golf club shares were so much in vogue that everyone with spare cash went on a buying spree hoping to cash in on promised escalation of real estate prices adjoining the golf clubs. Up till today, many of our countrymen are still waiting for the value of some golf shares that they had bought three decades ago to rise to some decent level, hoping that they can sell them, definitely at losses that are best not calculated for sanity’s sake.”

“According to the auditing results in 2012, there are 12,900 vacant houses in East China’s Shandong Province, 11,500 in South China’s Guangdong Province, and 23,000 in Southwest China’s Yunnan Province. Considering the high housing prices and limited coverage of affordable housing projects, the unpopularity of affordable housing is unexpected, the report said.”

“Any politician suffering a little in the polls knows he or she needs only to tickle the public’s home-buying erogenous zones. At the last Budget, George Osborne reached for the home ownership Viagra when he announced – to widespread surprise – a package of measures under the banner Help to Buy. A glance at the latest data on the average house price-to-earnings ratio for first-time buyers reveals. It is on the way up again and now stands at 4.4:1.”

“The problem is that momentum, once created, is hard to rein in. Buying a house should never feel like buying a tin of baked beans. Memories are short and when it comes to housing the British like nothing better than getting the deal done, measuring up for the curtains and worrying about the consequences at a much later date.”

“There’s been no shortage of headlines warning the UK faces another runaway rise in house prices, brought on by government incentives to boost home-buying. But warnings of a ‘new’ housing bubble may be off the mark, says Danny Gabay, director of Fathom Financial Consulting. ‘I don’t think that phrase (new housing bubble) is very helpful. If I was a civilian rather than a pointy-head, I would get quite exasperated with the media – they’re either in permanent bust or boom. There’s no middle state. So we’re not concerned about a new housing bubble, we’re concerned about the fact we never worked off the last one before they began to re-inflate it.’”

“The point is that they trebled between 1997 and 2007. They then experienced a significant fall until the Bank of England and the Treasury’s connivance stopped the process, and then, like Wile E. Coyote in the Roadrunner cartoons, have remained suspended in thin air held aloft by quantitative easing.”

“We’re in the process of working off the debt that we’ve accumulated on the back of house prices, and they’ve stopped that. And in fact they’ve stopped that to the extent of encouraging and subsidising – directly using taxpayers’ money – people to take on even more (debt), against exactly the same asset.”

“We’ve stopped any attempt at any of the repair work that is essential for this economy to be able to heal properly.”

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Comment by Beer and Cigar Guy
2013-08-16 05:57:02

“…Although only a few observers have noted the vested interest in error that accompanies speculative euphoria, it is, nonetheless, an extremely plausible phenomenon. Those involved with the speculation are experiencing an increase in wealth–getting rich or being further enriched. No one wishes to believe that this is fortuitous or undeserved; all wish to think that it is the result of their own superior insight or intuition. The very increase in values thus captures the thoughts and minds of those being rewarded. Speculation buys up, in a very practical way, the intelligence of those involved.

This is particularly true of the first group noted above–those who are convinced that values are going up permanently and indefinitely. But the errors of vanity of those who think they will beat the speculative game are also thus reinforced. As long as they are in, they have a strong pecuniary commitment to belief in the unique personal intelligence that tells them there will be yet more. ..Strongly reinforcing the vested interest in euphoria is the condemnation that the reputable public and financial opinion directs at those who express doubt or dissent. It is said that they are unable, because of defective imagination or other mental inadequacy, to grasp the new and rewarding circumstances that sustain and secure the increase in values…”

-John Kenneth Galbraith

A Short History of Financial Euphoria

Comment by Whac-A-Bubble™
2013-08-16 22:34:38

“…all wish to think that it is the result of their own superior insight or intuition.”

Got that, JingleMale?

Comment by Jingle Male
2013-08-17 06:13:02

I got it W-A-B.

It was not my insight. I learned everything about the housing bubble right here on this blog. I could (and would) have bought a house in 2005 if it were not for the HBB and learning the fundamentals. Ben and this blog helped saved me from the abyss and I appreciate the effort. That is why I give generously to support this blog.

I am no genius. I just saw an opportunity in 2008-2010 to buy houses below reproduction costs and rent them for a nice return on my investment. I put residents back into housing which had been unoccupied for several years. I provide responsive service to them, never raise rents while they live there and in return, I earn a decent cash flow, pay down principal, and get some tax benefits. The fact the houses have gone up in value 30% since I purchased them does not offend me either.

Comment by Jingle Male
2013-08-17 08:20:36

….and I was on board with the housing bubble in 2005-6-7 & 8. I posted a lot of information about the market when it was headed for the correction, which I hope was helpful to HBB readers.

The reason I post today is because many on this blog still believe housing is going to drop in value further and seem to be waiting for a “free” house to fall into their lap.

The information I offer today is that the housing bubble correction is over. That ship has sailed. Many people have purchased homes since the bottom and most of them are making wise decisions. They own for less than comparable rent, they get some tax benefits if they itemize, they lock in their future housing costs, they pay off their loans over time and if they are lucky, they will see some appreciation.

You can lament all you want about QE 1-2-3 and low interest rates. It is reality. Buying houses in the last few years has made huge economic sense for me and it could be the same for you…..if you take off the blinders and see beyond the common thinking that seems to be still prevalent here today.

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Comment by Carl Morris
2013-08-17 14:06:45

The information I offer today is that the housing bubble correction is over. That ship has sailed.

My money still says you’re wrong.

Comment by ahansen
2013-08-18 00:35:25

They scoffed at Alad, too. Gold was at $825 when he left the blog. Doesn’t mean it’s not in for a Great Fall, but timing is a funny thing….

Comment by Jingle Male
2013-08-18 06:31:02

Good point A. I poked fun at Alad when he joined the 700 club…..and gold is now $1300.

Comment by Jingle Male
2013-08-18 06:32:55

Carl, I have to ask how your money is doing these days? Investing in housing has doubled my money since 2010.

Comment by Carl Morris
2013-08-18 11:50:11

I don’t mean return on my investments. I’m just saying my bets against the bubble being over…

I haven’t lost any parked money but I haven’t made much either. But there’s a reason it’s parked and not riding on a bet on the Fed right now. I believe your bets on housing are totally dependent on the Fed maintaining its current course.

Comment by Housing Analyst
2013-08-18 12:39:09

“Investing in housing has doubled my losses since 2010.”

That’s more like it.

Comment by aqius
2013-08-19 00:13:23

“Alad” = Aladinsane?

now there’s a blast from the past!

he was quite a character.

Comment by Beer and Cigar Guy
2013-08-16 06:03:48

“Our revolutionary concept is called, ‘Flip It to a Flipper.’ Thanks for coming and please pay the man on the way out.”

Indeed! That is what the majority of sales around here have been- pure speculation, with no desire to live in it (like a “home”) or hold it beyond xx appreciation. Every intent is to re-sell it again just as soon as possible, to some other, more greedy and gullible fool. Bring it on. Lets see how many ‘thousandaires’ walk out of this casino alive.

Comment by In Colorado
2013-08-16 07:40:44

please pay the man on the way out

I’m pretty sure that Armando and his ilk require payment up front before you are admitted into their “seminars”

Comment by Bad Andy
2013-08-16 10:20:31

Just heard on the news this morning that 50% of deals are cash sales. One has to ask, how long could this possibly last?

Comment by Ben Jones
2013-08-16 11:42:27

Until there is a better way to use cash, or people start getting burned. Which reminds me, where are the posters insisting interest rates will never rise?

Anyway, a lot of these cash purchases are still using borrowed money, like Blackstone.

Comment by In Colorado
2013-08-16 13:59:08

I don’t think anyone here said “never”.

Anyway, a lot of these cash purchases are still using borrowed money, like Blackstone.

And when the poop hits the fan, guess who will get a bailout?

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Comment by Ben Jones
2013-08-16 17:08:16

‘who will get a bailout’

It’s Deutsche Bank that’s handling the bonds for Blackstone’s Innovation Homes bonds, so I don’t think there will be a bail out. It’s a very small $ amount.

A friend called from Las Vegas and told me he’s seeing ads for 30 year loans above 5%. He asked, ‘wasn’t it under 3% just a little while ago?’ Recall the Union Tribune article recently which pointed out 1% over 30 years for a $400k loan adds $137k in interest.

Comment by Housing Analyst
2013-08-16 19:36:47

I don’t think anyone here said “never”.

You seem to be in deep denial or you’re not paying attention. Just yesterday one of my Debt Donkeys said rates will never rise.

Comment by ahansen
2013-08-18 00:40:55

I’m truly puzzled/annoyed it’s taken this long. I fully expected interest rates to be at 7% by the end of 2013. (But then I fully expected them to be at 10% in 2009, too.)

Comment by Puggs
2013-08-19 14:02:56

Margin loans are NOT cash.

Comment by Al
2013-08-16 06:08:10

Flip to a flipper. Hot potato was fun as a kid. Imagine how much more fun it is as an adult with big bucks at stake. Every one should be doing this, not to make money, but just for the thrill.

Comment by Whac-A-Bubble™
2013-08-16 06:29:52

As long as people keep their heads cool, we’ll be fine,’ Adkins said. ‘We live in a perpetual real estate bubble from crest to trough.’

Said as though the near-collapse of the global financial system in Fall 2008 was no big deal, and happens every few years…

Comment by tresho
2013-08-16 06:57:28

the near-collapse of the global financial system in Fall 2008 is an ongoing event, but the unraveling of this system takes time. Place your bets.

Comment by snake charmer
2013-08-16 07:37:32

Not sure if this made the bits bucket when it came out. Tiger Woods’ mansion here in Florida, built only a few years ago, is sinking. Can this be repaired?

While Tiger Woods was chasing his 15th major golf title Thursday at this week’s 95th PGA Championship in Pittsford, N.Y., contractors were working 1,340 miles away on his sinking Jupiter Island home, according to multiple reports.

Recently, Woods and his girlfriend, Lindsey Vonn, noticed that doors were scraping along floors when they were opened and closed, and the two also noticed cracks in walls, according to reports.

Woods has hired a contractor who will try to stabilize the shifting house, according to reports citing Martin County records, by using large screws — “helical piles” — that will be drilled down deep beneath the structure.

To compound his problems, Woods had a double-bogey on his final hole of play Thursday in the first round of the PGA Championship.

Comment by In Colorado
2013-08-16 07:42:32

It wasn’t that long ago when everything Tiger touched turned into gold.

Comment by Arizona Slim
2013-08-16 09:14:46

A Western PA friend lived in a house that was directly above a working mine. She felt the vibrations of heavy equipment while the mine was open.

Well, the mine closed, years passed, and then the subsidence started. Last time I talked with her, it sounded like the problem had gotten to the point where she couldn’t sell the place.

Comment by ahansen
2013-08-18 00:43:32

“Helical piles”. Isn’t that a euphemism for gigantic PITA?

Comment by Housing Analyst
2013-08-18 05:54:11

You and your snob club are all experts in geotech too. Go ahead and school us on helical soil anchors and DwyDags.

Post some photos of installation techniques of both on your previous projects.

Comment by Blue Skye
2013-08-16 10:35:21

Filipino flipper.

It has a certain ring to it.

Comment by Bad Andy
2013-08-16 11:14:57

No different than a Mexican Mogul or a Spanish Sucker….

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