There’s Expensive, And Then There’s Normal
A weekend topic to update something we’ve discussed before, starting with this exchange from the past week. “The easy credit echo price bubble participants have been speculators. When it rolls over, it will be spectacular.”
A reply, “Not the case at all. The first bubble, circa 2005, was all built on easy credit. Average Joe getting bigger and bigger houses with no doc loans, no down loans, negative amortization, etc. When the unemployment wave hit post-2008, people couldn’t make the payments and foreclosures soared.”
“The second echo mini-bubble is completely different. Many of the buyers in 2012-13 were cash buyers, private and institutional, looking to swoop up bargains and rent them out. Also enter foreign capital, a good portion of it also cash sales.”
“The next R.E. downturn will not be as deep. There will be many more firm hands that won’t sell as long as the rental income keeps coming in. You can’t foreclose on a property that was bought with cash.”
Many things are different. There are now millions of borrowers seriously underwater. The government is backing 90% or more of house loans. Interest rates are already low, the economy is weak. Supply can come from surprising places. The Sturgis Journal. “The city of Sturgis will try an inventory reduction sale to find owners for 27 undeveloped residential lots, part of a subdivision that has had little building activity in more than a decade. Sturgis city commissioners voted Wednesday to offer a package of lots to developers who are willing to bid a minimum $5,000 per lot. Any remaining unsold lots would be available for $5,000.”
“There have been no new lot sales there for 11 years and officials hope reduced cost could spur renewed interest. City Manager Michael Hughes estimates the city could realize more than $100,000 annually in tax and utility revenue if $150,000 homes were built on all the available lots. At that rate, he said, the city could recoup its infrastructure investment in about five years and have some new housing stock. Some current homeowners in the subdivision have objected, saying they paid market prices for their lots a decade ago. But some commissioners argued that the market has changed in the interim, claiming the lots have generated little interest at costs of about $20,000.”
From CTV News. ” Alberta’s economy is in a slump, but those who still have money to spend on real estate are finding great deals on luxury homes that have become a hard sell. Sales of high-end homes are slow, so prices have been dropping dramatically in recent months. Two luxury homes in Priddis, Alta., located about 40 kilometres southwest of Calgary, were auctioned off in August at deep discounts. The first home on Hawk’s Nest Hollow, a sprawling four-bedroom, 5,500 square-foot mansion, was initially listed at $2.9 million. It sold for less than half that price — $1.1 million.”
“Just a few doors down, another luxury home was listed at $3.9 million, but sold for $1.5 million. Rachelle Starnes, a Royal LePage realtor, said real estate agents and homeowners have to get creative if they want to attract bidders. That can include anything from drone videos of sprawling estates or wine and cheese gatherings for potential buyers. Starnes is trying to sell her own luxury home and has listed it for $2.25 million, even though ‘it should be about 2.8.’”
The global real estate bubble is larger than ever before, and related effects such as the commodity crash are different too. Speculators and money launderers can change their behavior quickly. The New Zealand Herald. “A window of opportunity has opened up for first home buyers in Auckland as a result of a massive decline in interest from Chinese buyers, says one mortgage broker. John Bolton, chief executive of Squirrel Mortgages, said the Chinese market had literally stopped on a dime over the last two weeks.”
“Bolton said the change had been driven by restrictions introduced by the Chinese government on people taking money out of the country and investor policy changes here. ‘Between the Chinese government policy and the policy here…a sledgehammer has been applied to that gopher. It has been well and truly wacked. It really has turned into a buyers market at the moment just because of the speed as which the Chinese have come out of the market.’”
The financial condition of potential buyers is different too. ABC 15 Arizona, “Part of the American Dream is owning your own home, but school loans are keeping a good chunk of the population out of the housing market. Right now, Millennials make up about 27 percent of the U.S. population and less than half own their own home. Part of the reason is the fear of purchasing a house and massive school loans.”
“Realtor Jason Mitchell with The Mitchell Group in Scottsdale says he’s never seen anything like it when it comes to the amount of clients with excessive debt from college. ‘To sustain a market and to have Millennials sit on the sidelines is doing nobody any good,’ says Mitchell. ‘We need to come up with guidelines and products in the financial markets in order to get Millennials to want to buy, to be encouraged to buy.’”
One thing to consider that could be very different; prices might go lower than the past. Maybe a lot lower. And there is the question of the soundness of policy at the government and central bank. D Magazine, “Analyst Danielle DiMartino Booth is making national waves with her criticism of the Federal Reserve, which she says has addicted the U.S. to the ‘heroin’ of low interest rates. DiMartino Booth served from 2006 until this year as a key adviser to Federal Reserve Bank of Dallas president Richard Fisher, the widely respected inflation hawk who stepped down from his post in March.”
“She’d caught the Fed’s eye while writing a controversial daily business column for several years for The Dallas Morning News. There, DiMartino Booth was a lonely voice of reason about the easy-mortgage boom, which she argued was introducing ’systemic risk’ into the entire financial system. For her efforts, she was roundly criticized as an anti-business spoilsport and a ‘nattering nabob of negativism’ (including, full disclosure, by yours truly). As it turned out, of course, her critics were wrong and she was right.”
“These days DiMartino Booth is continuing to rail against the Fed’s cheap-money policy, as well as the institution itself. (It’s opaque and ‘bloated,’ she says, with ‘delusional’ leadership.) She contends, in a nutshell, that by ‘artificially’ keeping short-term interest rates at near zero since the 2007-2008 financial crisis, the Federal Reserve has ‘criminalized’ saving, ‘enabled and financed and underwritten’ the soaring and unsustainable national debt, worsened income inequality, and propped up short-term corporate profits at the expense of productive, long-term business investment.”
“At the same time, she argues, the Fed’s easy-money policy has allowed politicians in Washington to borrow and spend more, creating a ‘veneer of prosperity’ when, in fact, the ‘country as a whole is still weighed down by a tremendous amount of economic stagnation.’”
“As a result, DiMartino Booth says, the nation’s central bank has been ‘boxed in’ by its zero-interest policy—no matter how much it might want to let rates rise to their natural levels, say, to 3 or 4 percent. ‘They’ve been so low for so long—the heroin, if you will, the drug, of low-interest rates—it’s become really hard to take the patient off the drug,’ she says. ‘They’re trying to get out of a canyon this time.’”
“By raising rates to their ‘natural’ levels, I ask, playing the devil’s advocate, wouldn’t everyday people be hurt, because it would become more expensive to borrow money? ‘Well, there’s expensive, and then there’s normal,’ DiMartino Booth replies. ‘It’s a crime in this country to save money, to be conservative, to be in your retirement years and try to [increase] your portfolio, what little portfolio you have. Retirees don’t have the option of going down to Bank of America and putting their money in a five-year CD.’”
“Because the rates are so low? ‘Yes. The rates are so low that savers have been punished for years and years,’ she says. On the other hand, ‘I don’t know why anybody should have the right to have a 2.5 percent mortgage for 30 years. It actually puts borrowers in a bind, because they end up buying more than they can truly afford, because they’re basing it on a very false level of interest rates.’”
“By keeping rates near zero, though, hasn’t the government maneuvered somewhat adroitly past the Great Recession, with a relatively low unemployment rate, for example? As for unemployment, ‘You have 93 million Americans who are out of work who could be in the workforce,’ she says. ‘I would call that nearly a third of the population who could be working who are not working, out of the labor force entirely. Then there’s the third that is this growing population of people who are part-time—some of them involuntarily, some voluntarily. Then think of the final third as being true, full-time workers, highly productive. They have all the pricing power when it comes to wages, while the other two cohorts have none.’”
“But, the unemployment rate is still around 5 percent, I say. ‘Sure it is, because they don’t count these people,’ DiMartino Booth replies. ‘It’s very conveniently measured. Trust me; I’ve been hanging around economists for the last nine years. You can measure anything any way you want.’”
“‘So, there should be a timeline limit to how long policymakers can be ‘well-intentioned’ in their decision-making framework. [We needed to say], ‘Wait a minute, we’ve got a lot of silly investing going on, and there will be a price to pay.’ Whether the price is Congress abdicating all of its responsibility to policymakers … who provide the groundwork, via very low rates, to paint the veneer of prosperity, which works until it stops working. And then we go into another crisis, which is what we’ve been doing for cycle after cycle after cycle.’”
The D Magazine article is worth reading in full. Here’s one part:
‘The Fed, for its part, of course, sees things much differently. Interest rates have been held down so long mainly because inflation’s in check and the U.S. and global economies have been relatively weak, policymakers argue. And, raising rates could have hobbled whatever recovery has taken place since the Great Recession. In a March blog post hosted by the Brookings Institution, where he is a distinguished fellow in economics, former Fed Chairman Ben Bernanke argued that low rates are part of a long-term trend and necessary to be “consistent with the healthy operation of the economy.”
‘Recalls Rosenblum, the former vice president at the Dallas Fed: “When the post-crisis plan was put into place in December 2008, I was in the room. At that time, we didn’t believe zero percent interest rates would be around one year later—let alone seven or eight! We’re just in a very unusual environment. It happens once every 20 or 30 years, when you have global recession.”
Once the Fed finds itself pushing on a string, it can take a period of many years to stop.
‘Bernanke argued that low rates are part of a long-term trend and necessary to be “consistent with the healthy operation of the economy.”
‘Recalls Rosenblum, the former vice president at the Dallas Fed: “When the post-crisis plan was put into place in December 2008, I was in the room. At that time, we didn’t believe zero percent interest rates would be around one year later—let alone seven or eight!”
Somebody is a lion.
Apparently there’s good money to be made in religious adherence to implausible policy doctrine.
The core problem with monetary policy is that it is constantly gamed by market participants in unexpected ways in order to maximize their own profit. The market participants don’t behave neatly or in socially-beneficial ways as expected by the Fed.
They have little idea of what’s going on:
Fed: “Hey Jamie, if I give you 500 billies, what’ll you do with it?”
Jamie: “I dunno, lemme think about it.”
Fed: “I want you do what I want with it.”
Jamie: “You basically want me to work for you? Oh, okay, sure. Remember, I control your bosses. All of them.”
So - what ultimately happens is what Jamie’s fertile imagination comes up with. And the fertile imaginations of the rest of the FIRE sector leads. And whether or not it has anything to do with the Fed Chaircritter’s vision is at best a coincidence.
That’s why they have little idea of what’s going on.
“The second echo mini-bubble is completely different. Many of the buyers in 2012-13 were cash buyers, private and institutional, looking to swoop up bargains and rent them out. Also enter foreign capital, a good portion of it also cash sales.”
The error I often see in Echo Bubble bull comments is the suggestion that these fly-by-night landlords won’t dump their holdings on the first sign of price deterioration. Nobody wants to catch themself a falling knife.
Doesn’t it seem we are just shuffling pieces of paper around that are chasing higher asset prices and calling this an improving economy?
Valuations are ridiculous.
Its like getting free cash for buying stuff that is grossly overvalued.
china makes most of the stuff we buy and then we increase asset prices to buy it.
Blackstone and friends weren’t using “other peoples money” in a near zero rate environment?
“Alexander Philips joined the rush to buy foreclosed U.S. homes four years ago, spending $40 million on houses in California and Nevada to operate as rentals. Now his firm is getting ready to sell. ‘We didn’t want to be the last one standing when the music stopped,’ Philips said. ‘We view this as a trade, not as a business.’”
“Corporate owners with limited capital or deadlines to repay investors are now selling houses in bulk, or one by one, after a 26 percent surge in prices from a March 2012 low. ‘That consolidation phase will be bigger than the original buy phase,’ Tom Barrack, whose Colony American Homes is the third-largest single-family landlord, said at Bloomberg’s Los Angeles bureau. ‘Now we’ll sweep up everybody over the next two years who got stuck, who says I have home price appreciation, which they do. They bought right, but now they are stuck.’”
http://thehousingbubbleblog.com/?p=8510
I keep hearing about the great numbers getting ready to sell but I think as prices keep going up the greed for greater returns will delay those homes from hitting the market. I was hoping the reicent world stock troubles would be the kicking point to getting things moving but it looks like everyone is in a giant game of chicken to see who blinks first. I think this time when it breaks lose it is not going to be the decent over several years but will happen quickly as all of these large investors rush for the exits.
With the way falling prices are appearing everywhere, how does that jive?
‘Now we’ll sweep up everybody over the next two years who got stuck, who says I have home price appreciation, which they do. They bought right, but now they are stuck.’”
If they “got stuck”—well, they sure wouldn’t have much pricing power when they try to get “un-stuck”, now would they? Sounds like a forecast of weak pricing to me.
“Now his firm is getting ready to sell.”
That’s what fly-by-night landlords do. They buy and rent places out for a few years, then try to offload before the next crash.
Another factor with so many 100% cash buyers snapping up houses after Bubble 1.0 popped is that no lender appraisals were made for many sales and this no doubt helped inflate Bubble 2.0 very quickly in some areas….like mine, locally the flippers and speculators shut out many who were trying to buy with a mortgage a few years back.
You’re forgetting something.
dumb.borrowed.money. All of it.
What does that even mean? You can’t even explain it. Should we use gold coins instead?
You know what borrowed money is MeatHead.
Good point. I’ll mention I found several reports that indicated purposeful price manipulation, including; Herald Tribune in Florida - investor paid $30,000 over asking when he was the only bidder. Naples News - FL - a pair of investors working together buying each others houses at higher and higher prices. Press Enterprise - CA - investor pays over asking and tell UHS it’s because he owns several other houses in the area.
The error I often see in Echo Bubble bull comments is the suggestion that these fly-by-night landlords
Blackstone, private equity funds, and public pension funds aren’t exactly “fly-by-night”
http://america.aljazeera.com/articles/2015/10/16/public-pensions-invest-big-in-blackstones-controversial-rental-properties.html
LOL @ Blackstone!
https://www.youtube.com/watch?v=JmbtfcIdLO8
So the PM needs to clean up some rentals. That doesn’t make them a “fly-by-night” operation. Blackstone is much more likely to hold a portfolio of properties for years vs. a small time operator who wants to rent and flip.
They have an in house PM. Did you watch the video? If they have squatters, leaving a handwritten note to them is not how you deal with it.
Waaaaaaaaay to much appraisal fraud when it comes to Blackstone.
Here’s one of those cashed up big guys:
‘Following the housing crisis, California real estate investor Giro Katsimbrakis was looking for an opportunity. He had pulled out of the sinking markets of Arizona and Nevada and was searching across the country for an undervalued area. In 2010, he found St. Louis. Drawn by a city flush with renters and brick housing stock and perceiving a lack of major competitors, Katsimbrakis, 46, aggressively dove into the foreclosure market.’
‘During the past five years, he’s been one of the most prolific buyers of foreclosed and bank-owned properties in the city. He estimates he’s bought more than 200 homes, mostly a mix of two- and four-family buildings.’
‘His ambitious plans, which he said have been curbed by problems with contractors, a slow recovery in the housing market and damage to vacant properties, have unfolded more slowly than he anticipated. Many of these neighborhoods have a history of investors snatching up cheap homes and then getting in over their heads, prolonging vacancy and decay.’
‘He said the initial plan was to rehab and rent properties and become a major landlord in the city. Getting loans was difficult, however, which meant that his company, St. Louis Redevelopment Co., needed to sell completed rehabs to help fund its next projects.’
‘He changed his approach and began selling to out-of-state investors, typically including tenants and the immediate income they generate as part of the package. One Utah investor, however, has filed a complaint against Katsimbrakis with the Missouri attorney general’s office, alleging he was sold a duplex that he thought would be fully rehabbed and occupied, but was neither. Katsimbrakis said the investor knew there was not tenant and had the option to back out. He disputes that the property wasn’t renovated.’
‘A Post-Dispatch reporter drove by about 30 of the vacant properties. Some had boarded up or broken windows, and most had overgrown grass. At two homes on Hydraulic Avenue, the basement door had been broken open. In one home, a mattress had been dragged into one of the back bedrooms, which could be seen through a window. A shopping cart rested in the backyard.’
‘Katsimbrakis doesn’t have an unblemished record. In 1997, he was part of a group from an investment firm that was indicted for bank fraud, among other charges, stemming from allegations they lied on loan applications. Most counts were dropped, and he eventually pleaded guilty to bank fraud and spent 15 months in prison.“I was young, stupid, and (it’s a) long story,” he said. “But it was me, and I pled guilty, and I did my time, and it’s in the past.“We’re not bad guys,” he said. “We’re looking to rejuvenate the city. We’re not looking to destroy the city.”
Moak, from the city counselor’s office, said he had no issues with Katsimbrakis’ business model but was concerned about the volume of properties. “People can get into problems when they hold too much stuff,” he said.’
‘Maintaining empty homes that aren’t generating income is expensive and risky, and holding so many vacant properties has proved costly for Katsimbrakis. He estimates that 75 percent of his properties have been broken into.’
‘Does he have too many properties? “Not at all,” he said. “I don’t think we have enough. We need more.”
‘His operation currently isn’t very profitable, but it’ll get there, he said. Banks are beginning to lend more and as the housing market improves, appraisals for his rehabbed properties are beginning to rise. Instead of selling every rehab to keep the capital flowing, he hopes to soon start holding onto some properties for himself.’
‘Next year, he said, he plans to make progress on two of his more ambitious projects that have stalled, one of which is the renovation of a 36-unit apartment complex he’s owned for several years.’
“Our plan is not to leave the city,” he said. “It doesn’t matter that I live in California.”
He’s got 3 occupied units out of over a hundred.
“He had pulled out of the sinking markets of Arizona and Nevada and was searching across the country for an undervalued area. In 2010, he found St. Louis.”
Lil Sis and BIL until very recently owned three houses free and clear in the part of St. Louis metro area north-west of the Missouri River. They offloaded one this summer; now down to just two houses between three people (they occupy two of them due to marital separation).
St. Louis City is not exactly a real estate investor’s paradise, unless perhaps if you are a slumlord. For one thing, crime is not good for either the physical nor the market value of structures.
I have to confess that my dad has some kind of real estate investment parked with a friend who set himself up as a provider of low-income housing. It kicks off regular dividends at a fairly attractive rate of return, so I don’t question it.
Expert talks crime rate in St. Louis area
Posted 1:11 pm, October 21, 2015, by Staff Writer
ST. LOUIS, MO (KPLR)- St. Louis City is on track to set to record a frightening number of homicides this year. So far there have been 160 murders in the city this year, surpassing last year’s total of 159.
Other crimes, robberies, burglaries and car break-ins have many living in fear. Others are too scared to venture into the city.
Attorney Gonzalo Fernandez of Devereaux, Stokes and Fernandez explains.
He’s got 3 occupied units out of over a hundred.
That fact alone just _screams_ specu-vestor, right there.
The only _good_ reason to have properties empty is because they are uninhabitable—and your crew is too backlogged to get to them—e.g. your rehab crew is mis-sized relative to your purchase pipeline. If they were habitable, it would sure help the cashflow if someone were paying rent on them.
However, there is one other possible _bad_ reason: the other time that it might make sense is in a bubble, where appreciation is swift, and empty properties go up in price fast enough to cover their carrying-costs.
I think he is still stuck in bubble-thinking, and is going to be in for a rude awakening when things turn over, prices go down, and he has to bear those carrying-costs all by his lonesome, while dumping properties onto a descending market.
If they bought the property with cash. Why sell the property when they could just lower the rent? That is what will most likely happen over time.
Excellent articles yesterday and today. Some here will disagree with me, but I think the fact we have lots rates 7 years after the crash goes beyond the Fed and comes from the results of t bill auctions. Yes, the first 2-3 years of zirp were the Fed’s push, but the Fed only buys a small fraction of t bills these days.
My point: the big banks and big corporations have a lot to do with it as well. The funny thing is, many anti-fed people are also “free market” corporate bootlickers. The reality is more complex but a lot of people only want to root for a team.
+1. I don’t why the financial press nurtures the myth that the Fed has the power to set all interest rates. They don’t. Greenspan jacked up the Federal Funds Rate from 1% to 5% in 2004-2006 and the T-bill rates didn’t budge.
‘a lot of people only want to root for a team’
Lying treasonous scum… these two shills.
^No better way to express it than that.
Lying treasonous scum… these two shills ??
Sorry…They don’t hold a candle as compared to Bush/Cheney…
when you have global recession.” ??
Thats the elephant in the room….
“‘I don’t know why anybody should have the right to have a 2.5 percent mortgage for 30 years. It actually puts borrowers in a bind, because they end up buying more than they can truly afford, because they’re basing it on a very false level of interest rates.’”
Whether you overpay on purchase price or interest rates, buying into a bubble is still 50% of your income down a real estate rathole.
I could argue that it makes no difference what the interest rate is if you are buying it for a home
Two homes , exactly the same, where one is bought at no interest, and the other is bought at 10%, would, should, could actually cost the same in the long run, if the buyer was buying based upon monthly, yearly, payments , and the market reflected the action of the buyer. Cost being the sum total of the money paid by the buyer for the unit.
Valuation , based upon the income stream for the term of years at the set interest rate, should be the same, and tha asking price for the home should reflect that valuation, perhap plus or minor a set percentage.
But , as I am an old man, my brain might be confused
LOL
I doubt many people have a 30 year fixed at 2.5% Usually the rate is 125 basis points over the 10 year bond. 10 year bond rates did not fall to 1.25%
DiMartino -Booth says that 93 Million people are unemployed, about 1/3rd of the population. Well with 144 million people working I guess she wants those that are retired to go back to work and I guess children in the workforce as well.
Reposting this from yesterday:
From the land of the half-million double-wide:
‘Report commissioned guiding future of urban development in oilsands’
‘The 140-page document was developed by consulting firm Teleologic and commissioned by the Wood Buffalo Chamber of Commerce, Fort McMurray Realtors and the Wood Buffalo Urban Development Institute. It’s a follow-up to the Radke report, a 2006 document commissioned by then-premier Ed Stelmach to address the multiple needs and stresses created by the boom in oilsands development.’
‘Another recommendation has to do with land release and transportation. Fort McMurray is surrounded by Crown land, and the province controls its release and sale price. The province, the report states, has never clearly outlined its motivations for releasing land, whether it’s to promote development or to maximize revenues for the province.’
‘It cites as an example the 2011 negotiations by the Fort McMurray Rotary Club to buy land on Saline Creek Plateau. The province’s asking price was $360,000 an acre, which was eventually negotiated down to $110,000 an acre a year later.’
‘The primary reason for the high cost of development in Fort McMurray, the report argues, is that the province does not release land in a timely fashion and bases its land valuation on how much previous parcels of land sold for.’
‘When asked what impact a more regular land release would have on housing prices in Fort McMurray, the sponsors were emphatic that it would not result in a crash. The idea would be to stabilize housing prices until prices in the rest of Alberta catch up.’
‘No developer is going to build more houses than it can sell, said Bryan Lutes, President and CEO of the Wood Buffalo Housing and Development Corporation and board member of the Chamber of Commerce. “It’s been a bit of a red herring here for years that you flood the market with land and you drive the prices backwards, and everyone is going to fail.”
From above:
‘Sturgis city commissioners voted Wednesday to offer a package of lots to developers who are willing to bid a minimum $5,000 per lot. Any remaining unsold lots would be available for $5,000…Some current homeowners in the subdivision have objected, saying they paid market prices for their lots a decade ago. But some commissioners argued that the market has changed in the interim, claiming the lots have generated little interest at costs of about $20,000.’
I was listening to Las Vegas radio recently and they were going on about how they are “landlocked”.
‘In a sign that abandonded homes still blight Southern Nevada neighborhoods, Las Vegas has a larger share of vacant houses than most U.S. cities and a bigger percentage of homes whose debt-laden owners have bolted, a new report says. The Las Vegas area has 16,752 vacant homes, or 2.6 percent of all residential properties in the valley. Nationally, 1.8 percent of homes are empty, according to RealtyTrac.’
‘About 12.5 percent of empty homes in Southern Nevada also are underwater, meaning the mortgage debt outweighs the home’s value. That’s more than double the U.S. rate of 6.2 percent.’
‘Additionally, 9.3 percent of local homes in the foreclosure process — but not yet bank-owned — are vacant, according to RealtyTrac, which calls these properties “zombie” foreclosures. The rate nationally is 5 percent.’
‘A few months ago, Greater Las Vegas Association of Realtors president Keith Lynam said there are “too many abandoned homes” in the valley, but there are signs that “banks may finally be doing more to address this issue.”
‘Lenders have been ramping up foreclosures this year in Las Vegas, repossessing homes that in many cases likely have been in default — and possibly empty and in disrepair — for a long time. It’s unclear whether banks will quickly put them all up for sale — a flood of listings could push down prices — or even spruce them all up before trying to unload the properties. But the rising repos could lead to long-empty homes finally being sold and occupied again.’
‘Meanwhile, despite RealtyTrac’s findings, several cities are worse off than Las Vegas.’
‘A few months ago, Greater Las Vegas Association of Realtors president Keith Lynam said there are “too many abandoned homes” in the valley, but there are signs that “banks may finally be doing more to address this issue.”
Do banks that loaned the money on these abandoned homes have any legal obligation to act, or is it purely a matter of strategic discretion?
“legal obligation”
You mean like accounting rules? Haven’t they been suspended for quite some time?
$300,000, 100,000, 20,000 or 5,000. It all seems kinda arbitrary when you consider we have to finance this land for many years, with interest and that there is a SHORTAGE! and how much income people are devoting to housing these days.
‘City Manager Michael Hughes estimates the city could realize more than $100,000 annually in tax and utility revenue if $150,000 homes were built on all the available lots. At that rate, he said, the city could recoup its infrastructure investment in about five years’
Well Mike, I’ll take that into consideration. But I’m leaning toward a $25,000 house on that $5,000 lot that no one will buy.
Do banks that loaned the money on these abandoned homes have any legal obligation to act,
The banks do have a legal obligation to their shareholders, to maximize shareholder value. In other words, they are obligated to behave as they have been, dragging their feet so that their servicing revenues are prolonged.
‘The Phoenix-Tucson market once again changed most dramatically, climbing 5 points on the 1-to-10 scale from a 2 to a 7. This year-over-year increase is a sign of buyer demand, which corresponds to new-home demand mojo. In September 2014, Cantor reported that builders were “in wait-and-see mode” to determine if they had enough buyer demand to justify their future pipeline. This year, builders are still waiting to pull the trigger, but construction constraints make builders wonder if the lots they buy will come out of the ground when they expect.’
‘Demand for new lots also increased in the Triad market, from a 3 to a 7, and in the Reno market. Supply in both markets is healthy (and high in the Triad), but demand scores remain elevated because of prevailing price levels.’
‘According to Jay Colvin, Metrostudy’s regional director of the Triad market, “the majority of vacant lots are owned by banks that cannot afford to sell the assets at distressed prices.”
But is what they are doing actually legal? I can think of all kinds of ways to maximize the potential value of my household income, many of them illegal.
But is what they are doing actually legal?
I can’t think of any manner in which what they are doing is illegal—speaking for the banks, that is.
The Trustee of the various MBS trusts, now there is where I think we could readily discover some illegal activity. In theory, the Trustee owes a fiduciary duty to the beneficiaries of the trust (e.g. owners of the MBS). And by allowing the large banks to maximize their revenue streams at the direct disadvantage of the beneficiaries—that smacks of a complete disregard for that fiduciary duty.
The first link takes me to the WordPress administrator’s log-in.
The quote seems familiar.
Thanks for letting me know. I’ll correct it shortly.
WordPress administrator’s log-in ??
Yes that happened to me also…
‘Despite an improving job market, more millennials are moving back home with their parents – and staying longer. A third of 18- to 34-year-olds are living with their families — more than during the Great Recession, according to a recent analysis from the Pew Research Center.’
‘Yahoo Finance spoke with some 20-somethings and their parents to hear what they had to say.’
‘It’s nearly impossible to live a comfortable lifestyle when you’re drowning in student loan debt. The most recent class graduated with the most debt in history – an average of $35,051. And once you have your college diploma in hand, you only have six months before you have to start paying it back.’
‘While all the millennials we interviewed said they were able to find a job after graduating, every one of them felt financially unprepared to live on their own because of their education debt.’
We have a 20-something child who is half-in, half-out depending on the day of the week.
Recall the recent article on Stockton, CA and lowering permit fees so the thousand vacant lots might have houses built on them?
‘I made a visit to Stockton, California the other day and came across a jarring sight: an actual shantytown, here in America.’
‘After I got back home I did a search and found this report on a local Fox News affiliate (includes video of the shantytown) from July 10 of this year. It includes this quote: “People don’t get moved out they’ll sort of set up shop for awhile,” Jon Mendelson, the Associate Director with Central Valley Housing told FOX40. The Central Valley Housing Organization said a lack of shelters and support programs may be contributing to these semi-permanent communities.’
“Well the tents and shantytowns are certainly not a permanent solution,” Mendelson claimed. The organization said a more viable option would be to provide housing and rehabilitation programs. “It includes just basic life skills and support that a lot of folks on the streets don’t have right now,” Mendelson told us.’
‘They want to teach these people “basic life skills”? I’d say the ability to assemble your own shelter (if crude) is a basic life skill. These people don’t need social services, they need a f****** revolution in government, as do we all. The Banksters that have commandeered our government created this f****** disgrace.’
That article would have been equally convincing without the inclusions of racial-epitaph-derived slang…
One very big reason government loves high house prices is that high house prices are a stealth tax, due to higher property taxes. People see their eye-popping house valuations, and are delighted. The actual result for a housing consumer from a doubling of house prices is a larger tax burden.
I think the “wealth effect” is a bunch of nonsense. You can’t eat equity.
Oh, sure, you can put the house up as collateral and take out a loan. But you have to pay it back. With interest.
We know very well in rural NY what happens in a Depression when you have a bloated government. House prices go down, but the tax rate goes up.
+1 remember tier 3 pensions?
One very big reason government loves high house prices is that high house prices are a stealth tax, due to higher property taxes. People see their eye-popping house valuations, and are delighted. The actual result for a housing consumer from a doubling of house prices is a larger tax burden.
Got TABOR?
I do not know quite what to make of our local housing market (Palm Beach County, FL). Miami is tanking and the market here has been just strange. It got frenzied during the second quarter of the year, with construction, sales volumes and prices, but particularly volumes. Then the volume went down a little in August, and maybe more in September. The prices dropped a little between August and September. Construction has been slowing down since July. I think they know the bubble has popped and are trying to control the deflation. I can usually tell some of the trends by looking on craigslist, but that has been taken over by realtors. I mean, they are flooding it.
I am happy to stay in my cheap rental for now, but will be watching over the next months to see how this goes. It is snowbird season and it is off to a slow start.
‘Rachelle Starnes, a Royal LePage realtor, is trying to sell her own luxury home and has listed it for $2.25 million, even though ‘it should be about 2.8.’
How in the heck does a UHS get a 2 million Canadian-peso house?
‘it should be about 2.8′
Gosh Rachelle, your act of charity is heart-warming. Your neighbors are taking half-off haircuts and there you are just giving $500k to the lucky buyer.
Your neighbors are taking half-off haircuts and there you are just giving $500k to the lucky buyer.
With her sense of entitlement combined with over-optimism, I bet you she will ride that sucker all the way down until it is underwater.
“There’s money in muck.”
This should be Albert a’s motto.
‘Between the Chinese government policy and the policy here…a sledgehammer has been applied to that gopher. It has been well and truly wacked. It really has turned into a buyers market at the moment just because of the speed as which the Chinese have come out of the market.’
Wake me up when the California state government decides to wack the Chinese gophers.
fear of missing out got you down in the dumps this weekend?
Nope…having a great weekend so far, bereft of yard work, as always!
Is buying a home around Boston worth it anymore?
Purchasing a place used to make sense. Now, we compete so fiercely, and pay so much, for so little, some buyers are afraid they’re making a bad call.
https://www.bostonglobe.com/magazine/2015/10/31/buying-home-around-boston-worth-anymore/S2iExOEiEEbXZwejYvPcCP/story.html#comments
time for next years predictions
I’m calling down 2% for residential
that’s all folks
Wouldn’t a 2% drop in price during a monumental bubble, cause major problems? I mean, they need this to keep going up for it to work, right? And housing is not like stocks, where you can buy the dip.
Arlington, TX Housing Craters; Prices Fall 6% YoY
http://www.movoto.com/arlington-tx/market-trends/
Where do you get a price reduction? The link you posted shows median home prices have increased 12%, from $199,900 to $224,848 in Arlington. Am I missing something?
Here’s another one of those “firm hands”.
‘If police, firemen and teachers can’t afford to buy a home in metro Phoenix, then the region has a big problem. That’s why Valley government and civic leaders expanded a popular mortgage down-payment program to help these workers this week. Many teachers and first responders can now get a 5-percent grant to put down on a Phoenix-area home.’
‘The help comes through the Home in Five Advantage program. It has already helped more than 7,600 people with low to moderate incomes buy Valley houses since 2012. Koran Hardimon was approved and able to buy a central Phoenix home. “It helped me clean up my credit and buy before prices climb higher,’ Hardimon told me.“
‘Hardimon, who is a diversity manager for Intel, was able to get 4 percent of his home’s $285,000 cost for a down payment and some help with closing fees. The program previously only helped military homebuyers with a 5-percent down payment.’
285k for a house in central Phoenix…
If u cant save up 3% down for an FHA mortgage u dont belong buying a house. Technically renting from the bank anyway.
“If police, firemen and teachers can’t afford to buy a home in metro Phoenix, then the region has a big problem.”
Why don’t they raise their wages rather than buy homes for select groups?
‘buy before prices climb higher’
His heart is in the right place, profit!
Gotta love this logic: “This isn’t a taxpayer-backed program: Bonds are sold to investors and lenders to provide the aid to homeowners.”
So the taxpayers will also get to pay the bond holders a coupon on top of the principal? Hehe. Real Journalism.
“Borrowers must have a FICO or credit score of at least 640.”
Governments should not have anyone on their payroll with a 640 fico score. Public employees should be held to a higher standard.
My comment is that if you give money to people to buy the house that they can not afford it drives up the prices of other property so that more people can not afford to buy a home and need governmental assistance to buy a home
Do they really think that if they give them the 5% down payment they can afford the house they are buying?
‘Narayana Kocherlakota, the soon-retiring president of the Minneapolis Federal Reserve Bank, certainly has brought distinctive ideas to U.S. monetary policy making. As evidence, consider that after the September Federal Open Market Committee meeting, Fed Chairwoman Janet Yellen felt compelled to deny that the panel had given serious consideration to pushing interest rates into negative territory. She didn’t cite Kocherlakota by name, but everyone who follows this knows he has been the only advocate of such a move among committee members.’
‘And indeed in speeches in Helena last May and Mankato on Oct. 8, Kocherlakota advocated substantially more easing. So even though it’s unlikely to happen, Kocherlakota’s idea provides us with a real teaching moment. Just what would negative interest rates entail?’
‘If the inflation rate is higher than a nominal interest rate, then one has negative real rates. These are not uncommon. The Fed funds rate, the one for overnight loans between banks that is the targeted indicator for Fed policy, has been around 0.25 percent for six years now. Consumer inflation, though low, has averaged 1.6 percent per year over that time. So the real overnight interest rate has been about a negative 1.35 percent.’
‘Kocherlakota certainly has emphasized, especially in his Oct. 8 talk, that actual consumer inflation is running well below the Fed’s own target of 2 percent. That gives it room for further monetary expansion. And hitting that target rather than the actual level of 0.3 percent would lower the real interest rate on all existing loans. It would also make the short-term rates directly administered by the Fed more sharply negative in inflation-adjusted terms.’
‘One could go an additional step and make some nominal rates negative. Instead of paying banks interest on reserves, or deposits not loaned out, that banks keep with the Fed, it could levy a fee on them. The stimulus here is that banks might begin lending more freely, thus giving consumers more cash to spend and businesses more money to buy new equipment, thus spurring overall demand for goods and services.’
‘However, as in many other things, there is an element of diminishing returns to monetary easing. The positive effects of initial lowering in a recession may be great, but over some range, as nominal and real interest rates get lower and lower or become negative, the additional spurring of employment and output shrinks. Unfortunately, events of the past eight years show how weak our understanding of the macro economy still is.’
‘Also, Kocherlakota and other advocates of even looser money, including Nobelists Paul Krugman and Joseph Stiglitz, focus almost exclusively on consumer prices and ignore the prices of assets like real estate and stocks. As a farmland owner, perhaps I focus too much on this factor. But it seems clear that while consumer inflation remains in check, farmland, some urban housing and the stock market all contain some degree of a Fed-induced price bubble.’
‘actual consumer inflation is running well below the Fed’s own target of 2 percent’
From the link:
‘When economist Milton Friedman and former Fed chair Ben Bernanke talked figuratively of the possibility of dropping money from helicopters to stave off deflation in a dire crisis, this is what they had in mind. Create enough money, their argument went, interest rates will fall and prices must rise.’
I’ve mentioned before that in the 1990’s I watched as money was created and interest rates went lower and lower that inflation fell. If these guys acted more like scientists, they would be forced to note that what they are doing is pouring water on a hill, seeing it run upward and deciding the answer is to pour even more water.
‘That gives it room for further monetary expansion’
Interest rates have been moving lower for 30 years. Incomes have been flat or lower the entire time. This has been proven undeniably false:
‘Create enough money, their argument went, interest rates will fall and prices must rise’
What you do get is this:
‘it seems clear that while consumer inflation remains in check, farmland, some urban housing and the stock market all contain some degree of a Fed-induced price bubble’
Some force or forces have broken the money creation, lower rates, higher prices concept. (I suspect it has something to do with globalization and over-capacity). These central banks are operating in a completely ass-backward model and they don’t seem to have the capacity to acknowledge it.
‘These days DiMartino Booth is continuing to rail against the Fed’s cheap-money policy, as well as the institution itself. (It’s opaque and ‘bloated,’ she says, with ‘delusional’ leadership.)’
‘The Federal Reserve’s “Sentiment Analysis And Social Media Monitoring Solution Request for Proposal” was posted on Scribd. The solution to “continuously monitor conversations” must be able to “gather data from the primary social media platforms - Facebook, Twitter, Blogs, Forums and YouTube.” It must also “provide real-time monitoring of relevant conversations” and “aggregate data from various media outlets such as: CNN, WSJ, Factiva etc.” It should “provide sentiment analysis (positive, negative or neutral) around key conversational topics” as well as “handle crisis situations.” And after the sentiment is determined, “the solution should provide an alerting mechanism that automatically sends out reports or notifications based a predefined trigger.” It is also supposed to “identify and reach out to key bloggers and influencers” while monitoring billions of conversations.’
Read it again Janet; bloated and delusional.
I wish these folks who de facto advocate bubbles would have an open discussion about the costs of bubbles, not just the benefits.
‘It is now cheaper to live in a luxury hotel than it is to rent an upmarket home in some parts of the capital, according to the latest study. An analysis by travel website lastminute.com has found that across central London it could be possible to save money on luxury accommodation by packing up and moving to a hotel.’
‘A luxury studio apartment in Shoreditch would set renters back £666 per week, but a week’s stay in a modern, four-star hotel in the area comes to just £420 - a saving of £246.’
‘And in the City a luxury studio flat would cost on average around £848 per week, but a stay at one of the website’s “top secret” hotels there would come in at just £601 for the week - a saving of almost £250.’
‘The savings hotel accommodation could offer to renters are greater than ever before, with central London rents increasing by seven per cent over the last year, while the cost of staying in five star hotels in the capital has dropped by almost five per cent.’
‘And that’s without taking into account the savings made on bills, council tax, internet - and possibly even a hot breakfast.’
“Way on down south,
Way on down south,
London town”
Professor Bear, what do you think of the San Diego downtown real estate market? I am constantly amazed at how many people are willing to pay $500k for a small 1BR/1BA! Many of these units also have $700 or $800/month HOAs to boot!
“Many of these units also have $700 or $800/month HOAs to boot!”
Don’t forget the concierge’s charge for opening the curtains and windows a bit and freshening-up the place with a Spring bouquet a couple of hours prior to your overnight visit.
Photograph: Getty Images/Time & Life Pictures Creative
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Sunday 1 November 2015 20.00 GMT
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The 1st of October came and went without financial armageddon. Veteran forecaster Martin Armstrong, who accurately predicted the 1987 crash, used the same model to suggest that 1 October would be a major turning point for global markets. Some investors even put bets on it. But the passing of the predicted global crash is only good news to a point. Many indicators in global finance are pointing downwards – and some even think the crash has begun.
Let’s assemble the evidence. First, the unsustainable debt. Since 2007, the pile of debt in the world has grown by $57tn (£37tn). That’s a compound annual growth rate of 5.3%, significantly beating GDP. Debts have doubled in the so-called emerging markets, while rising by just over a third in the developed world.
John Maynard Keynes once wrote that money is a “link to the future” – meaning that what we do with money is a signal of what we think is going to happen in the future. What we’ve done with credit since the global crisis of 2008 is expand it faster than the economy – which can only be done rationally if we think the future is going to be much richer than the present.
http://www.theguardian.com/commentisfree/2015/nov/01/financial-armageddon-crash-warning-signs