The Housing Bubble

It’s Friday desk clearing time for this blogger. “In many parts of the country, home prices are nearly back to where they were at the peak. A major factor in the price rise is hedge funds, private equity firms and other large investors. One place where investors have been very active is Florida’s Palm Beach County. Jeff Lichtenstein is a real estate agent there, and he’s busy. He’s listing and selling homes at a pace reminiscent of the go-go days of the last real estate boom back in 2005 and 2006. ‘I have 19 or 20 under contract right now, which is the most I’ve had at any given time,’ he says.”

“Jack McCabe, an independent real estate consultant, has worked with some of these investment groups. He says he has seen many cases where they outbid the competition by paying more than the asking price, in some cases 25 to 50 percent more. ‘You ask yourself, ‘Why would these smart financial guys be overpaying for things?’ he says. ‘I believe it’s to bolster the market, to shut out their competition and to realize as much profit as they can in as short a period of time as they can.’”

“Five years after the federal government bailed out more than 1 million struggling homeowners, many who got the relief may end up losing their homes after all. Already, nearly 30 percent of those who qualified for relief have defaulted again. And roughly 800,000 borrowers who remain enrolled in the government’s flagship program will see their mortgage interest rates gradually rise starting this year.”

“The HAMP borrowers won’t be the only ones dealing with an increase. Many lenders developed loan-modification programs similar to the government’s initiative. Pauline James, a New York City homeowner, is one of those other borrowers. In December, they learned that their interest rate would increase to 4.6 percent, which it did this month, adding $200 to their monthly payment. It will keep climbing over the next several years, she said. ‘I don’t know how this is going to work, because I still don’t have a job,’ said James. ‘Things have gotten worse, not better. Why do they think I can pay more money?’”

“The blight of abandoned homes in foreclosure — so-called ‘zombie properties’ — hasn’t improved. According to RealtyTrac, 21 percent of homes in foreclosure nationwide in February had been vacated by the owner—unchanged from one year earlier. University of Arizona law professor Brent White said there’s an even worse problem for the housing market right now: ‘Hundreds of thousands of bank-owned properties that are similarly ‘zombie properties,’ for which banks have foreclosed and then just let the properties sit there.’”

“There’s the broken windows theory, and then there’s 142 Eastern Ave. It was all exposed for the neighborhood to see Feb. 19 when heavy snow caused the walls to buckle and splay. The city stepped in under emergency conditions and knocked down part of the building for fear that it would collapse. Grace Ross, of the Worcester Anti-Foreclosure Team, asked what the point was of the bank, which acquired the house through foreclosure in 2007, holding on to it rather than letting people live in it. She said the banks often argue in court that foreclosing on properties like 142 Eastern Ave. helps them recover value. ‘Well, what did they get out of this?’ Ms. Ross asked.”

“Donna Mejias said she’s going to court this week to try to keep JPMorgan from foreclosing on her house. She said she was laid off from the city in 2009, and drained retirement and 401K accounts to try to keep up with the mortgage. She found work again at lower pay, and said her efforts to modify the terms of her mortgage have been met with resistance from the bank. ‘This is what’s going to happen to my house if I have to leave,’ Ms. Mejias said.”

“‘After Katrina there were numerous, and I mean numerous properties sold to investors from out of state, particularly California at inflated prices with the promise that the rental market would support those high prices,’ said Karen Peters, property manager for Billy Hewes Real Estate. ‘Well guess what? The market deflated. Duplexes that were sold for $160,000 to $180,000 are [now] only worth maybe $60,000 to $80,000 and rents have dropped from between $900 to $1100 per month to $650 to $750. With the rising cost of insurance and taxes, there are a lot of those investment properties now going into foreclosure.’”

“Jone Joakimsen had to accept less money than he asked for when he sold his house outside Stavanger, Norway. He counted himself lucky: His neighbor’s home had been on the market since October. Joakimsensold his four-bedroom home in Sola for 4.7 million kroner ($776,000), 50,000 kroner below the asking price. While it was on the market for 10 days, he received only one bid, dashing his expectations for the bidding war that sellers have come to expect. ‘It’s sort of a painful process,’ he said. Sellers ‘don’t realize that they have to reduce the price because the market value has decreased.’”

“Landlords, including prospective ones, are getting the jitters as new units flood the market amid tighter manpower policies that are slowing the growth of arrivals. Private home rents fell 0.5 per cent in the three months to Dec 31, from a 0.2 per cent gain in the preceding quarter. This was the first quarterly decline since 2009, according to Singapore’s Urban Redevelopment Authority (URA) data. A potential oversupply looms in the background, with a total of 17,540 private homes expected to reach completion this year, while a further 21,299 will be ready for occupation next year. This will peak in 2016 with a remarkable 27,321 completions, and another 11,963 expected to be built in 2017.”

“With property prices losing steam, experts say that selling is hardly a viable option now, even for hard-pressed owners. Mr Ku Swee Yong, chief executive of property firm Century 21, expects the market to stay weak for the next four years, with rents dipping 25 per cent over the next two years. ‘If you don’t have a problem footing the monthly mortgage payments, just hold on to it because you’re not likely to get a good price and it’s difficult to buy again,’ says Mr Ku.”

“China’s property market soared ‘maniacally’ in 2013, while official figures showed that prices for newly constructed commercial and residential units in first-tier cities — Beijing, Shanghai, Guangzhou and Shenzhen — have surged more than 20% since September last year, reports Guangzhou’s 21st Century Business Herald, citing market experts. In February, the volume of Beijing’s resale housing transactions was 5,441 units, a drop of 46.3% year-on-year. It is clear that Beijing’s excessively high housing prices have curbed demand, the paper said.”

“In addition, the total area of completed construction of housing units in Beijing exceeded the total sale area in 2013. This means that an oversupply of houses has surfaced in the city’s property market and if the trend continues, it will become a pressure to drive down home prices.”

“As a senior World Bank official in Washington from 1997 to 2010, Graeme Wheeler saw how the U.S. subprime mortgage crisis unleashed a global financial meltdown. Since taking the helm of the Reserve Bank of New Zealand in September 2012, he has drawn on that experience, introducing lending restrictions last year to try to deflate an overheated housing market. Now he’s turning to conventional tools, becoming the first central banker in the developed world this year to start raising interest rates.”

“Wheeler said yesterday that adding goals such as employment to the central bank’s mandate wouldn’t result in lower borrowing costs. He also rejected suggestions by politicians at a parliamentary committee hearing that he was smothering the economic recovery before it had taken hold. ‘Central banks are often cast as being the ones to take away the punchbowl when the party gets into its swing,’ he said. ‘People shouldn’t forget that the Reserve Bank spiked the punch. To get this party going, to get the recovery underway, we reduced interest rates to the lowest level in 50 years.’”

“Lodge Real Estate’s managing director, Jeremy O’Rourke, said February’s residential real estate numbers released by the Real Estate Institute of New Zealand today point to the fact buyers’ ‘fear of missing out’ is virtually gone from the Hamilton housing market. ‘The number of house sales in Hamilton city during February was much lower than the past two Februaries. First of all, there has been a good amount of quality stock on the market, so buyers are content to sit back, look around and wait for the right property to come along. Secondly, as we’ve been saying for months, first home buyers have pulled right out of the market.’”

“‘This is very different to six months ago when buyers were snapping up quality properties very quickly,’ he said.”