The Boom, The Bubble And Bulldust
It’s Friday desk clearing time for this blogger. “A leading economist has dismissed the possibility that Australia is heading towards a housing ‘bubble’. Australian Property Monitors senior economist Dr Andrew Wilson explained that comments made about the prospect of 20 per cent house price growth in Sydney over a year were ‘nonsense’. ‘That’s not going to happen,’ he said. ‘It makes very exciting reading – the boom, the bubble – but it is the boom, the bubble and bulldust at this stage.’”
“The typical Sydney house price soared by more than $500 a day last month as property prices surged amid historic low interest rates and buyers’ fear of missing out. Research commissioned by the nation’s biggest home lender, Commonwealth Bank, found most home buyers believed property prices were being fuelled by a fear of missing out, which was causing most to rush in before they had done their ‘due diligence.’”
“Massachusetts’ real estate market continued to smolder last month as the number of sales and the price of homes continued their steady ascent. ‘It’s a feeding frenzy, and people want to get in now before prices go up even further,’ said Timothy M. Warren Jr., CEO of The Warren Group. ‘My concern is that the market remains sustainable and we don’t see another crash. If it should persist, then it would be a little irrational exuberance.’”
“John Douglas Dudek bought 8 units in the 4700 block of Point Loma Avenue in September 2012 for $1.85 million. He just sold those same units for $2,384,200. That’s over half a million bucks in one year. The property that has now been sold twice within a year is a single-story courtyard apartment that includes 8 two-bedroom and one-bath units – which are small, each with 672 square feet. Did all that land really increase in value in that one year? Does this sale represent the return of the OB Housing Bubble?”
“Home ownership rates are at a 17½-year low. And the U.S. census shows new renters have flooded the market dramatically since the housing crash. The face of these new renters are two main groups — people recovering from home foreclosure and millennials, or the under 35 crowd. Sean Agnew runs his own concert promotion company in Philadelphia. He says owning a home isn’t a goal for him right now. ‘Financially I could buy a home if I wanted to, but right now it doesn’t appeal to me,’ he said. ‘I choose to rent mostly for the flexibility and mobility of getting to live in different places in the city or outside of the city.’”
“He also said he sees buying a home as a questionable investment at this point in his life and instead chooses to put his money into small businesses. ‘Making all the credit sacrifices for home ownership, assuming high levels of debt, changing your lifestyle so you can’t eat out as much or travel… makes it a much less attractive option today than it was historically,’ says Hughes.”
“More than half of all bank-owned homes in the Charlotte area are still occupied by their former owners, suggesting a ’shadow inventory’ of properties that might soon be up for sale, according to a report. RealtyTrac shows roughly 54 percent of 2,328 bank-owned homes in the Charlotte, Gastonia and Concord area have their previous owners still living in them. That’s above the national rate of 47 percent.”
“‘They represent a shadow inventory that is becoming more imminent as rising home prices motivate banks to sell off these homes to try to recoup their losses on soured loans,’ wrote Daren Blomquist, RealtyTrac vice president. Such properties are remaining, for now, off the market at a time when there’s low inventory of homes for sale in the Charlotte-area housing market.”
Read more here: http://www.charlotteobserver.com/2013/10/02/4360211/more-than-half-of-charlotte-bank.html#.Uk2xTxCpCUk#storylink=cpy
“At a Seattle City Council meeting, homeowners faced with foreclosure demanded action. In 2006, Pina Belrano bought a rundown fixer-upper - one she thought she could afford. After months of work and $100,000 in repairs, the house is a Beacon Hill gem. But, the single mother lost her job and she’s nine months behind on the mortgage. ‘So, I poured my heart and soul into it. Now, we don’t know where we’re going,’ she said. In Seattle, nearly 30 percent of home mortgage totals – mostly in the south end - are still underwater.”
“As Vietnam’s first property boom crashed around him, American developer Edward Chi kept promising investors their flashy apartments were on track. The businessman even told them he would sell his California properties to pay them back if construction stopped on projects. But Chi ducked out of a tense meeting with the prospective home owners last year and never returned, leaving the rusting foundations of an apartment block and at least 128 angry investors, many who had already put down more than $150,000 from life savings or bank loans.”
“Nguyen Ngoc Tuan, a 37-year-old engineer, said he paid $180,000 to Minh Viet, $80,000 from savings and the rest a bank loan from a local lender. He now rents a house, and plans to default on the loan. ‘The salaries of my wife and I are not enough to pay bank interest,’ he said.”
“Harpreet Pandher had spent more than a month casing apartments in Toronto’s frantic condominium market, and the one-bedroom gem at Queen’s Quay seemed custom-made for her lifestyle. The $500,000 price tag was not unreasonable—not, at least, by the giddy standards of her adopted hometown. But the more Pandher pondered that price, the more she felt a chill in the region of her shoes. ‘I would have been going paycheque to paycheque,’ acknowledges the 23-year-old. ‘I’d be giving up a lot of recreational things, even just going out with co-workers.’”
“In 2009, central bankers and political leaders here faced a Hobson’s choice: loosening access to credit might produce a housing bubble; but if they didn’t they risked strangling badly needed business investment. So, in March 2009, the Bank of Canada lowered its overnight rate to 0.25, and that year the federal government added incentives aimed at getting more people into houses. The effect has been to transform housing from a key sector of the economy into its main engine. Economist Ben Rabidoux, who spends a lot of time trying to bring attention to this warp, has taken to quizzing people about Canada’s leading industry. ‘It’s not manufacturing, not resource extraction,’ he says. ‘It’s real estate services. I think a lot of people would find that shocking.’”
“This Government loves exciting fresh ideas, so they’ve announced an extension of their plan to boost the economy, the Help to Buy scheme that makes it easy for people to borrow more than they can afford to buy a house, so that house prices will go up, making us all feel better off. If only someone had tried before to inflate an economy by lending huge amounts to people to buy houses, even if they couldn’t afford it, then it might be possible to predict how this might end.”
“One clue as to whether the main objective of this scheme really is to help first-time buyers, is that the loans they plan to back up are for properties worth up to £600,000.”
“Perhaps the most impressive side to this strategy, of imagining the economy is on the up because house prices are being encouraged to rise, is it doesn’t ignore the lessons of old economic history, it ignores the lessons of about five years ago. Usually it’s considered polite to wait a century before repeating a catastrophic mistake, but this lot are going for it straight away.”
and incomes went were ?
nowhere
Exactly.
So the question is this;
Do you really believe incomes are going to triple to meet grossly inflated housing prices? Of course not. Housing prices will fall two-thirds to get back down to the long term trend of early 1990’s prices in order to meet incomes.
“He also said he sees buying a home as a questionable investment at this point in his life and instead chooses to put his money into small businesses. ‘Making all the credit sacrifices for home ownership, assuming high levels of debt, changing your lifestyle so you can’t eat out as much or travel… makes it a much less attractive option today than it was historically,’ says Hughes.”
The smart under-35 somethings seem smarter this time than during the pre-2008 episode.
being too conservative wont make u any cash.
It won’t lose you any money either, which is not a bad objective.
Nancy, sitting on the sidelines is fine, but watching others succeed and fail is what Communism/Socialist hard liners always preach, be happy with so little?
Capitalist countries are a potpourri of all you can be society, and yes these countries have peaks and valleys to be sure. But in the end, there is nothing better on earth to date that I know of.
The Bentley’s and the Kia’s that drive by you, the mansions and the tralier parks you pass,that is what industrial societies are all about, if Americans don’t dream anymore then we are domed!
What I’m saying is there is a time to be a player and a time to sit on the sidelines. The smart player knows when to play and when to sit.
Capitalist countries…Singapore, Hong Kong, New Zealand, and Australia. Would be nice if the USA went capitalist so we could also have opportunities too.
But it won’t let broke, stupid and despondent live with you either.
All the non lucky ducky millennials I encounter either own or are chomping at the bit to buy, with stars in their eyes over expected future appreciation. Tell them that it’s not a good time to buy and they roll their eyes.
Yep. The birth rate for suckers remains at one a minute.
In my area all the landlords have stars in their eyes, and rents are going up and up and up. New apartment buildings everywhere, $20/sqft seems to be the bottom of their target price for apartment rental pricing.
And there aren’t great jobs here.
Looks like they’re going to have a whole lot of empty rentals.
what happen to SI’questor?
I would think norfolk/ oceanna etc would be cautious
Not too much, there is still tons of government jobs.
And you can’t do much against rising rents when all of the landlords move their prices up together.
There might be 15 or 20 companies that own a ton of the rental properties. Large apartment complexes. Heck, some of them share the same name but have the city after it.
‘in the Sacramento region as elsewhere; about 4,200 homes in the region are bank-owned, putting the region 25th out of 153 nationally. However, of those 4,200 bank-owned homes, 43 percent still have the previous owner-occupant living in them even though the bank foreclosed.’
‘The good news is San Antonio appears to be vampire and zombie-free, according to the RealtyTrac report. The same cannot be said of vampire REO properties in Dallas or Houston. RealtyTrac reports that there are a total of 6,676 bank-owned homes in the Dallas MSA. Of those, 51 percent are still occupied by the previous owner.’
‘In the Houston MSA, there are a total of 6,582 bank-owned homes — of which 65 percent are occupied by the foreclosed-upon owner.’
Here’s the realtytrac link:
http://www.realtytrac.com/content/news-and-opinion/monsters-of-the-housing-market-7892
It has graphics you can mouse over and see the various cities. The big question is, why? Some of these cities are hot, hot HOT! With a month of inventory, we’re told. So why are there thousands of houses just sitting? Why isn’t the media asking these banks and GSE’s what the hell is going on?
The days of professional journalism are over. In their frenzy to garner ratings, they chose to eliminate the fact checkers (who cares if its true, as long as the audience sticks around for the commercial) and in their place we have scripters who are focused on ‘the tease’ to keep you waiting through the ‘mercials’ and the latest toss-off from Dancing with the Stars. Besides, the real estate market is recovering nicely- they read about on the internet. Ban Ding Ow
Fact checkers? I’d be happy if they kept the proofreaders.
“However, of those 4,200 bank-owned homes, 43 percent still have the previous owner-occupant living in them even though the bank foreclosed.”
Do these folks pay rent? If not, why don’t the banks foreclose and sell the collateral, especially given the booming investment market around Sacramento? It seems like the banksters are missing their last good chance to cash in a little equity before the next leg down in housing prices.
It’s obvious to me, as I’ve posted many quotes with agents, etc, saying, ‘banks don’t want to drive down prices’. They have used all these laws to hoard houses and dribble them out at higher prices. In the case of the GSE’s, they don’t have to worry about getting their money back, they just need someone in DC to keep them alive:
‘Freddie Mac failed to refer nearly 58,000 foreclosed mortgages with about $4.6 billion in shortfalls to vendors who assess borrowers’ ability to repay and are responsible to collect mortgage payments, thus foregoing a chance to recover dues from homeowners who had the ability to repay, according to an audit report from the Federal Housing Finance Agency’s Office of Inspector General, or OIG, in Washington.’
‘The defaults were made by home owners on government-guaranteed loans in states that had provisions for making post-foreclosure collections, and this included strategic investors who stopped repaying their loans because the value of the mortgaged property dived more than what they owed to the company, the audit showed.’
‘These are pennies on the dollar, but it sets an example,” Frank Pallotta, managing partner at Loan Value Group, a mortgage consulting firm, told Bloomberg News. “There’s a contagion effect that kicks in when people who are underwater see their neighbors walk away without having to give up cars or boats or vacation homes,” he added.’
‘Freddie along with Fannie, was taken over by the U.S. government during the 2008 financial crisis, as they moved closer to bankruptcy. The Federal Housing Finance Agency took over the companies and infused billions of dollars to keep the companies afloat, and to prop up the housing and mortgage sectors.’
“There’s a contagion effect that kicks in when people who are underwater see their neighbors walk away without having to give up cars or boats or vacation homes,” he added.
Sweet. Now that’s playing the game like a pro…
If not, why don’t the banks foreclose and sell the collateral, especially given the booming investment market around Sacramento?
The banks don’t need to “foreclose”—the article stated that these are already bank-owned houses, e.g. REO.
All they need to do to sell is list it (with appropriate disclaimers about there being a non-tenant living in the house, buyer to deal with that, yadda yadda). I have seen listings to that effect in Seattle.
So, past experience projected forward, why wouldn’t a renter purchase a house today, risking only 3%, then, from day one, not pay the mortgage, and spend the next 5 years rent free? I would think the right lawyer could even extend that period out to 7-8 or more years. Moral Hazard’s a bitch, eh Mr. Bernanke?
That said, I can’t think of a worse “investment” than in ever depreciating cash, so what’s the lesser of evils? And, free rent is pretty cheap.
Next up, QE4, $100 + Billion a month? Maybe the past $4 Trillion hasn’t done it, but, to paraphrase Hendry, ‘Some trillion, some time, will do it.’
Does a renter feel lucky? I would suppose it’s possible he could win maybe one hand, as long as he doesn’t look back at the last 100 year game trend.
For sure, RE will still be standing, alongside most other infrastructure, long after the dollar is gone. Not sure what a pile of rent receipts will be worth. Three steps forward, one step back, as usual.
http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/
The most critical words in investing “Don’t fight the Fed.”
Good luck.
That said, I can’t think of a worse “investment” than in ever depreciating cash, so what’s the lesser of evils? And, free rent is pretty cheap.
Nothing is a worse store of value than a depreciating house. Nothing.
And if you’re cash is so worthless as you suggest, you’re welcome to send it to me.
C’mon- everyone wants an albatross around their neck, right? Housing is a great investment- just ask everyone trying to short-sell (their bank’s) property right now and every ‘vampire’ who hasn’t paid their mortgage in years! Get with the program! Grab a couple of those cinderblocks over there and jump into the deep end of the pool with the rest of us! Its fun! Don’t rent from some landlord with flexible terms and options- rent from a big@ss bank and lock yourself into a contract for a couple of decades! http://www.sadtrombone.com/?play=true
Japan has been playing the QE game for 20 years now. Still no hyperinflation.
Don’t you really mean Japan has been practicing Keynesian economics since the 90s trying to break its depression and still no inflation?
“Australian Property Monitors senior economist Dr Andrew Wilson explained that comments made about the prospect of 20 per cent house price growth in Sydney over a year were ‘nonsense’. ‘That’s not going to happen,’ he said. ‘It makes very exciting reading – the boom, the bubble – but it is the boom, the bubble and bulldust at this stage.’”
_________________________________/
He can say this all he wants. At this point Australia’s leaders will not allow him to be discredited, just like America’s leaders, including Barack Obama, refused to discredit the purveyors of this faith, who are once again ascendant in our culture.
I do not see any way out of this outside of collapse, because clearly no voluntary changes are going to occur. And collapse isn’t pretty.
‘no voluntary changes are going to occur’
Check this out:
‘New Zealand interests rates are set to soar if new restrictions on high loan-to-value mortgages fail to curb the country’s overheating housing market, the head of the Reserve Bank of New Zealand (RBNZ) warned Thursday.’
‘The official cash rate was projected to rise by 2 percentage points from its historic low of 2.5 percent, where it has sat unchanged since March 2011, over the period from next year to 2016, RBNZ governor Graeme Wheeler said in a commentary on the RBNZ website.’
“This could result in interest rates on first mortgages of 7 to 8 percent. If the loan-to-value speed limit is unable to slow house price inflation, larger increases in the official cash rate would be required,” he said.’
‘Wheeler was defending the RBNZ’s move this month to restrict banks to lending no more than 10 percent of their mortgages to people with deposits of less than 20 percent of the value.’
‘Our concern is that excessive increases in house prices in parts of the country, if unchecked, pose increasing risk for the financial system and the broader economy. High and rising house prices increase the risk and potential impact of a major correction in house prices, and consequential loss to lenders. In a severe downturn, such losses would be expected to significantly reduce banks’ willingness to lend,” said Wheeler.’
Other countries that are actively doing at least something to bring down house prices are Singapore, Honk Kong, Indonesia, Malaysia, and to a much lesser degree, Canada and China.
They will raise their rates to slow down housing which will increase the value of their dollar which will induce foreign investors away from the US dollar.
Then Ben will have to do something.
India had to raise rates to defend their currency.
Ben, I don’t know about that. How many times has China feinted in that direction? Ten? Twenty? But the Chinese bubble roars on.
My guess is that, in all of those places, the allure of getting something for nothing is too strong.
‘Home sales have finally begun to slow after a red-hot summer that saw prices soaring so quickly that some began to worry about the return of a housing bubble. But despite the recent housing gains, the country’s home ownership rate has continued to fall. Just 65 percent of households in the first half of this year owned their homes, the lowest level in 18 years, and a significant decline from the record high rate of more than 69 percent reached at the height of the housing boom in 2004.’
‘Although home ownership rates are likely to rebound a few years from now, the gains will be slow, and housing economists don’t see them ever again reaching the unhealthy “bubble” levels hit in the early 2000s. Here’s why: 7. Buying isn’t the “American Dream” anymore. The American Dream used to be synonymous in the American psyche with home ownership. Not so anymore. Today, the most popular definition of the American Dream is retiring with financial security, followed by being debt-free, according to a survey released in September by Credit.com. Just 18 percent said that buying a home was the American dream.’
‘Sales of new homes slid 2% this summer, which indicates that the real action is among existing homes. Blackstone and other institutional investors (besides Oaktree) haven’t talked about their pivot from buying to selling, but such a move appears inevitable in light of higher real estate prices and still-affordable mortgages.’
‘The softness in the latest housing activity data has added to concerns that the housing recovery in 2012 was entirely driven by low interest rates and institutional investors,’ noted Goldman’s analysts.’
How much do they get paid for this?
‘the housing recovery in 2012 was entirely driven by…’
Not somewhat, or largely: entirely. The net numbers show thousands of people stop owning and start renting every month. There’s gonna be a lot of butt-hurt loan owners in the near future.
“‘Although home ownership rates are likely to rebound a few years from now, the gains will be slow, and housing economists don’t see them ever again reaching the unhealthy “bubble” levels hit in the early 2000s.”
Given price support measures by the Fed and other governmental agencies, it could be a very long time before prices drop back to affordable levels for many American households to become home owners again. Meanwhile, I hope the investors enjoy cashing out their Fed-fueled home equity gains.
Can it be any surprise? Look at unemployment for recent college grads, or student loans. This is what you get when absolutely nothing is done to fix a busted economy, and all resources are poured into bubbles.
‘Perhaps the most impressive side to this strategy, of imagining the economy is on the up because house prices are being encouraged to rise, is it doesn’t ignore the lessons of old economic history, it ignores the lessons of about five years ago. Usually it’s considered polite to wait a century before repeating a catastrophic mistake, but this lot are going for it straight away.’
Nobody learns anything when they are saved from the consequences of their mistakes. They just double down and go for an even bigger score to make up lost ground.
There’s gonna be a lot of butt-hurt loan owners in the near future.
No question. That’s in addition to the millions of red-assed debtors washed out 2007-2010 before the monarchy put in place all the delays, foreclosure moratoriums and new automatic gates for donkeys to enter.
It’s strange how those who have a stake in the direction of housing prices desperately cling to the false notion that the federal reserve PUT will always be there. Yet those who don’t have a stake clearly see the outcome and do everything to avoid becoming a casualty when it becomes evident the PUT doesn’t really exist.
And remember…. it doesn’t take a crystal ball to see like the liars suggest. It merely takes a fundamental understanding of the value of a dollar, understanding the cost to produce something(a house in this case), the concept of depreciation and a little bit of history.
And remember…. it doesn’t take a crystal ball to see like the liars suggest. It merely takes a fundamental understanding of the value of a dollar, understanding the cost to produce something(a house in this case), the concept of depreciation and a little bit of history.
And a lot of patience, it would seem.
Patience and mental fortitude come easy knowing the alternative is financial suicide.
the alternative is financial suicide.
Isn’t your maximum loss something close to the purchase price, plus your carrying costs (e.g. maintenance, insurance, etc)?
In other words, suicide for some, and merely a flesh wound for others…
“Perhaps the most impressive side to this strategy, of imagining the economy is on the up because house prices are being encouraged to rise, is it doesn’t ignore the lessons of old economic history, it ignores the lessons of about five years ago. Usually it’s considered polite to wait a century before repeating a catastrophic mistake, but this lot are going for it straight away.”
LOVE LOVE LOVE this quote.
‘So, I poured my heart and soul into it. Now, we don’t know where we’re going…The salaries of my wife and I are not enough to pay bank interest’
Why do they always squeal like a pig?
Because they forget to hee-haw like a donkey.
Well, like these people in the Canadian article:
‘Anecdotes abound of people laid low by the unexpected costs of ownership. Heidi Eisenhauer, 39, thought she and her partner had stumbled on a gem when they shelled out $369,000 for a semi-detached Victorian in an up-and-coming Toronto neighbourhood. The house even had two apartments, the income from which would help cover their $250,000 mortgage. But their first minor renovation revealed jaw-dropping flaws their home inspector didn’t see, including an absence of beam work to support extensions added to the house. “We drained every financial resource we had,” Eisenhauer says ruefully. “Our in-laws had to remortgage their home, which they’d paid off, so we could do our renovations.”
‘Suddenly, the couple’s seemingly manageable $1,700 monthly mortgage payment became a burden to meet. “We never thought we’d be house poor,” Eisenhauer admits. But after three years of struggling—even with income from the two suites—they gave up and sold the house last February.’
‘We drained every financial resource we had…Our in-laws had to remortgage their home, which they’d paid off, so we could do our renovations…We never thought we’d be house poor’
If they had screwed up in the stock market, I doubt they would be crying like this. It’d be more like, ‘we knew we were gambling and we blew it. Shame on us.’ But with a house, it’s ’squeal like a pig!’
Now THAT story is beautiful.
Well donkeys….. you know what you got coming at you at least. And for those of you thinking of pulling the trigger, this should give you great pause.
Housing is a money pit. Is housing cheerleader Donald Trump bankrupt again (yet)? People still want to be like Trump. How about Robert Kiyosaki? In late 2009 I owned $x in stocks and stock mutual funds. He kept pounding the mantra that stocks are no way to wealth - own rental housing instead. My holdings in stocks are now more than two times $x. Glad I listened to him.
“Because they forget to hee-haw like a donkey” - dyaammmm you are funny!
Their hearts are made of other people’s money, apparently.
‘So, I poured my heart and soul into it. Now, we don’t know where we’re going…The salaries of my wife and I are not enough to pay bank interest’
From the same King5 story: “There are still 20 thousand homes out there that are underwater and subject to possible foreclosure in Seattle,” said Nick Licata, Seattle City Council
From the comment section of the article:
“A 5 minute search of NWMLS and Realist (pulled from King County Records) revealed the following information:
Ms Belgrano bought her home at the end of July 2006 for $180,000 at that time she got 2 loans totally $180,000.
Within 3 months she got another loan for $106,000. This loan was either a third or replaced the existing $36,000 second and gave her funds for her remodel.
In June 2007 she refinanced for $340,000. It would appear that she was able to cover the original purchase price, her remodel and pull out an additional $50,000 to $60,000 equity from the property. If this was the loan being foreclosed on the sympathy and outrage to the lender might be understandable.
But, in May of 2012 Ms Belgrano refinanced again with her existing lender for $351,987. Loans of this type are typically are modifications to make the loan more affordable for the home owner.”
sure- add re taxes going up big time
http://finance.yahoo.com/news/us-housing-rebound-likely-handle-172712908.html
My elderly Midwest neighbors sold their home to a cash buyer. The cash buyer did a total gut on the place, put in granite floors, the works.
It was funny watching the workers *try* to back up the twisting hillside drive. The new owners have a time of it too. …And it’s not even Winter yet.
The old couple told me the new owners would come to Hate that twisting uphill driveway (especially come Winter) and the sloping, hard to mow, lawn. The old couple also regretted not selling sooner and moving into a one bedroom apartment, “We were crazy.”
(Which means they didn’t mind subsiding the rich purchases, P.B. They just didn’t care.)
The forty-something new owners paid like $79,000 for the house, added a $15,000 fireplace, and I suspect $25,000 other upgrades.
It seems so puny compared to the other amount$ in this blog post. But for here, it seems about the same. Especially when you factor in the crime and the loud relentless train horns blaring at every hour.
If I had that kind of money, I sure as heck wouldn’t spend it to stay in this neighborhood.
It’s a good thing my city is going mad building bike paths everywhere. …Right?