September 7, 2014

Buying Too High And Not Being Able To Sell High Enough

It’s Friday desk clearing time for this blogger. “Across the Dallas-Fort Worth area, it is not an easy time to be in the buying market. Brooke Beavers is looking for a condo in the Oak Lawn/Uptown area of Dallas. She recently sold her current home to a developer who was interested in buying the entire block. Her agent, Joe Atkins of Joe Atkins Realty, said he’s very clear with his clients. ‘I tell everybody, ‘you’ve got to be able to jump when I say jump,’ because coming in a day late, you could miss out on a home. Homes are selling, in some neighborhoods, in a matter of hours.’”

“Having found a condo in her same neighborhood, Beavers does not plan to wait on the market. She plans to make an offer now, and hope the investment pays off in the long run. ‘Never stop looking. If there’s something out there you would want – get it,’ she said.”

“A China-based multi-billion dollar residential developer is entering the U.S. market with three projects in major markets on the East and West Coasts, including a 109-townhome community in Dublin. ‘The numbers are staggering,’ said Paul Zeger, a principal with Polaris Pacific who advises clients on the residential development market and is working with several deep-pocketed Chinese investors. ‘They’re bringing capital and it’s getting a lot of these projects off the ground,’ he said, in some cases faster than they would with local investors and based on their anticipated future value rather than their near-term cash flow.”

“We thought we’d never see the likes again — queuing for days to buy a house. A number of eager property-hunters have been camped outside the Millers Glen developmen in North Dublin since Tuesday lunchtime, despite the fact that the 60 newly built homes will not go on sale until Saturday. The houses range in price from €239,950 to €425,000. ‘I don’t know if there is a bubble at the moment, but in Dublin there are worrying signs,’ said Property expert Frank Quinn.”

“Like a die-hard fan who just couldn’t possibly miss out, Sabir Hasbani recently spent three days in front of a Sydney real estate agency to get a slice of the property market. But it was worth the long wait, as Hasbani secured 480 square metres of land, worth $AUS515,000 ($NZ579,000), to build a house for his family of five. The 29-year-old aged care worker said it was the only way he could secure a property as Sydney house prices continued their inexorable rise. Hasbani said he would now be happy to see prices continue to rise now that he had secured his family’s future on some sought-after real estate. ‘It was really hard work and it’s not going to get any cheaper,’ he said.”

“Fully aware of how fast prices continue to rise, Nick Dodd wasted no time getting into the Sydney housing market. The 31-year-old IT consultant snapped up a two-bedroom terrace in Newtown. He hopes prices keep rising so it justifies his investment. ‘It would be shit if they went down,’ Dodd said.”

“The average house flipper in South Carolina made less than $2,000 per house in the last quarter, according to RealtyTrac. Daren Blomquist, RealtyTrac’s vice president, said that based on 167 flips in South Carolina during the second quarter, flippers paid an average of $163,186 for the homes and sold them for an average of $165,091. ‘We saw a few other examples of this (low margin) across the nation,’ Blomquist said, ‘and it is evidence that flippers are making poor decisions: buying too high and then not being able to sell high enough.’”

“Spokane County, like much of the nation, saw a decline in ‘flipped’ home sales in the second quarter of this year. Spokane’s share of homes being sold by flippers will not likely shrink a great deal over the next year, said Marianne Guenther Bornhoft, a Realtor with Windermere Manito. Most flipping occurs after sales of homes that are in foreclosure or repossessed by banks, she said. ‘We still have a large number (of such properties) that haven’t been placed on the market yet,’ she said.”

“The woman whose property is at the center of a small-town firestorm over single-family home rentals is speaking out, saying she’s done nothing wrong — and never would have even bought the Mallard Island home in the first place had rental restrictions been in place. Lisa A. Gorman purchased the home with an investment loan for $577,000 and put forward a down payment of $350,000. Now, she’s renting it weekly for $1,800 to $5,550. ‘If we were in a crazy market and everybody was buying everything, maybe I would list it,’ she added. ‘If I could sell that house and not even make a dime, I would. … At this point, we all have to get along. I’m there.’”

“Federal Reserve Chair Janet Yellen speaks out of both sides of her mouth as she states that we are still in a ’sluggish economy … job growth, etc. … ‘ so as to avoid rate hikes. If the economy is strong, then we can expect rates to go up. (See market correction) If the economy is not yet strong enough to hold its own, then we should expect the markets to fall because of the end of stimulus. Well Janet … what’s it going to be? Because, again, you can’t have it both ways … you just can’t!”

“The very same can be said of real estate, especially in the overheated, mostly over priced local market here in ‘paradise.’ Suffice to say anyone buying homes locally in the current environment is likely paying a premium, which is code for paying too much. The price run-up has been very reminiscent of the last boom/bust. The real estate community (See ‘cool aide drinkers’) are so busy telling us how wonderful everything is, that they are completely blind to what is actually happening … yet again! Does anybody, I mean anybody remember 2006 … well?”

“It is really quite a comical replay of both types of investors, both stock and real estate, conducting themselves with such hubris, that nothing short of yet another ‘whip saw’ can snap them out of it! The big difference is that when the housing cools off at the same time the stock market cools off; stock investors can sell and take their losses. The real estate becomes illiquid and drowns the participants.”

“Reserve Bank of Australia chief Glenn Stevens has acknowledged the ‘elevated level of housing prices,’ as record low interest rates continue for another month. Stevens noted the prospect of fostering excessive risk-taking behaviour in the financial sector, warning that if people over-commit themselves financially, the economy could be vulnerable to ‘nasty shocks.’ ‘It is stating the obvious that at present, while we may desire to see a faster reduction in the rate of unemployment, further inflating an already elevated level of housing prices seems an unwise route to try to achieve that,’ said Stevens.”

“A team of Wharton economists dissected more than 23 million observations about home sales to find an explanatory factor for how behavioral, psychological or other unknown forces might have accounted for how housing price trends jumped from market to market before and after the foreclosure crisis. They observed that ‘irrational exuberance’ could be found as early as 1997-1999 when housing prices first began to rise on the West Coast and mid-New England region. Pricing trends that started in coastal California flowed inland and to neighboring states to the north and east. On the East Coast, prices swelled in other New England markets and caused spillover effects in Florida markets.”

“If irrational forces or mistaken expectations are still leading to speculation, the authors write that, ‘the relevance of our results for policy makers is increased, as they well may want to reevaluate their past practice of not intervening in response to asset booms in housing markets.’ One of the authors, Joseph Gyourko, says that the current government policy ‘is not to try to prick bubbles.’ But if contagion continues to play as much a role in housing booms, over economic fundamentals, ‘that could change the calculus about whether it is appropriate to intervene.’”

“Kevin Gillen, a Fels Institute of Government research consultant adds, ‘The reason the government should be reluctant to prick bubbles is because you can’t protect people from themselves. People have to learn that if you’re bad at guessing about the future, and [taxpayers] bail you out for your bad guesses, therefore you only get rewarded for your good guesses, you might become sloppy in your analysis and your guesses about the reality of the future. If bubbles happen for emotional reasons and people being irrational, then there might be the suggestion for cause for action, because it’s not just the case of incorrect analysis; there’s now human emotion involved.’”




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102 Comments »

Comment by Housing Analyst
2014-09-05 03:54:33

Moorpark, CA Housing Prices Plunge 8% YoY; Inventory Swells 92%

http://www.movoto.com/moorpark-ca/market-trends/

Comment by taxpayers
2014-09-05 06:42:20

price psq ft up 2% ? cratering ?

most markets are ,but not this one LA still firm

Comment by Housing Analyst
2014-09-05 10:03:50

You run from falling asking prices. You run from falling sale prices. You run from falling unit prices.

Run.

 
 
 
Comment by taxpayers
2014-09-05 04:30:22

it’s a reverse HA zone
Dallas still hot
http://www.movoto.com/dallas-tx/market-trends/

what is HA to do?

Comment by Ben Jones
2014-09-05 04:53:22

‘I tell everybody, ‘you’ve got to be able to jump when I say jump,’

As long as people are falling for this BS, what do you expect.

(Oh and psst: look at those new listings and price reductions.)

 
Comment by Puggs
2014-09-05 10:02:53

Good news for anyone wanting to sell in the next 6 - 8 months. Probably your best window. Get out now before the music stops.

Comment by Whac-A-Bubble™
2014-09-05 21:37:12

We’re selling our folks’ place early next year. Glad to see the EU QE in play, as interest rates are bound to remain super-low. And the GSEs are about to make a push for more low-income lending, which should increase the value of homes in the old ‘hood as well.

Comment by Whac-A-Bubble™
2014-09-06 17:24:51

Care to make any public comments on proposals to require minimum quotas on the amount of federally guaranteed GSE loans going to low-income buyers?

I have a question about this: Is lending discrimination in favor of one socio-economic status group over others legal?

FHFA Sets Affordable Housing Goals, Requesting Public
Jann Swanson
Aug 31 2014, 8:37PM

The Federal Housing Finance Agency (FHFA) is seeking public comment on a set of preliminary affordable housing goals for the two government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac for the next three years. There is a single set of single family financing goals for both GSEs and separate goals for each covering multifamily units. FHFA is required by the Housing and Economic Recovery Act of 2008 to establish these annual housing goals for the GSEs.

The agency is also proposing three alternative approaches for establishing single family housing goals. Alternative 1, would use the current two-step process which involves setting both a prospective benchmark level and a retrospective market level measure based on Home Mortgage Disclosure Act data. Alternative 2 would set only prospective benchmark levels and Alternative 3 would use only the retrospective market level measure.

Using Alternative 1, the goal for both Freddie Mac and Fannie for single family purchase mortgages to low income families is proposed to remain at the 2014 level of 23 percent of overall purchases over the 2015 through 2017 period. The 2014 goal of 7 percent for purchases by very-low income families will be unchanged for the next three years as well. FHFA is leaving these goals at present levels to encourage Fannie Mae and Freddie Mac to promote safe and sound lending to lower-income borrowers.​

A sub goal for purchases within low income areas will increase from the current 11 percent to 14 percent for 2015, 2016, and 2017. The most significant proposed change is for the percentage of all refinancing targeted for low income families. This may rise from the current goal of 20 percent to 27 percent for the next three years.

​If FHFA were to adopt Alternative 2 the agency would consider using single-family benchmark levels in the final rule that are lower than the proposed levels. Alternative 3 would not involve setting a prospective benchmark level.

FHFA is proposing for the first time to establish a sub goal for small multifamily properties (5-50 units) affordable to low-income families. Under this sub goal Fannie Mae would provide financing for 20,000 affordable units in 2015, 25,000 in 2016, and 30,000 in 2017. The goals for the three years for Freddie Mac would be 5,000, 10,000 and 15,000 respectively.

FHFA’s proposed multifamily benchmark levels for Fannie Mae would remain at the current 250,000 units for low income families and 60,000 for very low-income families. For Freddie Mac the low-income goal would rise from the current 200,000 units to 210,000 in 2015 and by 10,000 units in each of the subsequent two years. For very-low-income families the current 40,000 units goal would increase to 43,000 in 2015, 46,000 units in 2016, and finally 50,000 units in 2017.

The proposed levels would require the GSEs to continue to support affordable multifamily housing despite the expectation that their overall multifamily market share will continue to decline in the coming years as the private sector becomes more involved in the multifamily market.

FHFA is requesting comment on all aspects of the proposed rule including the alternative approaches and is also requesting comment on whether multifamily housing goals credit should be allowed for blanket loans on manufactured housing communities. Comments should be made to FHFA (www.fhfa.gov) no later than October 28, 2014.

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Comment by Neuromance
2014-09-06 17:35:14

Government should have a quota for the number of Mercedes’ going to low income buyers too.

 
 
 
Comment by Selfish Hoarder
2014-09-06 15:53:52

Phoenix prices have been fairly flat for a year. Checked on some North Scottsdale prices on houses for sale for at least four months. Mixed bag. Some sellers are sniffing rough sales in the future and have dropped asking by 10 to 20 percent. Some places for sale have barely budged their asking price and seem not so eager to sell. One of those for sale for 300 days. Maybe next to neighbors with barking dogs?

 
 
 
Comment by Ben Jones
2014-09-05 04:57:46

‘Local real estate trends show that our housing market is building some steady growth, especially in certain areas in Horry County. ‘It’s a buyer’s market right now,” says Mark Lytle, a builder’s representative with R.S. Parker Homes. “Everybody’s very competitive. And you see where the interest rates are holding where they need to be, very low actually right now. And I guess you’ll see that for a buyer’s market, there’s a lot to look at even when it comes to all the different builders,” Lytle said.’

‘Real estate specialist Justin Thompson for Better Homes and Gardens Elliott Coastal Living says that local homes sales are up 4 percent this year. “Right now it’s a buyer’s market,” Thompson says. “There’s a lot of inventory out there, there’s a lot of homes for sale. Sellers are motivated. A lot of these sellers have been in this downturn waiting for their home values to bump up a little so they could make that call. And that’s why you see a lot of people coming out of hibernation now and are ready to move and ready to sell their houses,”says Thompson.’

 
Comment by Ben Jones
2014-09-05 05:01:42

‘Phoenix area land sales are down 40 percent from last year as housing starts and demand for single-family homes ebbs. The Phoenix area has seen a sustained slowdown in the housing market. Investors and flippers are not in the market for foreclosed homes. Millennials are not interested in home ownership. And, population and job growth is still subdued.’

‘Construction employment across the Phoenix area plunged by 4,800 jobs in July compared with a year ago, which was the biggest decline of any other market in the U.S., according to new federal data.’

‘The drop accounted for a 5 percent decline in the sector’s overall workforce. It was also the third consecutive month of declines for the Valley, a notable shift from last year when employment improved at a steady pace.’

‘Of the 106,000 construction jobs the Valley lost during the downturn, only 11 percent have been recovered so far. The reason things have been so rocky has to do with how poorly the home building market has been performing this year, said Elliott Pollack, an economist at Scottsdale-based Elliott D. Pollack & Co.’

“You won’t get big increases in construction until housing comes back,” Pollack said. “The timing of that is uncertain, and there’s several reasons for that.”

‘Also, considering all the empty shopping centers and office buildings that are still lying around the Valley, don’t expect a meaningful boost in commercial construction either any time soon, Pollack said.’

Comment by Shillow
2014-09-05 07:41:00

And wait til the August numbers come in for construction job losses based on the awful national print today.

 
Comment by Selfish Hoarder
2014-09-06 17:11:20

Yup. The top (relative to 2011) has been reached. REITs are the way to go. Not SFHs. If not for the propped up market by the federal government, maybe we would have seen the correction to 1997 prices in 2011. As far as I have seen, Phoenix prices are still way too high for what they are worth, based on the wages.

Comment by Whac-A-Bubble™
2014-09-06 17:27:21

“REITs are the way to go. Not SFHs.”

Same here.

And for sh!thouse poet’s information, although I don’t own a house, my REIT holdings are large enough to fund an all-cash home purchase in many parts of the U.S. So I’m not really short real estate; just short highly-leveraged SFR ownership.

Comment by Rental Watch
2014-09-08 00:58:24

Just check those REITS to make sure they’re not highly leveraged.

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Comment by Ben Jones
2014-09-05 05:04:54

‘Mandy Johnson and her roommate thought they were priced out of Virginia Square Towers, a new luxury apartment building across the Potomac River from Washington, where for about $3,000 a month they would enjoy amenities such as a pool, a game room with a pool table, video game consoles, and a golf simulator. Less than 24 hours after declining to sign a lease in June, Johnson got an e-mail from a leasing manager offering two months’ free rent on a 14-month contract. The $450-a-month discount clinched the deal for Johnson, 28, who works at a nonprofit that gives scholarships to military families. “We are able to have this brand-new apartment for the same price as one in older buildings, so we went for the shiny object,” she says.’

‘An oversupply of construction in and around the nation’s capital is giving young professionals such as Johnson the upper hand in negotiations with landlords. Haendel St. Juste, a Morgan Stanley analyst, calls Washington “the weakest apartment market in the country right now.”

Comment by MacBeth
2014-09-05 07:39:26

I wonder - for how much per month can such “amenities” be used at the local Y?

For $3000/month, such amenities don’t constitute “luxury”.

Nor do they at $2550/month.

Morons.

Comment by Bluto
2014-09-05 10:59:46

FWIW the YMCA runs me $53/mo. in northern Calif., I’d imagine it is less some other places

 
 
Comment by Jingle Male
2014-09-05 08:00:19

Oxy, what are you seeing?

Comment by Oxide
2014-09-05 12:51:35

You mean in MD rents? Depends a lot on where the place is and whether it’s new. But in general they are lower than VA. The same luxury tower is more like $2500/ month. Old Tract SFH Is about $2000.

 
 
Comment by snake charmer
2014-09-05 14:08:36

Does anyone really use the amenities at these places? When I was right out of school and looking for an apartment, most complexes had “exercise” facilities that consisted of a treadmill, a stair climber, and a thoroughly-used Nautilus machine. No one ever was in them. But I’m not sure anyone would have been in them even with top-of-the-line equipment.

Comment by Selfish Hoarder
2014-09-06 17:17:17

I rented in Tucson on the north side. Me and my live in girlfriend. The clubhouse had four treadmills, maybe twelve top quality isolation strength machines like triceps extensions, and so on. It was the best fitness center of any apartment complex we rented. Later on there was a good ne in White Marsh, MD where I lodged. The fitness center had free weights and three treadmills, recumbent, stepper, etc. it was open 24 hours a day. I’d brave below zero temps to walk across the parking area and slippery sidewalks just to get a great workout. I miss it!

 
 
Comment by Prime_Is_Contained
2014-09-06 09:34:26

“We are able to have this brand-new apartment for the same price as one in older buildings, so we went for the shiny object,” she says.’

Went for the shiny object, and put yourself in a bind in fourteen months. The landlord has already made it clear to you that they desire to increase the rent by 20%.

Comment by aNYCdj
2014-09-07 11:08:50

And if you are a day late you default and you owe them the 2 free months…..there is no grace period. plus most morons use the 2 free months up front…..and screw themselves with their credit for a long time.

I saw that a lot in South Carolina…wow i get 2 months free rent then the 3rd month and they are short…eviction bad credit and sheriff tossing their stuff to the street. waiting for the vultures to pick it over….

 
 
 
Comment by Ben Jones
2014-09-05 05:08:55

‘Home sales in Bay County increased for the second consecutive month in July, but are still down 1.29 percent halfway into the year, according to the Bay County Realtor Association.’

‘Mark Duncan, a broker at Remax Results, said his biggest challenge this year is getting homes appraised at a price a buyer is willing to spend.’

“If you back the clock up 10 years, maybe 2 or 3 percent of the properties that tried to close didn’t appraise up to the asked-for price,” Duncan said. “Now, I feel like its between 20 and 25 percent.”

‘A buyer, for instance, might get an offer of $130,000 on a home accepted by the buyer, Duncan said, but the property is appraised for $110,000. The seller in these situations, he said, may not adjust the price all the time and the sale falls through.’

“It’s not the appraiser’s fault, it’s the guidelines they are bound to,” he said. “Even though everyone knows it’s worth more than its appraised, there’s just so few comparisons on the market right now.”

Comment by Jingle Male
2014-09-05 08:02:23

“it’s the guidelines they are bound to….”

Well, let’s just go back to the 2005 guidelines. That worked so well. Mirror, fog. Done deal!

 
Comment by iftheshoefits
2014-09-05 11:08:52

“Even though everyone knows it’s worth more than its appraised…”

It’s worth what a buyer is willing to pay for it. And people forget that the lender, not the homedebtor, is the buyer.

Remove taxpayer-backed home mortgage lending (over 90% of the market these days, as I understand) and the price of houses drops 50% overnight.

Comment by Whac-A-Bubble™
2014-09-05 21:38:57

“And people forget that the lender, not the homedebtor, is the buyer.”

And that the lender has a federal guarantee of principle, which makes him willing-to-pay more, given the implicit subsidy in the loan guarantee.

 
Comment by rms
2014-09-06 04:30:39

“Remove taxpayer-backed home mortgage lending (over 90% of the market these days, as I understand) and the price of houses drops 50% overnight.”

+1 No free market principles here.

Comment by Ben Jones
2014-09-06 09:49:28

It’s worse than that:

‘Just as the housing recovery should be taking off, lenders are turning away potential home buyers by demanding unusually high credit scores and other tough standards on government-backed loans – exceeding the government’s own criteria in a bid to insulate themselves from financial penalties and lawsuits. The reluctance to lend has alarmed policymakers and heightened tensions between them and the industry as each side struggles to rectify the problem without exposing themselves to unreasonable financial risks.’

‘The White House has summoned the heads of some of the nation’s largest banks for a meeting in Washington on Sept. 17 to tackle the issue head-on, frustrated that its many pleas to ease lending criteria have fallen on deaf ears. As many as 1.2 million additional loans would have been made annually since 2012 if normal, pre-housing bubble lending standards had been in place, according to a recent analysis by the nonpartisan Urban Institute.’

‘But lenders say the mixed messages they’re getting from Washington give them no incentive to widen access to credit. The government, determined to prevent a repeat of the irresponsible lending practices that sparked the housing bust, has forced lenders to buy back billions of dollars in loans and continues to trumpet massive legal settlements with the industry. The largest came two weeks ago when Bank of America agreed to pay $17 billion to resolve claims that it sold the government defective mortgages.’

“The mortgage industry is basically ticked off,” said Guy Cecala, publisher of the trade journal Inside Mortgage Finance. “They see the government hammering them and at the same time urging them to loosen the credit standards and accept more borrowers.”

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Comment by iftheshoefits
2014-09-06 10:24:13

So what is happening with the efforts of ‘Mo Credik’ Mel? That’s not a intended as snark, I’m really curious because I hear so many different angles on the whole credit loosening/tightening thing.

Not discounting this article, just not at all sure how long the government backed credit nonsense can hang on.

 
Comment by Ben Jones
2014-09-06 10:40:35

This is a Washington Post article, so it’s the usual two-faced crap. RMS has a good point; we’ve gotten so far from a free market, it’s all DC/central bank levers and buttons now. Woohee, a central planners bubblicious, artificial cross- stimulation, prices be-damned delight.

 
Comment by Whac-A-Bubble™
2014-09-06 12:10:03

Just as the housing recovery should be taking off, lenders are turning away potential home buyers by demanding unusually high credit scores and other tough standards on government-backed loans – exceeding the government’s own criteria in a bid to insulate themselves from financial penalties and lawsuits. The reluctance to lend has alarmed policymakers and heightened tensions between them and the industry as each side struggles to rectify the problem without exposing themselves to unreasonable financial risks.

Given that the government has stepped up in recent years to provide 90% plus of mortgage lending through its federally-guaranteed programs, where is the problem?

 
Comment by Get Stucco
2014-09-06 12:12:50

As many as 1.2 million additional loans would have been made annually since 2012 if normal, pre-housing bubble lending standards had been in place, according to a recent analysis by the nonpartisan Urban Institute.

How are you going to get pre-bubble lending levels at post-bubble inflated home prices and deflated incomes? Until prices correct to pre-bubble levels, this just doesn’t make a bit of sense. Meanwhile, mind the gap and try not to get stucco.

 
 
 
Comment by Whac-A-Bubble™
2014-09-06 12:07:27

“And people forget that the lender, not the homedebtor, is the buyer.”

We have met the lender, and he is us.

Comment by Prime_Is_Contained
2014-09-06 12:24:35

We have met the lender, and he is us.

Nice. :-)

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Comment by iftheshoefits
2014-09-06 13:59:50

So true. Sigh.

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Comment by Ben Jones
2014-09-05 05:11:38

‘Chicago was settled at Wolf Point on the banks of the river, and people have lived on its murky shores ever since: in world class skyscrapers; in utopian housing experiments (River City); with dock and boat in far-flung Ravenswood Manor; in public housing (Lathrop Homes); and in all manner of non-site-specific abodes.’

‘A second big push—dubbed “River Walk Town Homes”—took place in 2006, when today’s three-story unit was built. The three-bedroom home has French doors throughout, three waterfront decks, a sunroom, a master suite with a 100-square-foot walk-in closet, and a one-car garage. It has been rented for the last couple of years because the owner, a college professor, took a job out of state. “She wanted to hang onto the place and the community,” says listing agent Maribel Selva. “But a short stint away turned into a long one.”

‘Unfortunately, the owner bought when the bubble was close to bursting in 2006, paying $545,000. An attempt to clear that amount by $5,000 last September didn’t pan out and the asking price dove to $485,000 and is now a short sale. For prospective buyers, “the good thing about a short sale is the price,” says Selva. “The bad part is the back-and-forth with the bank.” The newest phase of construction at River Walk includes 15 townhouses and four condos and their sales activity “is trumping units like mine.”

Comment by taxpayers
2014-09-05 05:14:48

chi is technically BK along w IL

 
 
Comment by Ben Jones
2014-09-05 05:26:42

‘Paul Zeger, a principal with Polaris Pacific who advises clients on the residential development market and is working with several deep-pocketed Chinese investors…‘They’re bringing capital and it’s getting a lot of these projects off the ground,’ he said, in some cases faster than they would with local investors and based on their anticipated future value rather than their near-term cash flow.’

This is the second time this week I’ve found reports of developers basing projects on “future values”. Must be great to have a time machine.

Comment by Jingle Male
2014-09-05 08:07:38

I remember in 1990, developers refused to lower their rental rates, because keeping un-leased property at “wishing” rates prevented the lender from realizing the value reduction created if occupied using market rates .

Developers in Denial.

Seems to be happening all over again. Is there a cycle in real estate values……

 
 
Comment by Ben Jones
2014-09-05 05:30:35

‘Armed with evidence of increasing demand for new and larger high-rise condominiums in Center City, Carl Dranoff has shifted gears on plans for his One Riverside development at 25th and Locust Streets.’

‘Instead of 147 luxury rental apartments, the 22-story, $100 million-plus building will have 88 condos, including two penthouses, that he said will be priced at $700,000 to $4 million.’

‘Dranoff said his experience at 10 Rittenhouse, where condo prices topped an unprecedented $1,000-plus per square foot as the market was just starting to recover, convinced him that taking One Riverside condo would meet a demand.’

‘Economist Kevin Gillen said market indicators suggest that “now looks like a great time for multifamily development to shift from rentals to owner-occupied condos.” “Now that housing is recovering and rents have peaked out, the cost of owning is practically equivalent to renting, and also offers the additional benefits of home equity and asset appreciation,” he said.’

Comment by Jingle Male
2014-09-05 08:09:34

…in Philly?

 
 
Comment by Ben Jones
2014-09-05 05:33:41

From Connecticut:

‘The summer weather has been glorious this year! There was a short burst of activity from mid-April to the beginning of July. The beautiful weather sent all of the buyers and sellers on vacation and thoughts and visions of new home purchases went with them, which has resulted in a very slow local real estate market.’

‘Sellers have noticed the slowdown in activity and there has been quite a bit of drastic price reductions everywhere, especially in the over $500,000 price point.’

‘Buyers are enjoying the price reductions and are on the lookout for good values. Most buyers don’t have that extra money for improvements and are looking for homes already updated. Sellers need to take note of this. Buyers will pay market value for your home, but not more than that. If the home needs updating they will add that cost to the bottom line and want to make sure they are not over extended. There is so much information on the internet these days; they already have a pretty good idea of what your home is worth before they come through the door. Keep in mind the bank will consider recent sales in your neighborhood when completing an appraisal for anyone applying for a mortgage.’

Comment by taxpayers
2014-09-05 06:45:27

even w the war on bankers? WOB
what else does CT have ?

Comment by Ben Jones
2014-09-05 06:56:03

‘A funny-sad back-and-forth appeared in the pages of the Hartford Courant last month. It started when one Christopher Edge wrote into the letters section to say he had had it and was moving out in a brief tirade entitled “Farewell, Connecticut.” More positive residents then chimed in with their support for the Nutmeg State. “Running away is not the solution,” chided one Patricia Karwoski.’

‘But what problems could Edge possibly be trying to duck by bailing? Who would run away from Connecticut in the first place? It seems a state not afflicted, a lovely, hilly green hamlet nestled between Boston and New York. It has a low crime rate. It has stellar schools. It has the highest per-capita income of the 50 states. It’s got America’s best pizza, for God’s sake.*’

‘Edge complained primarily about the state’s political incompetency and its “freeloaders.” But there’s a much deeper malaise afflicting Connecticut and its angry letter-writers. While there is great wealth, there is stagnant growth. Along with high incomes has come increasing poverty. Amid those million-dollar mansions, the middle class has eroded.’

‘In short, Connecticut has somehow managed to become both the richest and worst economy in America. And what’s worse, America has started to look more and more like Connecticut.’

Comment by snake charmer
2014-09-05 14:26:13

Some parts of Connecticut are, or were, really beaten down. About fifteen years ago I drove through Waterbury and it definitely had seen better days. Bridgeport too. I’ve also heard graduates of a certain university pan New Haven, although I haven’t seen the city for myself.

Sometimes running away is the solution. That’s what led to the founding or growth of some of the original thirteen colonies. You’d think people in a New England state would be aware of that.

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Comment by aNYCdj
2014-09-07 11:23:01

snake that is my home territory….you know the riff raff just moved up the coast as prices went up Stamford used to be crime ridden and Bridgeport near the university was where we all went to see national bands play…or in port Chester at the Capitol theater..were very safe areas

Then money came in and they moved and moved and moved waterbury Bridgeport hartford new britain used to be a very safe cities, then up to Worcester up the 95/91 corridor

At least they didn’t spoil danbury…yet

 
Comment by Housing Analyst
2014-09-07 13:00:39

Danbury is a hole. Trust me on that.

 
Comment by aNYCdj
2014-09-07 13:43:51

we have friends lived there for years never a problem…..maybe they live on the right side of town?

 
Comment by Housing Analyst
2014-09-07 15:18:37

I dunno what to tell you bud. It’s no Westport. Crime is fairly high, tons of illegals everywhere.

 
 
Comment by Whac-A-Bubble™
2014-09-05 21:41:44

‘In short, Connecticut has somehow managed to become both the richest and worst economy in America. And what’s worse, America has started to look more and more like Connecticut.’

Sounds more like Connecticut has started to look more and more like California.

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Comment by Oxide
2014-09-05 12:59:17

Yeah, blame it on the weather… Oh honey, let’s not look for a house this month. Let’s go to the beach. You can just start your new job a month later and little Johnny can just start the school yest a couple months in; he’ll adjust. :roll:

 
 
Comment by Ben Jones
2014-09-05 05:36:42

‘The housing market in London is tight. So tight that a couple weeks ago a landlord was fined for renting out an apartment that can only be entered by crawling on all fours. But at least that apartment was cheap—under a thousand dollars a month.’

‘But now the Guardian points out another real estate nightmare from London—a 7-foot wide house on sale for nearly half a million dollars.’

‘Finding the gall to not only sell it but to sell it for over $400,000 has to be some kind of sign that a real estate bubble is forming the likes of which haven’t been seen since the hysterical days of the early aughts.’

Comment by Jingle Male
2014-09-05 08:17:17

“…gall to not only sell it but to sell it for over $400,000….”

Yes, exactly. It is not worth a penny over $399,999.99. It is only 7 feet wide. Even if it was 100 feet long, that would be $571/SF! We must draw the line somewhere! I mean, after all you can enter the place fully erect!

HA, what say ye here?

Comment by aNYCdj
2014-09-07 11:37:17

Looks like it was a driveway before

 
 
Comment by snake charmer
2014-09-05 14:35:09

Thank you central bankers. Thank you governments. Somebody from the Fed or the Bank of England should drape a big “Mission Accomplished” banner down the front of that house.

To put this in perspective, a 737 cabin is 60% wider.

 
 
Comment by Ben Jones
2014-09-05 05:42:13

‘New apartment completions and construction starts continue to trend upward, and the new supply of units is beginning to show up in rising vacancy rates in a number of high-growth U.S. markets.’

‘Multifamily construction increased 8% in July, continuing a yearlong upward trend, with several large new projects starting last month, including a $350 million multifamily tower in Queens, NY; a $260 million condominium tower in Honolulu and the $160 million residential portion of the $300 million mixed-use building in Los Angeles.’

‘According to U.S. Census Bureau numbers released this week, multifamily spending in the residential sector increased a slender 0.2% between June and July. But the most significant story is the year-over-year comparison: spending improved 41% from July 2013.’

‘New York City, Washington D.C., Los Angeles, Miami and Boston remained the top five metropolitan areas ranked by the dollar volume of new multifamily starts through the first seven months of 2014.’

‘Asked how much development will commence in the U.S. in 2015, respondents to the Commercial Real Estate Outlook Survey released Wednesday by tax advisor KPMG LLP identified multifamily as the top construction sector, with 53% expecting a “significant amount” of new product to launch, up from 43% in last year’s survey.’

“The rapid migration of young adults and baby boomers to urban areas coupled with displaced homeowners following the housing crisis remain key drivers of multifamily housing development,” said Greg Williams, national leader of KPMG’s Real Estate practice. “Though investment opportunities exist, real estate executives should be mindful that the growth potential of multifamily housing could wane given the large influx of capital the sector has already received, driving prices up.”

‘The national vacancy rate has risen roughly 30 basis points over the last three quarters to about 5.5% as supply has overtaken demand, and CoStar is forecasting another 50-basis-point rise in vacancies through the second half of 2014.’

Comment by Rental Watch
2014-09-08 00:48:51

PREA’s “compendium of statistics” shows the same thing…apartment supply being added faster than occupancy (thus pushing up vacancy rates).

The same is not true for other product types (industrial, etc.).

 
 
Comment by Ben Jones
2014-09-05 05:45:07

‘Grace Princesa, the Phillipine ambassador to the UAE, cautioned her compatriots against investing in property on a whim, warning them to be more prudent in their spending plans. “I urge my fellow Filipinos to be very careful,” she said. “We know many of you aspire to buy and own a home, but let’s not be blinded by that dream.”

‘The property dream turned into a nightmare for Aldo Magaspar, who was excited at the prospect of moving into a new three-bedroom home in Cavite City, south of Manila last year. But the Filipino now finds himself in dispute with the real estate agency that sold him the 1.065 million peso (Dh89,797) property two years ago.;

“I never imagined this would happen to me after more than a year of paying off the monthly equity,” said Mr Magaspar, 35, a cargo assistant at Sharjah airport, who has worked in the UAE for five years. “All my hard-earned money had all gone to waste.”

‘While Mr Magaspar, who earns more than Dh5,000 a month, was financially able to buy property, others have been lured into investment schemes without being able to afford it. “I remember the case of a Filipina who was advised by her agent to make a cash advance from her credit card so she could invest in a condominium unit,” said Michael Almazar, 32, director of the commercial department at Gulf Law in the Middle East, the UK and in the Philippines.’

“She was enticed by the proposition that the property would ‘pay for itself’ once she rents it out. But the property could only be rented out in five years. In the meantime, she did not have money to pay for the cash advance used to reserve the unit and for the succeeding monthly amortisation.”

 
Comment by Ben Jones
2014-09-05 05:52:08

‘Industrial Bank of Washington, D.C., and two area credit unions still owe the U.S. Treasury nearly $16 million in combined relief tied to financial bailouts in the wake of the 2008 economic meltdown.’

‘Navy Federal Credit Union, meanwhile, was approved for almost $17 million as part of a mortgage modification program in March 2010, and has tapped $3.87 million as of May 31 to help mortgage customers stay in their homes. Financial institutions receiving these kinds of housing subsidies aren’t expected to return the money.’

‘The $3.87 million total has been distributed to borrowers ($731,845), investors ($1.79 million), and the Vienna-based credit union ($1.34 million). Susan Hamlin, assistant vice president of mortgage default at Navy Federal, described the money as an incentive to work with homeowners.’

“This is not a bailout, it is money we don’t have to pay back,” she said.’

‘The number of homeowners who have used the program was not immediately available.’

‘D.C. and Fairfax credit unions are also designated to serve low-income residents. At Fairfax, the eight-year loan carries 2 percent interest, said Fairfax CEO Joseph Thomas Jr. The credit union was allowed to count the money as supplemental capital for the first three years, then it steps down 20 percent each year afterward.’

“We’ve used the money for a variety of things,” Thomas said. “It was a stabilizer that helped us with the peaks and valleys of what was going on at the time.”

 
Comment by Whac-A-Bubble™
2014-09-05 06:37:28

“It is really quite a comical replay of both types of investors, both stock and real estate, conducting themselves with such hubris, that nothing short of yet another ‘whip saw’ can snap them out of it! The big difference is that when the housing cools off at the same time the stock market cools off; stock investors can sell and take their losses. The real estate becomes illiquid and drowns the participants.”

Can’t happen soon enough, IMO.

Comment by Ben Jones
2014-09-05 07:41:33

‘Home sellers will likely drop listing prices this fall to attract buyers who have been waiting for better deals, according to research center Redfin’s July 2014 Housing Market Tracker report.’

“Sellers are finally catching on that it’s not a seller’s market anymore,” Virginia-based Redfin agent Jeremy Cunningham tells Redfin.’

“The price drops are often done in small amounts of just a few thousand dollars around particular milestones — two weeks on market, 30 days on market, etc,” Boston-based Redfin agent Adam Welling tells Redfin. “When a buyer sees a price drop, she takes it as ‘blood in the water’ and wonders what’s wrong with the house and wants to negotiate for an even lower price.”

 
 
Comment by Jingle Male
2014-09-05 07:45:53

“Hasbani secured 480 square metres of land, worth $AUS515,000 ($NZ579,000), to build a house for his family of five…..”

Hmm, this is a 5,179 SF piece of dirt for U$473,000, or $91/SF!

This does seem a little bubblicious. Good thing Hasbani is a 45 year old CEO of a successful company….oh wait…

“The 29-year-old aged care worker……” ….he is a caretaker for the elderly.

 
Comment by Ben Jones
2014-09-05 07:47:58

‘If you’re struggling to find an affordable home in Vienna to rent you may be surprised to learn that the capital has as many as 50,000 empty apartments. “Tens of thousands of private apartments in Austria are empty because their owners are not renting them out,” the FPÖ’s housing councillor Manfred Haimbuchner said at a press conference in Linz.’

‘He wants the government to cut the amount of tax property owners have to pay on rental properties, claiming that it is putting prospective landlords off. Currently, property owners must pay ten percent tax on any rent they make.’

So they’ll give up the 90% to avoid paying 10%?

Comment by Ben Jones
2014-09-05 07:54:24

‘On July 29, the Ministry of Internal Affairs and Communications released the results of its latest survey on Japanese housing, which it completed last fall and conducts every five years. The statistic that caught the media’s attention was the one for akiya, or vacant homes. As of the end of October 2013, 13.5 percent of all housing units in Japan were empty, which is 0.4 percentage points higher than the portion in 2008, the last time the survey was carried out.’

‘The rate itself is considered high, even if the increase over five years seems slight. The fact is, the overall housing stock has increased during those five years. In 2008 there were just over 7.5 million vacant homes in Japan. Now there are at least 8.2 million, which is a rise of 9.3 percent.’

‘The central government’s housing policy since World War II has made widespread derelict housing an inevitability. The government itself releases no statistics on sales of existing homes because they have never cared about existing homes. Land is considered an asset; houses are not, unless they are located in major cities such as Tokyo or Osaka.’

‘The government only cares about new homes, which is why it only subsidizes new housing with tax breaks and incentives. In the U.S., the ratio of new-home sales to existing home sales is about 1 to 5. In Japan, it’s the opposite.’

‘The problem is that they don’t want to promote existing homes at the expense of new construction, which has always been central to the government’s growth strategy. Last year, in fact, thanks to the anticipation of the consumption tax increase, new housing starts increased at the highest rates in years: an 11.5 percent increase in the number of people building houses on land they own, a 15.3 percent increase in new rental housing, and a 3.8 percent increase in housing built by developers.’

‘At the same time, all prefectures except Tokyo saw a year-on-year increase in the number of existing homes that went on sale. The housing market will continue to be over-saturated with available units, which could lead to a collapse in prices, thus confounding the government’s scheme to boost inflation.’

 
Comment by Ella58
2014-09-05 11:25:38

I was in Vienna in the spring and all I heard from locals was “there’s not enough rental housing for the young people! There’s a terrible shortage of apartments!” At the same time, tons of construction everywhere, including the new €4bn central train station which will have a residential tower of 5,000 new apartments. So locals have bought into this “shortage” idea hook, line and sinker and are now letting the developers run wild.

As of last spring, a lot of absentee owners were sitting on their empty properties and waiting for Russian buyers to knock on their door with briefcases of cash (which was actually happening earlier in the year), but this has probably changed with all the new sanctions. The back-up plan for locals is to buy some ikea furniture and put their vacant flats on airbnb, which is an increasingly common hobby amongst the upper-middle-class Viennese.

 
 
Comment by Ben Jones
2014-09-05 08:20:23

‘Prior to the recession of 2007 and around the recession of 2001, I and many of my high school and college classmates (i.e. those of us that sit right on the dateline between Millennials and Gen X) had abandoned Detroit for what we thought were greener pastures. I, along with many, moved to the South’s up and coming “Be-ve-ly… Hills, that is” (Atlanta, GA) and several others to Dallas, TX.’

‘I remember remarking how “cheap” metro Atlanta homes seemed to be compared to metro Detroit as a new Georgia peach in the summer of 2002.’

‘Detroit would keep its lead for more pricey homes through June of 2004 at which point Atlanta began to trump Detroit for more costly homes, with Dallas still allowing homebuyers to get the most bang for their buck comparatively. I purchased my first real estate property in December of 2004 and I recall complaining to my parents how expensive my tiny condo was although it was “cheap” by Atlanta’s standards. Without seeing the actual data, apparently even I knew a shift was occurring in Atlanta. It was the housing bubble.’

‘By 2006, I had purchased 5 more units that I had planned to hold for the short-term as rentals. There was talk that the housing bubble would burst but I figured (being the savvy 20-something investor I was, cue laughter) I would either be able to sell or continue to rent my properties even when the bottom of the housing market fell out, because it was surely coming. But I, like others, did not anticipate housing values plummeting simultaneously as national financial institutions collapsed, which would spark one of the worst U.S. recessions since the freaking Great Depression. This led to my plan going up in flames since tenants were losing their jobs and not able to pay rent, AND I was not able to sell for even half of what I originally paid for the real estate rental properties.’

Comment by Whac-A-Bubble™
2014-09-05 21:45:19

That you, Eddie…

 
 
Comment by Ben Jones
2014-09-05 08:31:49

‘Mortgage lenders in the District were dealt a severe — but not fatal — blow last month by the District of Columbia Court of Appeals. The court ruled that when a condominium forecloses on its “super-priority lien,” it literally wipes out the security interests of the first mortgage holder.’

‘Is it fair for the bank to lose a large loan to a $10,000 purchaser at the foreclosure sale? There are at least three ways to look at it.’

‘First, the banks should stop playing the game of chicken: Who will foreclose first, the bank or the condo? If the borrower is delinquent, the bank should go through the mediation process and either work out an acceptable arrangement or foreclose on the unit.’

‘Second, when faced with the possible condo foreclosure, the bank can arrange to pay the six months lien (the $9,415 in the Chase Plaza case). Many lenders are already doing this so as to preserve their prior security position. Those funds are added to what the borrower already owes the bank.’

‘Third, the banks can begin to escrow condo fees from their condo borrowers. To avoid losing their security interests in a tax sale, lenders often require borrowers to pay into escrow moneys that the bank will use to pay the real estate taxes when they become due. The Court of Appeals suggested that “there is support for the idea that lenders can decrease the risk that their mortgage liens will be extinguished, by among other things creating an escrow requirement.”

‘The matter is far from settled. Until then, Chase Plaza is the law in the District. Unlesss banks become more proactive and begin the foreclosure process earlier, they may lose their security.’

 
Comment by Ben Jones
2014-09-05 08:34:56

‘A man wanted in a shooting in southwest D.C. was living with a group of squatters in a foreclosed home in Fort Washington, Maryland, authorities learned.’

‘D.C. police and U.S. marshals were looking for 28-year-old Saeve Evans when they invaded the home in the Tantallon neighborhood – known for million dollar waterfront homes. A police source close to the investigation told News4 up to 12 people were living in the house illegally, including two children. Everyone was forced to leave.’

“The marshal told us that he was giving us back our neighborhood, and that tells me that the foreclosure problem is taking our neighborhood away from us,” Weiss said.’

 
Comment by Blue Skye
2014-09-05 08:55:32

“as Hasbani secured 480 square metres of land, worth $AUS515,000 ($NZ579,000), to build a house for his family of five. The 29-year-old aged care worker…”

That’s $5million an acre! Good luck paying that off on a nurse’s aid income Hasbani.

Comment by Ben Jones
2014-09-05 08:59:05

But foreclosure is cheaper than renting.

Comment by Whac-A-Bubble™
2014-09-05 21:47:56

Maybe because renters need to have sufficiently reliable income to cover the monthly or else face the prospect of getting thrown out on the street. By contrast, homedebtors can squat for years without a payment…

 
 
 
Comment by Ben Jones
2014-09-05 09:39:01

‘What could $1 million and change get you in Vancouver these days? A one-bedroom apartment, apparently. Six Vancouver condos are listed on MLS with an asking price of more than $1 million.’

‘The cheapest of the bunch is a two-level penthouse in the Crosstown neighbourhood listed for $1,048,000. Located in a century-old converted building, the onebedroom, one-bath unit is spread out over two floors, with a spiral staircase, plenty of brick walls and exposed beams and a large roof deck.’

‘Considering the apartment measures more than 1,400 square feet, the place is practically a bargain.’

‘According to luxury realtor Sotheby’s International, there is a strong demand for $1-million homes in Vancouver, whether they’re detached family homes, townhouses, or boxes in the sky.’

 
Comment by taxpayers
2014-09-05 10:22:16

Luftwaffe junk bonds 1.125% - I’m going all in !!!

Comment by Ben Jones
2014-09-05 12:09:26

Tora, Tora, Tora!

 
 
Comment by Housing Analyst
2014-09-05 11:07:32

Dallas TX Housing Inventory Skyrockets; New Listings Up A Whopping 1280% As Housing Demand Collapses To 20 Year Low

http://www.movoto.com/dallas-tx/market-trends/

 
Comment by Housing Analyst
2014-09-05 11:16:08

Housing prices turn negative in another major city. Down we go. Where the bottom is Housing Analyst knows.

Dallas, TX Sale Prices Turn Negative As Housing Demand Craters; Down 2% YoY

http://www.zillow.com/market-report/time-series/38128/dallas-tx.xls

 
Comment by JimO
2014-09-05 15:19:59

“Fully aware of how fast prices continue to rise, Nick Dodd wasted no time getting into the Sydney housing market. The 31-year-old IT consultant snapped up a two-bedroom terrace in Newtown. He hopes prices keep rising so it justifies his investment. ‘It would be shit if they went down,’ Dodd said.”

Yeh, I guess it would be s%$t if they went down. Meanwhile the property bubble in Peru continues unabated … the buying/selling of undeveloped empty lots with no ready access to water (and perhaps power) for at least the next decade (or 2 or never) continues at a feverish pitch. When you ask the buyers why are they doing this, they say it’s their retirement fund or way to pay for their children’s education. They typically are the new middle class that characterize most emerging markets. The muppets are at it again. Just be very careful of foreign MBS and debt issued by 2nd/3rd tier lenders.

 
Comment by Ben Jones
2014-09-06 09:53:29

This is for the readers who have difficulty understanding why a global RE bubble matters:

‘In India, a blithe consensus has long been held, “you can never go wrong with property”. For decades after Independence in 1947—just like in China all these years—that view held true. Property prices never declined, and eventually demonstrated world-beating appreciation: New Delhi and Mumbai property became some of the most expensive in the world. Even little Goa’s property prices are now directly equivalent to many parts of Europe.

‘But the real data behind the hype already indicates a different story. According to Residex, the National Housing Board’s index of “actual transaction prices” in 26 Indian cities, there has been less than 9% nominal appreciation across the board from 2007, which gains are entirely cancelled out by the 9% inflation rate. There are regional and situational variations, but the general conclusion is inescapable—Indian property values stopped their inexorable growth 5-7 years ago. Though absolute prices remain high, a certain ceiling has been reached. Now the only way to go is down.’

‘As the Financial Times says, “The problem in the Chinese real estate sector can be summarized in one word: overbuilding.” Developers competed with each other to drive up commodity prices and massively expand the luxury housing sector. Exactly the same thing happened in India too, with hugely overpriced housing estates mushrooming everywhere from Chandigarh to Caranzalem. And so—just like in China—prices have begun a previously unthinkable decline. Residex indicates more than 20% drop in Delhi alone.’

‘The same is crystal clear in Goa, where prices reached unsustainable levels several years ago, and—again just like China—most of the rise is attributable to “hot money” from speculators. The 2011 Census indicated that 25% of homes in the state are unoccupied. But that remarkable percentage is actually very much higher in all the egregiously inappropriate high-rise construction in Dona Paula and Dabolim, and Reis Magos and Ribandar and many other illegally urbanized villages across the state. The same census very worryingly indicates that by far the largest construction activity in Goa is unoccupied real estate—more than school-buildings, hospitals, places of worship, factories and worksheds combined.’

‘So it is quite ironic that the emerging collapse in China’s overheated real estate sector is again poised to have a highly significant rolling effect in Goa. For one thing, ore prices continue to slump, down to half where they were in 2012. Even if restored, the state mining sector is thus unlikely to go haywire again. But far more worrying is what China’s property slump indicates for India’s emerging struggles with the same. There is a clear possibility of a big bang of the bubble in Goa.’

Comment by Get Stucco
2014-09-06 12:17:34

But far more worrying is what China’s property slump indicates for India’s emerging struggles with the same. There is a clear possibility of a big bang of the bubble in Goa.

Like azdude always reminds us, China and India are an ocean’s-width away from the U.S. Why worry about collapsing real estate bubbles so far away from home?

 
 
Comment by Ben Jones
2014-09-06 10:10:50

One of the problems with what’s gone on the last few years is basically propaganda, pushed by the MSM:

‘Doyle Webb, president of the Knoxville Area Association of Realtors and a Realtor with Realty Executives Associates, says the area’s housing market will continue to improve over the next five to 10 years and surpass its 2007 sales’ levels. Irresponsible mortgage lending across the nation led to instability.’

‘Webb, also a licensed contractor, says the area started feeling the decline at the end of 2007, but has been rebounding over the last few years.’

“The housing market has always brought us out of every recession we’ve ever been in. The housing market is the strongest. It’s always gotten people to work.”

“New construction of homes employs so many people. It affects so many industries. Just think of appliances and parts that go into appliances. Or the windows. Even down to the nails.”

“So when that [new construction] starts really booming…that’s what brings us out of our recessions. We didn’t see that in this recession because housing was part of what got us into it – the financing part. [The industry was] selling homes with no docs, that means no documentation.”

“They [buyers] didn’t even have a job. It was like an issue where ‘everybody needs a home, and it doesn’t matter whether you can afford it or not. We want to get you a house.’ The mentality got us in trouble.”

“That’s why the recovery’s been so long. The government has made so many rules and regulations with the financing. It was hard, even if you had good credit to get financing. Plus with the downturn, people lost jobs and now they could no longer afford a home.”

See, there’s nothing wrong with sky high prices. It was those loans that caused all the problems. And this guy repeats the myth that building houses is the basis for an economy, and the reporter accepts it completely. This little thing has to be matched up from two places in the interview:

‘The average sale price was $188,897 in 2007. Now that was pretty much a high at the first of 2007. At the end of 2007, we start to see it really drop off…Q: What can consumers expect with today’s prices? A: “Today, as far as prices, we’re probably getting close to where we were in 2004, so actually our prices are going back up. “You’ve got your average price of sales around $181,000.’

So these houses are 7 years older and the prices are almost back to 2007 highs. Have incomes gone up? Now keep in mind, this guy makes his money building and selling houses:

“We are seeing places in Maryville and west Knoxville, two or three offers on the same home. If it is priced right, they’ll see two or three offers on it after they list it.”

“Houses will sell easily in six months. We’re back to 90 days on the market on the average if your price is right…It’s a good time to sell in today’s market, and it’s a good time to buy in today’s market. If it’s priced well, it’ll sell fast. Two years from now, that same house might be another $10,000 more because prices are going up. They will continue to go up, I think, within the next 10 years.”

Comment by Housing Analyst
2014-09-06 12:15:51

Man oh man thats some spaceshot dreaming combined with a whole lot of frauding wrapped up in an enigma.

 
Comment by Get Stucco
2014-09-06 12:18:43

One of the problems with what’s gone on the last few years is basically propaganda, pushed by the MSM:

They are called presstitutes for a reason.

 
Comment by Get Stucco
2014-09-06 12:21:49

See, there’s nothing wrong with sky high prices. It was those loans that caused all the problems. And this guy repeats the myth that building houses is the basis for an economy, and the reporter accepts it completely.

The real embarrassment is that the economics profession buys into this propaganda hook, line and sinker, and freely propagates it, adding to the raging contagion of the mania.

Comment by Neuromance
2014-09-06 17:48:54

Wow, perfect terminology: presstitutes and contagion - which lead into this article from a FIRE sector “researcher” - a professor of real estate - at UPenn’s Wharton. Every time I hear a professor of real estate on the radio, they’re pushing some reason, purportedly driven by neutral research, to buy a house.

This fellow does talk about contagion when it comes to booms (and busts). And he claims that no one knows what caused the boom (aka bubble).

This kind of thing is simply the FIRE sector putting an academic imprimatur on junk / advocacy science which provides cover for the Fed to enrich Wall Street. I’ve seen this kind of thing in the social sciences in the past. We see it out of industry “economists” who are presented as unbiased researchers.

When a purported researcher says something like, “The factors that led to the boom are not well understood, which helped inspire this research”, it’s junk / advocacy science. But I found it interesting that while the FIRE advocate scientist won’t use the word bubble, he does use the word contagion.

The Role of Contagion in the Housing Boom (and Bust)
Knowledge@Wharton Newsletter
August 26, 2014

The research paper, “The Role of Contagion in the Last American Housing Cycle,” was written by Wharton real estate professors Joseph Gyourko and Fernando Ferreira, and doctoral students Anthony DeFusco and Wenjie Ding.

The paper examines the boom, which crested in the middle of the last decade, followed by a woeful tumble that caused many homeowners to owe more on their mortgages than their homes were worth. The authors use that sinister sounding word, “contagion,” to describe the phenomenon of a housing boom spreading from one area to a neighboring area.

The factors that led to the boom are not well understood, which helped inspire this research, Gyourko says. “The passage of time provides more data and a broader perspective from which to examine this issue,” Gyourko notes. “That’s our belief, anyway.”

http://knowledge.wharton.upenn.edu/article/role-contagion-housing-boom-bust/

That last paragraph once again shows the timelessness of the Upton Sinclair quote: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

 
 
 
Comment by Ben Jones
2014-09-06 10:36:35

‘Hedge fund and real estate investment trust (REIT) investment in residential real estate is helping boost property values and creating rental inventory in Nashville, according to Bruce W McNeilage, founder of Kinloch Partners.’

‘McNeilage said: “It has helped keep property values higher, which is good for existing owners. In addition, it’s created a larger supply of high-quality rental homes which is particularly attractive to businesses looking to relocate to Nashville. Companies relocating here can find high-quality rental housing for their executives, who often need to rent while selling an existing home.”

‘His firm has been in the build-to-rent market in Nashville for the past nine years. He predicts the build-to-rent market will continue to grow in Nashville.’

“We are seeing a significant market for high-quality rental properties and anticipate that many real estate developers will build more homes with the intent to use them as rental properties,” McNeilage says. “One trend we expect to see in the coming years is entire developments, perhaps as many as 100 houses, will be built entirely as rental properties.”

Yeah, they were called apartments. But you go girl.

 
Comment by Ben Jones
2014-09-07 06:59:25

‘Housing inventory throughout the region continues to dwindle with all 12 MetroWest communities profiled taking a hit in terms of their respective Months Supply of Inventory (MSI). While all MSI decreases are in the double digits, five communities – Medway, Franklin, Sudbury, Medfield, and Ashland – all saw MSI drop a whopping 70 percent or higher year over year.’

‘Year-over-year median sale price in Wellesley fell by a slight 1.7 percent to hit nearly $1.12 million, making for the MetroWest’s second priciest community. The area’s MSI dropped more than 42 percent from 8 last July to 4.6 last month.’

‘While its median sale price dropped nearly 5.6 percent to hit close to $1.2 million, Weston remains the priciest community in the MetroWest. The 30 total properties sold last month is actually the same amount as the number of properties sold in July 2013. Still, this is an about-face from June when Weston experienced the largest year-over-year median sale price increase at 38 percent. MSI fell to 5.6, a 39 percent decrease compared to 9.2 in July 2013.’

‘In Marlborough, median sale price fell 13.6 percent year over year to $276,400, compared to $320,000 from a year earlier. Eight less properties were sold last month vs. July 2013, bringing the total to 43. MSI in the area, though, is down more than 33 percent to 2 vs. 3 from a year ago.’

‘Hopkinton suffered the largest median sale price percentage decrease year over year at 14.3 percent as the amount topped out at $515,000. Even though one less property was sold compared to June of this year, median sale price month over month went up $15,000. Still, MSI fell 49 percent to 2.5 vs. 4.9 in July 2013.’

Comment by Housing Analyst
2014-09-07 10:24:25

Falling housing prices in New England too?

Oh my word.

 
 
Comment by Ben Jones
2014-09-07 08:32:06

‘Corn market closes at 4-year low’

‘Soycomplex: Beans closed lower on the outlook for a huge US crop now being just around the corner. Even the recently well supported Sep 14 sunk to a new near 4-year closing low for a front month. Brazilian growers will also begin planting what is expected to be a record 2014/15 crop of their own within a matter of weeks…These are monster numbers, especially when you consider that the entire global soybean demand side of the balance sheet is dominated by just one country - China.’

‘They are expected to account for two thirds of all world soybean trade in 2014/15. That leaves the market extremely vulnerable to any sign of a let up in demand from them. Bird flu? Credit problems? GMO? Nah, it couldn’t happen, could it? And consider that prices at 4-year lows means that every tonne that China has already got bought for 2014/15 is now bought expensive. The temptation to default will be going through some Chinese minds right now.’

Comment by Whac-A-Bubble™
2014-09-07 10:42:42

Iron ore price hits five-year low on back of China concerns and market glut
September 4, 2014
Max Mason and Peter Ker
The price for Australia’s most valuable commodity has fallen more than 35 per cent this year. Photo: Reuters

The price of iron ore has slumped to a five-year low as worries about China’s property sector and a flood of supply globally weigh heavily on the steel-making ingredient.

Overnight, the benchmark price for iron ore for immediate delivery to the port of Tianjin in China crashed to a fresh five-year low, hitting $US84.30 a tonne.

Analysts believe the iron ore price could fall even further, with Goldman Sachs forecasting an average price of $US80 a tonne next year, while CLSA has warned it will hit $US75 a tonne.

Australia’s most valuable commodity has fallen more than 35 per cent this year. Iron ore-focussed miner Fortescue Metals Group is among those to have sufferted, plumbing a two-year low on Friday at $3.86.
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On Friday afternoon Fortescue shares were down 4 per cent for the day, 7 per cent for the week and more than 33 per cent since the beginning of the year.

The plunge has shaved about $6 billion off the iron ore miner’s market capitalisation, taking it to just above $12 billion.

The drop also meant Fortescue non-executive chairman Andrew ‘Twiggy’ Forrest’s net worth has shrunk by a tidy $2 billion this year, with his stake in the company now valued at $4 billion.

There is anecdotal evidence that China has cut domestic iron ore production by about 100 million tonnes, which may help the iron ore price in the near term, UBS commodity analyst Daniel Morgan said.

“There is a significant proportion of the iron ore industry that is now break-even to loss-making; some of it in China, some of it elsewhere,” Mr Morgan said.

“There is some rebalancing going on for people to make way for the Australian low-cost tonnes.”

Even if the iron ore price were to fall below $US80 a tonne, BHP Billiton and Rio Tinto would still be making a lot of money with relatively low break-even prices of $US51 a tonne and $US42 a tonne, respectively, in the second quarter, according to UBS research.

Concerns about China’s property market are bubbling, with the Chinese government’s plans to transition the economy away from fixed-asset investment to consumption proving tricky.

The price of new homes across almost all cities measured by the government fell in July, marking the third straight month of declines.

Steel prices in China have slumped to 10-year lows amid a faltering property sector, one of the biggest drivers of growth, accounting for 15 per cent of gross domestic product last year.

“While it’s not getting those leaps of new supply like we had in Q2 this year, there is still incremental supply coming into the market. It just means the system is full,” Goldman Sachs analyst Craig Sainsbury said.

“You’ve got good port inventory – there’s no real need for anyone to be re-stocking at the moment – and they’ll just wait to see where prices move to.”

 
Comment by Whac-A-Bubble™
2014-09-07 10:48:52

News of falling commodities and housing prices against the backdrop of the steady propaganda stream trumpeting how central bankers will prevent deflation seems a bit surreal.

 
Comment by Whac-A-Bubble™
2014-09-07 11:13:17

Could A China Recession Cause $50/Barrel Crude Oil?
Sep. 4, 2014 4:25 AM ET
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Summary

* China’s become one of the largest oil consumers in the world.

* It takes progressively more debt to create economic growth in China and represents diminishing returns.

* China’s bust and cheap oil could be great for the U.S.

Globalization has created an interconnection between major world economies and commodity prices. China, as the world’s most populous country, rearranged the commodity landscape by growing their economy at double-digit compounded rates from 2000-2010. By doubling their use of oil, copper and other major commodities, China created a golden era for commodity investors and everyone involved in oil exploration and production.

Thanks to dramatically higher prices for oil and major technological improvements in how we explore and produce oil, the supply and demand dynamics for oil sit in a very precarious position. We believe Brent crude prices above $100 per barrel are predicated on relatively uninterrupted economic growth for China and a vision of supply difficulty which current statistics argue against. On the demand side, the world’s largest user of oil, the U.S., has reduce its energy use to the point that it only takes $.07 of energy to create $1.00 of GDP. This is down from $.14 thirty years ago!

 
Comment by Whac-A-Bubble™
2014-09-07 13:42:21

Did the China metals fraud saga ever get resolved?

ft dot com
August 11, 2014 4:28 pm
Mercuria and Citi slug out exposure to China metals fraud
By Neil Hume, Commodities Editor

The fallout from the metals financing scandal in China continues to be felt, with Citigroup and Mercuria, one of the world’s biggest commodities traders, wrestling over exposure to a $270m financing agreement in a London court.

Faced with the prospect of large losses, banks and traders have been scrambling to limit their losses on metal-backed lending deals in northeast China after local authorities started to investigate claims of fraud three months ago at two ports.

Large quantities of copper, aluminium and alumina stored at Qingdao and Penglai are alleged to have been pledged multiple times as collateral for loans by a subsidiary of a company called Dezheng Resources.

Mercuria started legal proceedings against Citi at a London commercial court in June after the US bank demanded the early repayment of a $270m repurchase agreement backed by metal held at the ports. Under a “repo” a trader sell metals to a bank with an agreement to buy back at a later date.

Citi also took delivery of a short hedge position as part of the deal. This was showing a loss of $24m at the end of July.

Citi responded by launching a counterclaim, arguing that it had the right to close the repurchase agreement in light of the investigation and potential fraud, which it says qualifies as a “bring forward event”.

The US bank subsequently tried to expedite proceedings, according to court documents seen by the Financial Times. At at a hearing in London on Friday a judge ruled a trial should take place during the last week of November or early December, rather than 2015.

Citi declined to comment on the case. Neither the bank nor Mercuria have been accused of any wrongdoing in relation to the suspected fraud.

In a statement, Mercuria said the purpose of the proceedings was to determine the rights and obligations of both parties under “contractual arrangements” they have relating to metal affected “by the ongoing situation” in Qingdao and Penglai.

Mercuria said Citi currently holds the legal title to the metal and therefore should bear any risk relating to the repo. People familiar with the matter said some of the metal was purchased from Dezheng.

“Both parties want to deal with the matters in dispute as swiftly as possible and, to that end, at a hearing today [on Friday] Citigroup applied for an order that there be an expedited trial of the issues,” Mercuria said in a statement. “The judge took the view that the matter was sufficiently important to be expedited, provided that all issues can be properly dealt with at an expedited trial.”

Since the investigation began the two Chinese ports have been in lockdown and western banks and traders have found it impossible to assess their exposure to the alleged fraud.

“As long as the ports are closed nobody really knows what’s there and that’s the problem,” said one banker.

 
Comment by Whac-A-Bubble™
2014-09-07 13:44:41

ft dot com
Last updated: September 4, 2014 8:21 pm
Slowing demand in Asia sparks diesel glut
By Anjli Raval, Oil and Gas Correspondent

Only four years ago China was running on empty, with local newspapers publishing gruesome stories of crematoriums filling up with bodies amid shortages of diesel.

No more. Not just in China, but across much of Asia diesel the rate of growth in demand is expected to fall to the lowest level 13 years in 2014. Weaker expansion and subsidy cuts in emerging economies have created a glut of the fuel widely used for powering factories and trains.

Diesel demand, a leading indicator of economic health, is expected to grow just over 1 per cent – or 94,000 barrels a day – in Asia this year, according to Vienna-based JBC Energy.

This is a huge drop from the double-digit growth of the mid-2000s and the weakest since the 1.1 per cent increase in 2001, says JBC. Analysts now question whether the severe slowdown is a temporary phenomenon or a structural shift.

“Our feeling is that it is a bit of both,” says David Wech, analyst at JBC. “While we do expect a pick-up in the next several years, the previous levels of strong growth in Asia won’t be reached again.

“Substitution of diesel for other energy sources and greater efficiency mean that demand will inevitably see a decline.”

 
Comment by Whac-A-Bubble™
2014-09-07 14:31:49

Markets
China Is Awash in Grain Crops
Surpluses Will be Sold Into a Global Market Already in Oversupply
By Isabella Steger
Aug. 26, 2014 12:37 p.m. ET
A Chinese villager airs harvested wheat in Yuncheng City. Xinhua/Zuma Press

China’s grain cupboard is overflowing.

As the harvest looms next month, the country is on track for an 11th year of bumper grain crops. But production is too much, even for the world’s most populous nation, with warehouses bursting at the seams and posing a dilemma for policy makers.

Estimates from state media say the government will be sitting on 150 million tons of grains that include three of the most important crops for China: rice, wheat and corn. That is double the 75 million tons last year and adds to an oversupply of these agricultural commodities that is pressuring prices lower.

“Chinese officials always talk about having a big harvest,” said Fred Gale, an economist at the U.S. Department of Agriculture. “That sounds like a good thing, as they have been worried about supply keeping up with demand. But now, China seems to be struggling with surpluses of most of their commodities.

The glut of grains is being lauded in a country that grappled with acute food shortages and starvation as recently as a few decades ago. But China is paying far more than necessary to feed its people and it will be forced to sell down its surpluses into a global market already suffering from oversupply, potentially driving down prices further.

The situation has exposed China’s inefficient and expensive government subsidy program aimed at keeping farmers’ incomes up. The government is struggling with how to protect its rural residents while cutting production of these perishable commodities to save money and keep surpluses down.

 
 
Comment by ahansen
2014-09-07 12:53:48

Remember our old friends Yevgeny Charikov and his lovely wife Juliet Ramanishin, the house flipping mortgage fraudsters indicted in a notorious strawman buyer scheme in West Sacramento back in 2006?

Well, they were just acquitted — and the reason why is a classic example of lawyerly legerdemain. “How could they have committed fraud when the lender didn’t care if their application was truthful in the first place?”

Here’s an interesting examination of the possible implications for the mortgage banks– which still manages to miss the point by ignoring personal culpability all up and down the line to economic disaster:

http://www.salon.com/2014/09/07/finally_wall_street_gets_put_on_trial_we_can_still_hold_the_0_1_percent_responsible_for_tanking_the_economy/

 
Comment by taxpayers
2014-09-07 13:07:32

OT anyone else getting a big 9% jump in home owners insurance ?

Comment by Whac-A-Bubble™
2014-09-07 13:34:47

Not off topic at all.

With home prices climbing through the roof, insurers need to charge higher premiums, to cover the insurance liability for ever-more-valuable property.

Comment by Rental Watch
2014-09-08 00:43:44

Do you understand how insurance works?

Insurance doesn’t cover the “value” of a home, it covers that cost to fix something that breaks.

The only reason for the actuarial tables to change is if 1) it costs more to fix the homes, or 2) claims are happening more frequently.

 
 
 
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