September 1, 2014

When The Harmless ­Bubble Becomes A Malevolent Force

A holiday desk clearing post. “For a while in the wake of the housing crash, the answer was pretty clear: If you could swing it, buy now. But things have changed rapidly. Prices in Southern California have climbed by a third in two years. The post-crash bargain bin has been picked clean. Yet doubts linger about the health of the housing recovery, and the broader economy. Cedric Shen and his wife have been ‘aggressively looking’ for a house to buy for about three months, but they’ve yet to put in an offer. ‘We’re fully qualified for a loan. We’ve got good credit and no debt. You’d think it would be easy,’ he said. ‘But you’ve got inventory issues, and you’ve got prices that seem ridiculous.’”

“I’m just going to come right out and say what everything is thinking: What the @#$% is going on with home prices in Orleans Parish? It’s getting crazy out there. I’ve been seeing listings of renovated homes for over $300 per square foot on the edge of Central City. A ‘fixer-upper’ needing a ‘total renovation’ on the edge of City Park recently hit the market for $700,000. These prices can’t be sustainable in the long-term. As of 2012, the median household income for Orleans Parish was $34,361, compared to $44,379 for the metropolitan area and $51,371 for the U.S. as a whole. Those incomes can’t support this housing market.”

“Three years into South Florida’s impressive housing recovery, demand for existing condos is showing signs of sputtering. Michael V. Smith, an agent with Fortune International Realty, said the spate of new condo towers launching one after another has an unreal air, reminiscent of the last boom that turned bust. ‘It looks a lot like 2004 or 2005. I’m Miami’s biggest promoter, but you’ve got to step back and be realistic,’ said Smith, who estimates he attends a fancy condo launch party every couple weeks.”

“House prices have stagnated and sales are stalling as Britain’s residential property market shifts in favour of buyers rather sellers. ‘We’ve reached the usual point where buyers go no thanks,’ said Ed Mead, the managing director of estate agent, Douglas & Gordon. ‘Whenever this happens there’s a three-month hiatus whilst sellers readjust their sights. Asking prices had overshot and a plateau in selling prices to be expected.’”

“Richard Kurland, an immigration lawyer who works with wealthy investors from mainland China, has looked at July real estate figures and suggests they may offer a glimpse at an important shift in Vancouver’s housing market. He says listings are up in certain segments while sales are looking stagnant. The figures for single detached homes on Vancouver’s west side in the $3-million to $3.5-million price bracket show 106 active listings and just nine sales, compared with 73 listed homes and 7 sales during July, 2013. ‘Right now, these numbers are showing blood in the water – and the sharks haven’t sniffed yet,’ Mr. Kurland said.”

“At the same time, Mr. Kurland adds, there is a serious corruption crackdown in China, as well as signs that Canada and China may upgrade a tax treaty some time in the fall – which could lead to more information-sharing between Canadian and Chinese tax officials. ‘Those things taken together, I think, are forcing the rich to dispose of high end Canadian residential property,’ Mr. Kurland says.”

“Property launches China are set to surge in the latter half of the year with developers sticking to their schedules despite mounting inventories, spelling double trouble for a market hammered by months of falling prices. Among the four top-tier cities, the overhang for Beijing and Shenzhen stands at 19.8 months and 20.4 months, respectively, up 129 percent and 122 percent from a year earlier. ‘Our industry has been spoiled. Why does it expect inventory to appreciate after sitting there for one, two years? If it’s a piece of electronics it will become very cheap,’ said Yu Liang, president of China Vanke, the country’s largest residential developer.”

“Housing sales dropped by 37 per cent in Delhi-NCR during the first six months of this year, according to Knight Frank. Knight Frank said nearly 1.67 lakh units remained unsold in the NCR market in June and it would take more than two years to sell these unsold inventories. Executive Director Rajeev Bairathi said there is no effective increase in residential prices after taking into account the benefits offered to buyers under subvention scheme and freebies. ‘No developers want to reduce basic selling price (BSP). If they will do that, it will start downward spiral. Builders come up with interest subvention scheme and freebies to boost sales,’ Knight Frank India national director-residential Mudassir Zaidi said.”

“Lindsay David may sound crazy ­comparing Australia’s banks to Lehman Brothers and Bernie Madoff. But in his mind, it’s everyone else who is living in a ‘Disneyland’ delusion by failing to spot a bank-led property bubble that shows no sign of deflating. It’s ‘the sheer size of the loans relative to the incomes here’ that troubles Mr David. ‘No one in the Western world has ever done what we are doing.’”

“The median house price to income of Sydney is nine times, compared to 6.2 times in New York and 7.3 times in London. Even Adelaide is more expensive than New York on price-to-income basis. He is particularly troubled by the surge in asset values in his Sutherland Shire neighbourhood, where land is changing hands for more than $1 million. ‘I have never seen so many Range Rovers in the Shire. It’s a small world out there and you know they haven’t become millionaires overnight. It’s eerily similar to Miami [in 2005 before the sub-prime crisis]. It feels like Groundhog Day,’ he said.”

“Cash sales continue dominate the recovering Las Vegas housing market—but many realtors in Sin City say it’s a dwindling trend. ‘The time to buy was a year ago,’ Brent Dana, owner of Dana Realty Group said. ‘It’s gotten too expensive for investors; now they’ve moved on to New Mexico and Texas and they’re buying cheap there.’”

“Ask any parent: kids love bubbles. The heaven-sent air-filled soapy wonders provide hours of cheap entertainment and nobody ever gets hurt. Put the word ‘asset’ or ‘financial’ before it, however, and the harmless ­bubble becomes a malevolent force. And these ferocious froth balls appear to be everywhere. Years of cheap credit explain the latest bonanza, most agree, while the hunt for yield is pushing investors and asset prices into uncharted waters. But are these ­bubbles? And would you recognise a bubble if you were caught inside one?”

“‘Bubbles have their own momentum,’ Harry Dent, best-selling author says. ‘The more prices go up, the more people say: ‘Gosh, how am I going to miss out on this?’ Therein lies the conundrum. As millions of would-be property ­owners around the world can attest, the only thing worse than being trapped inside a bubble when it bursts is not being in it while it’s expanding. But be warned: bubbles are not kids’ play. ‘Every bubble bursts,’ Dent says. ‘There are no exceptions in history.’”




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71 Comments »

Comment by Neuromance
2014-08-30 08:01:38

My $0.02:

• Housing was effectively turned into a financial asset.

• A strong demand in the financial asset turned into a mania in both the underlying financial asset - MBS - and the physical object. It became the magic asset which by definition is an asset which only appreciates in price with no credible chance of going down or anyone losing money.

• The mania burned itself out when the financial assets were found to be worthless - it was simply bad debt underpinning the mania.

• This time, the government and central bank stepped in to support the market / mania. This WSJ link is an example of how the bottom dropped out of the mortgage finance market. Today, there’s no opportunity for private profit at these price levels, interest rates and repayment likelihoods.

• The government and Fed are desperately trying to rekindle the bubble, with people like Krugman and Summers providing the PR and saying bubbles are good and essential.

• House prices have re-climbed to bubble peaks in many areas, very quickly, once again, an indicator of the effectiveness of the interventions.

• The question going forward is, will the mania be re-kindled? Housing is curious is that it is different than tulip bulbs in that it is a necessity. Having a mania in a necessity seems to be an unhealthy phenomenon for a society, IMO.

The massive, discretionary Fed and government support of the market is, in my opinion, the sword of Damocles hanging over the market.

Comment by Ben Jones
2014-08-30 08:17:59

‘will the mania be re-kindled’

‘The Related Group and two other South Florida developers announced plans Monday for a waterfront condominium-hotel in Hollywood. The partners aren’t yet ready to discuss specifics, but they said the project will be similar to Hyde, a condo-hotel that soon will start construction.’

‘As the housing market continues to improve, Miami-Dade County is benefiting from another condo building boom…An entity tied to Related owned the note on the Hollywood site and was asking $16.7 million at a foreclosure auction last week, records show. The bidding reached only about $750,000, so the Related firm kept the property.’

It’s not even new players. It’s the same people and companies.

Comment by Whac-A-Bubble™
2014-08-30 14:33:11

Same crony capitalists as before.

 
Comment by taxpayers
2014-08-31 08:27:54

condominium-hotel !!!
now we just need the riverboat condo hotels of 2005

Comment by Whac-A-Bubble™
2014-08-31 11:18:54

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Comment by Whac-A-Bubble™
2014-08-31 16:53:13

“1:36 pm ET
Jul 28, 2014
Global
Is the Private Mortgage-Bond Market Dead or Dormant?”

It’s dormant at the bid levels set by the Fed, Fannie Mae, Freddie Mac, FHA, USDA, etc. The government is pricing private bankers out of the market.

Comment by ex-Wreck
2014-08-31 21:28:41

“Well, Mr. Smarty Pants - it turns out he’s not dead. He’s just *mostly* dead.” - Miracle Max, *The Princess Bride*

 
 
 
Comment by Ben Jones
2014-08-30 08:22:14

‘If you’ve got it, tap it. That appears to be the strategy for growing numbers of owners across the country who have begun taking out home equity credit lines at a rapidly accelerating pace. Owners have pulled out $120 billion in new home equity credit lines in the past 12 months, a 27 percent increase in volume over the year earlier.’

‘In some states, new home equity line borrowing is exploding: up 169 percent in Wyoming, 85 percent in Oklahoma, 79 percent in Arizona, 53 percent in Florida and 52 percent in Ohio. Dollar volumes of new lines are highest in areas with the most expensive housing, especially along the West Coast and the Northeast. In California alone, nearly $6 billion in new equity credit lines were originated in the past 12 months, according to researchers.’

‘For owners with high credit scores, the average amount that can be drawn down on new lines is just under $120,000. For those with good but not perfect credit, dollar limits average in the $40,000 to $60,000 range. But banks are lending to applicants with poor credit as well. New credit lines to “deep subprime” owners — those with the worst credit histories — topped out above $30,000 in the second quarter.’

‘But here’s a key question: Despite the big jumps in home prices and equity holdings, is the boom in HELOCs beginning to look like a bubble? Is it a good thing — or an omen — when new HELOC volumes soar in a year by 79 percent in Arizona and 52 percent in Florida?’

Comment by Housing Analyst
2014-08-30 08:45:55

….. right in the very states where prices have reversed course. Hardly coincidental.

 
Comment by Neuromance
2014-08-30 11:35:21

Ben Jones: ‘If you’ve got it, tap it. That appears to be the strategy for growing numbers of owners across the country who have begun taking out home equity credit lines at a rapidly accelerating pace.

Good debt is the kind taken out by businesses, which creates an increase in wealth greater than the debt and interest payments. Win-win.

The dirty little secret is that debt taken out by individual citizens through schemes like putting one’s house up as collateral results in a lower standard of living for that individual, and causes long term financial damage. They take out a loan with a 5% interest rate, and buy a couch, they are paying a 5% premium for that couch. And it does not add in anyway to their earning potential or net worth.

Yet, this is what the central bank and government pushes. Makes you wonder whose side they’re on (their own, of course).

Comment by Combotechie
2014-08-30 19:12:41

“They take out a loan with a 5% interest rate, and buy a couch, they are paying a 5% premium for that couch.”

True dat. But it’s also true that the economy gets to enjoy a positive hit when the money for the couch gets spent.

And if you want to argue with me that in effect this positive hit is a borrowed money hit (as opposed to an earned money hit) then I am all ready to concede that you are correct.

Comment by Prime_Is_Contained
2014-08-31 10:42:34

in effect this positive hit is a borrowed money hit (as opposed to an earned money hit)

More precisely, the positive effect on the economy today of this “borrowed money hit” is borrowed from future spending, and thus borrowed from the future economy.

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Comment by Whac-A-Bubble™
2014-08-31 16:54:53

Positive hit today, negative hit tomorrow…

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Comment by Bill, Just South of Irvine
2014-08-30 20:58:01

Good Buddha! The nuts will never learn as long as the printing press rages on. The music’s gonna stop at some point. Most of the chairs are gone.

Comment by Whac-A-Bubble™
2014-08-31 11:20:16

The music is not going to stop until the legs, seats and backs of all the chairs in the room have been burned to generate heat.

 
 
Comment by Guillotine Renovator
2014-09-01 10:46:31

“If you’ve got it, tap it.”

Tap that ass-et.

 
Comment by goon squad
2014-09-01 18:53:20

This is beautiful.

So happy that I could personally contribute to this selling HELOCs for TARP bank 10 years ago…

 
Comment by Puggs
2014-09-02 15:33:59

Debt is dumb!

 
 
Comment by Ben Jones
2014-08-30 08:28:17

‘The U.S. Census Bureau tracks a figure known as “vacant housing held for seasonal (purposes).” These are homes held off the market or set aside for seasonal use. Part of the bureau’s overall housing stats, the seasonal vacant housing figure is a measurement within its vacant housing units.’

‘In Maricopa County, there were 227,696 vacancies among the county’s 1,639,279 overall units. Of these 227,696 vacancies, 63,938 were listed as seasonal vacancies. The figures actually rose in the bureau’s 2012 measurement: 1,654,659 overall units; 230,266 vacancies, of which 77,315 were among seasonal set asides, or 33.5 percent of the vacancies.’

‘In 2010, the seasonal portion of vacancies was 28 percent. In other words, the number of vacant homes held off the market for seasonal use rose by about 13,000 in two years.’

‘But while there were large increases (about 3,000 in Phoenix; almost 4,000 in Scottsdale), there were decreases, too. In Chandler and Mesa, for example, the figure dropped by almost 1,000 units.’

‘Increases of between 1,000 and 2,000 were seen in Peoria, Surprise and Glendale. Two of the highest percentages of seasonal housing that remained vacant were in the Northeast Valley. Cave Creek’s rate of 43 percent is topped only by Carefree’s 70 percent figure.’

About this:

‘Of these 227,696 vacancies, 63,938 were listed as seasonal vacancies’

So the rest are permanent vacancies?

Comment by Housing Analyst
2014-08-30 08:50:24

“Vacation” homes/second homes otherwise known as excess empty inventory is the turd in the housing punchbowl to watch closely.

 
 
Comment by Ben Jones
2014-08-30 08:30:59

‘Marcy Kline, president of Tucson Realty & Trust Co. Management Services, said many homeowners became renters after losing their homes to foreclosure. Although they are unsure if they can qualify for another mortgage now, they found that having a landlord taking prompt care of maintenance wasn’t so bad. And other investments will hold their value better than residential real estate.’

‘People aren’t sold on Tucson the way they used to be, she said. A wariness of Tucson’s economic direction and local leadership has people hedging their bets with rentals.’

“Let’s face it, Tucson has not rebounded in the same manner that other cities around this county have rebounded,” she said. “So if you’re watching that as a homeowner or as a potential homeowner you’re sitting there saying, ‘Let’s say I buy this house for 300 (thousand dollars) and the market continues to sour— is it only going to be worth 250 or 225?’ That’s a huge risk for somebody who’s not 100 percent sold on Tucson or maybe they’re not even 100 percent sold on their job.”

‘Fitch said young professionals who 15 years ago would have purchased a home as an investment now see it as a trap, even with some improvement in the housing market.’

“You can’t buy a home now and in five years think you’re going to make bank on it,” she said. “It’s just not there.”

Comment by scdave
2014-08-30 09:03:59

young professionals who 15 years ago would have purchased a home as an investment now see it as a trap ??

I see a lot of this…There experience with the 2008 crisis and aftermath have taught them think long and hard about taking on 30 year debt…

I also believe the “new normal” job environment also plays a part…They are just not confident that their job is secure “long term” or that even with a good skill set, a new job can be found nearby with the same pay…

“You can’t buy a home now and in five years think you’re going to make bank on it,” she said. “It’s just not there.” ???

Well, Miss Kline, you may have some kind of crystal ball that tells you the markets conditions five years out but most everybody else does not have that kind of future data…Your statement is kind of ignorant really..Stating that the value is “just not there” five years from now is no different then someone saying I will make “bank” on it five years from now…

 
Comment by Whac-A-Bubble™
2014-08-31 16:58:29

‘Fitch said young professionals who 15 years ago would have purchased a home as an investment now see it as a trap, even with some improvement in the housing market.’

It’s great to see the mania giving way to rationality! There is some hope that the housing mania will be a fading bad memory by the time my kids are at the point of needing to make home purchase decisions.

Comment by Puggs
2014-09-02 15:43:13

Same should be said for the purchase price of a college degree.

 
 
 
Comment by Housing Analyst
2014-08-30 08:43:11

But be warned: bubbles are not kids’ play. ‘Every bubble bursts,’ Dent says. ‘There are no exceptions in history.’”

Never ignore this fundamental truth. Ever.

Comment by Bill, Just South of Irvine
2014-08-30 21:03:31

The gold bubble burst in the Fall of 2011 after its peak of $1900 and kept falling for two years or so. May still deflate, not sure.

The bond bubble is on the cusp of bursting.

The stock bubble is…anytime. Just needs a catalyst.

The debt bubble keeps going until the printing press stops or sentiment changes big time.

The government bubble might be on its last legs. I hope. Some libertarians have been very optimistic lately. Even New York Times asks if this is “the libertarian moment.” Not for core ones like me. We got a long way to go to where people demand that those labeling themselves “government” have to follow the non-aggression priniciple.

Comment by Guillotine Renovator
2014-09-01 10:48:17

The gold bubble did not burst, it had a minor blow-off from its lofty highs. When it bursts, everybody will know it. $300 per ounce will seem expensive.

 
 
 
Comment by Ben Jones
2014-08-30 09:01:07

‘Amazon just outbid Google to purchase Twitch, a website that allows anyone to publicly broadcast a live video stream, for $970 million. The AP reports that in July, Twitch had 55 million unique visitors, up from 20 million in 2012. These statistics might seem impressive, but is Twitch really worth $970 million?’

‘In 2013, Facebook put up a $3 billion bid for Snapchat, which was summarily declined. And earlier this week, Kleiner Perkins Caufield & Byers agreed to invest in the message service at a valuation of close to $10 billion.’

‘Why has this type of speculation come to be the standard? Little more than a decade has passed since the dot-com bubble burst, yet we seem to be falling into the same old destructive patterns. What could possibly justify the kind of blind optimism that much of the tech world is now indulging?’

‘More disturbing is the fact that this exuberance has bubbled over into the public sector. According to the founder of Duquesne Capital Management, 80% of companies that had recently pursued a public offering had no earnings. His criticism was mainly aimed at the tech sector. Even the public tech companies that are earning money are being heavily inflated by promises for future earning potential and are wielding this speculative cash dangerously.’

‘Facebook, for example, shelled out $19 billion in cash and stock for Whats App earlier this year. Essentially, Facebook took its already leveraged stock and used it to make a high-profile acquisition to drum up investor excitement, further driving up stock prices.’

‘At this point, the perilous circle should seem pretty apparent. Large tech companies have inflated value due to optimism about future earnings. They leverage this speculative value to buy tech companies with valuations based on similar optimism, which then inspires venture capitalists to back hopeful new upstarts based on promises of future value.’

‘How long can people pile on claims of future value until the “future” arrives and we all find that the value isn’t even a fraction of what was promised? With the effects of the last speculation-fueled recession just beginning to subside, you have to wonder: Won’t we ever learn?’

Comment by Lionel
2014-08-30 09:16:55

970 million? Chump change. It’s amazing to me that recent astronomical valuations of other companies snatched up by the likes of Facebook and Google actually triggered this response in me.

 
Comment by scdave
2014-08-30 09:28:23

What could possibly justify the kind of blind optimism that much of the tech world is now indulging ??

And here is the answer within your own post;

are wielding this speculative cash….

Being at the epicenter of much of this cash, I see it on a daily basis…Housing cost around this valley are “jaw dropping”…But, even that is being muted by the big dogs that are at play in the valley…Millions are not discussed anymore…Its now Billion dollar deals…Massive projects on a scale that just boggles the mind…

And, the redevelopment of existing sites that are fully functional…Eating lunch with a friend the other day he asked me if I was familiar with a apartment complex close by…I said yes…He continued to say that he received notice from the city that a application had been made to the city to redevelop the site…

This is a 220 unit apartment complex…In a great location and I would say maybe 25 years old…It easily has 25 years of economic life left, I am quite sure is 100% leased and probably generates something in the vicinity of $400,000. per month income…

The submitted plan is to “tear down” the entire apartment complex…Re-build a new 3 story 560 unit complex…One would think that is just unbelievable but there it is…Its happening and this is small potatoes compared with some…Prudential Insurance company is just finishing a 800 million dollar project 8 or so blocks away from me…

Comment by Neuromance
2014-08-30 11:38:32

Good for them. The problem I have with our current economic model is that if players in central bank- or government-favored sectors lose, the politicians or central bank will put taxpayers and future generations on the hook for the losses.

 
 
Comment by Bill, Just South of Irvine
2014-08-30 21:06:09

I got a linkedin message from a Seattle Amazon HR gal. She said some higher up manager recommended to ask me to work for Amazon up in Seattle. I love Seattle and the zero taxes and all the green, but I pretty much like it in Irvine for now. Gotta get my amortization worth out of my Fridge I had to buy for my rental. It is a $700 fridge. I want to have its average cost to me less than $20 per month before I leave.

Comment by aragonzo
2014-08-31 08:42:40

You’d turn down a zero tax rate to amortize a $700 fridge?

Comment by Prime_Is_Contained
2014-08-31 10:52:05

You’d turn down a zero tax rate to amortize a $700 fridge?

+infinity.

Bill, you’d probably save that much per _month_ in state income taxes! Amortize that!

Now that said, I know several people who have gone to Amazon _hated_ it, and left before their stock vested. That doesn’t mean that you would—but I do recommend that you do some reading on glassdoor or similar sites so that you make an informed decision.

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Comment by Bill, Just South of Irvine
2014-08-31 15:36:22

Yes. I don’t have the confidence or experience yet of being in the commercial world. So I’m taking my time and still can save a net gain in money after taxes and expenses.

Prime: You have a good point. Also some of these high tech firms are full of millenials who have different attitudes than a 55 year old guy. I would be isolated for sure because I won’t go to the happy hours or the high sodium restaurants and go back to destroying my longevity.

Times like these I tell myself I have it good. Getting paid still, contribute to a Roth 401k, able to have longer morning workouts because I am not expected to work extra long hours - most people I work with have families and work 40 hour weeks, my commute is less than 8 miles (could make it in 6.7 miles but a longer commute time), my boss allows me to work on research projects over and over again, and my flights back home to Arizona are about an hour. Airports in both places are very close to where I work or live. In slightly over 29 years of working I had at most 12 weeks of downtime without pay. And the longest stint was 3 consecutive weeks. I never drew unemployment bennies. If my luck continues for just 4 years I think my core net worth with various asset classes will comfortably cover my expenses and entertainment should I have several years of no job - even with a stock market crash of 70% from today’s level.

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Comment by Whac-A-Bubble™
2014-08-30 14:31:32

“Cedric Shen and his wife have been ‘aggressively looking’ for a house to buy for about three months, but they’ve yet to put in an offer. ‘We’re fully qualified for a loan. We’ve got good credit and no debt. You’d think it would be easy,’ he said. ‘But you’ve got inventory issues, and you’ve got prices that seem ridiculous.’”

Above all, Cedric and his wife have common sense. In other words, they are the wrong kind of customer to buy in SoCal, at least under current mania conditions.

Comment by Guillotine Renovator
2014-09-01 10:45:03

Except for the fact that they’re actually out “aggressively” trying to purchase a house right now. If they had common sense, they would not be shopping for a house, but re-upping on their lease.

 
 
Comment by Bubbabear
2014-08-30 15:30:06

Home-Flipping Collapses in San Francisco, Losses Spread
Read more at http://investmentwatchblog.com/home-flipping-collapses-in-san-francisco-losses-spread/#0omMFMj0gEJE45OE.99

Comment by Skroodle
2014-08-30 18:56:18

Reports of a collapse are premature. Landlords are still kicking out tenants to rent to dotcom workers.

Comment by Ben Jones
2014-08-30 20:27:31

One would expect those sticking their necks out the most to be hurt first, no?

Worst Markets for Flipping

San Francisco-Oakland-Fremont, CA Q2 2014 Avg Gross ROI -9%

http://www.realtytrac.com/rnshared/heatmaps/Flipping-Q2/

 
Comment by Housing Analyst
2014-08-31 08:50:04

If you bought a old SF shack in the last 15 years, you’ve got a problem. A big problem.

Comment by azdude
2014-09-01 15:14:52

unload that shanty while you can!!!

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Comment by Housing Analyst
2014-09-01 20:00:48

That’s right Poet.

 
 
 
 
 
Comment by Whac-A-Bubble™
2014-08-30 16:04:15

‘Asking prices had overshot and a plateau in selling prices to be expected.’

Is it going to be permanently high this time around?

 
Comment by Whac-A-Bubble™
2014-08-30 16:08:44

“Among the four top-tier cities, the overhang for Beijing and Shenzhen stands at 19.8 months and 20.4 months, respectively, up 129 percent and 122 percent from a year earlier.”

PhD = Pile it higher and Deeper

 
Comment by Raymond K Hessel
2014-08-30 16:48:12

While the Fed blows asset bubbles for Wall Street, including a Tech Bubble II, ordinary people are getting shafted in the “new new economy.” And some are starting to push back.

http://wolfstreet.com/2014/08/29/what-the-heck-just-happened-at-the-san-francisco-apple-store/

 
Comment by Ben Jones
2014-08-31 07:27:13

‘The American author Upton Sinclair once said that “It is difficult to get a man to understand something, when his salary depends on his not understanding it.” This seems to be true about the “so called” real estate consultants who operate in this country. Their main job it seems is to bring out a research report every few months, where the conclusion is that “real estate prices will continue to go up”.

‘This despite the fact when their own data contradicts this conclusion. Let’s take the case of a recent research report titled India Real Estate Outlook brought out by Knight Frank. The report takes a look at the real estate scenario prevailing across some of the biggest cities in India.’

‘In the case of Mumbai, the report points out that there is a huge demand-supply gap. The unsold inventory of residential apartments in the city stands at 2,13,742 units. In June 2014, the quarters-to-sell ratio stood at 12. What this means is that it will take close to three years to exhaust the existing number of unsold residential apartments in Mumbai, if people continue to buy homes at the rate they have been in the preceding two years. What is interesting is that the unsold inventory has gone up dramatically over the last few years. In December 2011 the number had stood at five, the report points out. This means that in December 2011, it would have taken around one year and three months to dispose of the inventory of unsold residential apartments in Mumbai. By June 2014, the number had increased to three years.’

‘What this tells us is that the supply of residential apartments in Mumbai is substantially more than their demand. And anyone who understands basic economics will know that in order to clear this inventory the real estate companies need to cut prices, so that people come out and buy these unsold apartments.’

‘Nevertheless, the Knight Frank report goes around to conclude that “On the residential price front…the forecasted increase for the entire year (2014) is 10.1%.”

‘The question that the research report does not answer is: why have the real estate prices in Mumbai going up, despite the fact that people haven’t been buying residential apartments. The reason for this is straightforward. The real estate market in India is rigged in favour of real estate companies and politicians who are the real owners of these companies.’

‘And these politicians and their real estate companies have an incentive in holding the prices to be high. They operate as a cartel to do that. The media, in turn, because it depends on advertising from real estate companies, tends to highlight the price escalation and the sales will increase part (or they just don’t bother to read beyond the press release). They don’t bother to ask the most fundamental question: If there is so much inventory, why are prices going up?’

‘This is how real estate consultants help real estate companies manage price expectations in the minds of prospective consumers. So, the next time you read a report saying real estate prices will go up, check for the source. If a real estate consultant is saying so, the information needs to be taken with a pinch of salt. As Guy Sorman writes in An Optimist’s Diary “Economic actors don’t all have the same information at their disposal. Without institutions to improve transparency, insiders can easily manipulate markets.” This is precisely what is happening in India—the insiders have managed to take all of us for a ride.’

 
Comment by Ben Jones
2014-08-31 07:49:55

‘An Angus councillor who voted for a council tax hike on vacant properties has now described the policy as “just not fair”. In April the council’s policy and resources committee approved increasing the council tax on properties that have been empty for more than a year to 200%.’

‘The move was designed to increase the amount of housing stock available by encouraging people to bring empty homes back into use. The committee gave an assurance that it would not affect people whose properties that were being “actively marketed for sale”.

‘However, an Arbroath health care assistant who has been trying to sell a flat for more than two years was shocked to receive a letter stating he is liable for increased tax from October. Paul Barthorpe has dropped the property’s asking price by £2,000, changed estate agents and even posted it on Facebook and Gumtree, but has not received any offers on his one-bedroom flat.’

‘He said: “It’s never been off the market but I can’t force someone to buy the property. I’ve had about 10 viewings since July 2012 but no offers. It’s a slow market. I’ve continued to pay council tax on it, which is about £87 a month the council receives for nothing. I’m also paying full council tax on the property I now live in with my partner. I received a letter saying this would increase to 150% in October, then 200% in April.”

“If I moved back into the flat both my partner and I would get a 25% reduction. It’s like they are trying to get me to move back into the old flat. I don’t understand the logic — they are getting money for nothing anyway.”

Comment by Whac-A-Bubble™
2014-08-31 11:24:12

‘He said: “It’s never been off the market but I can’t force someone to buy the property. I’ve had about 10 viewings since July 2012 but no offers. It’s a slow market. I’ve continued to pay council tax on it, which is about £87 a month the council receives for nothing. I’m also paying full council tax on the property I now live in with my partner. I received a letter saying this would increase to 150% in October, then 200% in April.”

Hint to owners who can’t sell: LOWER THE PRICE!!!!

 
 
Comment by Ben Jones
2014-08-31 07:55:13

‘There’s an eerie silence at night in Sentosa Cove, the man-made island resort billed as Singapore’s answer to Monte Carlo and the only place in the country where foreigners can buy landed property. Dozens of houses - complete with their own private yacht berths and multiple swimming pools - sit empty while few lights are on in the apartment blocks overlooking the marina, a few kilometers away from Sentosa’s giant casino.’

‘Prices in the gated community, where Australian mining tycoons Gina Rinehart and Nathan Tinkler bought properties, fell around 20 percent in the past year as lending restrictions and taxes on foreign buyers burst a bubble in the Southeast Asian financial hub’s luxury real estate market. Investors could see the value of their assets fall even further with developers and investors still struggling to sell even after the recent price falls. Real estate websites list hundreds of flats and bungalows for sale, yet just 12 apartments and one house have changed hands all year on Sentosa, according to data from the Urban Redevelopment Authority (URA).’

“The way prices have fallen in Sentosa, it’s as if there is a global financial crisis,” said Alan Cheong, head of Singapore research at property firm Savills.’

‘The number of distressed investors is expected to rise. “Some of the earlier buyers are likely to have bought at prices 20 to 30 percent above current prices,” said Christine Li, head of research at property consultancy OrangeTee. “The rental can’t even cover the mortgage for these high-end investments - they want to offload but there are no takers.”

‘In July, a four-bedroom apartment in Sentosa’s Turquoise condo sold at auction for S$3.88 million ($3.11 million) in a mortgagee sale, or about S$1,400 per square foot. In 2012, a flat in the same block sold for S$2,450 per square foot and in 2007 for as much as S$2,800.’

‘The only house that has sold on Sentosa all year - a six-bedroom pad on “Treasure Island” - went for S$17 million in February, having been bought for S$20.2 million in June 2012. Some in the luxury property industry fear foreign buyers have gone for good.’

Comment by Whac-A-Bubble™
2014-08-31 11:25:21

“The way prices have fallen in Sentosa, it’s as if there is a global financial crisis,” said Alan Cheong, head of Singapore research at property firm Savills.’

Go figure!

 
 
Comment by Housing Analyst
2014-08-31 15:45:51

G*****n you lying realtors.

Comment by Guillotine Renovator
2014-09-01 10:49:24

^^RAGE.

Comment by Housing Analyst
2014-09-01 11:20:09

You’re engagement with enragement has caused your derangement.

~The Enrager

 
 
 
Comment by Whac-A-Bubble™
2014-08-31 17:13:30

Does the fact that someone has been correctly pointing out mania conditions in the housing market over a protracted period of time somehow lessen that correctness of the observation?

Comment by Whac-A-Bubble™
2014-08-31 17:15:22

Peter Schiff U.S. Housing Market, House Prices Bubble Warning
Housing-Market / US Housing Aug 30, 2014 - 12:36 PM GMT

Peter Schiff recently made another appearance on RT News, once more warning that the U.S. Housing market is a bubble primed to burst as speculator investors will be forced to sell into a market without any buyers.

I think this is a bubble.

I think speculative buyers are leaving the market ands there is no one to fill the void because the real buyers are absent and if you look at the recent home statistics the percentage of homes bought by first time buyers is at a record low and in fact home ownership amongst individuals is at generational lows so prices have to come down dramatically from here before real buyers can actually afford to buy all the properties that have been bought by speculators, and at some point the speculators if they cannot collect enough rent to cover the cost of ownership they are going to be selling these properties, and look out below because when they put these properties up for sale, again there are no buyers anywhere near the current prices.

However the problem is that this is just the latest in a near continuous stream of bearish US housing market bubble imminent collapse mantra for the DURATION of this current 2 year+ bull market. For instance this is what Peter Schiff was warning of 18 months ago (April 2013).

Comment by Puggs
2014-09-02 15:29:26

Savvy investors will be the ultimate bag holder at the end of this song. Oops, you held on too long.

 
 
Comment by Housing Analyst
2014-08-31 17:29:56

Nope. The duration has certainly deluded millions of participants though.

Comment by Whac-A-Bubble™
2014-08-31 22:16:44

That’s right. Extend-and-pretend has served to effectively delude the masses into thinking the Housing Bubble storm is over and clear blue skies await any who venture into the Ownership Society going forward by purchasing a home.

 
 
 
Comment by Whac-A-Bubble™
2014-08-31 22:30:58

Would it be accurate to say that China’s real estate bubble is bursting?

Comment by Whac-A-Bubble™
2014-08-31 22:33:02

China real-estate: A bubble bursting
Dhara Ranasinghe | Special to CNBC.com
6 Hours Ago

For 31-year old Beijing resident Wang Yuanzhi, talk about a bubble in Chinese property is not something to be too concerned about.

“If you look at the real estate market in China, it has already seen a golden decade of extreme fast growth. There will still be room for growth in this market, even in the next ten to twenty years,” said Wang, who bought a home under construction last December. “The whole housing bubble is a fear; it is a concentration on the risks that the real estate market faces.”

Underlying confidence expressed by residents such as Wang may be what China’s authorities hope will aid a recovery in a market that has seen prices fall for three straight months.

For other observers a downturn in China’s once red-hot property market poses one of the greatest threats to the economy, the world’s second biggest.

“The risks and exposure to property don’t look the same as in the U.S. sub-prime [mortgage crisis], but new bubbles never look exactly like the last bubble (otherwise they’d be easy to recognize),” said Patrick Chovanec, chief strategist at Silvercrest Asset Management.

“The exposure of China’s banks (and now shadow banks) to real estate may look different than it did in the U.S., but it’s very real. The main exposure is the reliance on property as collateral to support virtually all forms of lending throughout the economy, a situation that is very similar to Japan in the 1980s,” he added, referring to a collapse in Japan’s property market after a boom.

 
Comment by Whac-A-Bubble™
2014-08-31 22:35:31

Chinese home buyers play the waiting game
Connie Tan Hui Ann
Thursday, 14 Aug 2014 | 6:36 PM ET
CNBC.com

33-year old Chinese resident Lin owns and lives in a one-bedroom apartment in Beijing with his wife.

Both are eager to upgrade to a bigger place to accommodate plans to have a baby, but they have been reluctant to take the plunge despite a fall in Beijing property prices.

“I think there’s a big chance for house prices to go down even further, probably 10 to 20 percent,” he said. “Few people are giving offers right now. My friends and I are all waiting.”

Lin is hoping to avoid the fate of 30-year Deng and her sister. Both bought apartments in Chengdu’s suburb earlier this year, only to see prices dropping nearly 20 percent since.

“We both deeply regret the purchases,” said Deng. “My sister and I are both migrants to Chengdu from the rural area. It is not easy for us to work for living and save money in the city. Now we are paying way too much.”

Buyers’ resistance against entering China’s real estate market reflects wider fears of a looming housing bust, which many analysts have singled out as the biggest macro risk the economy currently faces.

After skyrocketing in recent years, China’s property prices are falling, as government-imposed restrictions took the wind out of the frothy market. But there are now concerns a dramatic correction could trigger a hard landing in the housing market, which is estimated to contribute 15 percent of China’s economy.

China’s new home prices fell for a second month in June, according to data released by the National Bureau of Statistics (NBS) which tracks 70 Chinese cities. Figures for July are due next Monday and they aren’t likely to be pretty.

A survey by China Real Estate Index System showed average housing prices fell for a third month in a row in July. Analysts blame it on the massive supply overhang.

Du Jin Song, Credit Suisse’s regional head of property research, says Chinese home buyers are right to wait. He believes that prices will continue to fall, though he declined to forecast the pace of the drop.

 
Comment by Whac-A-Bubble™
2014-08-31 22:37:34

Are China’s property vacancies a danger sign?
Leslie Shaffer | Writer for CNBC.com
Friday, 13 Jun 2014 | 1:03 AM ET
CNBC.com

China property vacancies have climbed to more than 20 percent of sold units, fresh data show, but analysts remain divided on whether a real estate crash is in the offing.

The numbers are high, with around 22.4 percent of sold residential homes in urban areas sitting empty in 2013, or a total of 49 million homes, while the number of unsold units is estimated at 3.5 million units, according to the Survey and Research Center for China Household Finance.

But regionally, second and third-tier cities have a vacancy rate of 27.6 percent each, 9.2 percent higher than the larger first-tier cities, the data show.

“The issue with the property sector, which a lot of people are getting very worried about, is more a question not so much of oversupply as the fact that they’ve been building the units in the wrong place,” Stephen Davies, CEO of Javelin Wealth Management, told CNBC.

 
Comment by Whac-A-Bubble™
2014-08-31 22:41:02

Chinese twin PMIs confirm manufacturing downturn
CNBC.com staff | @CNBC
4 Hours Ago
CNBC.com
A Chinese female construction worker works at the building site of a new apartment complex in Beijing, China.
Kevin Frayer | Getty Images

The pace of activity in Chinese factories slowed in August, the release of a pair of official purchasing managers’ indexes (PMI) on Monday confirmed.

The official (PMI) came in at 51.1 in August, according to the National Bureau of Statistics, a tad below expectations for a reading of 51.2 and down from a 27-month high of 51.7 in July. It remains above the 50-mark which separates expansion from contraction.

The final reading of HSBC’s flash manufacturing PMI for August meanwhile fell to a three-month low of 50.2, a dip from the flash reading of 50.3.

There was little reaction in Asian stock markets outside of Australia. Sydney shares widened their gains to 0.5 percent, hitting a more than one-week high, while the Australian dollar barely moved.

The PMI figures follow a slew of disappointing economic data – from manufacturing to credit growth – over the past month despite a burst of government stimulus measures to support the economy.

“The industrial sector is suffering from a drop in new lending, which is making it more difficult to operate and invest. The [PMI] data highlights renewed downward pressure on the Chinese economy emerging in the summer, but it also should prompt more policy easing measures from Beijing,” said Darius Kowalczyk, senior economist and strategist at Credit Agricole.

 
Comment by Whac-A-Bubble™
2014-08-31 22:42:50

‘Perfect storm’ to hit China economy in 2016
Ansuya Harjani | @Ansuya_H
Friday, 25 Jul 2014 | 12:04 AM ET
CNBC.com

Recent positive data from China may have allayed some doubts about the state of the economy, but PNC Financial Services Group is staying cautious, warning of a “perfect storm” that could surface in two years’ time.

“Several problems long on China’s back burner are likely to come to a head by 2016,” Stuart Hoffman, chief economist at Financial Services Group wrote in a report this week, citing challenges including a weakening credit market, a slowdown in corporate reinvestment of earnings and a correction in the all-important housing market.

These headwinds could slow Chinese real GDP (gross domestic product) growth to around 6.0 percent in 2016, the slowest since 1990, the firm noted.

China’s economy expanded 7.5 percent in the second quarter, a touch above expectations of and rising from 7.4 percent in the first three months of the year, as the government’s targeted stimulus measures began to pay off.

The so-called perfect storm could unfold with a dramatic slowdown in the flow of credit for investment, especially from non-traditional lenders like trust companies, as corporate credit quality deteriorates, the report said.

“If trust credit does indeed dry up, Chinese borrowers will struggle to roll over their loans and could be pushed into default, throwing even more sand into the gears of financial intermediation,” Hoffman said.

Comment by Puggs
2014-09-02 15:41:24

You got at minimum 1.5 years to unload that debt, liquify ones self and hunker DOWN!!!

 
 
Comment by Whac-A-Bubble™
2014-08-31 22:44:27

China’s debt soars to 250% of GDP
Katie Holliday | @hollidaykatie
Monday, 21 Jul 2014 | 11:42 PM ET
CNBC.com

China’s debt has soared to two and a half times its economy, Standard Chartered estimates, highlighting the difficulties Beijing faces in balancing growth with the risk of bubbles forming in its economy.

Total financial credit has surged to 251 percent of gross domestic product from 147 percent at the end of 2008, the bank said.

“The economy will continue to leverage up, and the market will remain concerned,” said Stephen Green, chief China economist at Standard Chartered.

 
Comment by Whac-A-Bubble™
2014-08-31 23:03:19

Not to worry: A closely-watched pot never boils over.

Comment by Whac-A-Bubble™
2014-08-31 23:05:30

ft dot com
Last updated: August 25, 2014 11:55 am
Property bubble is ‘major risk to China’
By Jamil Anderlini in Beijing
The Conch Bay development stands across the river from the Manhattan-inspired Yujiapu financial district in the Tianjin Binhai New Area CBD of Tianjin, China, on Wednesday, Aug. 10, 2011. A replica of Manhattan, complete with Twin Towers, Lincoln Center and what passes for the Hudson River, is under construction 100 miles (161 kilometers) from Beijing. And like New York City in the 1970s, it may need a bailout. Photographer: Sim Chi Yin/Bloomberg©Bloomberg

On desolate salt flats on the far outskirts of China’s sixth-largest city, dozens of enormous half-built skyscrapers stand as a monument to the excess and optimism of the Chinese real estate market.

As physical manifestations of China’s property bubble go, few examples can beat this effort to replicate Wall Street in a wasteland 40km outside Tianjin and 150km from the capital Beijing.

Blueprints for the Yujiapu Financial District are intentionally modelled on Manhattan’s skyline, complete with an ersatz Rockefeller Center and twin office towers that look uncannily similar to the ones destroyed on September 11 2001.

Officials in charge of the project boast that when Yujiapu is eventually finished in 2019 it will be one-third larger than the City of London and more than three times the size of New York’s financial district, at least in terms of surface area.

But after years of soaring prices and frantic construction across the entire country, China’s real estate bubble is showing serious signs of strain and this project’s fate is now in question.

The country’s property market is barely 15 years old and nobody has ever experienced a real crash because, before the late 1990s, most urban residents in post-Communist China were still provided housing by their “work unit”.

Chinese banks started issuing home loans in 1997 and as recently as 1994 a central bank official charged with translating an American financial document had to look to Taiwan for a translation since no dictionary in Beijing included a Chinese word for “mortgage”.

Even before the global financial crisis of 2008 many were already warning of a property bubble in China, prompting the government to introduce purchasing and downpayment restrictions to slow soaring prices.

But when the crisis hit and the economy went into freefall, Beijing decided it had no choice but to refill the property bubble with a tidal wave of credit.

The result was an immediate rebound and an increase of total debt in the economy from about 140 per cent of gross domestic product at the end of 2008, to more than 250 per cent at the end of June.

To understand the scale of the resulting building boom, consider this statistic: in just two years – 2011 and 2012 – China produced more cement than the US did in the entire 20th century.

 
 
 
Comment by Hargert
2014-09-01 10:22:27

Wait a second how is the Vegas market continuing to strengthen as sales are starting to dip? What kind of crazy logic is that?

Comment by Tarara Boomdea
2014-09-01 13:13:37

That’s all you hear here. Local RE radio shows urge owners to sell because they’ll never do any better than this, prices are going down, NODs are increasing and the inventory is going to quadruple. It’s also a great time to buy because the interest rates are going to the moon any minute now (never mind your down payment will evaporate.)

March, 2014
National study: Las Vegas housing market least stable in U.S.

 
 
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