The Housing Bubble

“You’re seeing a market that’s starting to look like 80 years’ worth of oversupply already.’”

How are measures like this calculated? Is it as simple as summing units of currently for-sale used home inventory plus recent new construction, then dividing by the recent rate of sales?

Even if eighty years’ worth of backlog is close to the true magnitude of the glut, it remains unclear why ‘waves that could start to get a bit choppy.’ should be a concern to institutional investors who bought Chinese real estate. Don’t these properties act more like a ’safe deposit box’ for using real property ownership to buffer portfolios against fiat currency devaluation than as places to live in? If so, why should unsold shadow inventory even matter?

‘In Portland’s hot real estate market where some homes are getting dozens of offers and bidding wars have sent prices skyrocketing, one buyer found a way to stand out among the rest: Offer free pizza every month for life.’

‘Donna DiNicola, owner of DiNicola’s Italian Restaurant in southeast Portland, might have been joking when she offered the pizza, but it worked. Her offer for a 900 square foot (83.6 sq meter) house in southeast Portland for her 23-year-old son was accepted.’

“I thought, well time is ticking and we’ve got to get into this market,” she said, adding the house was perfect even though it was at the top of their price range after offering $275,000 and two months of free rent for the sellers.’

‘The housing shortage in Worthington has reached a new level, forcing employees of the city’s largest company to commute from as far as Sioux Falls. City officials say the workforce continues to grow, but with a rental vacancy of zero, they won’t be able to keep up forever.’

“It is a sacrifice. One hour drive to come and one hour drive to go back,” said Beraki Wodermariam, JBS Employee.’

‘About a dozen cargo vans take nearly 100 employees from Sioux Falls to JBS every day. Wodermariam says some have tried to move to Worthington, but the housing just isn’t there. “It’s the community. Their family, their friends that live there. And there’s not enough houses here to bring that whole support group,” said Len Bakken, JBS Human Resources Director.’

‘Chapulis says there are a number of factors that have allowed the housing shortage to spiral out of control. “Due to the fact that there hasn’t been housing to keep up with the demand, we have not seen construction. And that affects appraisals,” said Chapulis.’

‘Add that to the rising cost of construction, Chapulis says these factors make it extremely difficult to attract developers to places like Worthington.’

‘She was always housing everyone else with that piece of stability she had. But then Joe got sick, and died in 2006, and she lost her job as a medical office receptionist when she was 67. She missed her mortgage payments in June and July 2007, and says she couldn’t catch up after that.’

‘She tried to get a loan modification, she says. She fought and fought, but the bank foreclosed on the house, and she moved out on Memorial Day, exactly 30 years after Joe dug the flagpole hole.’

‘More than 1.5 million older Americans lost their homes as a result of the mortgage crisis, according to a 2012 study by AARP, and 3.5 million more were underwater on their loans.’

‘Often, military veterans’ widows like Mary, whose benefits are thin and who were unable to have their own stable careers that would give them pensions, are the ones getting kicked out. The bank foreclosed on Mary’s home, and it sold for $42,000 in 2010. It was resold for about $56,000 the next year.’

“I used to drive by my home every few days or so until my neighbor across the street said that the present owners were getting scared and asked her to tell me to stop,” she said.’

‘Today, the house is back on the market, for $259,000.’

‘What a difference a few weeks can make. After years of constrained housing inventory we’ve suddenly got close to 400 properties on the market in Reston.’

‘While there is a lot more property on the market than we’ve previously had a 3.3 month’s supply is still considered a “seller’s market” although we’re not seeing the appreciation that is typically associated with a seller’s market — prices have been flat, especially above the $500,000 end of market.’

‘Does that mean you can throw a sign in your yard and expect the offers to roll in? Not by a long shot. Buyer’s are demanding and they’re informed. They recognize the when a seller has reached the correct intersection of price and condition.’

‘After years of soaring real estate prices in Norway, especially in Oslo and Stavanger, it finally was a little less expensive to buy a home last month. Brokers reported a slight decline in average sales prices, down 0.3 percent from April to May.’

‘In Stavanger, where prices were regularly climbing for years in line with Norway’s oil-fed economy, the sudden slowdown in the oil industry has kept housing prices almost still for the past year.’

“I think the Stavanger region will enter a period when prices decline,” Christian Vammervold Dreyer of the real estate industry’s trade association, Eiendom Norge, told news bureau NTB. The number of resales nationwide fell 4.8 percent, to 8,791.’

‘Despite a sustained period of strong pending home-sale numbers, the rate of actual closed deals for homes in Massachusetts has been stagnant in recent months, according to data from the Massachusetts Association of Realtors.’

‘Several Realtors said that difficulty securing financing deals with banks has prompted some of their clients to back out of agreements or has substantially delayed closings. In cities such as Fitchburg, Leominster and Lowell, there are still a large number of bank-owned homes for which the financing process can be particularly slow, said Bill Foss, president of the North Central Massachusetts Association of Realtors.’

‘”Mainland Chinese buyers are really driving markets from Sydney through New York to London, and Canadian cities like Vancouver — particularly Vancouver — are no exception,” former ambassador to China David Mulroney told Canada’s national broadcaster, the CBC, in March. Like many in Vancouver, Mulroney wants to restrict investments in high-end real estate to protect lower-income buyers.’

‘The evidence of Chinese money flowing into Vancouver is unmistakable. South of downtown, the suburb of Richmond has been transformed into a bustling network of Chinese markets, shopping malls, hair salons and English schools. On Richmond’s busiest street corners, signs in Chinese are more visible than those in English. It’s easier to buy a pork bun than a hamburger, and you can shop all day without speaking a word of English. Along the light-rail corridors, gleaming condo developments are sprouting up to accommodate new buyers.’

“For the Chinese investor, there are two important things; one is family, and the other is real estate,” said Eric Andreason, marketing manager of Adera, a firm that advertises to Chinese buyers. “They’re very savvy, and they know real estate. They know that if they buy a place and hold onto it, it’s going to do well for them.”

‘Andreason said many Chinese families, like the Wangs, come to Vancouver looking for a good education for their children and an opportunity to divest their money from a potential Chinese housing bubble that could burst. With a few million dollars to spend, a new home often seems like the safest bet.’

‘Michigan’s vacation home market is a story of diverging fortunes for the state’s east and west coasts. On the Lake Michigan side, agents see rising prices and a growing number of people looking to buy. In many popular areas such as Saugatuck, there’s a thinning inventory of waterfront property and cottages to pick from. That’s good for sellers and more expensive for buyers.’

‘Depending on location, the secondary-home or cottage prices are anywhere from 2% to 20% off their pre-Great Recession peak. “We’re almost back to that late 2006-early 2007 level, before the cliff,” said Dick Waskin, a broker-owner of RE/MAX Saugatuck-Douglas.’

‘But on the Lake Huron “sunrise side” of the state, the cottage market is less bright for sellers. Prices here are, at best, inching up from their recessionary lows. The shortage is not in inventory, but in prospective buyers.’

‘Sam Johnson, 63, of Bel Air, Md., was impressed this spring by the number of high-quality and reasonably priced cottages on the Lake Huron side of Michigan. For $234,000, he bought a two-bedroom log home on Long Lake, just outside Alpena.’

“That is one of the reasons why I looked at waterfront property up there,” said Johnson, who also has relatives in the area. “Down where I live, (prices) are just off the charts.”

‘In the Lake Charlevoix area, prices are about 10% higher than two years ago, yet still 15% to 20% off their peak of last decade, said Pat O’Brien of Boyne City-based Pat O’Brien & Associates.’

‘There have been 18 sales over $250,000 on Lake Charlevoix so far this year, including five over $1 million. That compares with 11 sales at this time last year with two of them over $1 million, he said. “I think it’s people having more confidence in their financial situation, and they’re more ready to get back in the second-home market,” said O’Brien said.’

‘Thirteen years ago, Percy Evans and his wife, Beverly, both in their 60s, made the decision to follow the typical American dream and purchase a home in Milwaukee, Wisconsin.’

‘But since making that decision, life for the couple has been far from a dream. “If I know then what I know now, I don’t think I’d buy a house,” Percy, 66, said.’

‘They purchased their home for $79,000. With an interest rate at nine percent, the couple’s payments are just over $1,100 a month, but after more than a decade of paying it off, they still owe the full principal amount on the home.’

‘While house-hunting in Marin, Kiu Phung of Novato and her husband, Michael Murray, made offers on three homes to no avail, always losing out to higher bids. Finally, they wrote a letter to a seller introducing themselves and explaining why they loved the property — and they snagged the house this month.’

‘The couple’s story is just one example of how practices that were common in the boom of the early 2000s are catching on again.’

‘As the third year of multiple offers and offers over asking price continues, Marin homebuyers are resorting to creative enticements to get the homes of their dreams. Writing letters, offering free rent-backs, paying all cash, doing pre-inspections and waiving contingencies are common ploys. Some are carryovers from the first boom, and others are new.’

“We in Marin are starting to follow what has been more of a pattern in San Francisco, with a number of multiple offers and even some non-contingent offers,” said Patricia Navone of Pacific Union, Phung’s real estate agent. Phung looked for nine months before succeeding in her search, Navone said.’

“We do see any opportunity from the buyer’s perspective to stand out in the seller’s eyes. They are competing with other buyers on price and terms so the buyers try to find a way to make their terms more attractive to the sellers,” said Dave Buoncristiani of Coldwell Banker. “That might be a free rent-back, possibly, or buyers will write personal notes to the seller just to stand out and hopefully make it a little more personal transaction.”

‘When Lisa Metzler declared bankruptcy in 2012, she was so delinquent on her mortgage that she agreed to surrender her Gibsonton townhouse so the bank could proceed with foreclosure.’

‘By agreeing to give up the home, Metzler was allowed to keep $5,000 worth of personal property. That was in federal court, which handles bankruptcy cases. Yet in state court, Metzler hired a lawyer and continued to fight the foreclosure. She still has her house. So do some other debtors who promised to surrender their homes but kept battling the bank.’

‘That’s not fair, lenders are starting to argue. When people say they are going to surrender property, they should do so or face a penalty. It’s an argument that’s finding a receptive ear among a small but growing number of bankruptcy judges.’

‘Last year, Judge Michael G. Williamson in Tampa threw out Metzler’s bankruptcy case because she kept trying to block foreclosure. “At a minimum,” he wrote in a recent opinion, “ ’surrender’ means a debtor cannot take an overt act that impedes a secured creditor from foreclosing its interest in secured property.”

‘In a similar South Florida case, Judge Erik Kimball put the issue more bluntly: “When a debtor says, ‘(I) surrender,’ that means you need to throw up your hands and not fight anymore.”

‘Some debtors fight to keep houses they don’t even live in. Former Clearwater Beach real estate agent Michael Andolino agreed in bankruptcy court to surrender a waterfront home he bought as a rental property.’

‘But after his bankruptcy case was closed, Andolino resumed battling the bank in state court. He hasn’t made a mortgage payment in five years, yet he continues to collect rent each month.’

‘Andolino, who now has a used car business in New Port Richey, was asked by email why he collected thousands of dollars in rent yet hadn’t made a payment on his loan in five years. He did not respond.’

‘As a real estate investor looking to buy houses, fix them up and sell them for a profit, Aaron Chaney has flipped houses in just about every part of Allegheny County, but he says his most lucrative opportunities have been in Lawrenceville.’

“I find the neighborhoods that are most profitable to flip in are the neighborhoods in transition to a higher value,” said Mr. Chaney, co-owner of Penn-Pioneer Enterprises in Trafford. He and his partner, Mark Fichtner, flipped about 40 houses last year.’

‘They are currently renovating a three-bedroom house in Lawrenceville they bought in 2013 for $38,000. After extensive renovations, they plan to list it for $450,000.’

‘There’s been a great deal talk about under-occupancy over the past two years, and generally it’s been linked to talk of under-occupants - social housing tenants who have more bedrooms than they apparently need.’

‘But what about those who don’t occupy their properties at all? At the last count, more than 31,000 homes in Scotland had been unoccupied for six months or more; a significant number at a time of chronic housing shortages.’

‘Who are these people who can afford to pay 90 per cent council tax on a home where no-one lives, let alone 200 per cent? I’d wager many of them have inherited these “bonus” properties, often without paying a penny of tax in the process. Shelter estimates that leaving a home empty can “cost” up to £7,000 a year - but that figure includes hypothetical lost rental income so the real outlay for council tax, security and repairs will be considerably lower. The key question is whether this cost is likely to outweigh any increase in the property’s value, as the housing bubble inflates again and those sitting on assets they haven’t earned look forward to cashing in their chips.’

‘Meanwhile, regular working people with just the one home (which they can’t sell unless they buy another) illogically rub their hands at the prospect of “gains” they’ll never see, endorsing policies that push home ownership out of the reach of their children and grandchildren - at least until such time as they shuffle off their mortal coil and leave a free house.’

‘Listing agents have shaved $450,000 off the initial asking price of one of Frank Sinatra’s Coachella Valley homes — or, rather, three houses— arranged high above Palm Desert in a compound called Villa Maggio.’

‘The estate was listed for $3,995,000 in April 2013. In September of that year, agents raised the price to $4,400,000. The listing expired in August 2014, and the house returned to market in February for its current asking price of $3.95 million, according to the listing agent’s office.’

‘Police in Florence wondered where all the money was going. Italy’s economy was heading off a cliff, but its Chinatowns were booming. Luxury cars snaked past Chinese betting parlors and garment factories that hummed into the night. Chinese immigrants were buying up Italian coffee bars and real estate. But their prosperity was not reflected in local tax records.’

“What do they do with the money?” said Pietro Suchan, then deputy public prosecutor in Florence. “Do they eat it?”

‘The answer, after a four-year investigation by Italy’s financial police, was no. They discovered that more than 4.5 billion euros ($4.9 billion) — the proceeds of counterfeiting, prostitution, labor exploitation and tax evasion — had been smuggled out of Italy to China in less than four years using a money-transfer service. Nearly half that money was funneled through one of China’s largest state banks, the Bank of China, which earned more than 758,000 euros in commissions on the transfers, according to Italian investigative documents obtained by The Associated Press. Italian officials said that when they tried to appeal to Chinese authorities for help, they got nowhere.’

‘Once the money left Italy, it vanished behind China’s great legal firewall.’

‘Italian police had no way to track the flow of dirty money in China and no way to get the cash back to Italy’s depleted state coffers. The Bank of China, which is now under investigation in Italy for money laundering, denied wrongdoing, saying it has always complied with Italian regulations.’

‘A great legal firewall separates China from the West, despite the deep economic ties — both licit and illicit — that bind them. A combination of inconsistent cooperation, incompatible legal systems and China’s secrecy laws have allowed criminals to globalize more effectively than law enforcement — and made it harder for Western companies and courts to put them out of business.’

‘The legal firewall has also helped people who sell counterfeit goods use major, state-run Chinese banks as financial shelters on a significant scale, AP found in an article published in May. Counterfeiters have used the banks, including the Bank of China, to process credit card payments and move their money beyond the reach of U.S. law enforcement. But Western companies that have pursued Chinese counterfeiters in the U.S., where many counterfeit goods are sold, have been blocked by China’s secrecy laws, which prohibit banks from freezing funds or releasing information on the order of a foreign court. The banks say they are caught in a jurisdictional dispute between the U.S. and China, which maintains that bank secrecy is a matter of national sovereignty.’

“Chinese financial institutions can effectively operate behind a firewall that keeps them largely immune from the jurisdiction of U.S. courts and regulatory agencies, leaving U.S. partners, competitors, and investors vulnerable,” said a May report from the U.S.-China Economic and Security Review Commission, which advises Congress.’

‘The consequences of that legal firewall are becoming more palpable as Chinese businesses go global. Chinese companies have invested $46 billion in the U.S. since 2000, most of it in the last five years, according to the Rhodium Group, a New York research firm. Chinese banks have expanded their reach, opening overseas branches and buying stakes in foreign banks. Chinese firms have voraciously tapped U.S. financial markets, with the 2014 IPO of e-commerce giant Alibaba ranked the largest in history.’

“Chicago residents Joanna and Thomas Wala recently bought a three-bedroom home in Bonita Springs. They plan to use it occasionally for vacations, and eventually to make it their retirement place in the sun — even though they are both still in their 40s and not at all ready to retire. In the meantime, they are covering their expenses and even making a small profit by renting it out seasonally. ‘Moving here now was out of the question,’ said Joanna. ‘But I did the calculations, and buying just made so much sense. We have something that’s worth something, and its value is growing.’”
___________________________/

Buying a retirement house when you’re in your 40s. Yeah, I believe that one. I’d love to see her lady’s calculations. The pythons will be living there before that couple will.

I’ve been to the Naples area, several times, and can’t figure out the appeal, unless your idea of the good life is living in a gated golf-course community with other late-middle-aged empty-nesters who paid $699,000. It’s like an upscale version of the “Depreston” song and video we talked about here yesterday. If you aren’t on antidepressants, you will be soon.

‘Despite the bull run, property stocks failed to keep pace with the high rising stock market indices. But the property market in Shanghai is really getting a boost due to the bullish stock run.’

‘Is it true that winners of the bullish stock run are fleeing to cash their gains into the property market? “I believe the housing price will surely go up. I will invest my stock gains into the property market for long term gains,” a stock trader said.’

‘But analysts are cautious over the housing price rise in Shanghai. Experts say the price surge in Shanghai’s property market is mainly due to an inflow of capital from the stock market. But that will not last long.’

‘Adding that the fundamentals of such cities like Shanghai have not changed much, a surge of housing prices in these cities should not be expected.’

‘The prices of apartments in the biggest Red Sea port city of Jeddah experienced a four-fold rise in value in several months only.’

‘The rise comes after the Saudi Ministry of Housing , late last year, cut short a major financing program that would help potential home buyers pay for apartments ranging from 250 square meters to 180 square meters.’

‘The move led to a number of properties in populated districts across the oil-rich monarchy being sold at nearly $200,000 or roughly equal to four times the cost of building them.’

‘What was more worrying to home buyers was that officials, construction companies, and investors were blaming each other for the dramatic increase in prices.’

‘Nasir Basunbul, owner of a real estate development company told Al-Madina that the “market nature and the supply and demand rule govern the process of pricing. But, many apartments are way overpriced and simply are not worth their claimed value.”

‘Prices were not negotiable, said Ali al-Omarain, a citizen, from Jeddah , who called on the ministries of housing and commerce and industry to prevent a full-blown housing crisis.’

“You can’t negotiate, because owners assign the building doorman to tell you the price or assign a real estate agent who shocks you with unbelievable prices that reach SR900,000 for five-room apartments and SR500,000 for three-room ones. “It is greed and exploitation, while concerned bodies are taking no measures to stop it.”

has Yellen made a “mo free money” announcement yet?

the 10yr almost got way