January 15, 2016

How Quickly Real Estate Can Change

It’s Friday desk clearing time for this blogger. “Talk to the experts in Palm Beach or Naples or Fort Myers or even Punta Gorda, and you get variations on a theme. The theme is this: Home prices will continue to rise in 2016, wherever you are. It’s a seller’s market now, but in Florida a market for rational sellers, not proud sellers — for people who will do best by not expecting to get more than the market bears, says Denny Grimes, owner of Denny Grimes & Co, a southwest coast firm. ‘Every property sells now if it’s priced right, but I see some bubbles forming (in the region) with higher inventory — one problematic area in Collier County is near the heart of Naples, with a lot of tear-downs and people rebuilding.’”

“It’s problematic because some people are using ‘dartboard logic,’ he explains, a fact that could affect markets almost everywhere. ‘One seller put a home on the market for $2.7 million for a year. He had an offer at $2.6, turned it down, and went shopping for a new agent. Now he wants $3.4,’ Mr. Grimes says. ‘That’s called dartboard logic.’”

“The number of foreclosure petitions filed in Massachusetts spiked in November compared to the same month in 2014. According to the Warren Group’s data, foreclosure activity has increased year-over-year by double digits for each of the past 21 months. Marlborough lawyer John-Paul LaPré agrees banks are beginning to take action on many mortgages that previously fell into default during the nation’s housing crisis in 2007 and 2008. ‘I think it is a delayed backlog from that same crisis, absolutely,’ said LePré, who specializes in foreclosure defense and other civil litigation.”

“As an example, LaPré said he is assisting in one home foreclosure case in the region that began in 2009. He said the mortgage included an adjustable interest rate, which began increasing 30 days after the deal closed. One bank transferred the mortgage to another, which increased the homeowner’s monthly payments to more than $4,000, he said. LaPré said the bank moved to foreclose on the property and evict the owner, but was blocked by a federal judge, who reprimanded the bank for not following proper bankruptcy procedures. ‘We don’t have a trial date in sight,’ he said.”

“The market for homes priced over $2 million was stronger in the beginning of 2015, demand cooled with the financial markets and remains relatively weak as a result, according to the W. P. Carey School of Business at Arizona State University. ‘Demand at the higher end of the luxury market is the softest we’ve seen in a long time,’ said Michael Orr, director of the Center for Real Estate Theory and Practice. ‘I expect this weakness will continue as long as we experience uncertainty in the financial markets worldwide.’”

“From the days of heated bidding wars 20 months ago to now seeing houses sit idle with a ‘for sale’ sign on the front lawn — how quickly real estate can change. The white hot market in Calgary is clearly in the rearview mirror as homes take much longer to sell, buyers are hunting for bargains and some properties are taken off the market after few inquiries. Frank Hickey has seen the many ups and downs as head of the Concord Mortgage Group. One his clients had a property appraised at $2.5 million dollars two years ago. It’s now appraised at $1.6 million.”

“Prices could also fall as discounted properties start hitting the market as banks take over homes from people who couldn’t pay their debts. Albertans routinely have the highest debt loads in the country. The condo market is in particularly rough shape with sales down around 30 per cent and prices declining about five per cent, according to John Andrew, with the Queen’s University Real Estate Roundtable. ‘[The sales number] is a very, very dramatic drop,’ he said. ‘That 5 per cent decline in prices, I think that’s the tip of iceberg and we will see significant price drops in that market.’”

“The latest survey by Brazil’s Central Bank has this to say about the economy heading into the new year: it’s going to be worse than we thought a month ago. The housing market boom is over. The credit fueled real estate market is now dealing with higher levels of defaults and low demand for mortgages. According to Fitch, for every 100 housing units sold in high rise residential housing projects, 41 of them were returned back to the developer unpaid last year.”

“Malaysia could see a property bubble in 2016 with demand weakened by the slowing economy, an estate agent has warned. CH Williams Talhar & Wong is predicting flat demand for property in key cities, including the capital, Penang and Johor Baru. Foo Gee Jen, WTW’s managing director, expects high-rise residential and retail segments to be particularly challenged. There is an oversupply of premium apartments, with many ’shoebox’ units under 46 sq. meters sitting empty. Foo said developers will probably take at least a year to clear these units before they consider more building. Some 13,000 high-rise apartments are due for completion in 2017, adding to supply in a bearish market.”

“Plagued by weakening market sentiment, rising interest rates and a slowing economy, flat owners in Hong Kong are feeling compelled to slash prices to attract buyers, pushing secondary home prices down for four straight months. In one example, an owner of a three-bedroom unit at Nan Fung Sun Chuen in Quarry Bay sold his flat at HK$6.42 million after cutting the asking price by HK$1 million. The price is now back to levels seen in early 2014. Investment bank CLSA had forecast a 2 per cent price correction in the fourth quarter of 2015. Instead, prices tumbled 7.5 per cent during the quarter, according to CLSA calculations. ‘We expect the price correction to accelerate in the first quarter of 2016, driven by developers’ price cuts,’ the investment bank said in a report.”

“In the fourth quarter of 2015 developers had largely used non-price marketing strategies, such as direct offer of first mortgages or waiving of stamp duties to entice buyers. However, price reductions could become a feature of developers’ marketing plans this year. ‘With the price downtrend now so obvious, there is no longer incentive to hide price cut,’ CLSA said.”

“Capital flight from China may deal another blow to global financial markets, raising U.S. interest rates above where they would otherwise be at a sensitive time. Massive amounts of capital are leaving China, driven variously by fears of a slowdown, of a falling yuan and of a corruption crackdown, with some estimates putting the figure for 2015 at or above $1 trillion.”

“This is really simply the flip-side of the phenomenon of Chinese reserve accumulation over the last 15 years, a trend which arguably also drove U.S. interest rates too low, despite Fed efforts. That was one of the underlying causes of the U.S. housing bubble, and may also have contributed to the earlier dotcom bubble, as investors took on risk and borrowers found money too cheap not to borrow. ‘In my view, the downside risks relate mostly to the influence of the rest of the world on our economy,’ Atlanta Federal Reserve President Dennis Lockhart said on Monday. ‘Last week we saw a global sell-off in stock markets apparently triggered by data from China that fell short of expectations.’”

“Over the last few years, New York’s luxury housing market was propelled upward by a geyser of global wealth. Foreign billionaires, hiding discreetly behind impenetrable corporate structures, bought up the city’s most expensive condos, and developers began erecting 1,000-foot skyscrapers to cater to their demand. Now, however, the real-estate market is shifting. And just as in the original, the tale of two cities is not ending well for the rich folks. The latest blow came from the U.S. Treasury Department, which Wednesday announced new regulations meant to pierce the secrecy surrounding luxury real-estate transactions.”

“The federal regulators are apparently concerned that the opacity of such transactions could make them an ideal vehicle for money laundering. But the move sent a shock wave through the world of high-end real estate, where secrecy is not just considered respectable — it’s a key selling point. At One57, the first of the 57th Street developments, one unit recently resold for a $1 million loss. Sales have been sluggish at similarly positioned developments, forcing developers to do the unthinkable: offer price cuts.”

“‘I’ve been trying to figure this out amongst my colleagues, and we’ve come to the realization that this is more of a scare tactic,’ said Edward Mermelstein, a New York attorney who represents many Russian real-estate investors. ‘My feeling is there is an ulterior motive to some of this, and it’s very likely that there is a large group of individual investors that is being targeted, whether Chinese or Russian.’ He contends that the industry is already well-monitored by existing regulations and professional practices. ‘There has actually been a substantial slowdown in cash sales,’ he added. ‘It’s a little bit late in the game to do this.’”

“There is more to this new American urbanization wave than the return of the middle class, young upwardly mobile professionals and immigrants. In fact, they increasingly find themselves priced out of America’s largest cities. Instead, as has happened in London before, such cities are becoming playgrounds for the super-rich — and not only native ones. Foreigners are buying up high-end real estate in U.S. cities – and developers cater ever more directly to foreign buyers and investors.”

“But, like all easy money, this massive international money laundering operation comes with considerable risks attached. The selling prices of the average Manhattan apartment has now reached $1.1 million, an all-time high, surpassing the bubble years before the 2008 financial debacle. But New York is merely the tip of an iceberg. Miami, Los Angeles, San Francisco, Houston and, to a lesser extent, Washington, Chicago, Boston and other cities, are not very far behind.”

“Regional real estate bubbles are being inflated in many markets across the United States, even as home prices on average remain stable – and some regions are still depressed. New York is a prime candidate for a spectacular implosion. It is only a matter of time before disaster strikes overbuilt American urban centers, hitting developers and their lenders and burying ordinary people straining to pay their mortgages in overpriced markets.”

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Comment by Ben Jones
2016-01-15 03:23:13

That first article is more honest than we usually see:

‘Sellers who saw their property values tank five years ago might look at current conditions and assume that the market is booming says Mr. Thibault. That perception might make them too optimistic and they might want more now than the market can bear.

“My advice for sellers now is that 2016 is probably the right time to sell. We’re at a place in the market where things have kind of peaked for a while. For buyers, if they plan on getting in the market — and some may have gotten in a little late — now is the time. Because, fact: interest rates are going up. Fact: prices of new homes have gone up 50 percent in the last year in some cases because of materials, labor and optimism.”

‘Sometimes too much optimism. Realtors have a joke they tell about dartboard logic, Mr. Grimes says. “Question: How do you know a seller significantly overpriced their home? Answer: The neighbors agree with the asking price.”

‘Randy Thibault, owner of Land Solutions: “The main theme we see in 2016 is this: Perception sometimes is not reality. There is a perception of many that the market is on fire again, that we’ve recovered and we’re in a boom cycle. That’s partly true, but with a caveat: Be rational. There was so much hope for a market uptick in the last 36 months that when we saw double-digit per annum permit increases for multi- and single-family new homes ranging from as high as 20 to almost 60 percent, many decided that we could continue that pace.”

“Here’s the not-so-good news: That’s what we believed in 2003 to 2004 — that there was no limit. If you believe it will keep going up, that we’ll be back to the levels of 2005 in three or four years, that’s where trouble begins.”

Comment by Mafia Blocks
2016-01-15 04:03:33

“He contends that the industry is already well-monitored by existing regulations and professional practices.”

Now that’s funny. A market sector where every participant is involved in something questionable in every transaction with impunity isn’t professional or monitored.

Comment by Senior Housing Analyst
2016-01-15 04:15:26

Keller, TX Housing Market Collapses; Prices Crater 24% YoY As Sellers Slash Prices


Comment by Prime+1
2016-01-15 06:48:58

$375,000 to live essentially in the middle of nowhere sounds like the Dallas bubble is still going strong. Days are market is down so they found support at that new level.

Comment by Prime+1
2016-01-15 06:50:10

Days on market. Damn autocorrect.

Comment by Mafia Blocks
2016-01-15 06:54:28

It’s the old realtor trick of resetting DOM by relisting.

Inventory up 56%, prices down 24% and falling.

Comment by Ed G
2016-01-15 12:23:40

I had seen that, resetting/relisting. I thought it was sellers bouncing around RE agents figuring, “This lousy agent couldn’t get me my wildly overpriced number, so I’ll find another!” But resetting DOM makes sense. Tech savvy buyers see a high DOM on Redfin and figure; well there must be something wrong with this house!

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Comment by Mafia Blocks
2016-01-15 18:11:54


Comment by Ben Jones
2016-01-15 04:32:09

‘Demand at the higher end of the luxury market is the softest we’ve seen in a long time,’ said Michael Orr’

I’ve mentioned here not too long ago; I’ve listened to local UHS radio shows where they describe 2 milllion buck listings closing for 700k.

Comment by Ben Jones
2016-01-15 04:36:15

From the last link:

‘Foreigners are buying up high-end real estate in U.S. cities – and developers cater ever more directly to foreign buyers and investors. Multimillion-dollar properties are often bought for cash and transactions are executed through anonymous offshore shell companies. Even among known owners, there are plenty of crooks and shady characters. Meanwhile, no one has any idea how those who prefer to remain hidden made their money.’

‘No one cares, either. As long as the money is not related to Islamic terrorism, the U.S. government turns a blind eye to its provenance.’

‘New York City started this trend under former mayor Mike Bloomberg. Before he left office in 2013, he famously declared that he would be happy to see every one of his fellow billionaires move to New York.’

‘Two years ago, New York magazine published an exposé of the nation’s largest city, calling multimillion-dollar digs “stash pads” – after apartments that drug pushers rent to hold their merchandise.’

‘A year ago, a series of articles appeared in the New York Times, detailing how hard it is to identify who exactly the super-rich buying New York City apartments are.’

‘The few that the Times dug out made a nice rogue’s gallery, with misdeeds ranging from corruption and malfeasance to tax evasion and suspected links to organized crime.’

‘As to the damage which these keptocrats and criminals cause their native countries – be that China, Russia, India, Kazakhstan, Brazil, Colombia, Venezuela, Nigeria or any number of others – it is not America’s concern.’

‘Savor the irony: The U.S. Treasury goes hard after Americans doing shady things with their money abroad, but it welcomes other countries’ nationals doing the same thing in the United States itself!’

Comment by snake charmer
2016-01-15 10:15:26

“The federal regulators are apparently concerned that the opacity of such transactions could make them an ideal vehicle for money laundering.”

You don’t say! I’ve been writing that in this space for a decade. The entire developed world is competing to be the destination of choice for dirty money. As long as the right people get paid a commission, fee, tax, or bribe, it’s all good.

I’ve read anecdotally that the authorities don’t like Americans moving money abroad, period, even for legitimate motives.

Comment by Ben Jones
2016-01-15 10:28:19

It occurred to me this could be a system preservation effort. If too much money leaves China, how are they going to pay their bills? Aren’t they already selling treasuries and GSE bonds? Beware ye markets that were built on laundered Chinese money.

Comment by Professor Bear
2016-01-16 00:18:12

I’m shocked — SHOCKED! — that money laundering has been going on in high-end U.S. housing.

Comment by Ben Jones
2016-01-15 04:38:37

‘for every 100 housing units sold in high rise residential housing projects, 41 of them were returned back to the developer unpaid last year’

My banana offer for rios shack has expired.

Comment by Mafia Blocks
2016-01-15 05:26:27

A carton of American Marlboros is the going rate for a hillside shanty in the slums.

Comment by Blue Skye
2016-01-15 08:09:32

A banana just doesn’t go as far as it used to.

Comment by rj chicago
2016-01-15 09:14:34

But I thought it was pineapples for heaven’s sake!!!

Comment by Mafia Blocks
2016-01-15 09:30:41

And don’t forget the mangoos, Lolas favorite.

Comment by Jingle Male
2016-01-16 03:42:25

If only you could share something intelligent and useful! HA!

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Comment by Mafia Blocks
2016-01-16 05:54:12


Comment by snake charmer
2016-01-15 10:24:06

I’m curious where Rio’s place is. I’m reading a book on Rio de Janeiro right now. One section describes how many of the city’s upper-middle-class decamped for newer neighborhoods of gated communities west of the city, kind of reminiscent of what happened in Johannesburg, South Africa in the 1990s, when the money essentially relocated to a suburb named Sandton.

Comment by Mafia Blocks
2016-01-15 11:07:35

Somewhere in DC.

Comment by RioAmericanInBrasil
2016-01-15 11:32:33

I’m curious where Rio’s place is.

I’m in Zona Sul by the beach. It’s the most affluent part of Rio. (The Manhattan of Rio) Most people who left, left because they couldn’t afford here and still can’t. Those 41% apartments being returned to builders are in the middle of nowhere and hours from the business center in traffic. I’m in the business/tourist center and 20 min subway ride to the city center.

You guys are funny if you think this bothers me. I’ve said many times, my house is 100% paid for, has already paid for itself in rent and it’s to live in. Don’t cry for me Argentina. I’m golden!

(And I have my health) :)

Comment by snake charmer
2016-01-15 12:23:04

After I read that part of the book, I went to Google Maps street view and checked out Barra da Tijuca. The Google car didn’t go into the gated communities, but from a distance it looks like too much, too fast, almost like parts of China. And a commute like that, in Latin America, forget it. One of my in-laws, in Bogota, laughed when I asked him where his office was. Referring to his apartment, he said “right here,” because commuting had become impossible.

Another sadly amusing part: the authorities were curious as to the source of pollution in the fouled Carioca River, so they ran a small robotic camera up the drainage system. While pollution came from nearly everywhere upstream, some of the perpetrators were in Leblon, via illegal sewer connections.

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Comment by RioAmericanInBrasil
2016-01-15 13:03:05

some of the (sewage) perpetrators were in Leblon,

Leblon, It’s very nice. The Upper East Side of Rio. Gotta love Latin America!

Barra da Tijuca

It’s like China or parts of Miami/LA. It’s where you live when you can’t afford here or don’t like the city. But it’s nice and pretty good on safety in a lot of those gated communities and the beaches are awesome. It’s just way too far for me and you need a car for everything. There was hardly anything there till the 80s.

That area will get clobbered in a housing downturn much more than Zona Sul imo.

But they have an Applebees and it’s still full. :)

Comment by Mafia Blocks
2016-01-15 17:21:39

Lola no one here is in Brazil. Neither are you.

Comment by Jingle Male
2016-01-16 03:47:36

If only you could say something intelligent and useful! HA!

Comment by Mafia Blocks
2016-01-16 05:51:17

Lola…. Jingle_Fraud…. a distinction without a difference.

Comment by Ben Jones
2016-01-15 04:43:24

‘price reductions could become a feature of developers’ marketing plans this year. ‘With the price downtrend now so obvious, there is no longer incentive to hide price cut’

There’s something here for the “our prices will never fall” HBBers. This is Hong Kong, often the most expensive land market in the world and right now close if not there. They have limited land, true. Their economic prospects are among the highest anywhere. But they are approaching overbuilt. They are seriously overpriced. There aren’t any subprime loans, no ghosts of 2004 lurking around. They’ve got a bubble and it’s popped.

If Hong Kong can be overbuilt, any place can.

Comment by Ben Jones
2016-01-15 05:13:03

Here’s another one:

‘Oversupply causes Sydney rents to drop’

‘The decline in rents is another indicator of the cooling Sydney property market, which recorded its worst quarter in four years in the period ended Dec. 31, after home values doubled since 2008.’

‘New South Wales is in the middle of a building boom with a record 32,000 apartment starts in 2015, representing the fifth consecutive year that new construction increased, according to the Housing Industry Association.’

Sydney not so long ago joined the “world class” of super expensive housing markets coveted by “global investors”.

‘values doubled since 2008′

That line should have sent alarm bells off everywhere, but it didn’t.

Comment by Ben Jones
2016-01-15 05:08:08

‘Pity about the panic on stock markets — so what else is new? — but financial practitioners and observers should really get wise about the yuan. The fundamental point about the International Monetary Fund’s approval in November for the yuan to enter the special drawing right from Oct. 1 is that the Chinese currency should not, and will not, be pegged directly to the dollar.’

‘The writing has been on the wall for some time. It has been in straightforward English and not Mandarin. Clearly, if the Chinese authorities wish — as they certainly do — for their currency to become a reserve asset, then the yuan cannot be equivalent to the dollar. If it were, there would be no point in the currency entering the SDR.’

‘A move towards dollar depegging has been the worst-kept secret in Beijing for years.’

‘The international stock markets have had a torrid New Year opening — but it should have been fairly clear that they were heading for a correction. I remember a member of the European Central Bank executive board telling a small London dinner in April 2013 that equities in the German Dax were in bubble territory. Since then the German market (aided by the weak euro and the ECB’s asset purchases) has moved 20% higher.’

‘A report by the Official Monetary and Financial Institutions Forum on the yuan and the multi-currency reserve system stated in January 2013: “After six years of gradual appreciation against the dollar — amounting to 30% in nominal terms since 2005, as part of China’s modification of the currency peg — the renminbi no longer seems fundamentally undervalued against the dollar. For much of this period, markets treated the renminbi as a one-way bet. However, over the course of 2012 and 2013, repeated periods of slight weakness indicated that this view would have to change.”

‘As part of China’s catchup with the West, the Chinese state council, the People’s Bank and other agencies are learning the rudiments of running an international currency. The West needs to guard against hubris or arrogance. Pivotal moments in the history of reserve currencies backed by centuries of capitalist development — Britain’s departure from the gold standard in 1931, the U.S. break with gold in 1971, drastic U.S. monetary tightening after 1979 or Germany’s disruptive policies on the Deutsche mark in the European post-1990 currency upheavals — are hardly models of smooth management.’

‘All the same, Beijing’s assumption of reserve currency status is fraught with unique hazard. Never before has either a developing country or a Communist-run state won a seat at the top table of world money — and China is both.’

‘In the past 30 years, the world has seen a sizable increase in reserve holdings, far-reaching trade and investment globalization, the rise of emerging market economies, and the spread of financial markets linked by instant communications.’

‘Consequently, a far greater weight of global capital is jostling to find a home across a great variety of time zones in a much broader variety of instruments. Reaching a steady equilibrium will take time — and this is what the multi-currency reserve system is all about. The transition will not be orderly.’

‘Note: the evolution of the multi-currency system has been on OMFIF’s agenda since it was established in January 2010. One of the first analyses was by David Marsh in the Financial Times in August 1979.’

Comment by RioAmericanInBrasil
2016-01-15 11:41:33

Pity about the panic on stock markets — so what else is new? —

So true. And that’s a good point about houses and gold. Stocks, bonds, dollars, currencies can all go poof. What is the most valuable thing to own if paper assets go poof as a lot of are now? Historically houses and gold. That’s why I’m lucky or blessed some would say. I have some paper assets, gold and a paid off home.

I want to live in Brazil right now. If the Brazilian currency collapses (As I’ve seen it do 4 times the past 30 years) The best thing to own down here is a house and some gold. Check and check.

Some of you guys don’t see the big picture. You’re like the “how much a month” types. I try to see the big picture and living in a country like Brazil, the best thing you can do is pay off your home. :)

Comment by Ben Jones
2016-01-15 12:19:21

One person in Brazil doesn’t matter much. What happens to millions of people does. There was a bubble in real estate in the early 2000’s. It popped in several countries. The central banks and governments coordinated a previously unimaginable amount of money creation, which reinflated many bubbles and gave birth to new ones. Now it’s unwinding. Started with the commodities, started knocking down the BRIC’s and others. Now it’s washing into stocks, bonds, and currencies.

A recession worse than 2008 is coming


This was always the main concern, IMO. Too much correcting at once. To have so many assets, paper and otherwise, going up to nosebleed levels, at the same time, is something we’ve never seen. I don’t think house prices and rents are going to be the big subjects ahead. At this point, I hope it all turns out like a dandelion puff gently settling to the ground. But I got to tell you I don’t see how that happens.

Comment by RioAmericanInBrasil
2016-01-15 12:49:10

One person in Brazil doesn’t matter much. What happens to millions of people does.

True. And I’ve always tried to inform the HBB on the differences between the potential Brazil bubble that was building and the USA bubble that was bursting. And the HBB peanut gallery’s constant jealous pot-shots aside, (HA/Mafia/Cankles/Proxy, now JoshuaTree ignored) I think I’ve done that.

A new example: You say “what happens to millions (In Brazil) matters” which it does. And a big difference in Brazil from the USA if SHTF is that many more Brazilians than in the USA own their home outright than in the USA. Therefore, they have a kind of buffer that Americans won’t have. This buffer will temper some of the grief of economic damage more here than in the USA. Now this is just my opinion based on observation but I think it will bear out.

In Brazil, it will be the renters who lose their jobs who suffer the most whereas in the USA, it was the mortgage owners who suffered most.

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Comment by snake charmer
2016-01-15 15:41:28

Are confiscatory property taxes a possibility?

My thoughts about a Greater Depression are that the Third World may be buffered, not because of homeownership or other economic factors, but because expectations are lower, and there’s not as far to fall.

Comment by RioAmericanInBrasil
2016-01-15 16:14:24

Are confiscatory property taxes a possibility?

Yes. I doubt it but we can’t rule out anything, nor worry about everything. If it happens, we deal with it.

the Third World may be buffered, not because of homeownership or other economic factors, but because expectations are lower

Great point. A lot of time I when I write, I just lazily assume Americans know that part.

Even just on housing:
Brazilians live in extended families normally. A recession putting a few more under one roof won’t freak them out as much as it would Americans.

Comment by Ben Jones
2016-01-15 05:22:35

‘Zillow economist explains why L.V. housing market hasn’t fully rebounded’

‘According to Zillow, Southern Nevada has had the highest rate of underwater borrowers in the nation for 4 1/2 years. Zillow chief economist Svenja Gudell spoke with VEGAS INC this week about underwater homes, their impact on the market and how Las Vegas, unlike other cities, has throngs of residents who haven’t made a mortgage payment in years because banks, bogged down by foreclosure paperwork, aren’t targeting them.’

‘Are there other cities with underwater rates well above the national average, like Las Vegas?’

‘Chicago is at 20.6 percent. Detroit is still really high. Some of the Midwest cities are lagging behind. Areas of Ohio, for example, weren’t hit nearly as hard by the housing bust as Las Vegas, but negative-equity rates have been very stubborn in declining.’

‘What about other boom-and-bust cities?’

‘Phoenix is at 16.4 percent; Orlando, Fla., is a bit lower. Even Sacramento, which was hit incredibly hard, is now at 11.6 percent.’

‘Outside of a boom or bust year, what is a typical underwater rate for a city?’

‘It’s 2 to 3 percent, definitely less than 5 percent.’

‘Can you explain the “effective” negative-equity rate that Zillow tracks? Las Vegas’ is 41 percent.’

‘It’s the sum of people who are underwater and close to being underwater, or people who have less than 20 percent equity in their homes. You could be above water — for example, you bought a house with 5 percent down — but you’re considered effectively underwater. Most times, when people sell their home, you pay fees to real estate agents, movers, closing costs. You can find yourself very short of funds for another down-payment if you have less than 20 percent equity; it could deter some people from trying to sell.’

Another one to note for the house flipping HBBers:

‘what is a typical underwater rate for a city?’

‘It’s 2 to 3 percent’

It makes you wonder what would happen if prices started to fall, if there weren’t HARP ads on the radio and TV 24/7. If the GSE’s weren’t allowed to lose 7 billion bucks in a quarter and no one even notices.

Comment by Jingle Male
2016-01-16 08:35:23

Every new FHA loan with 3.5% down is considered under water. I an surprised the rate is not higher!

Comment by Ben Jones
2016-01-15 05:27:11

‘They don’t come much more bearish than Albert Edwards, strategist at Société Générale. He’s not had much nice to say about the global economy in years. In a research note published Wednesday, Edwards argued that ever since the last financial crisis, the global economy has been dependent on the Federal Reserve’s massive bond buying program to prop up equity prices and stimulate growth in emerging markets.’

“A commodity bubble and the resultant U.S. shale investment boom were all consequences of the Fed’s QE,” Edwards writes, referring to the U.S. central bank’s efforts to lower long-term interest rates. Now that the Fed has stopped buying bonds and has actually moved to raise rates, the artificial growth in asset prices that we’ve seen since the last financial crisis will come undone, according to Edwards. “The illusion of of prosperity is shattered as boom now turns to bust,” he writes.’

‘Edwards marshals the recent events in China as evidence that something is seriously wrong. He argues that Chinese policy makers are in an impossible bind. Their currency is actually overvalued, he argues. Nonetheless, too bold an attempt to devalue the yuan would lead wealthy Chinese to remove even more of their money from the economy, destabilizing the situation further.’

‘What’s more, the Chinese manufacturing sector, which has been over-investing in additional production for years now, has but one option: slash prices as it fights over a shrinking pie of global trade. And that’s going to lead to deflation. “The western manufacturing sector will choke under this imported deflationary tourniquet,” says Edwards.’

‘The end result of all of this will be another recession, followed by aggressive central bank action to fight falling equity prices and negative growth, according to this analysis. But with interest rates already so low and the Fed’s balance sheet already inflated from all the bonds it bought during its last stimulus efforts, there is little the central bank can do.’

Comment by Ben Jones
2016-01-15 05:39:26

‘The price for a barrel of bitumen, the tar-like oil sands that comes from Alberta, fell to just over $8 per barrel this week. That is not a typo. Bitumen traded at $8.35 per barrel on Tuesday.’

‘Heavy oil producers are now losing money on every single barrel that they sell, even from facilities that are already up and running. But some companies might stay online and lose money because shutting down carries its own trouble and costs. Shutting down can actually damage a reservoir, leaving a site with permanently lower output. As a result, production shut ins could actually be “extremely limited,” Martin King of Calgary-based First Energy Capital recently told an industry conference.’

dry cleaner effect

Comment by Mafia Blocks
2016-01-15 06:51:06

Better known as holding onto a melting ice cube.

Nobody knows how to chase a market down like dumb.borrowed.money and degenerate gamblers. Nobody.

Comment by Ben Jones
2016-01-15 05:46:12

Cramer: How I knew to buy before the big rebound

“The ones who sense that stocks are getting too cheap and change their view? They look like real winners, at least for the moment,” the “Mad Money” host said.’

13 hours ago

I’m disappointed with your gopro recommendation Jim. But it’s like the small print says, entertainment purposes only.

Comment by Ben Jones
2016-01-15 05:48:43

Shane Shack is going to sell chicken. Yes, chicken! Back up the truck!!

Comment by snake charmer
2016-01-15 10:29:05

Could we finally have moved beyond the buy-the-dips mood? I’m still amazed Cramer is still on the air. I watched his show one time and he was shouting, crawling under his desk, and generally engaging in histrionics. He was like a cartoon character. I thought “how can anyone take investment advice from someone like that?”

Comment by Mafia Blocks
2016-01-15 06:55:46

“Empire Fed Crashes At Fastest Pace Since Lehman”


Comment by Ben Jones
2016-01-15 08:28:31

Some lyrics that came to mind this morning:

in a sluggish economy
hits the land of the free
standing in unemployment lines
blame the government for hard times

we just get by
however we can
we all gotta duck
when the shit hits the fan

10 kids in a cadillac
stand in lines for welfare checks
let’s all leach off the state
gee! the money’s really great!

soup lines
free loaves of bread
5lb blocks of cheese
bags of groceries
social security
has run out on you and me
we do whatever we can
we all gotta duck when the shit hits the fan

Here’s the Repo Man version:


Comment by Ben Jones
2016-01-15 08:54:47

Where’s all the sad pandas today?

Comment by Mafia Blocks
2016-01-15 09:26:42

There was a herd of them in the bits bucket last nite. They all looked the same.


Comment by BigSky
2016-01-15 08:46:35

I would appreciate this group’s take on the following:

FORTUNE magazine 4 days ago:

U.S. Real Estate 25% to 60% Overvalued: Analyst

…Meanwhile, mortgage originations have remained flat for the past two years, and lenders are giving out fewer mortgages today then they were in 2012, when the housing recovery was just getting underway, according to data from the Mortgage Bankers Association.

In other words, it doesn’t look like irresponsible mortgage lending is inflating real estate prices beyond their fundamentals, but that doesn’t mean another form of capital won’t. That’s what housing analyst Marc Hanson has been arguing for sometime now. Housing prices, he contends, are about 25% to 60% above what the fundamentals of the U.S. economy can justify, but the market is being propped up by “unorthodox. . .incremental demand using unorthodox capital.”

This time around the unorthodox capital isn’t coming in the form of international investors piling money into the U.S. mortgage bond market, creating a doomsday machine that cranked out home loans with very little scrutiny, but from domestic institutional investors, folks buying second and third homes and serving as landlords, and foreign buyers stowing cash in American real estate.

Hanson makes his case that real estate is dangerously overpriced using simple mortgage math. He argues that the true value of a single-family housing market should be whatever price results from the average homeowner in a market putting 20% down and taking out no more mortgage debt than would result in a maximum debt-to-income ratio of 43%.

Comment by Blue Skye
2016-01-15 09:07:14

debt-to-income ratio of 43%.

So he is saying that the average house is worth about $20,000.

Comment by Mafia Blocks
2016-01-15 09:09:18

In nearly all case, housing prices far exceed reproduction cost even after a 50% price reduction. A 75% decline in some locations.

Comment by Ben Jones
2016-01-15 11:35:04


‘What if the next crisis isn’t just similar to the last one, but a word-for-word rip-off? That’s what a viewer of Quicken Loans’ latest ad for its new mortgage product, Rocket Mortgage, might just think. The tagline is, after all, “push button, get mortgage.”

‘The counterargument to this sort of analysis is that rent prices are so high across the country, justifying the high prices landlords are paying for single-family homes. “Well, that’s of course, unless, rents are in a bubble too,” writes Hanson. “I believe they are. It’s obvious in major metros. But, look at Phoenix, for example, where over 50% of households can’t afford the average rent on a two-bedroom apartment.”

‘But the fact that rents are expensive doesn’t necessarily mean that “rents are in a bubble.” In fact, it’s difficult to imagine what, exactly, a “rent bubble” would look like. If rents were really in a bubble, it wouldn’t make sense that household formations were up so much in recent months. There’s no justification for paying bubble prices for rents, since renters can’t gain from asset appreciation. A rational renter would double up with friends and family members and wait for those prices to come down.’

I wouldn’t say rents are a bubble. But rents have been manipulated up by the government, as I’ve documented here. This stupid apartment bubble is cracking now, as it already has in Sydney, BTW.

On this:

‘look at Phoenix, for example, where over 50% of households can’t afford the average rent on a two-bedroom apartment.’

‘Retail Sales in U.S. Decrease to End Weakest Year Since 2009′


We’re spending too much on housing and it’s bleeding the rest of the economy dry. It’s a recession you made Mel Watts, you and the rest of the bumblers in DC.

Comment by Rental Watch
2016-01-15 14:35:50

My perspective is more CA based than national, but I think there are generally similarities.

In 2005-2007, it was rare that a market was underpriced. Cheap AND freely available debt caused most markets to rise, from markets close to good jobs (SF Bay Area) all the way to historically agricultural markets (Central Valley).

Everywhere went up.

Today, we are seeing a much more split market. For example, the SF Bay Area is well over peak pricing, and peak rent. However, at the same time, inland markets are still way below peak.

As such, IMHO, when there is a correction in prices, it will hit some markets more than others. However, I stand by my prior comments–I expect any price correction to be minor until we see significant supply being added in any particular market.

Once pricing and excitement get to a point where there is lots of new development, watch out below.

Case and point…Houston.

Comment by Mafia Blocks
2016-01-15 18:15:13

“However, at the same time, inland markets are still way below peak.”

Nobody cares what prices are/were relative to “peak”.

Why is it everything you discuss is relative to fraudulent pricing?

Comment by Mafia Blocks
2016-01-15 09:38:14

Update: Dow Plummets 375 Points; Blows Hole Through 16000 Floor


Comment by michael
2016-01-15 14:52:07

The upcoming layoffs are going to do wonders for home prices…..

Comment by Mafia Blocks
2016-01-15 18:16:34

The layoffs already occurred.

Labor Force Participation Rate Plummets To 37 Year Low; Jobless Population Soars To Record High


Comment by Patrick
2016-01-15 18:48:07

Toronto new single family housing units just not selling. Not for the last four months.

New housing developments around Toronto are just not selling and some realtors haven’t sold a thing in four months.

Toronto developers with land available for development are deciding whether or not to go ahead this spring. Probably not.

As well, people with Florida properties want out. The Canadian dollar is too low and is making rental losses harder to cover. This desire has only started.

Polly - but still the downtown section is full of cranes building more condos ! Sales have slowed.

Comment by Ben Jones
2016-01-15 21:41:32

I hope this isn’t turning into a great depression thing:


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