There Is Going To Be Mayhem
It’s Friday desk clearing time for this blogger. “While few doubt that the arts and tourism have rescued Marfa from decline, some see a price to be paid for being the darling getaway spot for well-heeled visitors from Houston, New York and California. While the new values instantly made many locals richer — at least on paper — they bring worries about facing higher taxes and about families priced out of the home market. ‘My house was appraised at $22,000 in the year 2000 when I moved in. Last year its market value was $60,850, and this year it’s $120,290,’ said Marge Hughes, 70, a retired county employee. ‘A couple of the rich types moved in and paid an arm and a leg for a lot, and then resold it for more.’”
“Alma Cabezuela, director of the city housing authority, also felt the shock of the new appraisals, as her house and an adjacent apartment each roughly tripled in value. Like many here, she wonders what the future holds for Marfa, particularly for those with deep roots but modest means. ‘It’s crazy. I work, but there are other people on fixed incomes. I guess we’ll all leave Marfa,’ she said. ‘This will become another Santa Fe, New Mexico.’”
“Soaring single-family home prices in much of the Bay Area are near or above pre-crash peaks — and topped $1 million in San Francisco for the second month in a row, according to DataQuick. In the Pleasanton-San Ramon area, more homes are being offered for sale with some price reductions, said Jennifer Branchini, president of the Bay East Association of Realtors. ‘Sellers may be a little over-zealous in their pricing and buyers not so over-zealous in their willingness to pay those prices,’ she said.”
“In the Brentwood-Clayton area, ‘it’s kind of leveling off price-wise,’ said Lynne French of Lynne French and Associates. ‘It’s not that they are going down, although some are edging down a little bit, but they definitely leveling off. I think buyers are deciding to hang it up because it’s not affordable any more.’”
“Shahram Kordestani, who has been renting homes in London and southeast England for about 12 years, said when interest rates rise, the jump in mortgage payments will hammer buy-to-let investors who have helped push up property values. ‘There is going to be mayhem,’ said Kordestani. ‘Whoever pays those prices is going to suffer.’”
“The conventional wisdom behind the Australian dream of home-ownership could be flawed, according to a research paper published by the Reserve Bank of Australia. The RBA’s conclusion is that house prices would have to rise at the same rate as they have for the past six decades for owners to be as well-off as renters. Former real estate agent Martin Beard was pleased to hear it. He has been renting in Newtown for 11 years and has no interest in buying a property soon.”
”’I look at the massive amount of money that gets tied up in your home … I live debt-free, basically,’ he said. ‘We live in a big home in a great suburb that is so close to everything with big living areas and a lock-up garage.’ The 55-year-old said he previously owned three or four properties in the inner west but now ‘the equation’ has changed. ”I think we bought our first house with a deposit of $10,000 and the mortgage was relatively small,’ said Mr Beard. ‘I don’t think that incomes have changed that dramatically in that time but now property prices are astronomical.”
“In Hamilton, the average price of a home lists around $400,000; in Calgary around $460,000. But Regina home prices average just $300,000, in Halifax, they average $275,000 and in Quebec City, just $268,000. And in those regions, prices have either cooled or dropped altogether. ‘Outside of a few major metros, the boom is over,’ said housing analyst Ben Rabidoux. ‘In fact, we’re seeing now a number of markets that are seeing weakness that we haven’t seen in 20 years.’”
“Dimitris Pikrodimitris took out a mortgage four years ago when he was drawing an annual income of 27,000 euros (US$36,720). But the economy quickly sank into a debt crisis, forcing Greeks to tighten their belts and driving the insurance agent’s wages down to just 6,500 euros last year. ‘I have difficulty even making basic expenses. I haven’t paid the loan for the last two years,’ Pikrodimitris told AFP. ‘When I took the loan, I took a risk and the bank took a risk. Eventually I will lose my home (while) the bank will never lose.’”
“Repayment has stalled on around 30 percent of mortgages and business loans, and around 50 percent of consumer loans, says Victor Tsiafoutis, a lawyer offering guidance to debtors. ‘This is a bomb that is going to blow (and cause) a breakdown in the bank system,’ Tsiafoutis said. ‘Imagine a default of 70 billion euros. Who is going to pay this money?’”
“‘I pay my taxes and the zombie property is the first thing I see every time I open my front door,’ said Phyllis Frankel, who contacted the Journal News about an abandoned property across the street from her Monsey home. Erin E. Meagher, president of the Landmarks Preservation Society of Southeast has seen zombies in her neighborhood. ‘Some of them were at one times the nicest homes on their blocks now sit alone rotting away and bringing down property values. One can’t even buy them if they wanted to because they’re not listed for sale.’”
“The stagnation in fixed-rate mortgages appeared to be mirrored by data in the July edition of CoreLogic’s MarketPulse Report. ‘The very low-end price segment was weak throughout 2013, and that weakness started to expand upward in the second half of 2013,’ wrote Sam Khater, deputy chief economist at CoreLogic. ‘The migration of the slowdown in sales beyond the lower-middle of the price distribution is a concerning development given that higher-priced home sales had been one of the few bright spots. If the slowdown continues heading into the fall, it indicates that the higher-priced market is entering a new phase where the generally low-rate environment and rapid increases in the stock market are still not enough to power home sales increases.’”
“‘I still think the sector has legs, especially in rental construction,’ says Logan Mohtashami, a senior loan manager at AMC Lending Group. ‘The problem that some people are having is that there is no strong expansion. But we don’t have a housing shortage – when traditional inventory comes back to the market, it will be so much cheaper than new houses.’”
“Hyman Minsky believed that a confident society moved through a cycle of three phases, which he called the Hedge, the Speculative and the Ponzi stages. The dangerous Ponzi phase starts when banks start to lend on the necessary assumption that asset prices will rise (or the loans will be affordable).”
“All it takes at this moment is a Minsky Moment – that awful split-second where everyone realises that asset values are based on assumptions of the borrower’s ability to pay, but where borrowers simultaneously go into default. At which point negative equity generates real losses, the bubble bursts and the financial market can be utterly endangered.”
“The notion of Beijing as a regime of real estate salesman was reinforced this week after the Communist Party’s local flagship newspaper in an eastern Chinese city published a front-page article urging people to buy real estate in one of the country’s best-known ghost towns. ‘Good Opportunity to Buy Houses in Our City’ proclaimed the headline emblazoned across the top of the Tuesday edition of the Changzhou Daily. Quoting mostly real estate executives, the paper said there’s ‘no downside for housing prices in our city.’”
“In an article carried on its digital news portal People.cn (in Chinese), the party’s flagship newspaper lashed out at Changzhou Daily’s piece as an indirect approach to rescue the local housing market. People.cn’s article also identified the two authors of Changzhou Daily’s story as a reporter from the paper and the head of the propaganda office of Changzhou’s housing bureau, respectively. ‘As a local Party newspaper, Changzhou Daily even went so far as to urge the city’s residents to buy houses on its front page, saying it was the best time to do so. This kind of market support measure betrays a lack of moral principle,’ said the People.cn‘s article.”
‘Our local real estate market is slowing down and doing so much earlier than expected. This year we have already seen a slowdown in buyer activity. With plenty of listing to choose from buyers can afford to take their time and when they do find a house, can negotiate harder than they could just a few months ago.’
‘The past few weeks we have had several of our buyer’s make offers significantly below the seller asking price. This tactic would not have been successful last year or even a few months ago. Today, listing agents should be advising their clients not to be upset with low offers and to use them as an opportunity to see if there is an acceptable deal to be worked out. I would rather have a client negotiating than waiting for an offer.’
‘When a low offer is received it can upset a seller but, in my experience, a seller who does not overreact and is willing to demonstrate they are prepared to negotiate will do better in the long run than those who refuse to counter or counter with a very small drop in price. Buyers who make low offers generally have a higher amount they are willing to pay. Often when they get a counter back with no reduction or one which signals the seller is not serious about negotiating, the buyer’s maximum price drops. This is the emotional side of the home buying negotiation process.’
‘We would expect the Sacramento housing market to remain on the slow side until after school starts and then pick-up until we get close to the holidays.’
Let me get this straight: The Sacramento market has screeched to a halt during the red-hot summer sales season, yet it is predicted to pick-up again during the luke-warm fall sales season and rally into the ice-cold holiday season.
Did the Realtor™ also have a prediction about whether the Great Pumpkin would visit Sacramento-area pumpkin patches this year?
Oh yeah. It’s perfectly normal for a housing market to skyrocket for years, then drop back into a seasonal pattern like nothing happened.
But not just any pattern, an opposite pattern. And I had totally forgotten about the Great Pumpkin metaphor. We really should bring that back to this blog. Bonus points for crater-tater recipes that include pumpkin.
What do Realtwhores do for Halloween?
Pump kin.
‘…Buyers who make low offers generally have a higher amount they are willing to pay. Often when they get a counter back with no reduction or one which signals the seller is not serious about negotiating, the buyer’s maximum price drops. This is the emotional side of the home buying negotiation process.’
Sounds like Sacramento buyers have sellers by the balz.
‘This report is provided by Gene Wunderlich, director of government affairs for the Southwest Riverside County Association of Realtors.’
‘Where Have All The Buyers Gone?’
‘(With apologies to Pete Seeger)’
‘We’re still waiting for the onslaught of buyers that traditionally emerge this time of year. We appear to be building momentum gradually, but certainly slower than in some past years. Single family sales have been on the increase generally since our January trough. Through the first half we’re running about 10 percent behind last year’s pace, which was not a barn burner itself. In fact, this first half posted the lowest sales in the past 5 years – down about 17 percent from 2012.’
‘Regionally our prices did dip from the previous month, with declines in Temecula, Wildomar, Lake Elsinore and a significant drop in Canyon Lake. Again, keep in mind that with the volume of home sales in Canyon Lake, a single sale of $1 million+ can have a major impact on median pricing. Declines in the other cities were in the 2 to 3 percent range.’
‘Inventory continues to climb with the six-city inventory of available homes, climbing over 2,000 for the first time since February of 2011, up another 8 percent from May.’
‘There are a lot of reasons why the market is stalled out, some of which I’ve gone into before. Suffice it to say, if things continue this way, this will not be a stellar year for home sales in Southwest County, in California or across the nation. We may not, as some have predicted, slide into another housing recession, but we are continuing in this transition phase which has been going on for the past three to four years.’
“Suffice it to say, if things continue this way, this will not be a stellar year for home sales in Southwest County, in California or across the nation.”
It’s great to hear the housing market is returning to normalcy.
One of my close Tucson friends moved to SoCal a couple of years ago. She went into real estate but appears to be interested in a) leaving the field and b) returning to Tucson.
Last year, she had a lot to say about the lack of inventory to sell. This year? Well, let’s just say she’s not talking about real estate anymore.
As the drought and illegal alien influx destroy California there will be less and less interest in buying a home there. So long Cali, it ws good to know you.
At least prices will finally come down to normalcy, once everybody’s yard is brown, bone dry with the dirt full of cracks.
What’s a “low offer”?
Wait, you mean you’re allowed to offer LESS than the asking price??? Quite a few new San Franciscans are going to be surprised to hear this…
When my wife and I bargain on anything ( houses, cars, etc) our fist offer is always our highest. Every counter offer on our side is lower than the previous offer - it drives sellers nuts and is a lot of fun.
We used this approach one time with a car salesman who became so exasperated that he finally said, “You can’t bargain that way!”.
We replied, ” It’s our money and we’ll bargain any way we want.”
That’s how we purchased abanked owned house from Countrywide. We dropped the price $25k each time. They took the third offer sixonths later. It was quite fun and funny.
And you still overpaid J.Fraud.
That’s an extremely poor way to negotiate, and you’ll end up overpaying. My first offer on anything is stupid low, because it really throws people. Mind you this is always in person, and in a respectful manner such as “do you think you’d take X for it?” You’d be surprised how people react. Some get angry, some laugh, some are serious and become transfixed in deep thought.
Nonetheless, many will start thinking out loud in an almost self-imposed dutch auction and end up taking something close to what I have offered in the first place because: 1) They are very poor negotiators 2) They need the money and know I have cash, and 3) Become nervous that possibly the real market value is what I first offered, and anything above that is a win for them and they don’t want to lose a buyer. Bear in mind these are big ticket items over $10k.
Sounds good to me. Remember, a listed price represents the most a seller will take……(unless some idiot over bids)….
“…a listed price represents the most a seller will take…”
I’m sure you meant to say ‘the least a seller will take,’ unless the seller lists below his reservation price to deliberately spark a bidding war, the way we did the last time we sold a home.
Why would a rational seller ever refuse an offer above list price?
‘Why would a rational seller ever refuse an offer above list price?’
In the past 18 months I found two reports; one from the Inland Empire and one from Florida, of “investors” paying over asking when there was no other bid. In the IE report, the agent said straight out that the purpose was to raise the comps on other properties the bidder owned. This certainly wasn’t rational in an ordinary market sense. And how many loans were then made based on these “sales” prices? Just a few weeks ago, a Naples News report quoted an agent saying flippers were making deals amongst themselves to sell each other houses at big increases. It’s not illegal as far as I know. But should appraisers take note? How much phony baloney is going on out there?
And several months ago, the Boston media reported appraisers had given in and were taking market “indicators” like how many people were standing in line for an open house, when approving valuations. Anyone who doesn’t see the amount of fraud going on here just doesn’t want to see it.
Guillotine,
It’s THEIR money and they can negotiate any way they want.
If their approach doesn’t jibe with yours, tough. If you don’t like it, tough.
Yours isn’t the only way to do things, and it’s high time that someone tells you so.
“Anyone who doesn’t see the amount of fraud going on here just doesn’t want to see it.”
I similarly wonder about online price estimates, such as those served up by Zillow. For instance, why did the Zestimate™ of my parent’s home in a declining neighborhood with an unaccredited high school go up by over 7% in three months during a period when almost every account suggests the U.S. housing market is softening? And by the way, a real estate agent I know from way back told me the original Zestimate™ exceeded what the home would sell for by over 20%.
I always feel emotional when making offers or counteroffers on things that are best represented by money. Of course, doesn’t everyone? Or maybe (just maybe) the buyers with actual money are simply not willing to waste their precious time on “negotiations” that are deemed to be completely one-sided by the seller, for the seller, and of the seller. Nobody has to buy real estate.
“negotiations” that are deemed to be completely one-sided by the seller, for the seller, and of the seller ??
This is never healthy wether it be housing, art or anything else…It can also be lopsided 180 degrees the other way…Have you ever experienced a full blown “Buyers” market in anything of value ?? It is every bit as bad…A balanced market is always best and its impossible to have a balanced market with interest rates below historical norms…
Just drove through the Sacramento area this week and there were a LOT of for sale signs. Hard to figure the greed of some sellers especially when the market has clearly stalled. When I sold my last place “discounting” it about $10K (only 3%) got me a buyer under contract within a week…this was in spring 2007 and had I overpriced it that would likely have cost me big chasing the market down…anyway I knew better then thanks to reading this blog and a few others daily.
Hope that Bubble pop 2.0 is in full swing by next spring, MAY consider buying again if so and if it looks like it won’t be hopeless competing w/ 100% cash flippers and specuvestors as it was in 2011/2012….am renting more or less happily in the meantime.
“Just drove through the Sacramento area this week and there were a LOT of for sale signs.”
That’s what happens when demand collapses. And it’s collapsed all over the country, hence the sea of for sale signs.
Here in Tucson, the number of “for sale” signs is on the increase. Quite a difference in quantity as compared to last year.
“….pick up close to the holidays…”. Silly rabbit, now you’re just grabbing thin air!
‘The Dedrick’s home was auctioned off last August after they fell behind in mortgage payments to JPMorgan Chase. Julianne Dedrick, a radiology scheduler at Boston Children’s Hospital, bought the home from her siblings for $100,000 when their father died in 2010.’
‘Dedrick then borrowed more money against the value of the home, and fell behind in mortgage payments when her husband Paul, a former tow truck operator, was unable to find work that fit with his schedule taking care of their children.’
‘The Dedrick family are among dozens of homeowners in the Brockton area dealing with foreclosures. Recent housing data shows that Brockton continues to lag behind the rest of the state with the highest rate of distressed properties.’
‘Carlos Melo, owner of the Taunton-based company that bought the Dedrick’s home, said it is hard not to feel compassion for such homeowners, but that “no one loses their house just because someone doesn’t like them.”
“People have to take responsibility for themselves,” Melo said.’
Paul, a former tow truck operator, was unable to find work that fit with his schedule taking care of their children.’
pretty weak excuse
http://www.zillow.com/homedetails/30-Linwood-St-Brockton-MA-02301/57524967_zpid/
Bought for $100K, zestimated $225K. That gives some leeway for cashing out.
What did they do with the money? Check out the pic of them. They certainly didn’t buy nice clothes or shampoo with it.
Yet another couple with kids depending on no deviation from the two-income routine. Either you pay someone to watch the kids, or someone has to be home all time. Could this not be foreseen?
“Dedrick then borrowed more money against the value of the home”… I stopped reading right there. Whatever happened after, they brought on themselves.
‘It’s not that they are going down, although some are edging down a little bit,’
A perfect example of the lack of integrity of Realtors. “They’re going down but they’re not going down.” Right.
This is what happens when one makes lying a habit.
‘Dear John: I hope this mail finds you in great health and spirit because l need a bit of your attention.’
‘I am a lowly medical-care worker who heavily bet on the American dream. I greatly believed the notion that hard work inevitably pays off.’
‘In fact, this became my mantra. Coming from a culture where self-fulfillment and attainment as a woman is very rare, I completely internalized this belief and quadrupled my efforts at hard work as soon as l came to America.’
‘This belief in recent times has become so challenged that l feel emotionally, physically and spiritually hollow.’
‘I have made too many sacrifices and endured untold hardships. l truly feel emptied out and very bone weary.’
‘Sir, I am one of the victims of the 2008 housing debacle. My loan for a three-family home was closed in November 2005 at a rate of 6.75 percent, plus a second equity line by National City Bank.’
‘I believe now that the loan was closed under dubious circumstances. As you might have figured, I bought at the peak of the housing bubble.’
‘The bank literally promised to refinance my loan in six months to pull out enough funds to do the big renovation needed. My house is beautiful, but it needed $40,000 in work.’
‘Considering the ever-skyrocketing prices of houses then, I figured l got a decent deal.’
‘After six months, I approached the lender — PNC Bank — for the refinancing, but I was told that the interest rate had gone up to 7.25 percent. I was advised to wait awhile and come back later.’
‘My household was barely surviving, but we all understood that there was a bigger benefit to this sacrifice, so we kept at it. Unbeknownst to us at that time, that would be the hellish nature of the nightmare dance that I would be locked in with the bank for years to come.’
‘Please, sir, you are my bottom line, my last resort. I do not seem to have any time left. R.N.’
Where do you begin with this??????
“Where do you begin with this??????”
You begin by telling her to not lose hope, that perhaps she should double up on her efforts to keep the house, to keep the American Dream alive.
She should use her box of stupid to power her money extractor, so she can send the money from her bags to Mr. Banker. Then she can use her empty bags to fashion a tent for the family to live under.
(eye roll)
WTF was she doing buying a house that needed $40K in repairs??
When I purchased my first house - interest rates were near 12%
Yet I was not in hell.
Differences between then and now?
20% down payments were required.
Banks kept their loans
The federal government guaranteed NO loans (except for VA, etc.)
Banks went through your financial history with a fine tooth comb
You had to document everything
You had to have 6 months of expenses in a bank
You had to have a job with income to cover ALL expenses of owning a house and ALL your debts
The government’s annual deficits were then a scandalous few billion dollars a year
The free sh*t army was only about 15% of the population
I’m guessing prices weren’t crazy-high then either (mainly for many of the reasons you listed…).
Same here:
In 1979 we bought our first house with 20% down, an interest rate of 10.25% and had to document everything.
We managed to get the mortgage paid off by the end of 1989.
Imagine how different the country would be if we had never gotten away from that modus operandi?!
‘Why Canada isn’t immune to a U.S.-style housing crash’
‘The average price of a detached bungalow in Charlottetown rose slightly year-over-year, inching up 1.2 per cent to $175,000. Standard condominiums also experienced a modest increase, rising 1.6 per cent to $130,000. Standard two-storey home average prices were flat, remaining at $205,000.’
“A decrease in activity has kept prices fairly level across all housing types,” said Ken Peters, president of Royal LePage Peters and Lank Realty Inc.’
“The amount of inventory available is high and demand has not picked up to meet the increased supply on the market. When put together these two factors have created a buyers’ market in Charlottetown.”
‘The price of houses in Inuvik has dropped by 10 to 15 per cent in the last three years — ever since plans for the Mackenzie Valley Pipeline were set aside, according to a local realtor.’
‘Jim Weller, a realtor with Coldwell Banker, says the market has been in decline since 2011, when Imperial Oil put its plans for the Mackenzie Valley Gas Pipeline on hold.’
“Housing prices have dropped about 10 to 15 per cent and the number of sales has dropped substantially,” he says.’
‘Weller also says four of his active listings are in foreclosure. The good news, he says, is that home ownership in the community is getting more affordable, and there’s lots of choice. He says there are about 60 homes for sale right now, with about a dozen sales each year.’
‘Vince Sharpe owns residential and commercial property in Inuvik. On one of Sharpe’s houses, he’s lowered the asking price to $500,000 from $640,000. The house has been on the market for a year now.’
“I know other people that have houses on the market at $200,000 or $280,000 and they have been on the market just as long,” he says. “They’re just not selling because there are no buyers. People want to rent right now because they’re so nervous about what’s happening, They don’t see anything that is going to give them hope.”
Canada already has a TARP program built into the banks…
October 21st, 2012 - Caleb McMillan
A number of policies were initiated to keep Canadian banks “liquid” during the financial crisis of ’08. Whether this constitutes a bailout boils down to semantics. True, Canadian banks didn’t receive direct money from taxpayers, like their US counterparts. And the federal government’s intervention didn’t go through Parliament, unlike the Congressional vote on TARP. But certain actions were taken by the federal government to keep the Canadian banks solvent. This is what happened:
The Canadian banks expanded credit well beyond their assets, supported and even encouraged by the setting of low interest rates by the central bank, the Bank of Canada. This credit found its way into the economy by increased borrowing for capital projects, such as housing. Projects which never would have been started, or started at a later date, now became profitable. However, because these projects were funded by artificial credit (rather than legitimate savings), they constituted a malinvestment. They increased demand for production materials and for labour and caused prices to rise. This then caused an increase of prices of consumption goods.
But banks can’t increase credit forever. All resources are scarce, the means of production and labour which are diverted into housing have to be taken away from other sectors. There is no additional capital or labour, only credit and debt. Eventually a clash over resources becomes inevitable.
The American banks and Federal Reserve pursued the same reckless policies and in 2008 it became a crisis. As people were spending money on consumption goods, capital investors found their projects to be unsustainable. Banks then asked their borrowers for payment and credit conditions started to deteriorate. The capital good industries, like housing construction, found their investments to be in error. What they thought was profitable suffered from a lack of demand. Particular types of investments were revealed to be “wrong” from the perspective of the long-term financial sustainability of the market. This was due to the distortion of price signals via the expansion of credit into the markets.
The USA suffered a huge meltdown. Canada got off relatively easy, but government intervention was used to prevent any sort of correction.
The Canadian Bankers Association (CBA) claims that in 2008, “due to the crisis of confidence in global credit markets, some funding sources that banks normally relied upon became unavailable.†To prevent a US-style catastrophe, the Canadian Mortgage Housing Corporation (owned by the federal government) bought $69 billion worth of mortgages off the Chartered Banks.
The left-wing Canadian Centre for Policy Alternatives released a report earlier this year that found the Canadian banks receiving, “$114 billion in cash and loan support between September 2008 and August 2010. They were double-dipping in not only two but three separate support programs, one of them American.” Both the Bank of Canada and the US Federal Reserve (as well as the Canadian federal government) were involved in what Harper called “liquidity support” but not a bailout.
Last Monday Statistics Canada reported that the debt-to-income ratio rose to 163.4% this year. They reported household credit market debt to be $1.61 trillion. It’s clear that there is a Canadian housing bubble and when the inevitable becomes obvious, the Canadian banks will most likely require another bailout to keep from collapsing.
http://mises.ca/posts/blog/the-canadian-bank-bailout/
‘Kenya: Don’t Expect a Housing Bubble Burst Soon’
‘The real estate bubble is not about to experience a burst anytime soon, according to an financial expert. Ken Kaniu, the Chief Investment Officer at Stanlib said even though demand for housing in the country is still above supply, property prices should begin to stabilise in the next decade.’
“One of the key ingredients of a bubble is the presence of properties being sold via debt and very low interest rates, as people borrow over and above their capability, Kenya has the opposite.”
“We have seen property prices escalate in Kenya three times since the year 2000 very rapidly; that kind of growth is not sustainable! We will not see another 300 percent growth in the next 10 years - we will also not see a collapse - what we are seeing now is that people are becoming more sophisticated, raising questions about the properties they are buying and therefore you will see prices beginning to hold,” he said.’
Why is it that real estate ‘experts’ always feel compelled to weigh in on why a bubble won’t collapse in places where there clearly is no bubble, like Kenya?
I would like to know who determined that a bubble can’t exist without this one key ingredient. How was this determined? When? It seems that this new guess is merely being presented as fact, backed by no analysis, and allowing no question. Sort of like the “house prices never go down” assertion that was so universally claimed during the first bubble.
‘Mexico’s largest state mortgage lender Infonavit in August will raise the maximum amount it can lend to would-be home buyers by 76 percent, in a bid to shore up the battered housing sector, the government said.’
‘Infonavit said it will raise its top loan amount to 850,000 pesos ($65,700) from 483,000 pesos ($37,300).’
‘The state lender next month will also start granting loans denominated in pesos at a fixed rate and for up to 30 years. Currently, loans in pesos are reserved for borrowers who earn more than 5.5 times the minimum wage, while loans for lower earners are denominated in multiples of the minimum wage.’
“We are not just giving out more loans. This is about guaranteeing access to decent housing for all Mexican families,” Infonavit Chief Executive Officer Alejandro Murat said at an event in Mexico City.’
‘But loans granted by Infonavit for new homes in the January to May period are down 22 percent due to a weak economy and Mexicans’ preference for acquiring used properties or revamping their current homes, hammering the country’s homebuilders. Mexican homebuilders have struggled with heavy debt and slumping home sales since the government shifted to a policy that prioritizes apartment purchases, hurting sales of cheap houses built far from cities by Geo, Homex, and Urbi.’
‘Geo and Homex have both filed for bankruptcy.’
This idea that the way to bolster housing markets is to hand out ever more massive loans seems to never lose popularity among governmentarians.
Or among the enablers of strawberry pickers.
‘Lower interest rates, increasing home prices, and a steadily improving economy have caused more homeowners to once again access their home equity through HELOCs, the Wall Street Journal reported this week.’
‘In the first quarter, homeowners borrowed $23.4 billion in home equity lines of credit, which is the highest quarterly number since 2008. Homeowners took out over 230,000 HELOCs during the first quarter, which is up 9% from the same period in 2013, while the amount of the credit lines has also gone up, hitting $100,207 on average in March, up 4% from the previous year and the highest average in six years.’
‘The most common reasons borrowers cite for accessing their home equity is renovations, followed by emergency expenses and paying off other debt, such as credit cards and medical bills. Some home buyers are even using home equity loans and lines of credit to buy a new home, as combining a mortgage with a line of credit — or getting a piggyback mortgage — allows borrowers to avoid the fees of a low down payment and buy a mortgage expensive property.’
‘In January, Navy Federal Credit Union, the largest credit union in the country, began allowing borrowers to borrow up to 100% of their equity with a loan, while Flagstar Bank, the 8th largest mortgage lender in the country, began allowing homeowners to take out up to 90% of their home’s value with a HELOC or loan, up from 80%.’
Was borrowing massive amounts against recent increases in the value of owner-occupied housing for discretionary consumption spending even allowed in the pre-Housing Bubble era?
It seems like a great recipe for a foreclosure crisis once prices stop rising and start falling again. I suppose bubble reflation measures can be re-initiated at that point, though.
Here we go again…
NFCU has been my CU for 35 years now. I think I need to start looking for a more respnsible institution to store my cash at.
‘When it comes to pouring vast amounts of cash into real estate, no city in America can rival New York. The world’s wealthiest buyers come to New York - Manhattan in particular - to buy real estate.’
‘Ryan Serhant, the star of Bravo’s Million Dollar Listing and a broker with Nest Seekers International told Yahoo Finance he estimates about 50% of his buyers are from overseas. So, why the rush of money into the big apple? He says that as expensive as New York is, when compared to the rest of the world, New York City is still relatively affordable. “If you look at the top ten global cities for real estate, New York is in the middle. What you can get for your money here - in Hong Kong it’s a closet! And here we think these numbers are insane. Everywhere else in the world, we are kind of a bargain.” He sees buyers from Russia, South Africa, South America and of course, China.’
‘Owning a home in the Big Apple is akin to owning a piece of expensive jewelery. And just like you don’t wear your jewels all the time, wealthy buyers are not always living in these status apartments. The Census Bureau estimates that 30% of all apartments around Fifth and Park Avenue on the Upper East Side are empty most of the year.’
He sees buyers from Russia, South Africa, South America and of course, China.’
Wonder how much is money laundering or citizens of these countries trying to get some “safe” money/assets stashed overseas…
‘China’s shadow banking firms slashed lending to property developers in the first half of this year. In the first half of this year, trusts lent real estate firms 39 percent less than in the previous six months, according to trust research company Use Trust based in Nanchang. At the same time, the average interest on 48.3 billion yuan ($7.78 billion) in loans made through wealth management products climbed 16 basis points to 9.67 percent.’
‘That bodes ill for Chinese developers who must repay nearly 600 billion yuan ($96.83 billion) worth of trust loans next year, according to brokerage firm Jefferies. “Default risk is heightening because trusts rely heavily on house prices rising,” said Xie Ya Xuan, an economist at China Merchants Securities’ Research and Development Center in Shenzhen.’
“We basically don’t do developers smaller than provincial level or small to mid developers anymore,” said a trust manager at Minmetals International Trust, who declined to be named as he was not authorized to speak to the media.’
‘Bigger is not necessarily safer. Because these project loans are classified as equity rather than debt, they can make a company’s balance sheet look healthier than it is. Barclays pointed out in June that Evergrande’s total debt-to-equity ratio would be a steep 220 percent if all its funding sources were counted as debt.’
“We believe the company is over-leveraged, especially with regards to its perpetual securities products, and this may bring in a painful punch should sales continue to slow,” Barclays analyst Alvin Wong wrote in a note to clients.’
Uhhh,
‘these project loans are classified as equity rather than debt’
A painful punch indeed. A shaky pyramid of smoke, mirrors, lies and debt.
Such negativity.
This shining country, this economic miracle, will be powering the world’s economy for generations to come. I advise you all to move to China as soon as possible. Buy a house there and get ready for prosperity like you have never imagined.
‘According to recent Chinese press coverage, another wave of indebted entrepreneurs is fleeing Wenzhou, much to the chagrin of the city’s informal lenders.’
‘Wenzhou’s business community saw a similar exodus back in 2011, when a downturn in the local manufacturing sector compelled a sizable contingent factory bosses to skip town on their creditors, many of whom were operating illegally.’
‘But this time, things are different. Many who are fleeing now had investments in the city’s property market or related industries. Local authorities should take note of this fact and prepare for even worse times than those which came three years ago.’
‘Wenzhou was among the first major Chinese cities affected by the deepening real estate malaise. With the capital chain now effectively broken, banks should brace for defaults and an increase in credit risk.’
One has to wonder how many of the “all cash investor purchases” of US property by Chinese nationals reflects money that was borrowed back home which will never be repaid?
Well if you have $200K of student debt it would be better to leave america and work overseas where they cant sue you..
They cant take away your passport over a student debt …..yet!
Good luck finding a country that will let you take one of their precious jobs.
With that I agree. It will be very difficult for an American to find a position that pays better than the job they could have gotten in the U.S.
Well, evil minds think alike! I’ve been asking the same question.
‘China’s thrid largest property developer, Evergrande Real Estate, has joined smaller peers in offering zero-interest downpayment loans. The easy credit shows the gamble Chinese developers are willing to take to keep sales on track. Guangzhou-based Evergrande, the country’s No.3 developer by sales, is offering downpayment loans of nearly a quarter of the purchase price to home-buyers for some of its projects.’
‘Such loans skirt government rules that require a minimum deposit of 30 percent of a home price, while buyers who have put down as little as 6 percent upfront would find it easier to bail if the market turns.’
‘One of Evergrande’s developments in eastern Jiangsu province’s Yancheng city accepts downpayments of as little as 6 percent, according to a project salesperson, while the company provides an interest-free loan on the remaining 24 percent to be repaid over 24 months. Another Evergrande project in the central city of Xian was offering interest-free loans to cover up to 40 percent of the required deposit, repayable over three years.’
‘While Evergrande recorded 69.3 billion yuan ($11.16 billion) of contracted sales in the first six months of this year, the third highest in China, the strain on its balance sheet is clear.
In particular, receivables - the accounting term for money owed by customers for goods or services already supplied - have been rising as the real estate sector has been squeezed by monetary tightening.
“Developers have seen their liquidity deteriorate as collections from presales have declined, because banks were not granting mortgage loans easily and developers had to provide instalment plans to attract buyers,” said Agnes Wong, a Nomura credit analyst in Hong Kong.’
“This means collections have slowed further. In the past, collections were made within 1-2 months of the sale, but now it can be as much as a year with a collection plan, or 3-4 months with a bank mortgage.”
‘In order to hedge against that risk, Evergrande last month introduced an asset management product, rare in the industry, to cover receivables due on July 1 for two projects in eastern Jiangsu province. The product aimed to raise up to 330 million yuan ($53.3 million), with annualised interest of up to 10.2 percent.’
‘”Affected by the recent tight liquidity, inventory pressure and slow sales, some developers face cashflow problems and this kind of product helps,” said Kell Yu, an analyst at trust research company Use Trust, based in Jiangxi province.’
‘Evergrande, which has raised a total of 3.3 billion yuan through seven trust loan high-yield investment products for its projects so far this year, reported 7.2 billion yuan ($1.16 billion) of trade receivables in 2013, double the previous year.
It said in its annual report that 2.8 billion yuan came from receivables within 90 days of their invoice date, the same level as in 2012, but receivables of 90 to 180 days surged to 2.5 billion yuan, 17 times the level of 2012. Those within 180 to 365 days jumped more than four-fold to 1.9 billion yuan.’
‘Chief financial executives at several property companies all said 90-day trade receivables were the most common, as that is the period companies wait in order to collect the remaining home payment from banks, while those beyond 90 days were usually due to downpayment promotions.’
So 90 day receivables being used in house purchases, with a multi-billion dollar company. What could go wrong?
‘A little-known Chinese firm at risk of a landmark bond default has set alarm bells ringing among investors. Huatong Road & Bridge Group Company warned this week that it would not be able pay down its debt, potentially making it the second default in the onshore bond market this year.’
‘Huatong’s predicament is set to mark the first time a Chinese company has openly defaulted on the principal and the interest for a bond. It would also be the first default on China’s interbank bond market - the country’s largest bond market - which holds 94 percent of bond issues, according to Reuters.’
‘Joao Monteiro, an analyst at Valutrades, said that the default threat was the biggest concern for investors in Shanghai this week. “This would be another sign that we’re moving into bubble territory and investors would be perfectly justified to be showing signs of concern,” he said.’
‘Hong Kong-based analysts also highlighted two other potential defaults looming in the country, with Jiangsu Hengshunda Bio-energy and an investment vehicle for Hansen Hengfa Investment both being in arrears of payment.’
“It appears more credit risk events are looming in China’s overleveraged economy, and some may be related to the ongoing property correction,” the team of analysts, led by Chang Chun Hua, said in a note on Thursday. “We reiterate our view that there will likely be more individual credit risk events this year.”
‘these project loans are classified as equity rather than debt’
Reminded me of Enron…
‘Few moments in modern financial history were scarier than the week of Sept. 15, 2008, when first Lehman Brothers and then American International Group collapsed. Who could forget the cratering stock markets, panicky bailout negotiations, rampant foreclosures, depressing job losses and decimated retirement accounts — not to mention the discouraging recovery since then?’
‘Yet a Chinese crash might make 2008 look like a garden party. As the risks of one increase, it’s worth exploring how it might look. After all, China is now the world’s biggest trading nation, the second-biggest economy and holder of some US$4-trillion of foreign-currency reserves. If China does experience a true credit crisis, it would be felt around the world.’
“The example of how the global financial crisis began in one poorly-understood financial market and spread dramatically from there illustrates the capacity for misjudging contagion risk,” Adam Slater wrote in a July 14 Oxford Economics report.’
‘Lehman and AIG, remember, were just two financial firms out of dozens. Opaque dealings and off-balance-sheet investment vehicles made it virtually impossible even for the managers of those companies to understand their vulnerabilities — and those of the broader financial system. The term “shadow banking system” soon became shorthand for potential instability and contagion risk in world markets. Well, China is that and more.’
“China’s importance for the world economy and the rapid growth of its financial system, mean that there are widespread concerns that a financial crisis in China would also turn into a global crisis,” said London-based Slater. “A bad asset problem on this scale would dwarf that seen in the major emerging financial crises seen in Russia and Argentina in 1998 and 2001, and also be more severe than the Japanese bad loan problem of the 1990s.”
On this:
‘Who could forget the cratering stock markets, panicky bailout negotiations, rampant foreclosures, depressing job losses and decimated retirement accounts?’
I’d say well over 90% of the US public.
I’d say well over 90% of the US public ??
Well, count me in the 10% because I have not forgotten…In fact, I am super nervous right now…There are so many hot-spots all all fronts…
‘NYC property sales near ‘07 bubble levels’
‘The dollar volume of transactions for all types of properties citywide in the first half of 2014 soared 88% compared with the year-earlier period, to $27.4 billion, the highest since 2007.’
‘So broad were the gains and so large the scale that Massey Knakal Chairman Robert Knakal peppered his overview of the market Tuesday morning with the word “remarkable.” At one point he used the word three times in a single sentence. Other times Mr. Knakal went even further, describing the 45% gain in the per square foot price of Manhattan retail properties as “extraordinary.” The per square foot price reached $2,687, topping already lofty 2013 levels.’
‘Mr. Knakal also noted that the figure did not include the recent sale of the retail condominium at 737 Madison Ave. occupied by Chanel, a transaction that shattered records at $30,950 per square foot.’
‘In Brooklyn, Queens and the Bronx sales totaled $7.1 billion in the first half, which puts dollar volume on track to blow the previous record set in 2007 out of the water—beating it by 45%. And in Brooklyn, the busiest and richest market outside Manhattan, the total value of properties sold in the first half reached $3.4 billion, close to exceeding the figure for all of 2013.’
At least Greenspan raised rates eventually. Thelma and Janet have their foot on the gas all the way. Bond bubble, stock bubble, housing bubble. Joe 6-pack is piling into stocks. Complacency reigns.
“In an article carried on its digital news portal People.cn (in Chinese), the party’s flagship newspaper lashed out at Changzhou Daily’s piece as an indirect approach to rescue the local housing market.
This points out an interesting fight that is going on in China. The central government wants to deflate the bubble albeit slowly, while the local governments tied to the developers would love to reflate the bubble.
‘Yet a Chinese crash might make 2008 look like a garden party. As the risks of one increase, it’s worth exploring how it might look. After all, China is now the world’s biggest trading nation, the second-biggest economy and holder of some US$4-trillion of foreign-currency reserves. If China does experience a true credit crisis, it would be felt around the world.’
Do you have any comments on this, or any of the other dire posts Ben has offered here on the status quo Chinese economic picture, other than to offer your recurrent insight that the picture is much worse here in the US?
For instance, is it safe to assume the Chinese authorities have the situation contained, the way subprime was contained in the US back in 2007?
I posted an article in the last few days showing that the Chinese mortgage debt is less than half the U.S. as a percentage of the gdp and Chinese all have a lot of skin in the game 30% down on first homes and 60% on second homes and the mortgages are ten year loans. Yes, China does have things contained it will be the speculators and not the government that will eat the loss. No Fannie and Freddies need to be saved. Finally, they do have the four trillion in reserves and selling the U.S. bonds will raise interest rates in the U.S. not China.
Allowing the free market to work, damn communists!!!
http://www.chinadaily.com.cn/business/2014-07/18/content_17830283.htm
Excerpt of link that will soon post:As the central government pursues stimulus measures to give a lift to the slowing economy, it is also allowing market forces to play a significant role in real estate prices.
Against the backdrop of the slowdown in the property sector, the National Development and Reform Commission said on Thursday that the central government will no longer set ranges for real estate agencies’ fees.
Those fees will be subject to market conditions, and the administrative power to regulate real estate brokers’ fees will be ceded to provincial governments, according to Xinhua News Agency.
Hohhot, capital of Inner Mongolia and Jinan, capital of Shandong province, recently ended all curbs on home purchases.
Chinese mortgage debt on leases, you mean?
while the local governments tied to the developers would love to reflate the bubble ??
How do you “reflate” an existing bubble ??
Wages in China are moving up at 10% a year while housing prices have been stagnant or down the last six months, the bubble is in the process of deflating and the local governments would like to inflate in back to where it was where housing prices were rising at or above wage increases.
“Chinese all have a lot of skin in the game 30% down on first homes…”
We are pretty sure this is not mathematically possible.
‘Remember when 2014 was going to be the year home building finally got out of the doldrums and accelerated back toward health — or at least to filling something closer to its usual role supporting growth? Yeah, never mind.’
‘That’s right, another disappointing reading on the housing market was released Thursday morning. The number of housing units that builders started work on fell 9.3 percent in June, to an 893,000 annual rate. The number of housing permits issued by local governments, a forward-looking measure that government statisticians consider less prone to measurement error, fell 4.2 percent. Forecasters had expected both numbers to rise.’
‘What makes the June results curious — and particularly disappointing — is that some of the excuses heard for weak housing numbers don’t hold water any more.’
‘The unusually bad winter weather that slowed construction in January and February is now long past. If anything, you might expect a catch-up effect from projects delayed then to be a bit of a tailwind for housing this summer.’
‘Mortgage rates spiked in the second half of 2013, perhaps leading builders to exercise a greater note of caution as they weighed new projects. But rates have fallen more or less steadily through the first half of 2014.’
‘The basic lesson to be learned from the latest housing numbers is a simple one: The housing recovery is, at best, weak. And it may not be much of a recovery at all.’
‘The number of housing units that builders started work on fell 9.3 percent in June, to an 893,000 annual rate. The number of housing permits issued by local governments, a forward-looking measure that government statisticians consider less prone to measurement error, fell 4.2 percent. Forecasters had expected both numbers to rise.’
No worries, because the homebuilder optimism is rising again.
‘The unusually bad winter weather that slowed construction in January and February is now long past. If anything, you might expect a catch-up effect from projects delayed then to be a bit of a tailwind for housing this summer.’
Any time subpar US economic data are released, you can bet your bottom dollar the weather is at fault. This time the wet weather in the South was to blame.
Jul 16, 2014, 10:51am EDT
Updated: Jul 16, 2014, 11:11am EDT
Homebuilder confidence swings to positive
Confidence among builders about current sales conditions, future sales and potential buyer traffic all rose this month. And confidence was up among builders in all four regions of the country. Photographer: Sam Hodgson/Bloomberg
A measure of how companies that build new houses feel about the market reached a milestone this month, according to the National Association of Home Builders.
Its builder confidence index, based on homebuilder surveys, rose four points to 53, a six-month high. Any reading over 50 indicates more builders see sales conditions as good than poor.
“This is the first time that builder confidence has been above 50 since January and an important sign that it is strengthening as pent-up demand brings more buyers into the marketplace,” said Kevin Kelly, the chairman of the Washington-based association.
…
Economy
Blame It on the Rain: Slump in Housing Starts Driven by Record Drop in the South
Silver Linings in Permits and Year-Over-Year Trends
By Alan Zibel and Kris Hudson
Updated July 17, 2014 12:42 p.m. ET
We have yet to see the first-time homebuyer enter the housing market, and without them we are missing a critical segment of the “housing food chain.” Avison Young Capital Markets Group vice president Jason Meister joins Simon Constable on the News Hub to discuss the severity of the housing stall. Photo: Getty
WASHINGTON—U.S. home construction tumbled in June due to a stretch of wet weather in the South, a decline that analysts said was likely a temporary departure from a trend of recovery in the housing market.
Housing starts sank 9.3% last month to a seasonally adjusted annual pace of 893,000. It was the weakest showing since September 2013 and the second-straight monthly drop, the Commerce Department said Thursday.
The June decline was driven by a nearly 30% drop in the South, the largest monthly decrease on record for that part of the country. Other parts of the U.S., however, posted increases. Construction in the Midwest was up 28%, while the Northeast was up 14%.
The problem in the South, home builders say, is that the region’s unusually wet winter and spring limited the number of home lots ready for construction. By June, a shortage of such build-ready lots left several builders unable to start constructing enough homes to meet demand.
…
Funny, that.
The US drought monitor show that much of the mid-South (Tennessee, Georgia, Alabama and the Carolinas) to be abnormally dry.
I guess Florida, New Orleans and Washington DC are “The South”.
Pssst…better not tell joe he’s considerable a Suthna.
who is joe?
‘The basic lesson to be learned from the latest housing numbers is a simple one: The housing recovery is, at best, weak. And it may not be much of a recovery at all.’
As we have been saying here for years.
‘JPMorgan Chase & Co, the second-largest US mortgage lender, is backing away from making home loans to less creditworthy borrowers after losing faith in its ability to recover much money from foreclosing on homes, even with government guarantees.’
‘While it used to regard collateral and US government lending programs as key backstops to most of its loans, it now pays closer attention to the credit quality of borrowers. The bank wants to reduce the chances of having to foreclose on a loan, because it’s bad business.’
“The cost to take a customer through the foreclosure process is just astronomical now,” Kevin Watters, chief executive of JPMorgan Chase’s residential mortgage banking business in New York, said in an interview.’
‘In addition to federal standards, states, and in some cases local governments, have written their own rules making it more expensive for banks to recover loan losses, he said.’
‘According to foreclosure data firm RealtyTrac, it took an average of 120 days to foreclose on a home at the beginning of 2007, just as the housing bubble was starting to burst. In the first quarter of 2014, it took 572 days, or more than 1.5 years.’
‘If other lenders choose the same path as JPMorgan, it could become more difficult for people to secure financing to buy homes, even though government programmes are intended to help credit flow to these borrowers, said Christopher Mayer, a professor of real estate finance at Columbia University.’
This sounds too good to be true, I hope it is true, though. I keep looking for signs that the long overdue full unwind of all this nonsense is finally beginning.
‘If other lenders choose the same path as JPMorgan, it could become more difficult for people to secure financing to buy homes, even though government programmes are intended to help credit flow to these borrowers, said Christopher Mayer, a professor of real estate finance at Columbia University.’
Sounds like Fannie Mae, Freddie Mac, the FHA, the USDA and the Fed may all need to step up their efforts to supply more credit, as private mortgage lenders leave the building.
as private mortgage lenders leave the building ??
They will be back pounding on the door as soon as interest rates rise to the point that they can make their margin…
If banks care about their debtors’ ability to pay back their loans they should start by lobbying to kill off all globalist treaties in-pipe and roll back everything up to and including nafta.
Workers with no job security mean debts with no payment security.
They can’t pay back what they don’t earn.
If this doesn’t happen, the markets will, in very painful fashion for all involved, normalize to a maximum of 5 years for ANY loan.
Welcome to the delayed end-game of the great prisoner’s dilemma that is off-shoring: The major corps have made their noose, and now the chair they’re standing on is falling away.
They thought they were above the “unwashed masses” who feed the very blood to their industries. They are wrong and 2008 was only the first of many shockwaves which will continue until our international trade policies are corrected (or we’re a 3rd world back-water).
‘New Zealand’s crippling home affordability rates cannot be fixed by a single solution such as changing immigration policy or urban planning rules, or imposing a capital gains tax or lending ratios. This is one of the key findings from the latest New Zealand Institute of Economic Research (NZIER) report - The home affordability challenge.’
‘The report explains that New Zealand’s obsession with home ownership is one of the key reasons that it took so long for New Zealand’s economy to recover after the 2008 Global Financial Crisis. “Our reliance on future capital gains to pay for debt-funded spending caused a long hangover when households realised they needed to pay off the mortgage.”
‘Eaqub says if New Zealanders are not cured of their housing fixation, the nation’s financial and economic stability will continue to be put at risk every time there is a recession. The fixation with home ownership is also causing social inequity and despair. “People fear being locked out of a traditional route to financial security, as almost 70 percent of New Zealand’s household net wealth is stored in housing. At today’s prices, an average Auckland home will take 50 years to pay off on an average Auckland salary. In the early 1990s, the average Auckland home took 30 years to pay off.”
‘Home ownership rates are at their lowest since 1951 - but rather than obsessing about that, it is a trend New Zealanders should embrace.’
“Economies prosper when people invest in business, not just housing. We need to create level-playing fields for different types of investment, and parity between renting and owning, to support a much needed cultural change around housing.”
‘The report explains that New Zealand’s obsession with home ownership is one of the key reasons that it took so long for New Zealand’s economy to recover after the 2008 Global Financial Crisis.’
Just how widespread is this international obsession with home ownership?
“Economies prosper when people invest in business, not just housing.”
Wow, very typical supply-side rubbish.
All the silicon valley VC’s can invest billions in self-cleaning pet rocks. It will result in an assured crash.
Economies don’t prosper when people “invest”, economies prosper when buyers send clear signals of demand, prompting investment as people who received decent and stable wages scream loudly:
“SHUT UP AND TAKE MY MONEY!”
‘It’s supposed to be terrible news that more people in their 20s and 30s are living at home with their parents. Pew Research, for instance, just reported that a record 57 million Americans — about 18% of the population — live in multigenerational households. The main reason for that is a sharp increase in the number of 25-to-34-year-olds crowding into the family abode with their parents and grandparents.’
‘This “boomerang generation,” needless to say, is the target of much scorn over its slow start in life and its apparent aversion to independence. They’re also causing considerable anxiety among homebuilders, automakers, appliance manufacturers and many other companies that rely on a steady flow of U.S. consumers spending every last dollar on things prior generations considered indispensable.’
‘Yet we should reexamine our assumptions about millennials, generally considered to be Americans born between the early 1980s and the early 2000s…If spending is down, something must be wrong. So alerts are going off as millennials bank what money they can instead of spending it on rent, cars and the endless filler items that tend to devour your paycheck when you live on your own.’
‘Foolish? That’s actually shrewd. Good financial advisors urge people to save as much of their income as they can, so they can invest it, apply it toward a nest egg and set something aside for a rainy day. Yet Americans in general are terrible at this…One reason so many Americans got swamped during the recent recession is they thought home equity and stock-market holdings were the same as savings, only to learn those “savings” can plummet in value.’
‘Millennials obviously have reason to be frugal. The unemployment rate is highest among the youngest, while it’s far below average for people over 35…Meanwhile, the total amount of student loan debt has skyrocketed during the past decade and now tops $1.1 trillion. Many recent college grads can’t find jobs that pay enough to cover rent and student loan payments both.’
‘Living at home obviously allows young, struggling workers to pay off bills, get out of debt and make a meaningful contribution to the economy, at some point. So what if it lowers the household formation rate? So what if Ford and GM don’t hit their sales targets for hipstermobiles? So what if Home Depot and Lowe’s end up with excess inventory of light fixtures and vanities? Instead of griping, maybe all the companies desperate to crack open millennial wallets should feel reassured that the future spenders of America are doing something to right their finances.’
We have a boomerang millennial living with us. So far, so good, as it is saving us more than our annual housing cost (for a full household of six!) of a decade ago.
So is your millennial paying you rent, then? Or is the arrangement only saving you money compared to supporting them living in their own apartment?
The latter. And I am fine with it, as she recently started her first paying job, plus has taken two online classes this summer and earned high marks. Any rent paid at this point would be symbolic rather than a material share of the housing bill; however, having her live with us is a huge savings compared to housing her on or near campus.
As things are shaping up, she may end up as one of the first generation of students to complete a significant amount of her degree requirements through online coursework rather than in a traditional lecture setting, primarily due to prohibitively exorbitant housing costs around campus.
One of my cousins still lives with his folks. Who really appreciate how he saves them money on food. Cuz works at a grocery store and can buy food for the whole household with his employee discount.
Does anyone really think these boomerang kids are saving the money they’re not spending on rent, etc.? First, they may be making big student loan payments. Then there are priorities such as the latest model Sony PS, iPhone, iPad, etc.
“Alma Cabezuela, director of the city housing authority, also felt the shock of the new appraisals, as her house and an adjacent apartment each roughly tripled in value. Like many here, she wonders what the future holds for Marfa, particularly for those with deep roots but modest means. ‘It’s crazy. I work, but there are other people on fixed incomes. I guess we’ll all leave Marfa,’ she said. ‘This will become another Santa Fe, New Mexico.’”
______________________________________/
That is likely an accurate prediction. Look what’s happened to the Florida Keys.
Marfa lost its affordability flavor a decade ago and I suppose it could get worse. But what will remain the same is the incredible isolation of this very small town. The very geography - and history - of this area precludes any semblance of the development you see in Santa Fe or the Florida Keys. What buyers remain are unfashionably late to this flipping party.
Phyllis, your taxes were not intended for buying houses from banks. They were not intended for maintaining bank-owned homes. If you have a problem with the vacant house, then you should contact the owner of that house, not the newspaper or any tax authority.
On the other hand, you really have no right to complain about the condition of property that you don’t own. If the owner of the house doesn’t want to maintain it, then they don’t have to. It’s theirs, not yours. If you are terribly concerned with the condition of property near your own, then you should move. When you move, make sure to buy up everything within eyesight. Only then will gain the right to control the condition of everything that you can see from your front door.
Those are some good points, Auntie. She could also spend less time looking at the house across the street and also find a way to not get bothered by it so much.
I believe this is in New York. She might contact the state and ask why they threw so many roadblocks into the foreclosure process. But as I’ve mentioned before, the loan servicers use these laws as an excuse to milk the situation for fees and dribble inventory out. If the FASB rules hadn’t been changed, this would have all been cleared up years ago. So she could call DC too.
Wasn’t it the Fed that changed the accounting rules?
‘Wasn’t it the Fed that changed the accounting rules?’
I doubt that. FASB is supposedly independent. Somebody twisted some arms and ultimately it’s up to the government to make sure this sort of thing is handled right.
The house across from mine is a run-down rental.
Shortly after I moved in, I planted a tree in my front yard so I wouldn’t have to look at it. A decade later, the tree all but blocks the view.
Does your train of thought also extend to NIMBY places with covenants designed to keep others out?
There are a quite a few places around the country that limit the number of people who can move in (the “I’ve got mine, screw you” crowd). What say you about that?
‘China’s new home prices fell in June from May for a second straight month and analysts forecast the falls would continue - sparking a surprise rally in Chinese property stocks as investors anticipated imminent government support.’
‘Analysts expect the downturn could force local governments to implement extra measures to support the market and safeguard their revenues. “This could be a turning point. The policy could be accommodative and lending to first time home buyers could be relaxed,” said Wee Liat Lee, Hong Kong-based head of property research at BNP Paribas. “We saw policy actions each time when the number of cities with price declines crossed the 50 mark in 2008, 2010 and 2011.”
Hmmm, and let me guess, each time prices dropped and the government made “policy actions”, prices shot up even more? One, it sounds like a recipe to keep making the inevitable collapse worse. Two, it doesn’t appear to be a very free-market approach, as some here suggest.
Up is down, black is white, and right is wrong. Welcome to the managed global economy, where YOU can’t win because it’s a big club and you ain’t in it.
+1
Ben, I said the local governments and the federal government have different policies. The Federal government is clearly following a free market approach. Since the local governments cannot print money their ability to screw up an economy is limited.
The bloated local governments have been making their money selling (or whatever) the land to developers. Sure though, the country will be fine with collapsed local governments because the central government is on an honest track.
‘It’s crazy. I work, but there are other people on fixed incomes. I guess we’ll all leave Marfa,’ she said. ‘This will become another Santa Fe, New Mexico.’”
Move to Marathon. Talk about wide open spaces west Texas has them.
Marathon got the habitat-for-the-stylish meme about the same time Marfa did. So sixty miles down that road won’t help them. Maybe sixty miles actually DOWN to Presidio is their remedy. But I don’t think so…….. Kivas in Terlingua maybe? Might be too rad for these souls.
No one will ever live anywhere anymore because real estate will be infinitely expensive. Humans will disappear (except for the billionaires; they will remain).
You pulled that one right out of The Donk’s Compendium Of Gaffes,Blunders And Miscalculations.
http://www.tripadvisor.com/ShowUserReviews-g30158-d2557423-r170912138-Woodward_Ranch-Alpine_Texas.html
Carmel, CA Housing Prices Dive 10% YoY as California Housing Demand Plunges Statewide
http://www.zillow.com/local-info/CA-Carmel-Valley-home-value/r_51274/#metric=mt%3D18%26dt%3D1%26tp%3D5%26rt%3D8%26r%3D51274%252C28109%26el%3D0
Realtor Charged With Theft, Forgery And Corrupt Business Practices
http://www.woofboomnews.com/2014/07/anderson-realtor-pleads-not-guilty/
Note: Every day scores of realtors get collared for their crimes. However, the charges associated with this particular fraudster truly crystallizes the meaning of the word realtor.
San Diego Realtor Faces Felony Grand Theft Charge
http://blogs.ocweekly.com/navelgazing/2014/07/edward_julian_putnam_maxine_johanna_putnam_fraud.php
California Realtor Charged With Felony Indecent Exposure
http://losangeles.cbslocal.com/2014/07/16/encino-realtor-accused-of-being-camarillo-flasher-suspect/
I’ve begun to wonder if this housing bubble in the Bay Area is different from that of the 2008 crisis. The latter was caused in large part by sub-prime borrowing and the securitization of those sub-prime loans. But that’s not what I am seeing in this bubble.
I wonder if even the use of the word “bubble” is accurate. I use it because I think paying over 1 million dollars for a small, one-story house (3/1.5) is ridiculous - especially if one is bidding $200-500K over the ask price - even by the standard of California housing and rents. But maybe I’m looking at the situation wrong.
2 recent examples: 3/2 with ask of $700K. Sold for over 1M. 3/1.5 with ask of $850K. Sold for 1.1M. Both single-story, in nice neighborhoods, no garages, small backyards. One on a quiet street, one on a major traffic artery. Rooms rather small but inside quite nice. No obvious major flaws. But, with the exception of the front & rear windows, every window in every room (including the bathrooms & bedrooms) looked right into the neighbors’ windows. If both sets of windows are open, conversations could be easily heard. Needless to say, if one wants any privacy, one would need blackout shades or blinds or something.
I don’t know who bought these houses, but I checked the median down payment for the zip code: 40%. Then I checked the median down payment for an upscale neighborhood (where asks start at 1.2M and go up from there): 70%.
With down payments like that, there will be no under-water mortgages in a crash. If the owners have to sell in a down market, they wouldn’t face any hurdles from the mortgage holder.
The median income for a person in town is close to $70K Median income for a family in the city is over $100K. The average salary for a full-time professor is $150K. If one assumes the buyers may work in Silicon Valley or San Francisco, those median incomes are probably higher. In short, a family with two professionals could easily be earning anywhere from $150K to $250K or more - which means that, depending on their other debt, family size, down payment, they could afford a house costing $700K to over $1M. And 3-bedroom apartments, if one could find any, can go from $4K-6K month or more.
In short, maybe the people who are paying these, to me, outrageous prices are making rational decisions. Maybe a million dollars for a home is chump change, a reasonable price for a starter home for themselves or their children in a nice neighborhood. Yes, there could be another crash but, as we have seen (home prices here are now at or above pre-crash levels) if one can keep up with the mortgage and doesn’t have to move for some reason, one can reasonably expect to at least recover the investment.
None of this is good news for those who are not rich professionals. Foreclosures and under-water mortgages don’t help the ordinary buyer because the ordinary buyer doesn’t have the skill or cash to bid for homes at auction.
In short, maybe there are different kinds of housing bubbles, and this is one where ordinary potential buyers are simply being frozen out by buyers whose incomes are sufficiently high that they find these prices to be both affordable and reasonable. And I see no slowdown. Houses aren’t sitting on the market. Most go pending the day the bids are due. Price reductions are rare and small (5K, 10K).
What am I missing?
What are you missing? The truth.
You have collapsing housing demand in every town and city in CA.
And just a note… whether you borrow or pay cash, you’ll always go underwater if you pay a grossly inflated price. And clearly as you’ve stated, prices are grossly inflated.
You are missing your ability to move elsewhere.
There are lots of reasons why moving may not be an option. 1) It costs money to move. 2) Job. Sure, it may be possible to get work elsewhere but there’s no guarantee. And, yes, one could get the job first. But job hunting in different towns, states - time and money. 3) Friends, family, just liking the town, city, state in which one lives. Most Californians who own a home could sell them and live like kings in Georgia or Louisiana but, well, we’re not among them.
1) The losses associated with paying a massively inflated price is far higher.
2) See #1
3) Most California home-debtors can’t find a buyer at even half their imagined amount. Remember… Housing demand has collapsed to 19 year lows.
where ordinary potential buyers are simply being frozen out by buyers whose incomes are sufficiently high that they find these prices to be both affordable and reasonable ??
Yes this is true although I am not sure anyone considers it reasonable even if you can afford it…It is what it is…And, Big V has the offered the antidote…Move away…
Move away can have different meanings…Move to more affordable housing and still work in the area…Look for new work in a more affordable area…Move to another state…
Just another example of outsiders can’t leaving well enough alone.
Gotta ruin someone else’s good thing.
Brought to you by the same folks that would move heaven on Earth to save a black-spotted, three-headed species of slug.
“…if one can keep up with the mortgage and doesn’t have to move for some reason, one can reasonably expect to at least recover the investment.” Please tell me where this is carved in stone?! Conventional wisdom says housing costs/values always go up, at least over the long term. But current costs/values are way out of line with income levels, and I don’t see income going up soon if ever…
I see your point and have wondered the same thing on occasion. But a few things I try to remember:
1) SF is a gold rush economy currently at the apex of a second tech bubble. As we saw in 2000, tech bubbles pop. Good and bad companies go under, as do auxiliary businesses like gourmet coffee shops, kayak rental places, etc.
High salaried people get laid off and there are no new 6-figure jobs to compensate. All the people who moved here on spec go home. Rents go down, prices go down. Those “rich” professionals who comfortably sold stock to pay cash for a $1mil house suddenly find their remaining portfolio is a lot less valuable, and they now have 1 income instead of 2, if they’re lucky. And they start to wonder if they shouldn’t get whatever they can out of their house by selling before prices drop further, if they’re lucky enough to find a buyer at all.
2) The new normal of bidding wars and more buyers than houses is not only temporary, but extremely recent. Only 2 or 3 years ago, you would see SF apartments at half their current price sitting on the market for months - they couldn’t give them away. Currently the herd is stampeding to buy houses, but they can just as easily stampede the other way as soon as they think prices aren’t going up.
3) Expenses for “rich” professionals continue to go up, and don’t usually go down even if people can no longer afford to pay. Private school and college tuition, child care, summer camp, healthcare, elder care, home maintenance, cars, restaurant bills, vacation expenses, city parking, bridge tolls and ferry tickets, designer handbags and fine jewelry, all can eat up a huge amount of a professional couple’s income. And let’s not forget the property taxes and insurance on a $1-$2million house. What may have been doable on 2 incomes is not so doable on 1 or none, and many people will choose to move somewhere more affordable, even if it means selling at a loss.
4) As others will surely point out, many of these “cash” purchases are not really cash. Home equity loans, loans against stock, loans from friends and family, short-term hard-money lending for flippers, are just some of the ways individuals are “paying cash”, skewing the high downpayment statistics you mention. All of these buyers are just as vulnerable in a downturn as traditional low-downpayment buyers.
Basically it seems like you’re saying that in SF, some people can “afford” the bubble because of their high salaries. But as we saw in the last housing downturn, just because people can afford to make their mortgage, property tax and insurance payments doesn’t mean they will. And a lot of these so-called rich professionals can barely afford their existence now - what happens when that high salary is reduced, or disappears entirely, or just that the hope of a raise is no longer on the horizon?
Any smart personal finance tech type earning in the mid $100s up there would know to rent and to remember the burst of the tech bubble. Build up the 401k in the meantime and add movable, hidable assets over time, plus cash. Cannot ever go wrong with such a scenario. The world is a great place to live by freeing yourself from as much financial commitments and other commitments as possible.
“Any smart personal finance tech type earning in the mid $100s up there would know to rent and to remember the burst of the tech bubble.”
Californians’ collective amnesia on asset bubble collapse is an amazing spectacle to witness.
La Mesa, CA Housing Prices Crater 6% YoY; Inventory Doubles As Housing Demand Collapses
http://www.movoto.com/la-mesa-ca/market-trends/
“While few doubt that the arts and tourism have rescued Marfa from decline, some see a price to be paid for being the darling getaway spot for well-heeled visitors from Houston, New York and California. ”
Marfa used to be a beautiful little town. Lots of fun to go out there and ejoy the Marfa lights and the stunning sky. Now it’s probably loaded up with artsy-fartsy poseurs looking for the next happening place to be. The West Texas equivalent of Bend, Oregon.
No offense to the people who’ve talked about enjoying Marfa, but I’ve spent some time in west Texas, as I have a lot of family out there. It takes forever to get there and it SUCKS! Then you drive back. The idea that there is some housing shortage or tripling in prices shows how nuts things have gotten.
I think this hits a lot of the artsy-fartsy crowd after a few months of living in West Texas. They realize it’s not Santa Fe and the nearest airport is quite far away. Hope they enjoy the peace and quiet.
I think the key to Marfa is that it is one of the few places that’s cheap enough for members the underpaid creative class to buy a vacation house (they can’t afford the Hamptons like their bosses), yet still cool enough to be featured in design magazines (houses in Mobile AL may be cheap too, but that won’t get you into Elle Decor).
Who else but underpaid creatives would go to the trouble of flying 4 hours from NYC and driving 6 hours from Austin just to live in part-time proximity to the Judd Foundation? (This also appeals to the “I sacrifice more for art” types, for whom visiting extremely out-of-the-way cultural sites is an elaborate way of demonstrating how much cooler they are than you.) Next up, the ‘Spiral Jetty’ housing bubble?
This behavior is no different that the ilk that settles in San Francisco, Portland, Boulder, etc., for the “lifestyle”.
People are idiots. They pay big money to associate with the right type of people.
Until recently I would have agreed with you, but last month I moved to SF to take a job with a ludicrous salary. It’s really, really nice here. Lots to do, any kind of food you want, good medical care, good transport, good weather, mega culture, beautiful architecture, interesting stuff going on. Within a mile of my apartment are a golf course, 4 huge parks, tennis courts, the beach, a lake, and a forest full of hiking trails. I spent a fair amount of time in Boulder too, though I couldn’t afford to live there, and it is an equally awesome place, for many of the same reasons.
Rent is high, but since I’m single I can do a small place and dodge the worst of that. I’m not home much, anyway. If you spend your life hiding in your house, then this is definitely not the place for you. All the good stuff is outside.
Until you’ve lived somewhere like this, you just don’t know what you’re talking about. It sounds an awful lot like sour grapes being choked down by somebody that can’t afford to, and doesn’t like to see the people who can enjoying it. Many just aren’t content watching the history channel between trips to walmart and applebees.
I’m sure my job will evaporate when this boom passes, and I’ll move on, but for now I am having a fantastic time here and fattening up my bank account on stupid VC money.
Suggestions:
1) Enjoy yourself (sounds like you already figured this out!).
2) Save a lot for the inexorable Tech Stock Crash 2.0, so you can continue enjoying yourself even if you are out of work for a while.
Tech stock crash? Impossible! It’s a whole new paradigm! We’ve figured out how to monetize eyeballs this time, and the sky is the limit! I’m going buy a million dollar townhouse and lease a Tesla!
“…how to monetize eyeballs this time…”
To this day, that one leaves me scratching my head. For instance, I use Google several times a day, but if I have ever purchased anything based on ads my eyeballs saw on their web site, I am certainly unaware of it.
People pay to show up higher on the search rankings. It is believed that this generates more sales when you google widget x.
That advertisers keep paying for this implies that it is at least not catastrophic to their businesses. I don’t really get it either, but it seems to be working for now.
Interesting narrative. I hear the same thing from Manhattanites who have no idea I spend many hours working there. Anyone who tells you they like living there are lying or out of their minds.
New York City is the most unhappy city in America
July 18, 2014, 12:23 PM ET
Cheer up, Big Apple residents — New York City is the most unhappy city in America.
That’s according to data coming from a working paper by Harvard professor Edward Glaeser, Vancouver School of Economics professor Joshua Gottlieb and Harvard doctoral student Oren Ziv. They used data collected in a Centers for Disease Control and Prevention survey called the Behavioral Risk Factor Surveillance System, and then adjusted it for age, sex, race, income and other factors. (Such adjustments are important — women, for instance, are happier than men; the married are happier than single or divorced respondents; and so on.)
In short, New Yorkers are unhappiest on an “adjusted” basis; but scoff at those adjustments as you like, they are still third-most-unhappy region (of the areas where there are at least 200 respondents) out of 177 metro areas on an unadjusted basis.
…
“… when interest rates rise, the jump in mortgage payments will hammer buy-to-let investors who have helped push up property values. ‘There is going to be mayhem,’ said Kordestani. ‘Whoever pays those prices is going to suffer.’”
Wouldn’t this be a fitting come-uppance for Greatest Fool investors?
Are the GF/buy-to-let investors getting AR loans? I think I’m missing something more complex at work here. I thought most of these smug GFs, who need a come-uppance for at least the entertainment value, were paying cash.