The Widely-Held Impression Explained By Psychology
It’s Friday desk clearing time for this blogger. “Chinese buyers topped Canadians to rank as the biggest foreign purchasers of U.S. homes by both sales and dollar volume, accounting for more than a quarter of all international spending. Buyers from China have helped drive up prices in Cambridge, Massachusetts, according to Jason Zhang, an agent with Realty Direct in Quincy, Massachusetts. Many of those buyers purchase homes for their children and then buy a winter retreat in Florida, he said. ‘If you go to an open house here, maybe eight of 10 buyers are Chinese, one is Indian and the other is American,’ said Zhang, an agent for 10 years and a Chinese speaker.”
“The U.S. surge of buying by Chinese occurs at the same time the central government in their home country is trying to control overheated markets in stocks and real estate, said David Woo, head of global rates and currencies at Bank of America Merrill Lynch. ‘The housing bubble is still there,’ Woo said in an interview.”
“The housing market in the Bay Area remained strong in May, but the rise in home prices and sales has begun to level off, according to a report. ‘Instead of getting 20 offers on a house, sellers are getting, three, four, five offers,’ said Mike James, president of the Concord-based Bay Area office of Coldwell Banker.”
“The leveling of activity means sellers can’t simply price homes $200,000 or $300,000 above current market prices for an area. ‘Sellers who are reaching for the sky, the buyers are saying ‘wait a minute’ when they see homes listed at well above the market,’ said David Tonna, a past president of the Silicon Valley Association of Realtors.”
“Nine years after the Florida housing bubble burst, more than 45 percent of Pensacola metro area homeowners with a mortgage owe at least 20 percent more than their home is currently worth, according to Zillow. Chris McIntosh, a senior loan officer with Supreme Lending, said Zillow’s 20 percent negative equity rate sounds about right for the area. Underwater himself, McIntosh said negative equity isn’t always as bad as it sounds. ‘I’m $60,000 upside down on my house but I couldn’t go out and duplicate the property I live in or the payment I have. Yeah I’m upside down but my payment is really affordable,’ he said.”
“New housing numbers suggest banks are advancing foreclosure cases that have been sitting in limbo for years. RealtyTrac says foreclosure starts, or notices of default, were down 15 percent from a year ago. However, completions, or bank repos, were up 31 percent. Those numbers may seem to contradict each other. ‘Those are tied to loans that were originated back between 2004 and 2008, believe it or not, that have just taken so long to make their way through the foreclosure process, and are now finally being foreclosed on,’ says RealtyTrac’s Daren Blomquist.”
“Banks and other lenders continued to aggressively repossess central Ohio homes in May, in some cases years after the homeowners had fallen into foreclosure. But agents who deal in foreclosed homes say banks have been slow to put their repossessed homes back on the market. ‘What I’m mainly seeing is they foreclose and don’t sell them. They just sit there,’ said Dora Clifford, the owner of Clifford Realtors in Reynoldsburg. ‘I see vacant homes everywhere going downhill with banks just sitting on them.’”
“Matt Beckett, an agent with Realty Executives Decision, agreed that banks are not moving to sell the homes, despite high demand from both owner-occupants and investors. ‘I haven’t seen it yet, but I’ve heard on the grapevine that stuff is starting to increase,’ he said.”
“Mortgage arrears are as good as they’re going to get and stress is already rising in the riskier end of the market, despite record low interest rates and surging house prices in Sydney and Melbourne, according to ratings agency Fitch. Fitch’s index tracking low-documentation loans — primarily given to the self-employed — worsened by 61 basis points to 5.44 per cent in the first three months of the year. The performance of non-conforming loans — borrowers with adverse credit histories and those shunned by mortgage insurers and mainstream lenders — also worsened, with arrears of 30-plus days rising 88 basis points to 7.58 per cent and repayment rates declining.”
“Fitch’s primary index, which tracks the arrears and performance of the mortgages underlying the nation’s pool of residential mortgage-backed securities, increased 2 basis points to 1.17 per cent ‘even though property market conditions in Australia are improving, with historically low interest rates, high house prices and a stable economy.’”
“Approximately 20 per cent of Vancouver detached-housing sales can be defined as flips. Vancouver realtor Ken Leong, who admits to a brief — and heady — history of flipping condominiums for himself and clients, said it takes more nerve and cash to speculate on Vancouver’s detached-house market than during the exuberant days of condo flips a decade ago. Leong said that if house price increases go soft — as in the current condo market — investors could find themselves financially under water fast. That was the experience of at least one East Vancouver speculator, who lost $61,000 in 57 days last fall flipping a $905,000 detached house on East 29th Avenue.”
“As Leong explained, if an investor bought a house for $1 million and flipped it a few months later for $1.1 million, he or she would have to pay $18,000 in B.C.’s property purchase tax. Realtor commissions to sell the house would total around $33,500. The capital gains tax, likely at the highest tax bracket, would be roughly $30,000. ‘So now your $100,000 gain is down to less than $20,000, and you still have to add in the carrying costs of financing of around $4,000 per month while the house is for sale,’ he said. ‘It would be hard to make a big profit on such a flip,’ Leong said. ‘Actually the government would make more than the investor.’”
“China’s housing market is roaring back to life in the biggest cities while local governments are issuing bonds at a blistering pace. Data showed that home prices in the ‘tier I’ cities jumped 2.8pc in May, the largest one-month rise in over five years. Property continued to lag in the rest of the country with a glut of 4.3m unsold units still hanging over the market. Bo Zhuang from Trusted Sources said Beijing has now pulled a set of stimulus levers, reverting to the same ‘stop-go’ pattern of past years. The benchmark market lending rate (7-day repo) has dropped abruptly from 5pc to 2pc, flushing the market with liquidity.”
“The country is still in the grip of powerful deflationary forces. Factory gate inflation remains stuck at minus 4.6pc and has been negative for 37 months. Yet there is little doubt that the Communist Party has blinked once again, putting off the day of reckoning. ‘They want a correction without actually having to go through one,’ said Patrick Chovanec, a China veteran at Silvercrest Asset Management.”
“Beijing is winking at a vertiginous stock market boom that has lifted the Shanghai composite index by 150pc over the last year, fuelled by margin debt that eclipses even the final blow-off phase of the Wall Street bubble in 1929. Mr Chovanec said China’s leaders are now in much the same position as Japanese officials in the early 1990s when they discovered that it was already too late to escape the consequences of a credit bubble and systemic over-capacity. ‘In the end, they will have to turn on the fiscal taps to prevent a collapse of GDP, just like Japan,’ he said.”
“Robert Shiller, author of the classic analysis of behavioural economics, Irrational Exuberance, has determined that going back to 1890, U.S. housing prices have risen faster than inflation only twice. Once in the generational boom after the Second World War and again only in the run-up to the sub-prime mortgage crisis of 2008. To which we may now add, price levels in Toronto and Vancouver the last few years. Otherwise, the rate of return, in real dollars adjusted for inflation is with extremely rare exceptions, zero.”
“As Shiller notes, ‘the widely-held impression that single family homes have historically shown high real capital gains when in fact over the last century the gains overall have been only nominal and hence illusory (and) can only be explained by using other social sciences like psychology.’ With data like that why are people incurring Frankenmortgages and crawling over broken glass to buy? Shiller’s answer, simply put, is that they’re crazy. Whether it’s tulip bulbs in Holland in 1637, dot-com stocks in Silicon Valley in 2000 or homes in Toronto in 2015, people are terrified of not having one, whether they need it or not.”
“The important thing is not to be critical of people for their investment decisions but rather to correct a dangerous economic distortion. Real estate is a huge business, bigger even than oil and gas. Do we want a significant portion of our GDP dependent on fundamentals that a Nobel laureate has called ‘illusory?’”
“Have you ever heard a bank manager or real estate agent say, ‘You know at these prices, you may want to hold off and rent til you grow your down payment?’ Not bloody likely. They make billions selling people mortgages and products they would be better off without. They are no better than Big Pharma or Big Tobacco. Call them Big Mortgage. They are enabling addictions that, left uncorrected, are well known for leading to catastrophic outcomes.”
‘Chinese shares nosedived on Friday, with the benchmark Shanghai Composite Index down 6.42 percent to finish at 4,478.36 points. The Shenzhen Component Index lost 6.03 percent to close at 15,725.47 points.’
‘The major Shanghai index dived by 13 percent from the previous week, the biggest weekly drop in seven years. Nearly one thousand shares on the two bourses slumped by the daily limit of 10 percent.’
‘China’s debt-riddled developers are turning to incentives like luxury cars as they rush to shed an inventory of unsold homes about seven times the size of Manhattan.’
‘Hopson Development Holdings Ltd. in May offered a free Porsche or discounts of as much as 11 percent to the first 30 buyers of apartments in a complex in southern China. Evergrande Real Estate Group Ltd. is letting homebuyers cancel purchases and get all their money back any time before they move into their flats.’
‘Such offers underscore the urgency among developers as they seize on a nascent rebound in sales and prices to generate cash and reduce record debt. Whether the recovery will gain traction is far from clear: While sales across the country jumped 32 percent in May from a year earlier, construction and property investment remain subdued.’
“By taking this opportunity of a mild improvement in sentiment, developers are trying to sell quickly to get more liquidity,” said Kaven Tsang, a Hong Kong-based senior analyst at Moody’s Investors Service.’
‘Generous incentives to lure buyers are common in China, however the wobbly state of developers’ finances is adding to the urgency to clear inventories of unsold homes that stand at a three-year high of 430 square kilometers (166 square miles).’
I never heard of unsold real estate put in terms of square miles before. Only in China.
http://www.shanghaidaily.com/business/economy/Cooling-prices-see-desire-to-buy-homes/shdaily.shtml
China and Greece next week….. looks like the big event is almost here.
Those on the sidelines are feeling good.
‘Brazil’s amazing housing boom appears to be over: house prices in Sao Paulo had soared by 113% (inflation-adjusted) from 2007 to 2013, while Rio De Janeiro’s rose by 144%, after interest cuts from 26% in 2003 to 7.25% in 2012.’
‘However starting in the first half 2013, the central bank raised the benchmark interest rate nine times to 11% in April 2014, causing a sharp economic slowdown.’
‘Brazil’s housing market is now declining, amidst subdued economic growth and some civil unrest. Quarter-on-quarter, house prices dropped 2.13% during the latest quarter, according to Global Property Guide.’
‘Also the Brazilian Real has significantly depreciated during the year to June first, from 2.26 to the US dollars to 3.16 to the greenback.’
The Colombian peso also has substantially depreciated. I was in Colombia in 2012 for a couple of months, and since that time the value of the currency has fallen by 40% against the dollar. Not that this matters anywhere in the world right now, but the amount of residential construction underway in Bogotá in 2012 was not proportional to the number of citizens with the financial means to live in it.
“Chinese buyers topped Canadians to rank as the biggest foreign purchasers of U.S. homes by both sales and dollar volume, accounting for more than a quarter of all international spending. Buyers from China have helped drive up prices in Cambridge, Massachusetts, according to Jason Zhang, an agent with Realty Direct in Quincy, Massachusetts. Many of those buyers purchase homes for their children and then buy a winter retreat in Florida, he said. ‘If you go to an open house here, maybe eight of 10 buyers are Chinese, one is Indian and the other is American,’ said Zhang, an agent for 10 years and a Chinese speaker.”
Brings to mind a running conversation I had circa 2004 with an academic housing economist. It took me quite awhile to convince him that the foreign investor share of U.S. home purchases at the time approached forty percent. Once convinced, he agreed with me that a crash was inevitable.
Just over ten years later, it seems the market is back in the same place.
I remember looking at a house for sale here in Tampa, and seeing that the owners were from Ireland. One young condo conversion maven, questioned by a newspaper reporter on who was going to buy units in his newly-acquired apartment complex, said that he had investors from “England, Russia, whatever.” I’m still trying to understand the appeal of Fort Myers to Germans, and why British like the Four Corners area in Osceola County.
My impression of Germany was that it is very orderly and well maintained. I would thing Florida would feel like some post apocalyptic hell to them… but maybe they like post apocalyptic hell.
Heh. One of my in-laws is half-Colombian, half-German. It doesn’t take much chaos or inefficiency to get him ranting, especially if he’s recently returned from Germany. We were driving in Bogotá when I asked him what entity had responsibility for fixing the streets, which were heavily and dangerously potholed. He replied “Responsibility? Responsibility? Is there such a thing as RESPONSIBILITY?” and went on for several minutes. His volume was rising and he was getting angrier and angrier. I held my hands over my mouth so he would not see me smiling.
‘The housing bubble is still there,’
By accident or by design?
It is certainly by design. The overwhelming majority of the American people and all of the ruling plutocrat class are together on this one. It is a case where politics is working to enact the will of the people.
What kind of tripe are you peddling?
“The leveling of activity means sellers can’t simply price homes $200,000 or $300,000 above current market prices for an area.”
Did this kind of craven stupidity ever previously occur over the entire history of modern real estate markets?
“As Shiller notes, ‘the widely-held impression that single family homes have historically shown high real capital gains when in fact over the last century the gains overall have been only nominal and hence illusory (and) can only be explained by using other social sciences like psychology.’ With data like that why are people incurring Frankenmortgages and crawling over broken glass to buy? Shiller’s answer, simply put, is that they’re crazy. Whether it’s tulip bulbs in Holland in 1637, dot-com stocks in Silicon Valley in 2000 or homes in Toronto in 2015, people are terrified of not having one, whether they need it or not.”
The Housing Bubble has continued for so long now that Shiller’s historical evidence on appreciation rates has lost its relevance. It’s a New Normal with double digit annual home price gains forever from now on.
When have people “not needed” homes?
Off topic.
If you overpaid by 200% for a depreciating asset like Dan and Donk, you’d be off topic too.
HA - how do you benefit from all your anger? Do you short builders?
Be happy. Housing prices are falling.
San Luis Obispo, CA Housing Prices Fall 4%
http://www.zillow.com/san-luis-obispo-ca/home-values/
http://www.movoto.com/san-francisco-ca/market-trends/#city=&time=1Y&metric=Inventory&type=0
YOY inventory up 123%
People needed homes always but prices weren’t these outrageous multiples of income always. It is NOT NORMAL.
Never. They have also never needed to buy them.
‘I’m $60,000 upside down on my house but I couldn’t go out and duplicate the property I live in or the payment I have. Yeah I’m upside down but my payment is really affordable,’
So long as the monthly is low, who cares if you are underwater?
These are two different problems. The not being able to afford the house you live in to me is the real unacknowledged issue here. There are many many people in my neighborhood who bought at low prices before the run up when prices were at least a third less than they are now. They do not have the income to qualify to buy their own houses now. They could theoretically take all of the gains on their house since the run up and plonk it down for a similar home, except they’ve already spent lots of those gains extracted via HELOCs for toys and backyards and pools, etc.
This is what I call Locationally Underwater.
Mortgage debt is an anchor with a short rode.
….. and the mortgage payer the sacrificial anode.
So long as the monthly is low, who cares if you are underwater ??
I believe there is some truth to that…Wether you are underwater or not matters if you want to sell or I could also say refinance…I believe many just don’t care if they are sitting on 3% loans…
I agree—if he couldn’t buy or rent a home for less, then his housing will feel like a good deal to him.
But the flip side of this coin is that he will also be unable to move. This causes damage to the economy, for those whose skills would be more effectively used somewhere else.
So long as the monthly is low, who cares if you are underwater ??
It’s all fine and dandy until you want to sell and move.
“Beijing is winking at a vertiginous stock market boom that has lifted the Shanghai composite index by 150pc over the last year, fuelled by margin debt that eclipses even the final blow-off phase of the Wall Street bubble in 1929. Mr Chovanec said China’s leaders are now in much the same position as Japanese officials in the early 1990s when they discovered that it was already too late to escape the consequences of a credit bubble and systemic over-capacity. ‘In the end, they will have to turn on the fiscal taps to prevent a collapse of GDP, just like Japan,’ he said.”
Why didn’t Japan just ‘turn on the taps’ if that’s all it takes to forestall a hard landing?
The Economist
Leaders
Share prices in China
Flying too high
The long-term consequences of China’s coming stockmarket correction are the ones to fear
May 30th 2015
IF YOU were a Chinese worker you could have spent the past year toiling to earn a living. Or you could have bought some shares and sat on the sofa (see article). Chinese equities have been on a bull run of epic proportions. The CSI300, an index of the biggest mainland stocks, has more than doubled over the past year. That looks positively anaemic compared with ChiNext, a market for Chinese startups which has tripled in 12 months; let alone with shares in Qtone, an online-education company that gained almost 1,300% between its listing early in 2014 and the middle of this month. Its own directors have warned investors to be wary of “ignorant hype”.
The signs of overvaluation are everywhere. Stocks listed on the Shenzhen exchange, home to most tech firms, have an average price-earnings ratio of 64; for those on the exchange for small and medium-sized enterprises it is 80. (For most stocks a P-E ratio above 25 is considered expensive.) ChiNext is now priced at nearly 140 times last year’s earnings, a valuation that puts it in the same league as NASDAQ, America’s tech-heavy exchange, at the height of the dotcom frenzy. Companies whose shares are listed in Hong Kong and in Shanghai are trading at a 30% premium in the mainland, near a four-year high. Some are twice as valuable in China, even though mainland money can now more easily slosh southward into the Hong Kong market.
…
“turn on the fiscal taps”
Not really necessary since GDP is a made up number.
The Chinese stock market is correcting today and the main reasons are a heavy calendar of Ipos combined with an improving housing market which makes further stimulus unlikely.
Bummer to have crow for dinner again tonight!
04:32:43
At least he tried to get out in front of that one. Caw!
No caw, because China is going to have 7% growth, the market knows it and it corrects since it is not sure easy money will continue. . It is not so different from the U.S. market where actually good news on the economy causes the stock market to go down. But it is the young people of China that are building its future as this article shows:
http://europe.chinadaily.com.cn/business/2015-05/28/content_20846733_2.htm
Dan,
A 50% collapse in gdp growth is a reality. You own that loss.
Did you somehow manage to skip over this sentence from the article:
“Yet there is little doubt that the Communist Party has blinked once again, putting off the day of reckoning.”
Yet there is little doubt that the Communist Party has blinked once again, putting off the day of reckoning.”
It will be putting off the day of “reckoning” thirty years from now, check the record of the prognosticator he or she has probably been predicting the demise of China for decades.
The China credit bubble is not so many “decades” old.
Excerpt, Bill Gates would like employees like this instead of what he complained about a few years ago:
Decked out in a simple washed-out T-shirt, skillfully operating a computer and various gadgets, Zhang Hao is easily mistaken for a student working in a busy laboratory.
But the 28-year-old college graduate, who was once an editor for a popular science association, has an unusual ambition－he wants to build a robot by 2027 that will clean your home.
“I would like every Chinese family to own one,” Zhang, who comes from eastern China’s Zhejiang province, said. “The cost of buying this robotic house cleaner would roughly be the same as a standard sedan. It would be nice to find a commercial partner, but if I can’t, I will build it myself. That is the basic target.”
Zhang spends 16 hours a day, seven days a week, in a small room located in the hot and humid city of Shenzhen, the Chinese mainland’s earliest special economic zone, neighboring Hong Kong. And he loves every minute.
“It’s fun,” he said. “I’m stretching myself. If I walked out of the door tomorrow and was knocked down by a car, I would die happy because I’m doing something I love.”
Sorry if this a double post but I lost the Internet connection just as I was posting it before, this is the big picture:
Shenzhen is building itself into a center for international ‘makers’,” Lu Jian, director of science, technology and innovation commission of Shenzhen city government, said. “We are encouraging ‘makers’ to start their own businesses here.”
More than 1,000 “makers” have been registered with the city’s authorities and there are about 30 institutions serving this group, according to official data.
Plans are also in place to hold another Global Makers Fair during June 18 to 22. Hopefully, talent from all over the world will attend and exchange ideas.
Of course, this is all part Shenzhen’s ambitious move to morph into China’s Silicon Valley.
This might sound ridiculous to some people. After all, Silicon Valley in the US is world famous for turning startups such as Apple Inc, Intel Corp and Yahoo Inc into global giants. At the other end of the scale, Shenzhen is still shaking off its international image as “Shanzhai (copycat) Heaven”.
But times are changing and Shenzhen is moving with those times.
Liu Rengen is a senior official with the Huaqiaongbei office in Shenzhen, which governs the biggest electronics market in China. More than 18,000 shops are squeezed into the 1.45 square kilometers area.
“Shanzhai was born in a special period, but I would say it also bred innovation,” Liu said. “Pick any electronic product you wanted to make, and you could buy all the devices and components on this street.”
Up to seven years ago, you could have found dozens of shops selling fake iPhones or “bandit mobiles” as expatriates called them. Now, you can hardly find one, Liu said, adding that people in Huaqiangbei have actively transformed their businesses from copycat ventures to innovation companies.
Xiaomi Corp represents what can be achieved. In the space of five years, it has emerged from obscurity to be one of the world’s top five mobile phone makers. And its exploits have inspired China’s business titans of the future.
Key to Xiaomi’s success has been innovation rather than low prices. As labor costs in China climb, companies need to tempt consumers with improved products, better branding and online marketing.
‘China’s main stock indexes have finished the week on a grim note, with the Shanghai Composite ending down 13.3%, its worst showing since the global financial crisis.’
‘Many analysts had warned that Chinese bourses had become too frothy since November, with some companies trading at 200 or 300 times earnings amid incredible volatility.’
‘Net market capitalisation of the equity markets, at 66.2tn yuan (£6.7tn), now exceeds the size of China’s GDP. The correction from the 12 June peak has wiped out 9.24tn yuan worth of value.’
“Today’s fall was more savage than we had expected. Investors were panicking,” said Zhang Chen, an analyst at the Shanghai-based hedge fund manager Hongyi Investment.’
“Recently, elements that curbed the market’s rise are emerging,” Bosera Asset Management said of the correction. “First … room for further monetary easing could be less than anticipated and inflows of new investors could have peaked. Secondly, a highly leveraged bull [market] is not sustainable.”
P.S. by the way I never said the Chinese market would not correct, in fact I said the opposite, it would correct but it would be dangerous to try to time it and I would avoid the market at these levels. Now, if you want to make a bet on how far it will fall, I will say this, when the dust settles on the correction the market(s) will still be significantly higher than it was last summer although an ugly thirty to forty percent correction certainly cannot be ruled out. That number includes the amount it has already fallen so it would be twenty to thirty percent from here. On the other hand the Chinese government could announce no further tightening of margin requirements and it could be up big Monday. The reason I want nothing to do with that market.
There are tens if not hundreds of thousands of novice investors with only grade school educations who have put their life savings into the stock market. What will these Chinese Jethro Bodines do when they’ve lost everything?
Net market capitalisation of the equity markets, at 66.2tn yuan (£6.7tn), now exceeds the size of China’s GDP.
That is true but it is also true that the U.S. markets exceed our GDP by a larger margin. I think I saw a figure where our equity markets exceed 25 trillion dollars.
Let’s connect a few dots. It’s well documented that this stock bubble was contrived by the government. And analysts were quoted here last week saying this was done to bail-out debt burdened corporations. (Construction companies becoming internet companies over-night, etc). All the while the rich are Madoff-ing their billions to every corner of the globe. One is tempted to think this could be the biggest scam in history.
What will these Chinese Jethro Bodines do when they’ve lost everything?
Perhaps that is the problem with the U.S. compared to China. Maybe we spend too much time and money protecting idiots from the consequences of their actions. Too many U.S homeowners received loan forgiveness and other benefits from the government so they would not have to absorb their losses. The Jethro Bodines played the stock market like a casino and if they lose they will take casino losses. I would not assume many put everything they owned into the market and many had quite a run and are probably still positive. I use to play blackjack with a number of Chinese when I was in college, they actually can be quite gracious losers. Of course, it never was for much money but I was amazed how bad they were at blackjack but still wanted to play.
And analysts were quoted here last week saying this was done to bail-out debt burdened corporations.
I remember the board laughing at me when I said they were going to turn debt to equity.
P.S. If you say the market is fixed, I would say tell me one country where it is not fixed. The vast majority of the Chinese that “invest” in the market expect that the government is controlling the market. What they are betting on is that they can guess government policy better than the next person. Since policy may change from day to day, it leads to a rollercoaster ride.
‘I remember the board laughing at me’
You were saying that this bad debt was being magically transferred into “equity”. It was a massive fraud. I wonder, how many square dancing women are contemplating suicide right now?
No magic. Perhaps I did not explain it well enough but I expected the companies to issue equity and pay off debt and since the people that owned that debt would be receiving money they would end up buying equity many times in the same company. It is what has happened in China on a large scale and it is not a zero sum game, many of those companies particularly the private ones were paying high interest rates and eliminating those costs have allowed them to grow or at least become profitable or more profitable.
Nor do you explain that China GPD growth has collapsed 50%.
“turn debt to equity”
Yes it is a fraud. Shifting corporate debt to investor debt. Cronies off loading onto farmers and such.
Shifting debt does not create “equity”.
the equity already exists the loans did not go for vacations, they actually bought plant and equipment. Thus, the shareholders are being offered a stake in the plant and equipment.
What good are plants and equipment when demand is collapsing globally?
… And a monkey just flew out of your butt.
Dan, today you really are sounding like a paid for CCP shill.
Dial it back a bit or you stand a good chance of losing credibility here.
No matter what I say I am accused of being a paid shill. I just call it like I see it. I am not a fan of the Chinese government but I am a fan of what the Chinese have accomplished with hard work.
They work hard, but in the grand scheme, they’ve created a bunch of shoddily built structures that nobody needs, a bunch of cheap plastic knockoff crap nobody needs, and an environment that is toxic as hell.
A tiny fraction of them is using the profits from all this to buy overpriced real estate in other countries, just like the Japanese did back in the 80s.
Hard work is meaningless when you let somebody swindle you out of the result.
They were living on a dollar a day in 1979 before they began their long march from communism, now they have the incomes of Brazilians which is still poor but they are moving up rapidly while Brazil is dropping.
Their incomes haven’t increased anywhere near what their cost of housing has. Money is meaningless…. what you can buy with it is what matters.
Further, when their stock and real estate bubbles inevitably crash, they are going to be rioting in the streets for the good old days of communism. The version of capitalism they have adoped is cancerous and insane.
Their incomes haven’t increased anywhere near what their cost of housing has.
Show me one source to back that up. It is so wrong. They could not even afford a bike 40 years ago, now they are one of the biggest markets for BMW. You look at their meat consumption, level of housing etc. and they are light years of head of where they were when they were a pure socialist state.
‘Show me one source to back that up. It is so wrong’
But you said there was a housing bubble in China.
He’s changed the subject to beef and bicycles.
‘Bay Area home prices and sales cooled a bit in May compared to April but were still up modestly on a year-over-year basis. The median price paid for a new or existing Bay Area home or condo that closed in May was $650,000, down 1.4 percent from April’s revised number but up 5 percent from May 2014, according to CoreLogic.’
“Home prices continue to rise but the gains in most areas are significantly lower than this time last year,” said Andrew LePage, an analyst with CoreLogic.’
‘In Los Angeles (median price of $548,000) sales fell 16 percent compared to a year ago. In San Diego (median price of $539,000) theyfell 10 percent. In Ventura (median price of $477,500), sales were off 26.3 percent.’
‘Overall, Southern California builders sold 1,414 homes, off 6.2 percent compared to a year ago. The median new-home selling price for May was $474,000, down 9.3 percent compared to a year ago –primarily because cheaper communities sold better.’
Yes sir…. and when this fraud driven price structure falls apart entirely and prices sink to input costs($50/sq ft for lot labor materials and profit), we’ll see this moribund, stagnant economy turn around in a hurry.
Perfect example of Zillow fraud: house down the street was listed at $330K and sold at $311K. It was never listed as “pending” at the sale price and now is listed “off market”. So no one shopping in the neighborhood can see prices dropping. Hopefully the actual price will show up once it is recorded with the county (the actual sale was pretty quick after it sat two months with no offers at the higher price).
Hopefully the actual price will show up once it is recorded with the county ??
Most properties are purchased with loans…In the lower end of the market they are usually large loans because of the small down payments…Appraisers must justify those sales prices…The off market sale you speak of is easily found by the appraiser…Their data bases are tied right into the county records…Common guy on the street may not know the sale price…Maybe even most brokers…But the appraisers will…
And they’re more corrupt than realtors.
‘Airbnb, Inc. is said to be doing the rounds looking to raise a $1 billion Series E round on a seriously high peak unicorn valuation of $24 billion. Of note, 2020 is the first year Airbnb predicts it will be profitable as well.’
‘To give the 2020 predicted figure some perspective, Analyst Douglas Quinby of research firm Phocuswright told the paper that Airbnb would need to increase its share of the global lodging market from 1% to as much as 10% over the next five years in order to reach its lofty revenue goals.’
‘To get the valuation Airbnb is chasing for its new round some context, the paper compared the $24 billion figure to hotel group Marriott International, Inc. which manages more than 4,000 hotels and last year had $13.8 billion in revenue, is valued at about $21 billion.’
‘Airbnb which owns no hotels, has <$1 billion in revenue and acts as a middleman in facilitating the rental of rooms, apartments and even occasionally houses, would have a book value $3 billion higher.’
‘If that’s not a sign that we are experiencing peak unicorn, very few other deals would.’
‘There’s no question that Airbnb is a successful company in what it does, and the service is growing, but how basically an e-commerce platform which doesn’t even sell or own its own products can be worth more than one of the world’s largest hotel groups which has 13 times more revenue screams bubble at every angle.’
From the Mercury News article:
“The job market justifies these kinds of increases in the Bay Area,” James said. “Tech companies are doing very well. All of a sudden you hear more about startup companies. There is still pent-up demand for housing.”
‘The leveling of activity means sellers can’t simply price homes $200,000 or $300,000 above current market prices for an area.’
Yeah there’s no crash coming. They were just tacking on 2 or 3 hundred K, but it’ll all sort itself out. Nobody out there would do anything really stupid like pay too much.
Bunch of D-asses.
People are willing to pay a premium for the “Disruptor” companies.
And their business model is based on fraud.
Why do I say that? Well, look at the people who are renting out rooms. Do you think that they comply with the safety rules and regs that hotels, motels, and bed and breakfast inns are required to follow? And do you think that they’re carrying commercial-grade liability insurance?
Answer? No.
‘Despite rising values, nearly 100,000 Tampa Bay borrowers still owe more than their homes are worth. As of the end of March, almost one in five bay area homes with mortgages had negative equity, according to report released Friday by the real estate site Zillow. And almost 60 percent of those were so underwater that the owners owed more than 120 percent of the home’s value.’
‘In the Tampa-St. Petersburg-Clearwater area, which includes Hernando and Pasco counties, 98,907 homes — 19.2 percent of those with mortgages — were underwater as of March 31.’
‘That percentage was higher than the national rate of 15.4 percent and put the bay area almost on par with Detroit.’
And zillow has tampa area and all of fl going up 4% +
Are you sure about that?
Walton County, FL Housing Prices Fall 12%
http://www.zillow.com/market-report/06-15/1468/walton-county-fl.xls
‘Foreclosure filings rose in Southwest Florida last month as lenders seized more properties from homeowners. The region’s foreclosure activity increased 14 percent over the year in May, tracking a statewide trend of more bank repossessions, RealtyTrac reported.’
‘For the third straight month Florida posted the nation’s highest foreclosure rate, with one in every 409 housing units subject to some type of foreclosure filing.’
‘Bank repossessions, known as REOs, jumped by 46 percent in Sarasota, Manatee and Charlotte counties and by 63 percent statewide over the year, according to RealtyTrac.’
“May foreclosure numbers are a classic good news-bad news scenario, with the number of homeowners starting the foreclosure process stabilizing at pre-housing crisis levels but the number of homeowners actually losing their homes to foreclosure still well above pre-crisis levels and on the rise,” said Daren Blomquist, vice president at RealtyTrac. “Lenders and courts are pushing through stubborn foreclosure cases that have been languishing in foreclosure limbo for years as options to prevent foreclosure are exhausted or left untapped.”
What % of owners were underwater in the 1960s and 1950
Debt slaves
‘Six years after the end of the Great Recession, tens of thousands of San Diego County homeowners are still underwater on their mortgages. Zillow says that in this year’s first quarter, 8.6 percent of the region’s property owners, or 39,812, owed more on their properties than they were worth. Big home-price gains over the past three years have lifted about 125,000 homeowners into positive equity, however Zillow says it will still be years before the figure reaches a normal level of about 23,000 properties, or 5 percent of the county’s housing supply.’
‘Elevated numbers of homeowners in negative equity have a significant effect on the housing market, said Svenja Gudell, Zillow’s senior director of economic research. Gudell said those who are underwater can’t list their homes for sale, which limits supply and pushes prices upward, particularly for potential first-time buyers.’
‘Mark Goldman, a loan officer and real-estate lecturer at San Diego State University, said he expects home prices to rise about 3 percent in 2015, boosted by improving employment and upward pressure on wages. He said the amount of underwater mortgages will continue to wane.’
“That number will slowly bleed out because the new loans are being done with some equity in them,” Goldman said. “It’s not like there’s going to be a new supply of upside-down homeowners, so it’s just a question of resolving the ones that are in the market now.”
‘In San Diego, the cumulative negative equity total was $5.6 billion. Encanto, Oceanside, Chula Vista, Spring Valley and Otay Mesa were the areas with most properties underwater. Gudall said the areas with the most homeowners in negative equity tend to be those with tract homes, because they aren’t unique and there are lots of them.’
Everybody’s a comedian:
‘It’s not like there’s going to be a new supply of upside-down homeowners’
Given the fact that housing demand in CA is at roughly 30 year lows and millions there overpaid by 100%+ minimum since 1998, the question becomes;
What mortgage payer in CA is not underwater?
‘Empty houses drawing squatters across Vancouver’s Cambie Corridor’
‘In a rush to develop aging areas of Vancouver, pockets of the city are left with empty houses that are morphing neighbourhoods into slums for squatters. Todd Constant, a resident of W. 26th Avenue, feels he is watching his neighbourhood transform into a ghost town. His old neighbours, who moved out after selling to developers, are being quickly replaced by squatters and thieves who come and go as they please, taking with them whatever they can grab from the vacant properties.’
‘According to Constant, the thieving in his nearly empty neighbourhood has gotten so bad, he doesn’t even bother calling the police any more, even if the theft occurs in broad daylight. He says he’s so used to hearing the sound of breaking glass that these days he doesn’t even react to the noise.
“It’s gotten to the point where if I ask someone whether they have permission to be on the premises, they answer very honestly that they don’t.”
‘Surrounded by squatters and made to witness thievery in the properties around him, Constant worries about the security of his home and family. Concerned about the traffic in and out of the homes, he doesn’t even want his wife walking their dog down the lane.’
“It’s been four years of living hell,” he said. “This honestly could be part of a zombie movie.”
I’m curious about what’s happened to the skid row near the Chinese garden. When I visited Vancouver in 2001 that was a rough area; one newspaper called it the worst neighborhood in Canada.
‘Estevan remains home to the highest rental vacancy rate in Saskatchewan and the highest rental rates in the province, according to the spring rental market report released by the Canada Mortgage and Housing Corporation.’
‘In Estevan, the average apartment vacancy rate increased to 20 per cent, as of April 2015, compared to 5.5 per cent one year earlier. It was at zero as recently as two years ago.’
‘The plunging price of oil is cited as a reason for the climbing vacancy rates. Weyburn and Lloydminster also have higher rates than in previous years.’
‘Bachelor suite availability is now pegged at 37.5 per cent. One-bedroom vacancy rates have swollen to 28.1 per cent from 4.9 last year. Two bedroom units have grown from 5.6 to 15.5 per cent. And 6.3 per cent of three-bedroom units are now available.’
From Singapore:
‘Slump sees more than 2,000 property agents leave major firms’
‘TODAY reports: Real estate agencies say they typically experience 10 to 15 per cent attrition at the start of the year, partly a result of agents switching companies. But this year, many have left the industry because of the current market slump.’
‘Mr Jeff Foo, president of the Institute of Estate Agents, said: “When the market is going through a lull period … it is only logical that some will seek temporary income-generating jobs or alternatives. Many have in fact left the industry because of poor income.”
‘Among them was Mr Brian Chan, 31, who decided to take a break to further his studies. He said: “It used to be that we can close rentals very quickly and then things started slowing down and that process could go on for months. If that’s the case for rentals, it’s even worse for sales. It’s become very competitive because agents have to earn a living and there are so many agents around.”
‘The Houston housing market has been on a see-saw ride this year, with home sales increasing and declining in alternating months. May marked a downward swing to the tune of 4.3 percent. Homes priced between $250,000 and $500,000 experienced positive sales activity, while homes between $150,000 and $250,000 were flat. Sales volume was down across the lower-priced segments.’
“We have had our ups and downs with home sales this year, but HAR predicted declines due to uncertainty about oil as well as tight inventory, so none of this comes as any surprise,” said HAR Chair Nancy Furst with Berkshire Hathaway HomeServices Anderson Properties. “We are on our way to a more normalized housing market after a record-setting 2014, and just like an airplane coming in for a landing, passengers are told to expect the possibility of some dips and bumps on approach.”
‘Monthly home sales have fallen for the third time this year as the market continues to adjust to a weakening economy after years of record growth. “Given what’s going on, there has been no job growth this year,” Houston economist Bill Gilmer said. “People may be holding back and waiting.”
‘But Gilmer and other housing experts don’t expect a free fall in the local real estate market, in part because of pent-up demand from would-be buyers who haven’t been able to find homes at prices they could afford.’
‘Houston home values, particularly in the urban areas, have shot up so high in recent years that many are questioning the region’s reputation as an affordable housing market.’
‘Mike Huff of Berkshire Hathaway HomeServices Anderson Properties said he’s still seeing multiple offers for homes in close-in neighborhoods like the Heights as well as in such popular suburbs as The Woodlands and Katy.’
“We do a tremendous amount of relocation business and we are continuing to see more and more opportunities with companies moving people into the greater Houston market,” he said, noting that energy companies have been relocating people from Tulsa, Okla., where his firm has operations.’
‘The recent dip in oil prices, he said, “is not going to crush us.”
It’s the housing bubble that’s going to crush Houston, Mike.
‘North Texas home prices jumped by 14 percent in May. It was the largest one-month sales total ever for North Texas, according to data from the Real Estate Center at Texas A&M University and the North Texas Real Estate Information Systems.’
‘National surveys show that the Dallas-Fort Worth area is seeing the largest annual home price gains in the country. Prices here are rising at about three times the long-term average rate of residential appreciation for the area.’
‘North Texas home prices have shot up by more than 40 percent during the last five years.’
Last 5 years? We’re they increasing in 2010?
Close enough to three years of double digit price increases to call it a BUBBLE!
Ben, who is buying there?
Locals I guess. I have a contact there who says it’s beyond insane in Dallas, but that the cities/towns to the north are hurting.
I hate ft myers,getting to the beach require you go early like cape cod
I think the importance of the shale oil industry is not only underestimated in Houston, it is underestimated by the country as a whole, this Harvard study shows that almost half the jobs created in this country since 2005 were shale oil related, when Obama went after Putin, he destroyed the very foundation of the U.S. recovery and that will become more clear as the year progresses:
http://eaglefordtexas.com/news/id/153454/harvard-report-5-ways-shale-development-is-a-win-for-america/
GOP-speak:
Leave Putin alone
or
Get tough on Putin.
What do they want if they say both?
Like:
The gov does not create jobs
or
It is O’s fault, not enough jobs
“As Shiller notes, ‘the widely-held impression that single family homes have historically shown high real capital gains when in fact over the last century the gains overall have been only nominal and hence illusory (and) can only be explained by using other social sciences like psychology.’ With data like that why are people incurring Frankenmortgages and crawling over broken glass to buy?”
Wait for it …
“Shiller’s answer, simply put, is that they’re crazy.”
Bahahahahahaha … and boy am ever I glad!
“Whether it’s tulip bulbs in Holland in 1637, dot-com stocks in Silicon Valley in 2000 or homes in Toronto in 2015, people are terrified of not having one, whether they need it or not.”
Dumb ‘em down, and profit.
“The important thing is not to be critical of people for their investment decisions but rather to correct a dangerous economic distortion.”
Or, door number three, neither be critical nor corrective but to just sit back and allow the money to easily and endlessly flow into one coffers.
“Real estate is a huge business, bigger even than oil and gas. Do we want a significant portion of our GDP dependent on fundamentals that a Nobel laureate has called ‘illusory?’”
Hey, dummy, at this point it’s all we’ve got left.
“Have you ever heard a bank manager or real estate agent say, ‘You know at these prices, you may want to hold off and rent til you grow your down payment?’ Not bloody likely. They make billions selling people mortgages and products they would be better off without.”
Yes! Borrowers work (if they are so lucky) and lenders reap. God’s Plan.
“They are no better than Big Pharma or Big Tobacco. Call them Big Mortgage.”
Big mortgage! I like it …
… I love it. I want some more of it.
“They are enabling addictions that, left uncorrected, are well known for leading to catastrophic outcomes.”
But until such a time arrives … party on!
Enabling addictions? Yup, that’s about right.
‘Triangle home sales rose 5 percent in May compared to the same period a year ago, as the market continues to show steady improvement while the inventory of homes for sale keeps dwindling.’
‘The shrinking inventory continues to befuddle real estate agents who are now scrambling to find listings for their clients. “I know I sound like a broken record … but the lack of inventory is troubling, everybody’s just scratching their heads about it,” said Kelly Cobb, a real estate agent with Fonville Morisey in Cary. “And the homes that we list there’s just such high demand for them.”
“If it’s an average or above property in a desirable to average community you’re typically getting those properties under contract in less than a week,” said Kevin Woody, CEO of Better Homes and Gardens Go Real Estate. “You’ve got a lot of agents who are frustrated trying to get in for appointments even before it’s ready to go. It’s as aggressive as I’ve seen it and I’ve been selling here for 20 years.”
‘The Triangle market has segmented with well-maintained and well-located listings being scooped up quickly while other homes languish on the market, said Stacey Anfindesen, a Cary appraiser who analyzes MLS data. Most of the homes that aren’t selling are in upper price points, particularly above $500,000, he said.’
‘For lower priced homes, the competition is often intense. “We’ve had amazing multiple offers on properties, the likes of which I haven’t seen in nine years – since 2006,” Cobb said.’
‘Anfindsen said some homes in northwest Cary that are being listed for under $300,000 are selling for $20,000, $30,000 or even $40,000 above the list price.’
“Sellers are wanting to be pretty aggressive and we’re trying to coach them to stay within the area of reason,” Woody said. “You can get the best price in your neighborhood a lot of times if it’s comparable to other homes that have sold, but it’s not going to go for 10 percent more.”
‘Cobb said some sellers have been frustrated that their homes are not appraising for the prices that buyers are willing to pay. “In many cases I’m seeing these letters that buyers have written saying why you should choose me,” Cobb said, describing a tactic that became popular during the housing boom last decade. “They’re back with a fervor and some include pictures of the family and even the family dog. It’s crazy.”
“Anfindsen said some homes in northwest Cary that are being listed for under $300,000 are selling for $20,000, $30,000 or even $40,000 above the list price.”
The equity! The rise in equity, it must be exploding! Exploding for everybody, exploding for the recent buyers, exploding for the comps - exploding for everybody!
So? What’s next?
How about … the cash outs! The equity cash outs! Money that magically sprung into being MUST NOT BE WASTED!
David Lereah: “If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years. It’s as if you had 500,000 dollar bills stuffed in your mattress.”
Cash out the equity and spend the cash and the economy will get … it will get jump started! Yes, it will get jump started!
And after if has become jump started it will begin to run all on its own, running free from any outside influences.
And after the economy gets running all on its own then the money that was borrowed due to the cash outs CAN BE PAID BACK! Yes, paid back. Yes, this is, for sure, what is going to happen.
Nope.
Letters to buyers? A good indication that the bubble is about to pop.
‘The negative impact of foreign investments in American residential real estate might have been badly overlooked by some U.S. government officials — and the potential harm it might cause is largely unknown to the average American.’
‘Average American home owners, of whom one in three is on the verge of financial ruin, aren’t fueling such buying frenzies. Skyrocketing real-estate prices in America’s selected urban centers are likely the result of a foreign influx of cash, more particularly mainland Chinese money, which is now flooding major American cities in the billions of dollars.’
‘Last year, Bloomberg revealed a secret path that allows wealthy Chinese to transfer billions overseas. Before that, The Wall Street Journal outlined the questionable mechanics of moving cash out of China, where wealthy mainland Chinese bring their funds to Hong Kong and from there to other parts of the world. Most of it ends up invested in favorite foreign destinations — namely the U.S., Australia, and Canada.’
‘Despite some Chinese banks across the border from Hong Kong allowing for a trial program (introduced in 2011) for overseas property purchases and emigration, the Bloomberg report noted that, “China’s foreign-exchange rules cap the maximum amount of yuan that individuals are allowed to convert at $50,000 each year and ban them from transferring the currency abroad directly.” So it’s illegal for mainland Chinese to take more than $50,000 out of the country — but wealthy Chinese are smuggling out billions.’
‘The Chinese government turning a blind eye on their fleeing currency is best summarized by Jim Antos, a Hong Kong-based analyst at Mizuho Securities Ltd., cited in the Bloomberg article above. He said that the Chinese government has been trying to internationalize their currency for a lot longer than we thought — with the goal of allowing their Yuan to become freely convertible with other currencies. One can get a more thorough look at the workings of Chinese economy by reading “Trillions of Dollars Missing from the Chinese Economy,” written by Michael Pettis, a senior associate at the Carnegie Asia Programme and professor of finance with Peking University’s Guanghua School of Management.’
‘Last month, over 25,000 concerned residents in Vancouver, Canada, signed a petition pleading with their government to curb the foreign buying of Canadian real estate. Responsible Australian leaders have already taken proactive measures to mitigate their own problems in this regard. They pledged stiff application fees and in some cases outright prohibition of any Chinese investors buying into existing Australian residential real estate.’
‘The same, if not more stringent measures should be imposed by the U.S. government. The primary goal of American leaders should be to assure their citizens’ well-being.’
‘The sun shines bright, and the waves crash at the boat cruising through Lake Washington. Dean Jones brings the motor to a halt, and coasts along the shoreline. “That just entered the market at just over 10 million dollars,” said Jones as he points and the boat sails along. “That one sold for about $8 million.”
‘He’s also blunt about who is buying. “(It’s) largely driven by overseas demand,” said Jones, who owns the Realogics Sotheby branch in Kirkland. It’s why his firm has also started doing what he calls “Float-Pen Houses” for Chinese clients.’
‘The residential real estate push comes as Chinese firms continue to buy up commercial properties around the region.’
‘Lee and the real estate agents also say Canada’s tightened immigration laws have pushed Chinese investors to look elsewhere in the last year. “Their immigration policies have changed so it’s not so easy to immigrate to Vancouver anymore, but US immigration policy — you’ve heard of EB-5 — is still favorable to the Chinese,” says Mei Yang, agent for Realogics Sotheby’s.’
‘She’s part of the special “global” office within the Kirkland branch, which includes a tea room and other amenities to cater to clients from the Far East. She also says the clean air has helped her sell clients.’
“(My client) says, ‘Mei, I feel drunk.’ I say, ‘What do you mean? Have you been drinking?’ He says, ‘Too much oxygen here.’”
‘Agent Shensheng Wang was helping her client look at a Kirkland waterfront home on Wednesday, also said the exchange rate is a factor. “(You) compare with China market. Here is $4 million. There it could can only buy condo, not mansion house,” she said.’
And this is what is different than during Bubble 1.0 - the level of foreign purchases is far higher now than it was back then.
It’s all borrowed money.
Cheeze and crackers, man, give it up! We can easily replace you with an algorithm that randomly selects from a list of canned replies - it wouldn’t be much different.
Deal with it my friend.
“The primary goal of American leaders should be to assure their citizens’ well-being.”
Bahahahahaha … and there it is, folks: Jokes that write themselves.
The primary goal of American leaders …
… is to get re-elected.
Endlessly, endlessly re-elected.
I laughed at that one too. Not only do our leaders not have that goal, but we’ve become consumers, not citizens. We have the right to buy things. Political rights are passé.
‘The dream of living on the ocean is alive and well in Hollywood Beach. “It was my dream to live on the beach in beautiful Florida,” said Yelena Kazakova, who owns a unit in the Aquarius condo there. “The sun and the ocean, just every day you wake up and you see this beauty.”
‘But Kazakova, a physician’s assistant, reality crashed in, quite literally. Last summer, for instance, the ceiling over the once pristine lobby caved in during a flood and it remains a mess. The gym has suffered a similar fate, with gutted ceilings and walls. The Aquarius board of directors — which has been a veritable game of musical chairs during recent years — said the entire foundation of the building is crumbling.’
“There has been nothing but chaos,” said Kazakova’s neighbor, Paul Mangiamele, a part-time resident who happens to own the Bennigan’s restaurant chain. “Chaos in the sense of construction projects that never seem to finish. We can’t use the pool. We can’t use the lobby. We can’t use the west pool. We can’t use the fitness center.”
‘And the lobby? It flooded after the board failed to waterproof the construction job above it, said current board Vice President Joel Cohen.’
‘Then there’s a project that began when the board decided to move a small bathroom on the pool deck. The cost has gone out of control. “It’s a $125,000 toilet,” said Cohen.’
‘Yet Cohen and the board are forging ahead with more construction, with the board voting to hit the 269 unit owners there with the new $4 million assessment.’
‘A group of residents formed a human chain in April to try to stop that work and were successful when it was learned there was no current permit to do the work. But the respite was short-lived and the destruction in May, leaving residents to hope it’s not another costly debacle that will end with more demands on their own checkbooks.’
“My beautiful dream of living on the ocean is getting demolished,” said Kazakova.’
On the bright side Yelena, you don’t have to cut grass or rake leaves.
When your association fees exceed your mortgage payment, just remember, you have to spend money to make money.
“My beautiful dream of living on the ocean is getting demolished,” said Kazakova.’
Dear Dingbat,
Vacation near the ocean by renting. Then go home and carry on with your life with your ass intact.
Sincerely,
Management
‘Condominium Residences Now Selling From the Low $120,000s
More Than $1,500,000 Committed to Capital Improvements’
‘Spanish Palms, a gated oasis minutes from the heart of Las Vegas, has officially returned to selling as condominium residences, unveiling newly-refurbished homes and resort-style living with the conveniences of city life within close reach.’
http://spanishpalmslv.com/newly-refurbished-condominiums/
This was in the email I got:
‘Purchase one of our beautifully-appointed one bedroom homes with a private attached garage – currently priced from the low $120,000s – and we’ll pay your HOA fees for the first year. That’s $3,036 in savings.’
Uh huh… Buy a shanty in Vegas so you can really double down on those casino losses.
As if losses on one depreciating shanty isn’t enough.
As condos age, association fees can only go up because of the maintenance that will inevitably be required. If someone is thinking of buying a condo, subtract that HA fee from every rent payment you would be comparing to.
Very true.
My aunt lives in a condo complex where the parking lot and entrance drive need repaving. It’s going to cost my aunt a pretty penny to contribute to that project.
And the condo conversions are back.
That’s a heck of an assessment, almost $15,000 per unit. Time to sell, Ms. Kazakova. And according to the internet, eight units in that building are for sale right now.
But she’ll miss the gentle roar of the ocean and the sweet odor of dead fish.
‘Iconic Canadian company Viceroy Homes is seeking time to restructure its 60-year-old business which is struggling with more than $24.7 million in debt. The Port Hope-based company, best known for its cottage-country houses with signature soaring windows, has filed a “notice of intention to make a proposal” in Vancouver, dated June 9.’
‘Its Port Hope plant and a second in Richmond, B.C. have been pretty much shuttered since January. The once family-owned, publicly traded company, began running into problems years ago as more focus was put on major international markets like Japan, Korea, Spain, France and Germany at the expense of domestic growth, former employees say.’
‘Things grew worse after it was purchased in late 2007 and privatized by a Russia’s Growth Technologies Ltd., just as the U.S. housing market was headed into full meltdown. At the same time, sales to Japan, which by late 2008 accounted for 26 per cent of Viceroy’s business, plummeted by 56 per cent to $14.8 million.’
‘By late 2012, Viceroy was in play again and snapped up by Canada Wood Frame Solutions Ltd. in a bid to bring Viceroy Homes to China.’
From the last link:
‘Shiller applies it to the real estate market driven by cultural and psychic motivations that transcend traditional economic explanation. He uses the simple example of a house sold in 2005 for 10 times its 1945 purchase price as a symptom of so-called “recency bias.”
“Simple return from such a transaction is 900%. In addition, the claim of selling for ten times more appears impressive. However, this transaction yields a real annualized return of less than 1%, before factoring in operating costs.” Those operating costs, such as taxes, maintenance, repairs and in Canada’s case, mortgage interest can add up to hundreds of thousands of dollars leaving the Canadian dream home a money-losing proposition, painted in several coats of red ink.’
‘Homeowners angrily deny this. “It’s a good place to park your money” is one comeback. “Better than throwing money away on rent.” Both seem wise observations. Except if they ever actually sat down and did the math, they would choke. And they never have. They just repeat the accepted wisdom.’
‘Just take a look. As simple as possible, leaving out details such as reinvesting dividends, estimates of growth in property taxes or even having a mortgage subject to rate hikes (which frankly only make the case for owning look even worse).’
‘This is not the work of a Nobel laureate but of a freelance writer on Moneychimp.com, so if he can figure it out … Put $400,000 each into A) a house and B) a stock portfolio while renting. TD forecasts an annual growth rate of three per cent for housing, well above the historic rate. So after 25 years, it’s worth $837,511. More than double, congrats. But the Bank of Canada forecasts inflation at two per cent, so in real dollars it’s down to $656,242, a net ROI of 2.6 per cent. Not great. But wait. Assume operating costs even at estimates ridiculously low by Toronto or Vancouver standards. Fees and taxes of $5000 per year, as well as maintenance and repairs of $7,000 and the net worth becomes $356,242, a net loss of almost $44,000.’
‘As a columnist at The Week recently observed: “If median-income people borrowed hundreds of thousands of dollars to speculate on the price 30 years hence of a single, highly illiquid asset that wasn’t a house, they would be called financially insane.”
‘As for throwing it away on rent, your down payment invested in the market (at a conservative five per cent return) gets you about $1.34 million, call it $1.25 million after fees. Another $181,000 is eaten by inflation. Even at an average rent of $2,000 per month, the cost over 25 years would be $600,000 leaving $469,000. You do the math.’
“‘HomeownersHomedebtors angrily deny this.”Oh and are they angry about it. We see it here every day. $2-$3/sq ft loss every year, year after year is a loss nobody wants to take.
Realtors deliberately conceal that fact.
They ask us to do the math, OK.
One fatal flaw in their example, is that they assume the ENTIRE $400k grows at 5% for a full 25 years, and THEN you pay your rent.
There isn’t a landlord in America that will let you pay your rent 25 years late.
In reality, someone investing $400k would need to take away $2,000 per month to pay rent, which is more than the 5% return you are supposedly generating on the $400k (which is $20k per year vs. $24k in rent). In other words, you run out of your $400k before 25 years is up, you don’t end up paying your rent and having half a million left.
Math fail.
My bad, you don’t run out of your $400k, you would have $220k left at the end of 25 years.
For fun, assuming a tax rate of 20% on the income you generate on your investment, in the example they give, you would need to generate returns of more than 7% annually to be about the same as buying the house.
7% per year like clockwork…just like the math pension funds use.
‘a net loss of almost $44,000′
Rents don’t figure into it, this is just the house.
Yes, but you get to live in the house while you own it, right?
If you put the $400k into investments instead of the house, you do need somewhere to live, right?
I can make a lot more investing in distressed property that would pay my rent and then some. Anyway, I’ve moved so many times over the past few years I would get slaughtered in transaction fees.
I think you are missing the point. How is it that all these countries; Canada, Australia, New Zealand, Appalachia, I mean California, all talk openly about a “national obsession with houses” as investments? History shows it’s a load of hooey, going back 600 years.
“I think you are missing the point. How is it that all these countries; Canada, Australia, New Zealand, Appalachia, I mean California, all talk openly about a “national obsession with houses” as investments? History shows it’s a load of hooey, going back 600 years.”
No, I’m not missing the point. While Shiller’s data shows long term that home prices go up with inflation, his data also shows that homes go up and down in price in cycles.
As such, as an investor, you can make money buying low (in market troughs) and selling in non-trough periods–which is how you are making money by buying distressed property.
HOWEVER, when you are talking about a home as a residence, you won’t be selling/buying with that mentality, and you’ve got to live somewhere. As such, the home you live in is generally a terrible investment. It shouldn’t be considered an investment at all. Housing is consumption. I believe I’ve used that phrase a number of times over the years.
Which is why arguments FOR buying your house because of the return on your equity is just as misguided as arguing AGAINST buying a house because the returns are bad.
And when people make the arguments with bad math, it makes it even more asinine.
The returns are not relevant. What matters in buying a house are a number of factors, including:
1. Does it work as a place to live for your family…all considered (your job, including stability, schools if you have school-aged kids, crime, location relative to amenities and family, etc.)?
2. Can you afford it (all considered, job, down payment, cash cushion, etc.)?
3. Do you WANT to spend the money on the house, or on an alternative form of shelter? After all, I may be able to afford a filet mignon, it doesn’t mean that I choose that to eat over a hamburger.
This is why when people ask me today if they should buy (as they have on this board), I will tell them the truth, that home prices are at a cyclical high, and they should only buy a place if they REALLY like it, can afford it, and it works for their family such that they intend to live in it for a LONG time.
Otherwise, financial risk to their family if they NEED to sell/relocate, or risk that they are underwater for a time, and thus unable to move if they WANT a better living situation are too great to buy now.
You come up with some real Dingbat stories Rental_Fraud.
CS shows prices double long term trend.
http://img802.imageshack.us/img802/7812/caseshiller.jpg
Schiller states, “They make billions selling people mortgages and products they would be better off without. They are no better than Big Pharma or Big Tobacco. Call them Big Mortgage. They are enabling addictions that, left uncorrected, are well known for leading to catastrophic outcomes.”
A comparison to Big Tobacco/Big Pharma is an interesting analogy. I suppose the public and Trial Attorney’s everywhere will figure out a way to open class actions against Big Mortgage for financial products liability claims.
So I just got an offer for a condo I own in Vancouver, WA for about 25% more than I paid for it 2-1/2 years ago. I sold it in 12 days.
I put it on the market because I don’t like cold winter weather. Also, my sense is that Housing Bubble 2.0 (or The Echo Bubble if you prefer) is going to start hissing air very, very soon, perhaps as early as this fall.
Hopefully the sale will actually close, so I can head back to the desert (but I’m not heading back to Las Vegas).
LV is running out of water.
Good for you. But that’s not much profit considering the time-frame. Just shows it isn’t uniform out there.
Well, I deliberately priced it just below recent comps to generate a quick sale, so maybe I could have squeezed another 5% or so out of it. If it were across the river in Portland, OR, it would have appreciated much more rapidly.
Still, I really do think some severe dislocations in finance and economics are headed our way soon. I have a sense of foreboding very similar to the feeling I had when I sold my condo in Vegas in early 2006 near the top of the market. By 2010, 4-1/2 years later, Vegas condo prices had plunged 75%.
I’ve still got a friend or two in Vegas with a high-end property. Those high-end houses will go to to zero when the water faucets go dry. And without drought relief, it is absolutely inevitable that the faucets will run dry.
‘ I have a sense of foreboding’
Me too. This spurt since late 2014 early 2015 was goosed by government lending and piled many thousands of borrowers in at the worst possible time.
The inner part of the golden horseshoe housing prices in Ontario are absolutely on a rocket ride.
My neighbourhood is selling for up to ten times it’s original 1989 price.
Multiple competing offers buying houses at as much as 25% more than asking price within a week of listing.
I could sell my house, move twenty miles, and get a similar house for half my selling price ! Or less !
This is not going to end well.
Why don’t I sell - I am old, house is clear, near my kids, church, and friends. I have built so much of this place -