The Housing Bubble

It’s Friday desk clearing time for this blogger. “They said it’d be different this time, but it appears that Houston real estate is at a tipping point. The oil price crash is just beginning to be felt in the market. John Byerly has been selling real estate for more than four decades, and he’s well aware that in Houston, as goes the price of oil, so goes the housing market. ‘As long as (oil) stays at $100 a barrel, no problem. People are just spending money like there’s no tomorrow,’ Byerly said. ‘When it gets down to $35, $40 dollars a barrel, welcome back to the real world.’”

“Softness in 2015, said Mark Livingston, president of the Central Oklahoma Home Builders Association, stems from weather setbacks last winter, a persistent shortage of buildable lots and ‘the white elephant in the room’ - the wheezing oil and gas business. ‘Although I don’t think we’ve seen a huge impact yet in housing, it’s certainly on everybody’s mind,’ he said.”

“In Edmond, Brian Preston, an agent with RE/MAX Associates, cautioned that a 19-percent hike in active listings, with sales and pending sales (houses under contract) both flat, could take away some seller sway in the marketplace. ‘We are on track for another record year, but sellers will have to watch what they are asking for their house with more competition out there for them. Pending contracts are still good, but more house will be sitting with the new inventory,’ Preston said.”

“The Calgary Real Estate Board recorded 1,448 sales in September, a decline of 32.4 per cent from a year ago. The average sale price was $457,658, down nearly six per cent and the biggest year-over-year drop this year. Phil Soper,chief executive of Royal LePage said people still believe in the Calgary market and that this is a temporary shift rather than a permanent reset of property values. Unless they are distressed sellers, having to sell, people are taking their houses off the market or not listing their properties, he said. ‘Until we see the number of listings starting to climb, I think prices will be protected in the marketplace. People simply won’t be willing to let their properties go with what they perceive as a distressed pricing level,’ said Soper.”

“The median sale price for September was flat at $425,000. New listings were down 4.9 per cent to 3,081, while active listings were 21.2 per cent higher, at 5,526.”

“House prices in Dubai fell by nearly 10 per cent on an annual basis in August, prompting brokers to revise their full year forecasts. Average house values in Dubai have been sinking since the start of the year, when the property broker JLL predicted that prices would fall by about a tenth. Since then the broker has revised its forecast for the full year, expecting average house price falls of around 15 per cent for 2015. ‘The volume of sales has fallen by more than we expected,’ said Craig Plumb, the head of research in JLL’s Dubai office. ‘There is still no sign of a pickup in activity in the market place and so the falls have been more than we anticipated.’”

“He added that he expected prices to continue to fall next year.”

“Moves to take the heat out of Auckland’s housing market appear to be having an effect - and the Chinese could be the first to turn away. ‘None are running scared and no-one has any stories of properties being sold. But some deals have been walked away from and the buyers are seeing too many little roadblocks being put in their way. None by themselves are deal killers - but the gestalt is becoming compelling,’ said Economist Tony Alexander of the BNZ.”

“But local highly geared investors were also being deterred. ‘It is not just offshore Chinese backing away from Auckland at the moment. Inexperienced, undercapitalised people who were entering the housing market from early this year feeling that they had to buy any old piece of crap to avoid missing out on ‘easy’ money have also backed away - thank goodness. The figures do not show this yet, but they probably will before the end of the year,’ he predicted.”

“The property market in Sydney’s west has slumped dramatically, signalling looming problems for investors who were hoping to capitalise on price growth. Instead, prices in the west have slipped by 7.3 per cent over the month of September and the auction clearance rate has hit a dismal 56.4 per cent – a massive drop from Sydney’s record rate of nearly 90 per cent in May. Latest Domain Group figures show the median auction price in western Sydney has fallen from $841,000 in August this year, to $779,000 in September, a drop of 7.3 per cent.”

“Shane Oliver, chief economist of AMP Capital Investors, said investors in the west could now be facing a tough time. ‘With rental yields so low, investors are dependent on capital growth for a decent return,’ he says. ‘Now with prices down, and future investor activity curtailed by the APRA actions making it harder for investors to borrow money, it will be even harder for those investors already in the market.’”

“‘What was a blessing before is now a curse.’ That’s how Standard & Poor’s describes the impact of China’s now slowing economy on Australia and other commodity exporters. In a week in which about $60 billion was wiped off the ASX in just one frantic session on worries about the Chinese outlook and what it means for the mining sector, S&P chief economist for the Asia-Pacific Paul Gruenwald has declared Australia the ‘clear loser’. That’s because of it being a large commodity-focused exporter and its strong trade links with China, its number one trading partner.”

“Overlooking London’s most famous park, nestled next to the opulent Mandarin Oriental Hotel in Knightsbridge, is the world’s priciest block of flats: One Hyde Park. And One Hyde Park is sending a message that London’s prime market is deflating: several flats are for sale. Ten, in fact, seven publicly listed and three private, ranging in price from £5.5m to £75m €101.5m, $113.4). It was highlighted by the Financial Times. As the property expert and home-buying agent Henry Pryor put it on Twitter: ‘Are the rich checking out?’”

“Some sellers have withdrawn. Others, who have been forced to sell for reasons such as debt and divorce, are having to drop their asking prices to attract buyers. ‘Whether these particular sales in One Hyde Park give us a clue to the thinking of those at the very top end of the housing ladder, I don’t often find that buyers for this type of property have quite so much choice,’ Pryor said. ‘So whether it indicates that they are already hoping to head to the exit ahead of demonstrably falling house prices remains to be seen. But it is the proverbial canary in the coal mine, I think.’”

“The movie ‘99 Homes‘ is making its way into a limited number of theaters this week. The premise of the movie is this: A man loses his job, gets his house foreclosed on, moves his family into a motel, and then lands a job working for the ‘very ruthless’ real estate investor that evicted him. He then goes about helping cheat banks and evicting other people all in a bid to get enough money to move his family back into their foreclosed home.”

“The truth, of course, is stranger than fiction. For starters unless the character the man plays is a slow learner, by the time the foreclosure crisis was in full swing most people figured out it would take between six to 18 months before the bank you stopped making payments to kicked you out of your home. By that time you’ve saved enough money to buy a luxury car.”

“To sell tickets, you’ve got to jazz up the story line. So in case anyone has short-term memory issues, let’s recap what happened: People were buying more home than they could afford. Buyers were lying on - or at the very least not reading - loan documents that stated their alleged income. Unscrupulous young Turks were taking short cuts on approving loans. Flippers - from professionals to doting grandparents eager to raise enough cash to send four grandkids to Stanford University - leveraged their homes and investments in a bid to get rich quick.”

“People were buying homes with little skin in the game making it easy for them to stop making payments when the financial seas got a little rough. Opportunists saddled with higher payments on an expensive home they could still afford to make payments on, bought a second home. After they signed on the dotted line for a bigger home with a lower monthly payment they stopped making payments on their first house. In most cases they could afford to make both payments but didn’t think it was fair to expect them to do so since home values dropped.”

“High level financial institution executives looked the other way even when they were told of loan improprieties. The banks, once they realized they were saddled with questionable loans, then started slicing and dicing them among each other to spread the risk. In some cases as many as six different banks would own interest in one home loan. Buyers would leverage homes by taking low introductory rates for three years or so that would then have a balloon payment and jump to the higher rates. They did it knowing they couldn’t make higher mortgage payments down the road let alone a balloon payment. They said they were investors but they were actually gambling values would go up.”

“Congress crafted ‘profit’ tax forgiveness on home loans buyers walked away from without requiring any kind of test on financial stress. That meant a number of buyers that weren’t in trouble gamed the system by walking away from homes that had dropped in value without suffering a dime in tax consequences. Including such tidbits gets in the way of the storyline.”

“To bring what really happened to the screen - the fact ‘victims’ played a large role in their demise as homeowners - wouldn’t sell very many tickets. The popular sentiment is the greed of Wall Street drove the housing crisis. The truth is it took a lot of little guys looking the other way, being complacent with erroneous financial information on final loan documents because they wanted a house, swallowing more house than their financial stomach could handle, and they wanted to get rich quick.”