Bubbles Like Rapidly Poured Soda
It’s Friday desk clearing time for this blogger. “In New Jersey, foreclosure filings — which include default notices, scheduled auctions and bank repossessions — rose 44 percent last year, RealtyTrac said. Atlantic County was up 45 percent, Cumberland County 38 percent and Cape May County 20 percent. Michael Kadas needed nearly five years to get anything more than a nibble on his five-bedroom home in a Northfield cul-de-sac. The past six months brought something new — offers to buy. But bids have been much lower than the $379,000 asking price for the property. ‘We’re finding we’ve been up against a lot of foreclosures,’ said Kadas. ‘That’s been hurting us. We’re not upside down, but we’re trying to compete with all these bank-owned (properties).’”
“A recent study from the Woodstock Institute shows there are more than 11,700 ‘zombie properties,’ or unresolved foreclosures, in the area, including 5,800 in Chicago. Researchers found 60 percent of foreclosures filed from 2008 to 2009 remained unsold by 2012. ‘There is a lot of talk about the housing market coming back, but the truth is it’s not coming back everywhere,’ said Katie Buitrago, senior policy associate at the Woodstock Institute.”
“Come tax time, JPMorgan Chase will be able to write off the $1.5 billion in debt relief it must give homeowners to satisfy the terms of a recent settlement. But the homeowners who receive the help will have to treat it as taxable income, resulting in whopping tax bills for many families. ‘I’m in a hole here — I’m trying to work my way out,’ said Eric Heil, who said a divorce and reduced income were forcing him to sell the house he has owned for 18 years in Parma, Ohio. ‘And the government’s going to say you have to pay taxes on it?’”
“Another property report shows there is a slowdown in the market, with houses taking longer to sell. Westpac chief economist Dominick Stephens said the market was slowly moving away from being a sellers’ market. ‘The nub of this report is that the inventory of unsold properties continues to gradually rise and that, to me, indicates that the housing market is continuing to gradually slow,’ Mr Stephens said. Two things were contributing to that - the Reserve Bank had imposed restrictions on low-deposit lending and interest rates were expected to rise from next month.”
“‘I think that that message has gotten through wide and far across New Zealand, so most people are now convinced of that and, again, higher interest rates is probably something that’s just put a bit of doubt into people’s minds about the future of the housing market in New Zealand,’ Mr Stephens said.”
“The median overall Cash-over-valuation (COV) premiums dipped by another S$2,000 last month to S$3,000, a report by the Singapore Real Estate Exchange showed, matching the level in June 2009, when global markets were still recovering from the shock of the Lehman-led crisis. Even choice estates such as Bishan and Marine Parade had deals transacted last month at zero or negative COVs. Mr Ku Swee Yong, CEO of property agency Century 21, said: ‘The wider implication is more on sentiment, the feel-good factor, because even though a 10-year-old flat would have doubled in value, there is a higher risk that the owner will take in a smaller profit now. So this may prevent him from investing in another property or lead him to decide not to sell the flat,’ said Mr Ku.”
“Experts affirmed that the property market is frozen. They also said that it is now the right time for foreign investors to invest in Vietnam’s real estate, when the market cools and domestic investors have no more money to develop their projects. However, foreign investors have not flocked to Vietnam to buy the ongoing projects as predicted. ‘The real estate market has bottomed out. The high end market segment remains frozen, while the investments won’t bring immediate profits. All these factors explain why foreign investors do not come to Vietnam,’ said Dang Hung Vo, a well-known property expert in Vietnam.”
“In the past five years, Chinese banks have created lending close to $15 trillion. China’s 4 trillion economic stimulus plan in 2008 during the global financial crisis has started to see economic bubbles like rapidly poured soda. Ren Zhongdao, financial analyst: ‘The real estate bubble is very obvious. The financial system such as the shadow banking has accumulated more than 30 trillion of wealth, equivalent to half of GDP. What does it mean? That means half of the wealth created by the people are bubbles.’”
“No. No. No. There is no shortage of housing. In fact, there is too much of it – if you’re the affluent middle class. It is the poor who are being cheated in Pakistan. Only one per cent of housing is within their reach. ‘There is no shortage of land or money,’ clarifies Tasneem Siddiqui, whose policy brief on Pakistan’s urbanisation has just been released by the Woodrow Wilson Center. It’s just that 68% of Pakistan – the sanitation workers, teachers, electricians, who earn between Rs8,000 and Rs30,000 – are so far down the food chain that they can’t dream of owning a house.”
“In Pakistan, the rich buy land as investment but keep it vacant, a form of speculation. At one time, 300,000 plots were vacant in Sindh alone while 40% of the population was living in katchi abadis. ‘The government is foolish, careless and stupid,’ he says. ‘People have to live somewhere.’”
“Robert C. Hockett, former Resident Consultant for the Federal Reserve Board, international finance expert and professor of Law at Cornell University, discusses how Janet Yellen will usher in a new era of a proactive Fed. Hockett says: ‘Dr. Yellen is the first Fed Chair in modern memory who is on the record – and has indeed long been on the record – in maintaining that the central bank can and should spot asset price bubbles while they are in the making, and that it can and should act to pre-empt them. This vision – that of a ‘proactive,’ or ‘macroprudential’ Fed – might seem unsurprising to lay persons, but in fact it has been missing from mainstream central bank theory and practice for over 30 years. Chair Yellen has long seen that this was a mistake, and her now taking the reins at the Fed is significant above all on that account.’”
“Let’s review exactly what Ms. Yellen had to say about our housing market in 2005 in a speech entitled Housing Bubbles and Monetary Policy: ‘In the U.S. as a whole, the share of residential investment in GDP is now at its highest level in decades, and this sector has been a key source of strength in the current expansion. The question for policy is: will this source of strength reverse course and become instead a source of weakness? Put more bluntly: Is there a house-price ‘bubble’ that might deflate, and if so, what would that mean for the nation’s economy? What, if anything, should policy do beforehand?’
“‘How…should monetary policy react to unusually high prices of houses—or of other assets, for that matter? The debate lies in determining when, if ever, policy should be focused on deflating the asset price bubble itself. In my view, it makes sense to organize one’s thinking around three consecutive questions. First, if the bubble were to deflate on its own, would the effect on the economy be exceedingly large? Second, is it unlikely that the Fed could mitigate the consequences? Third, is monetary policy the best tool to use to deflate a house-price bubble? My answers to these questions in the shortest possible form are, ‘no,’ ‘no,’ and ‘no.’”
“One, two, three strikes, she’s out.”
“One, two, three strikes, she’s out.”
Meet your new Team Captain.
“In the U.S as a whole, the share of residential investment in GDP is now at its highest level in decades, and this sector has been a key source of strength in the current expansion.”
And this is partly because …
Real estate construction is one of the few items of production that cannot be done somewhere else. If you are going to build here then you are going to hire here. And people who are hired here are, for the most part, going to spend here.
Plus …
Real estate is generally financed by borrowing from way, way into the future - maybe thirty years or so into the future. Few expedtitures have access to so much money taken from from so many future years. The more years in the future you get to tap for money the more money you get to spend today. And spending money today goes into the economy today. Down the road a bit - in the long run - this spending today may bite us on the butt tomorrow but in the long run we are dead.
You’ve got a good 40 years of working. How many of them do you want to devote just to paying interest to the bank?
What about the 15-20 years that you’re NOT working after that? How many of them do you want to devote to paying the LL’s interest to the bank?
I’m surprised that HA/RAL hasn’t been undercut by China-made pre-fab houses. Ship the house kit in parts which are small enough to fit in a shipping container/semi flatbed. Have some undocumented workers waiting at the job site. Assemble house, pick up a load of recycleables from the local county dump, ship back to China in the same container. Heck, Sears was doing this by rail 100 years ago, can’t be too hard.
Another DebtDonkey strawman.
Rent(which is always less and currently half the cost of buying) and amass large quantities of cash during your working years.
Too funny Oxy. Are you going to stay in your half a million $ house in bee hive central when you are 80? You could have a nice little elder bachelorette cottage in wine country for $40K and call life good.
Bubble prices plus myriad government subsidies encourage overinvestment in housing.
The instant I read the professor’s “expert” commentary on Yellen I knew a rebuttal was imminent. Has there ever been a time when we were graced with so much incorrect expertise? We’ve got laypeople who know better than that guy. Then again, maybe he was just being a sychophant.
‘China is likely to remain a source of jitters to emerging markets in 2014, in addition to Fed policy. But the “center” of risk is migrating from developed markets to emerging markets, courtesy of “Helicopter” Ben Bernanke and now “Whirlybird” Janet Yellin (nicely nicknamed by Doug Kass of Seabreeze Partners Management).
Yes, the emerging craters are in big trouble now. I know because I’ve noticed a lot of really vocal cheerleading from internet randos, going on and on about the “amazing growth” in the emerging craters, and saying that the jobs are all going into the craters because they are “following the money”. Rando comments that directly contradict the actual news.
N Bethesda, MD Housing Prices Crater 24% YoY; Days on Market Triples
http://www.movoto.com/north-bethesda-md/market-trends/
‘JPMorgan Chase will be able to write off the $1.5 billion in debt relief it must give homeowners to satisfy the terms of a recent settlement. But the homeowners who receive the help will have to treat it as taxable income’
When I studied taxes, the way it was explained was if it’s a deduction for one party, it has to be income for someone else. Something about fairness or whatever.
“And the government’s going to say you have to pay taxes on it?’”
That’s right. It makes the banks whole, keeps you in your house (at least for a little while), and then you gotta pay Uncle Sam.
See how that works?
The sharks have to keep swimming (excluding nurse sharks, of course).
The system is stretched, but we have to keep going.
maybe it would have been better just to let them foreclose and move on?
I fail to understand what incentive there is for the debtor to arrange a short sale even during the tax moratorium. Why go through the trouble and expense? Is it just so the neighbors don’t remember you as the guy who abandoned that house? So you can get another mortgage sooner than after a foreclosure?
It matters if you’re in a recourse state.
Bingo, Oxide! I was trying to locate some old neighbors a couple of years back (Florida, a recourse state) and discovered they had been foreclosed on. The 3 adults that were on the mortgage had judgments of over $500k (individually, until satisfied or 20 years). This was on a house they paid about $180k for in 1998. A short sale would have been sooooooo much better!
But the second lien-holder won’t usually approve a short sale.
But the second lien-holder won’t usually approve a short sale.”
At auction the 2nd would risk getting even less or nothing.
Yet they don’t approve them.
My understanding is that it damages your credit a lot less. Additionally, some banks have been writing checks to assist for moving expenses, etc. It is definitely in a bank’s best interest to pursue a short sale, rather than auction on the courthouse steps.
“But the homeowners who receive the help will have to treat it as taxable income”
One exception to cancellation of indebtedness income is insolvency. Many of these people may be insolvent. Whether they get good tax advice is another question.
‘Auckland’s average house price slipped in January, reflecting a seasonal slowdown following the Christmas and New Year holiday period. The average sale price fell 7.6 per cent to $647,207 from a record in December, although it is 7.7 per cent ahead of January last year, according to realtor Barfoot & Thompson. The median price fell 7.8 per cent to $580,000 from December.’
‘A Far North beachfront mansion has had its price slashed at least three times in the past three years after a struggle to sell - and is now being offered for $1.25 million below its valuation.’
‘The home, on 16ha of former farmland overlooking Doubtless Bay, has in the past week has been relisted with two companies, Bayleys and Harcourts, with an asking price of $3.1 million, despite its $4.35 million CV, which was set in August.’
‘Two years ago it was advertised at $12 million. The price was then slashed to about $7.9 million, and dropped again last year to $3.97 million before reaching its new price this week.’
‘An Auckland-based developer behind multi-million dollar projects has had a property owned by one of his companies put up for mortgagee sale by a company he borrowed money from. Tony Gapes is still building several multi-million dollar projects through various companies around New Zealand.’
‘Those include Springpark, billed as New Zealand’s biggest residential development with 424 apartments or townhouses. Money lender ASAP Finance has put a 1615sq m prime plot on Wellington’s Waterloo Quay up for mortgagee sale today as it tries to claw back some of the $6.99 million it lent. The site - which has a valuation of $4.9 million but was bought for $5.6 million in November 2011 - is next to the Wellington Railway Station and has resource consent for commercial office or residential use.’
‘The Australian Securities and Investments Commission has banned Sydney mortgage broker and real estate agent Hyuk Hwang and Melbourne mortgage broker Anthony Bergin from engaging in credit activities for three years. ASIC says Mr Bergin’s company was found to have submitted seven home loan applications worth a total of $3.2 million that contained false or misleading information, including false payslips.’
‘Mr Hwang was found by the regulator to have been involved in the submission of false documents to secure a $250,000 loan.’
‘Eight individuals have now been convicted or banned for providing false information in home loan applications since November as part of ASIC’s campaign. ASIC’s deputy chairman Peter Kell says the regulator is working on another 15 cases at the moment.’
“There’s no doubt that we have to be more vigilant as the [housing] market heats up,” he said.’
‘Mr Kell says the regulator has been unpleasantly surprised by the amount of fraud it is detecting through its crackdown. “There are certainly more cases than we’d like to see. There are certainly more cases coming through than we really should be expecting,” he added.’
‘ASIC says it is observing a rise in commissions that banks pay to brokers in the fight for market share in an environment of slow credit growth. “We’re also seeing lenders offering greater levels of commission to mortgage brokers as they compete for market share through the broker channel,” Mr Kell said.’
“The most important graph in Australia’s history.”
hhhhhhhhhhhhholy sufferin…….
Wow…Nice find Ben….Vertical starting in 2000…
‘Two leading international economists have forecast a property bust, if interest rates stay low and house prices continue to rise faster than wages growth. Former top government economist Quentin Grafton has signalled the growth in house prices is a concern.’
“While I am cautious enough not to claim there is a ‘boom’ that inevitably implies a bust, the recent growth in the national median house price of 9% in 2013 (14% in Sydney) is of concern, especially when it is about three times greater than nominal wage growth (and also inflation),” he will say in a speech to the Australian Bureau of Resources and Energy Economics. “Should the house price growth spurt continue for much longer there could be an overshoot that may create an ‘overhang’.”
‘A UBS survey of bank chief financial officers released yesterday revealed banks are lowering their lending criteria, offering more competitive mortgages and discounting fees. “Loan officers indicated lending standards have been loosened materially in both mortgages and large corporate lending over the last six months,” the report says.’
‘Two leading international economists have forecast a property bust, if interest rates stay low and house prices continue to rise faster than wages growth.”
They will crash if interest rates slow and crash harder if interest rates go up.
“interest rates slow” = stay low…don’t go up as everyone predicts…
Unpleasantly surprised by fraud? More cases than you really should be expecting? I’m shocked, shocked to find out that gambling is going on in here!
‘Housing prices in Beijing are on the rise, but the city’s tomb prices are going up even faster, at the minimum rate of 30 percent each year. In some areas, prices now soar as high as 400,000 yuan (US$65,580) per square meter. Beijing is becoming a city where it is both too expensive to live and die.’
‘Fushouyuan, a funeral undertaking company, recently went public in Hong Kong, stating in its IPO document that its gross profit rate in the first half of 2013 had reached 80.4 percent. According to the company, graveyard sales accounted for more than 85 percent of revenues and the average price for a tomb had risen from 98,000 yuan in 2011, to 150,000 yuan (US$24,790) in 2013.’
“It’s difficult not to associate such stunning high profits with words like ‘monopoly,’” said Yang Genlai, a funeral industry expert. “The rising graveyard prices are an indisputable fact. But they went up too steeply in recent years,” he said. “Death is fair to everyone, except for tomb prices. Rich people can build stylish tombs; but then what will the poor do?”
Spread my ashes on the sea, and celebrate with an expensive bottle of wine. No tomb for me, either in this life or the next.
That loophole needs to be closed, obviously. A large convenience fee can be charged for cremations. We need some new way to add to the debt load of the living.
Set me adrift in the lifeboat with a lit cigar then.
Oops!
Manassas, VA Housing Prices Crumble 15% YoY; Inventory Up 38%
http://www.movoto.com/manassas-va/market-trends/
‘In the past few decades, millions of Mexicans became homeowners thanks to higher salaries and government aid. The increased demand fueled a boom of low-cost suburbs in cities like Tijuana. But now, many of those suburbs are falling into disarray, and residents have fled. There are an estimated 50,000 abandoned homes in Tijuana and some 600,000 across Mexico.’
‘These suburbs were largely fueled by a government agency called Infonavit. Mexican employers pay into a fund managed by Infonavit, which is used to finance mortgages for Mexican workers.’
‘Besides fomenting crime, abandoned units are a huge drag on the value of neighboring homes. Provive estimates that 2 million houses across Mexico are underwater because of the phenomenon.’
Burke, VA Housing Prices Sink 28% YoY on Rising Inventory
http://www.movoto.com/burke-va/market-trends/
I’m sure glad I didn’t buy a house in Burke, Va last year.
You’d have to have rocks in your head to buy a house at these inflated prices.
‘Suzanne Baker and her siblings bought a foreclosed home in Atlanta two years ago, added a fourth bathroom, then waited for values to rebound before considering a sale. Now, she says, they’re ready to cash in. The family last month listed the four-bedroom house in the affluent Buckhead neighborhood for $710,000. It was purchased as an investment for about $375,000 in late 2011, before bulk buyers snapped up many of the area’s distressed homes, helping to drive up prices in Atlanta by more than 25 percent.’
“The market is back up,” Baker said. “We think we can make a good amount of profit so we’re going to try.”
‘Inventory rose the most in some of the tightest areas, from Arizona and California to Georgia and Florida, where leaps in prices erased negative equity and encouraged homeowners to lock in profits, according to a separate report from Realtor.com, the property-listings website for the Realtors association.’
‘In Sacramento, California, where asking prices climbed 11 percent last year, listings jumped 58 percent in December, according to the website. The supply rose 35 percent in the Minneapolis area; 31 percent in Orlando, Florida; 27 percent in Atlanta; 24 percent in Dayton, Ohio; 23 percent in Oakland, California; and 21 percent in Phoenix.’
‘In Southern California’s Inland Empire, east of Los Angeles, homeowners got a jump on the spring selling season and began listing properties earlier than usual, said Paul Reid, an agent with brokerage Redfin. Sellers are “nervous about what the spring is going to bring,” said Reid, who is based in Temecula, California. “They don’t know if everybody will list this spring then you’ll have a big counterbalance toward too much inventory, or if there’ll be a crunch again. They figure they’ll get out ahead of the market, list, sell and be done with it.”
‘In the Phoenix area, institutional buyers purchased 44 properties in December, down from a peak of 831 in July 2012, according to Michael Orr, director of the Center for Real Estate Theory and Practice at Arizona State University. Active listings, excluding homes under contract, jumped 34 percent in December from a year earlier.“Demand is still weak and supply has been growing faster than last year,” Orr said in an e-mail. “I’m not seeing any likelihood of further price gains in the near term. Sales concessions are on the rise and list-price cuts are widespread.”
‘In Orlando, sellers aren’t getting as many offers as they did a year ago, said David Welch, a Realtor with locally based Re/Max 200 Realty. The market has changed since October 2012, when the Orlando Sentinel reported that a bank-owned property drew 64 offers before fetching $86,000 — about 23 percent more than the asking price.’
‘The median home price in December was $160,150, up 21 percent from a year earlier, according to the Orlando Regional Realtor Association. Sales dropped 5.2 percent, while new listings rose 24 percent.’
“Prices have gone up quite bit,” Welch said. “That house that was a great investment a year ago has gone up 20 percent and may not be anymore.”
‘Inventory rose the most in some of the tightest areas, from Arizona and California to Georgia and Florida’
Huh. Isn’t this where the flippers and hedge fund people have been most active?
‘Sellers are “nervous about what the spring is going to bring”
Ha ha. Don’t be nervous guys. Nothing to fear; there’s a shortage! I’m sure that mom and pop will be happy to step up and fund your windfall. Not!
“Suzanne Baker and her siblings bought a foreclosed home in Atlanta two years ago, added a fourth bathroom, then waited for values to rebound before considering a sale. Now, she says, they’re ready to cash in. The family last month listed the four-bedroom house in the affluent Buckhead neighborhood for $710,000.”
ATTN: Future bag holder
OK, so Movoto was right about the inventory numbers then. I have been wondering for a long time whether or not those numbers were trustworthy. Now here’s the thing. If Movoto is right about the inventory numbers, then that gives me more confidence in their price numbers too. So if Movoto is right about prices, then Zillow is wrong about prices. If Zillow would show inventory numbers too, then it would be easier for me to compare the accuracy of the two sources.
“But the homeowners who receive the help will have to treat it as taxable income, resulting in whopping tax bills for many families.”
On what planet is it whatsoever fair to waive taxes on income solely because it accrued to home owners?
On what planet is it whatsoever fair to waive taxes on income solely because it accrued to home owners?”
this planet
Capital gains home-sale tax break a boon for owners
By Kay Bell • Bankrate.com
What’s the best tax break available to Jane and John Q. Public? If they’re homeowners, it’s selling their house.
Homeowners already know the many tax breaks that Uncle Sam offers, most notably mortgage interest and property tax deductions. Well, he also has good tax news for home sellers: Most of them won’t owe the Internal Revenue Service a single dime.
When you sell your primary residence, you can make up to $250,000 in profit if you’re a single owner, twice that if you’re married, and not owe any capital gains taxes.
“Most people are not going to have a tax obligation unless their gain is huge,” says Bob Trinz, a senior tax analyst at RIA, which provides tax information and software to tax professionals.
Some sellers are surprised by this break, especially if they’ve been in their homes for a while. That’s because before May 7, 1997, the only way you could avoid paying taxes on your home-sale profit was to use the money to buy another, more-expensive house within two years. Sellers age 55 or older had one other option. They could take a once-in-a-lifetime tax exemption of up to $125,000 in profits. And in all instances, there was tax paperwork (Form 2119) to fill out to show that you followed the rules.
But when the Taxpayer Relief Act of 1997 became law, the home-sale tax burden eased for millions of residential taxpayers. The rollover or once-in-a-lifetime options were replaced with the current per-sale exclusion amounts.
“There is some logic to this law change because most people under the prior rules didn’t recognize a taxable gain because they rolled it over into another residence,” says Trinz. “The change essentially makes it easier to dispose of your residence.”
Finally, while technically there’s no limit on the number of homes you can sell and thus reap tax-free gain, each sale must be at least two years apart. That still leaves you room to make some money on several properties. You can sell your residence this year, pocket any gain within the tax limits and buy a new residence. Two years later, you can do the same thing, again and again every two years. ”
My 2 years is up in July .. I kinda liked Arizona come to think of it.
Hmmmm
” ‘I’m in a hole here — I’m trying to work my way out,’ said Eric Heil, who said a divorce and reduced income were forcing him to sell the house he has owned for 18 years in Parma, Ohio. ‘And the government’s going to say you have to pay taxes on it?’”
It’s still only half a hole you have to dig out of! Shut up and say thank you!! You’re welcome.
You want to talk about bubbles- look at crude oil! How do those sheep who were parroting “drill baby, drill” feel now? We drilled baby, we drilled, and we got higher prices! Now it’s “export baby, export” for lower prices. This stuff is so RICH I need a glass of water!
If the liberals are against it, God must be for it.
That’s the modern GOP in a nutshell.
If someone wants to work or start a business without government aid, then the democrats are against it.
That’s the modern DNC in a nutshell
It would be better if those oil rig workers were unemployed and we were importing oil from Saudi Arabia for $150/bbl instead of exporting oil at $95/bbl
I find myself in an enviable position compared to my fellow 20-somethings, yet am still unable to afford a home in San Diego. I am 25 years old, have $90,000 in savings towards a home, absolutely no debt, 800+ credit, and a $100,000+ job with generous benefits and retirement. I don’t mention these stats to brag, just to give an idea of where I am at in life. I am very fortunate and thankful for what I have.
I keep constant tabs on the San Diego market, yet can’t justify these insane prices for even a townhome in a respectable area. Starter homes go for $400k+ and condos $350k+. How can I be in this position and unable to justify purchasing when my fellow young professionals are likely nowhere near my savings? Something is seriously wrong with this market, and I am more than happy to wait it out. I have learned from older coworkers who found themselves massively upside down on homes purchased during the bubble, and don’t aim to repeat their unlucky mistakes.
Good for you. Stick around here, watch your wallet and sit tight.