The Housing Bubble

It’s Friday desk clearing time for this blogger. “Developer Claudio Guincher is the head of Bellevue-based Continental Properties, which has been developing condos and apartments in the Puget Sound region for decades. Currently, the company is developing a 117-unit condo project, the Vik, in Ballard. At Vik, 88 units have sold over the last 18 months. Guincher said that’s not bad, but noted it doesn’t hold a candle to past sales volumes. Until now, sales have been ‘very tepid,’ said Guincher. ‘I still feel it’s a bit of a shallow market,’ he said.”

“Maryland had the highest foreclosure rate in the United States in October. A total of 5,126 properties in Maryland had a foreclosure in October, up 100 percent from September, said RealtyTrac. Maryland Association of Realtors president Bonnie Casper said that Maryland’s lengthy foreclosure process has an impact on the final figures. Maryland lags behind other states in dispatching foreclosures because the properties were so slowly processed through the courts, she said.”

“Casper said the good news is that home values have gone up, resulting in fewer short sales and foreclosures. But in some areas of the state foreclosures are still a problem. ‘There are a sprinkling of foreclosures in areas you wouldn’t expect,’ she said. Nancy Allen, president of the Pen-Mar Association of Realtors in Washington County, said to help homeowners alleviate bank repossessions, the business climate in the county needs to change. ‘We need to encourage businesses with higher paying jobs to locate to Washington County and offer incentives for those businesses to locate here over neighboring states,’ she said. ‘That is our solution in a nutshell.’”

“In February, we told you the city of West Palm Beach owns dozens of vacant lots and abandoned and boarded up houses with an assessed value of about $25 million dollars. We’ve learned the city of West Palm Beach is preparing a new plan to dispose of some of them. ‘What we really want to do is dispose of them. The city doesn’t want to be in the business of property management,’ said Armando Fana, director of the West Palm Beach Dept. of Housing and Community Development.”

“Fana says for the first time the city of West Palm Beach will literally give away some of these places to non-profit groups like Habitat for Humanity or the Lord’s Place, that will be required to put a house there within a set period of time. Some lots or abandoned houses will be sold to people who want to build their own house, or investors. Most empy lots will go for $5000 to $10,000. Some have thousands of dollars of liens on them that will have to be paid first. ‘Why do you think this is realistic, why would someone take one of these lots if they have to pay a huge lien?’ we asked Fana ‘Well, the ones that have liens, I think it is gonna be a real challenge. The city may have to look at other alternatives such as paying off part of the liens,’ Fana said.”

“It’s getting easier to find an apartment in Minot these days amid a slowdown in the oil industry. The city’s vacancy rate has risen from 4.9 percent in April to 10.8 percent in October, according to the Magic City Apartment Association. Magic City Apartment Association VP Justin Hammer said numerous units are coming into the market at the same time as a downturn in the oil industry. ‘That, obviously, takes time to absorb,’ he told the Minot Daily News.”

“Some property companies are even offering special deals to attract renters, like free rent for a month or free TVs. ‘It’s forcing us to focus on our customer service,’ Hammer said.”

“Canadians used to buy Arizona homes in record numbers, but not any more. Home sales to Canadians are down 50 percent this year. Valley real estate expert Diane Brennan, who is from Canada, said that many Canadians who currently own property have decided to sell and cash in on the exchange rate. Another problem is the price of oil. ‘Alberta is an oil-rich province in Canada,’ said Valley Realtor Laurie Lavine. ‘We’ve had many Albertans buying property, but that is when oil was $100 -$90 a barrel, but with it being at $40 right now, it’s meant a lot of layoffs and job uncertainty. People are holding off on making major purchases.’”

“Canadians households have become so financially stretched and hooked on debt to get by that, in just the past year, more than a third of us have found ourselves covering expenses by running up credit lines or credit cards, or even selling off investments and hitting up family members for much-needed cash. That’s according to a new Manulife Bank survey, which also found that 14 per cent of those already stuck in a hole of debt have had to turn to more desperate measures in the past year — liquidating portions of their RRSPs or turning to high-interest payday lenders.”

“‘It does appear there are a lot of people living on the edge,’ said Rick Lunny, chief executive of Manulife Bank. The blame, he said, appears in part to belong to the high price of houses in Canada’s major markets, which is causing mortgage payments to take up an ever-larger piece of family income. And with the possibility of interest rate hikes, after years of historically cheap borrowing costs, there may soon be more people having to resort to more desperate measures. ‘It is concerning,’ Lunny said.”

“Sydney houses now cost 12 times the annual income, up from four times when Gough Whitlam was dismissed. As many first time buyers turn to the bank of mum and dad to top up their deposits, a new report ‘Parental guidance not recommended’ warns Australians are being caught up in a classic ‘Ponzi scheme.’ ‘In reality, many parents – the Baby Boomer cohort – are asset-rich but income-poor. The blunt fact is few parents have enough savings and other liquid assets on hand to meet their legal obligations without selling their home if their children default,’ the LF Economics report warns.”

“Sales of land for residential use in 40 major cities in China rose to 37.8 billion yuan last week, up 157 percent from the previous week, according to China Index Academy, a property research organization. Meanwhile, there remains great pressure to destock. China’s unsold homes hit a record 686.3 million square meters at the end of October, up 17.8 percent from a year earlier, official figures show. In first-tier cities, for every new home sold in October, there were nine unsold homes, and the ratio went up to 12.2 and 18.9 for second- and third-tier cities respectively, according to E-house China R&D Institute. ‘The oversupply in real estate is a structural problem, with most inventories built up in lower-tier cities,’ said Huang Bin, an analyst with property research center CRIC.”

“‘Right now the dialogue in the market is that China is the source of all of our problems and is harmful to your portfolio,’ says Mark Headley, chairman of the board of directors at Matthews Asia, a San Francisco-based Asia fund manager with around $23 billion in assets under management. ‘If you believe that, you’re not going to invest in China. And many people believe. It’s been steady outflow for our mutual funds for years now,’ Headley told FORBES. ‘There are a lot of problems in China…and it’s freaking people out.’”

“Here’s the latest fun house mirror trick being employed by some of the 22 provinces. Hurting for revenue on account off the economic slowdown, they are asking developers buy land now or it ‘won’t be available later.’ In short, they are selling land reserves to construction companies because they need cash, even though developers aren’t in any hurry to build.”

“Craig Botham, an emerging markets economist with Schroders in London, was in mainland China in late October, visiting private and state-owned factories, and talking with governments and investors. He says some of the local governments, hurting for money as local industry sales recoil, are forcing a now or never policy on developers in a sort of get-rich quick scheme that’s bound to backfire. ‘It’s at a point now where the state-owned enterprises are paying workers who aren’t doing anything,’ he says. ‘You go into the factories of some of these SOEs and nothing is going on. Others are producing more than they need.’”

“A wonkish TV show on Israel’s economy has struck a nerve. About one in eight Israelis tuned in to the three-part Silver Platter program, testimony to the depth of the discontent with the economy. The show’s main focus — the evils of concentrating too much financial power in a small number of hands — is a theme Israelis can warm to. What the show’s creators want to do is rekindle the activism that sent hundreds of thousands of Israelis into the streets in the summer of 2011, pressuring the government to bring down prices.”

“Omer Moav, an economics professor at the Interdisciplinary Center Herzliya near Tel Aviv, said the program was riddled with inaccuracies, including its suggestion that low interest rates were solely to blame for the surge in housing prices. ‘People are unhappy for good reasons, we have a government that basically does nothing,’ Moav said. ‘But blaming the housing bubble on the central bank is just not sound economics.’”

“There’s a lot of ‘Oh, snap’ and high-fiving on the internet about Janet Yellen’s comeback to Ralph Nader this week. Let’s remember here that Nader, whom I’ve encountered flying coach and eating a cold sandwich, has dedicated his life to defending ordinary consumers. Let’s also remember that Janet Yellen is in charge of an incredibly powerful, secretive government institution that used public money to protect super-wealthy U.S. bankers seven years ago while millions of Americans were ruined or beggared by the reckless pump-and-dump schemes Wall Street had been running.”

“What is important, and largely not discussed, is the point Nader was making: that ultra-low interest rates have hurt retirees and savers, not just in America, but in every Western nation that used cheap money to grease the financial system when it was about to seize up. Still, you’d think that it’s probably time, this many years after the frantic, frightening autumn of 2008, to consider whether the wealth transfer experiment should continue.”

“Especially, as Nader wrote so caustically, when banks, which borrow from the Fed for almost nothing, proceed to gouge U.S. students, who carry debt of $1.3 trillion, with rates of between six and nine per cent. Or when certain credit card companies and payday loan outfits effectively charge loan shark-level vig. But Yellen, and Bank of Canada governor Stephen Poloz, may now be stuck in a situation of their own making. Canadian and American consumers are now addicted to cheap money. A serious rise, a point or two, could puncture housing markets, especially in some Canadian cities, where low interest rates helped push prices into the ionosphere and beyond.”

“Hundreds of thousands of Canadian households are stretched, some so thin they’d be unable to cope with a rise of one per cent, let alone a return to normal levels. Stock markets, too, have floated upward on all that cheap money. There isn’t much doubt how they’d react to a spike in rates.”